FORM 10-K
(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR
[X] 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE
REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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: 1-14445
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HAVERTY FURNITURE COMPANIES, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 58-0281900
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
780 JOHNSON FERRY ROAD, SUITE 800, ATLANTA, 30342
GEORGIA
(Address of principal executive officers) (Zip Code)
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Registrant's telephone number, including area code: (404) 443-2900
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
COMMON STOCK ($1.00 PAR VALUE) NEW YORK STOCK EXCHANGE
CLASS A COMMON STOCK ($1.00 PAR VALUE)
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Securities registered pursuant to Section 12(g) of the Act: None
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. X
The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant as of February 29, 2000, was $166,460,035. 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 15, 2000, the number of shares outstanding of the registrant's two classes of $1.00 par value common stock were: Common Stock-16,020,011; Class A Common Stock-4,770,814.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's proxy statement dated March 21, 2000, for the 2000 annual meeting of stockholders are incorporated by reference herein in response to Item 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.
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. Examples of such statements in
this report include descriptions of our plans with respect to new store openings
and relocations, our plans to enter new markets and expectations relating to our
continuing growth. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from the
Company's historical experience and its present expectations or projections.
Management believes that these forward-looking statements are reasonable;
however, you should not place undue reliance on such statements. Such statements
speak only as of the date they are made and we undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
future events, new information or otherwise. The following are some of the
factors that could cause the Company's actual results to differ materially from
the expected results described in the Company's forward-looking statements: the
ability to maintain favorable arrangements and relationships with key suppliers
(including domestic and international sourcing); conditions affecting the
availability and affordability of retail real estate sites; the ability to
attract, train and retain highly qualified associates to staff corporate
positions, existing and new stores and distribution facilities; general economic
and financial market conditions, which affect consumer confidence and the
spending environment for big ticket items; competition in the retail furniture
industry, changes in laws and regulations, including changes in accounting
standards, tax statutes or regulations.
GENERAL
Haverty Furniture Companies, Inc. (the "Company" or "Havertys") is a full-service home furnishings retailer. The Company operates 103 showrooms in 14 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 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia 30342.
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 value and selection, advertising, and customer service. The
Company has made investments in technology to improve operating efficiencies and
in new retail stores. Havertys plans to continue to expand into new markets and
strengthen its position in its current market areas utilizing its existing
distribution infrastructure.
STORES
As of December 31, 1999, the Company operated 103 stores serving 68 cities in 14 states. Havertys has executed a program of remodeling and expanding showrooms and replacing older smaller stores in growth markets with new larger stores. Accordingly, the number of retail locations has increased by only 13 since
the year ended 1994, but total square footage has increased 45%. Havertys entered three new cities during 1999: Macon, Georgia; Monroe, Louisiana; and Hattiesburg, Mississippi. Additional new stores were opened in the Atlanta, Georgia and Birmingham, Alabama markets and a new replacement store was opened in Lexington, Kentucky. During 1999, Haverty also became a licensed operator of a La-Z-Boy retail store in Memphis, Tennessee. During 2000, the Company will open three newly constructed stores and an additional La-Z-Boy location in Memphis, Tennessee.
MERCHANDISING
The Company is able to tailor its merchandise presentation to the needs and tastes of local markets. Havertys offers many well-known brand names of furniture, such as Broyhill, Thomasville, Lane/Action, La-Z-Boy, and Clayton Marcus. The Company prefers to carry multiple lines of furniture in order to offer the consumer broad product choices at good values. These include many key furniture items and groups from well known, quality suppliers who have somewhat less consumer brand awareness. All five regional managers are 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. Management has avoided utilizing lower, promotional price-driven merchandise favored by many national chains, which management believes gives Havertys a unique position for a large retailer. The Company purchases approximately 64% of its merchandise from ten vendors and believes that adequate merchandise sources are available to the Company. Combined with the movement to regional merchandising and warehousing and the implementation of a centralized information system, this provides significant purchasing power with the Company's vendors.
Although it has only an estimated 1% national market share of the highly-fragmented furniture retailing market, Havertys is an important customer to the largest furniture manufacturers due to its consistent track record of profitable, controlled growth and reputable customer service.
In February 1998, the Company and Furniture Brands International ("Furniture Brands") announced a strategic alliance whereby the Company would allocate up to 50% of its retail square footage to the display of products supplied by Furniture Brands. Furniture Brands' lines include widely recognized brands such as Broyhill, Lane, and Thomasville. These lines accounted for approximately 50% and 30% of the retail square footage, excluding bedding display, in Havertys' stores at December 31, 1999 and 1998, respectively. Because of the alliance, the Company has received increased service support to each of its five regional or metropolitan area distribution centers and is allowed certain priorities in selecting new products.
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,
------------------------------
1999 1998 1997
----- ----- -----
Merchandise:
Living Room Furniture........................... 48.0% 48.5% 49.3%
Bedroom Furniture............................... 23.9 23.5 23.0
Dining Room Furniture........................... 12.5 11.9 11.6
Bedding......................................... 7.4 7.6 7.2
Accessories and Other (1)........................... 5.9 5.5 5.7
Credit Service Charges.............................. 2.3 3.0 3.2
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
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(1) Including delivery charges and product protection.
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 has three regional warehouses operating 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 metropolitan 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. Local market area warehouses are primarily used as prepping centers and cross-dock locations for local deliveries.
The distribution system currently in place will facilitate the implementation of additional distribution improvements. Havertys has implemented EDI and just-in-time delivery systems with its major vendors, and the Company uses a software system which allows management to forecast inventory requirements and reorder merchandise in an efficient manner. Havertys is implementing a new warehouse management system in its regional warehouses and in the Dallas, Texas and Atlanta, Georgia warehouses. This system is designed to increase productivity and expand the capabilities of the warehouse facilities.
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 certain 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 $186 million, before deducting reserves.
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), and 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 four to 12 months) as part of promotional campaigns. The financing program chosen most frequently by
the Company's customers is a 12 month, no interest and 12 equal payments promotion which represented approximately 59% of financed 1999 sales. The program which allows for deferred payment periods of up to 4 months and no interest accounted for approximately 28% of financed 1999 sales. The Company has not offered payment deferrals beyond six months although many competitor programs include deferrals and free interest for up to 18 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. 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 in part because such periods are not as long those offered by competitors. The amount financed under the Company's credit programs as a percent of net sales continued to decline in 1999 to 46% from 49% in 1998 as customers increased their usage of third party credit cards and cash. These combined factors resulted in an average interest yield of approximately 7.6% for 1999.
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), advertising 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 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 conventional furniture store chains in the United States, based on available industry data for 1998.
EMPLOYEES
As of December 31, 1999, the Company employed approximately 3,636 employees:
3,308 in individual retail store operations, 143 in its corporate offices, 78 in
its credit operations and 107 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............................ 79 Chairman of the Board since 1984. Chief
Executive Officer from 1955 to 1990.
President from 1955 to 1984. Director
since 1947.
John E. Slater, Jr........................ 65 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, from 1990 to 1992. Director
since 1983.
Dan C. Bryant............................. 57 Vice President since 1998 and Controller
since 1985.
Thomas P. Curran.......................... 47 Vice President, Advertising since 1987.
Dennis L. Fink............................ 48 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.
Rawson Haverty, Jr........................ 43 Senior Vice President, Real Estate and
Development since 1998. Vice President,
Real Estate and Insurance Division from
1992 to 1998. Director since 1992.
Jenny Hill Parker......................... 41 Treasurer since 1998 and Corporate
Secretary since 1997. Vice President,
Finance from 1996 to 1998 and financial
officer since 1994. Senior Manager at
KPMG Peat Marwick LLP from 1988 to 1994
and other positions within that firm
since 1981.
Clarence H. Smith......................... 49 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......................... 54 Senior Vice President, Marketing since
1994. Vice President, Merchandising, from
1990 to 1994. Director since May 1999.
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Rawson Haverty is the father of Rawson Haverty, Jr., and uncle of Clarence H. Smith and Clarence H. Ridley. Rawson Haverty, Jr. is the son of Rawson Haverty and the first cousin of Clarence H. Ridley and Clarence H. Smith. Clarence H. Smith is the nephew of Rawson Haverty and the first cousin of Clarence H. Ridley and Rawson Haverty, Jr. Clarence H. Ridley is the nephew of Rawson Haverty and first cousin of Clarence H. Smith and Rawson Haverty, Jr.
ITEM 2. PROPERTIES
The Company's executive and administrative offices are located at 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia. These leased facilities contain approximately 45,000 square feet of office space on two floors of a mid-rise office building. 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, 1999.
RETAIL MARKET AREA REGIONAL
LOCATIONS(C) WAREHOUSES WAREHOUSES
------------ ----------- ----------
Owned (a).................................. 51 10 3
Leased (b)................................. 52 15 0
--- -- --
Total.................................. 103 25 3
=== == ==
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(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 2018 plus renewal options.
(c) Of the retail locations, 26 have attached warehouse space.
In addition, as of December 31, 1999, the Company has entered into an agreement for the lease of one retail facility.
1999 1998 1997
-------- -------- --------
Retail square footage at December 31 (in thousands)....... 3,419 3,295 3,167
% Change in retail square footage......................... 3.8% 4.0% 7.0%
Annual Net Sales per Square Foot.......................... $ 189 $ 168 $ 158
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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 1999.
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 page 40 of the Company's annual report to stockholders for the year ended December 31, 1999, is incorporated herein by reference in response to this item.
ITEM 6. SELECTED FINANCIAL DATA
Selected 5-Year Financial Data on page 13 of the Company's annual report to stockholders for the year ended December 31, 1999, is incorporated herein by reference in response to this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 14 through 19 of the Company's annual report to stockholders for the year ended December 31, 1999, is incorporated herein by reference in response to this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 14 through 19, and contained in Note 7-Long-Term Debt and Capital Lease Obligations on pages 28 and 29 of the Company's annual report to stockholders for the year ended December 31, 1999, 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 20 through 38 of the Company's annual report to stockholders for the year ended December 31, 1999, are incorporated herein by reference.
Selected Quarterly Financial Data on page 37 of the Company's annual report to stockholders for the year ended December 31, 1999, is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information relating to directors of the Company contained on pages 6 through 8 of the Company's proxy statement for the 2000 annual meeting of stockholders, dated March 21, 2000, 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 19 of the Company's proxy statement for the 2000 annual meeting of stockholders, dated March 21, 2000, 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 and 3 and pages 6 through 8 of the Company's proxy statement for the 2000 annual meeting of stockholders, dated March 21, 2000, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information relating to certain relationships and related transactions contained on page 17 of the Company's proxy statement for the 1999 annual meeting of stockholders, dated March 21, 2000, is incorporated herein by reference.
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, 1999, are incorporated by reference in Item 8:
Consolidated Balance Sheets--December 31, 1999 and 1998
Consolidated Statements of Income--Fiscal Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity--Fiscal Years ended December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows--Fiscal Years ended December 31, 1999, 1998 and 1997
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 (denoted by an asterisk). Unless otherwise indicated, the exhibit number of documents incorporated by reference corresponds to the exhibit number in the referenced document. Exhibits 10.1 through 10.15 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 24, 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)
*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)
*3.2.1 -- 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)
*3.2.2 -- Amendment to By-Laws of Haverty Furniture Companies, Inc. as
amended on November 4, 1988. (10-Q for the quarter ended
March 31, 1989)
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
--------------------- ----------------------
*3.2.3 -- Amendment to By-laws of Haverty Furniture Companies, Inc. as
amended on October 30, 1998.
*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)
*4.2 -- Credit Agreements dated March 31, 1998, among Haverty
Furniture Companies, Inc., Havertys Credit Services, Inc.
and the Lenders Listed Therein, Agented by SunTrust Bank,
Atlanta. (10-Q for the quarter ended March 31, 1998)
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 agreement 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)
*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 and as
amended November 1, 1996 and as amended and restated
October 29, 1999.
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EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
--------------------- ----------------------
*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)
*10.10.1 -- Amendment No. One to the Supplemental Executive Retirement
Plan. (10-Q for quarter ended September 30, 1999)
*10.10.2 -- Amendment No. Two to the Supplemental Executive Retirement
Plan. (10-Q for quarter ended September 30, 1999)
*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 Names 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)
*10.14 -- Haverty Furniture Companies, Inc. 1998 Stock Option Plan,
effective as of December 18, 1997. (Registration Statement
on Form S-8, File No. 333-53215, Exhibit 10.1)
*10.15 -- Haverty Furniture Companies, Inc. Top Hat Mutual Fund Option
Plan, effective as of January 15, 1999. (10-K for the year
ended December 31, 1998)
13.1 -- Annual Report to Stockholders for the year ended December
31, 1999.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Ernst & Young LLP.
27 -- Financial Data Schedule. (Filed electronically with SEC
only)
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* Incorporated by reference.
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1999.
(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.
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 24, 2000 By: /s/ JOHN E. SLATER, JR.
------------------------------------------
John E. Slater, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
Dated: March 24, 2000 By: /s/ DENNIS L. FINK
------------------------------------------
Dennis L. Fink
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER (PRINCIPAL FINANCIAL
OFFICER)
Dated: March 24, 2000 By: /s/ DAN C. BRYANT
------------------------------------------
Dan C. Bryant
VICE PRESIDENT, CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
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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 24, 2000
Rawson Haverty
/s/ JOHN E. SLATER, JR. President and Chief
------------------------------------------- Executive Officer, and March 24, 2000
John E. Slater, Jr. Director
/s/ FRED J. BATES Regional Manager and
------------------------------------------- Director March 24, 2000
Fred J. Bates
/s/ JOHN T. GLOVER Director
------------------------------------------- March 24, 2000
John T. Glover
/s/ RAWSON HAVERTY, JR. Senior Vice President and
------------------------------------------- Director March 24, 2000
Rawson Haverty, Jr.
/s/ L. PHILLIP HUMANN Director
------------------------------------------- March 24, 2000
L. Phillip Humann
|
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LYNN H. JOHNSTON Director
------------------------------------------- March 24, 2000
Lynn H. Johnston
/s/ MYLLE B. MANGUM Director
------------------------------------------- March 24, 2000
Mylle B. Mangum
/s/ FRANK S. MCGAUGHEY, III Director
------------------------------------------- March 24, 2000
Frank S. McGaughey, III
/s/ CLARENCE H. RIDLEY Vice Chairman and Director
------------------------------------------- March 24, 2000
Clarence H. Ridley
/s/ CLARENCE H. SMITH Senior Vice President and
------------------------------------------- Director March 24, 2000
Clarence H. Smith
/s/ M. TONY WILKERSON Senior Vice President and
------------------------------------------- Director March 24, 2000
M. Tony Wilkerson
/s/ ROBERT R. WOODSON Director
------------------------------------------- March 24, 2000
Robert R. Woodson
|
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, 1999:
Allowance for doubtful accounts... $8,300 $4,125 $(800) $4,625 $7,000
====================================================================
Year ended December 31, 1998:
Allowance for doubtful accounts... $8,500 $6,456 -- $6,656 $8,300
====================================================================
Year ended December 31, 1997:
Allowance for doubtful accounts... $7,105 $7,648 $ 795 $7,048 $8,500
====================================================================
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(1) The amount in 1999 relates to amounts for potential sales returns reclassified to accrued sales returns and allowances. The amount in 1997 represents a reclassification 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.
Exhibit 10.7
HAVERTY FURNITURE COMPANIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
As Amended and Restated
February 7, 1995
and
As Amended November 1, 1996
and
As Amended and Restated
October 29, 1999
HAVERTY FURNITURE COMPANIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
As Amended and Restated February 7, 1995
and As Amended November 1, 1996
and As Amended and Restated October 29, 1999
1. PURPOSE. The purpose of the Haverty Furniture Companies, Inc. Employee Stock Purchase Plan (the "Plan") is to encourage and enable eligible employees of Haverty Furniture Companies, Inc. (the "Company") and any of its subsidiaries to acquire proprietary interests in the Company through the ownership of Common Stock of the Company. The Company believes that employees who participate in the Plan will have a closer identification with the Company by virtue of their ability as stockholders to participate in the Company's growth and earnings. It is the intention of the Company to have the Plan qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, the provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.
2. DEFINITIONS. The following words or terms have the following meanings:
(a) "Plan" shall mean this Haverty Furniture Companies, Inc. Employee Stock Purchase Plan.
(b) "Company" shall mean Haverty Furniture Companies, Inc.
(c) "Board of Directors" shall mean the Board of Directors of the Company or the Executive Committee of such Board.
(d) "Shares," "Stock" or "Common Stock" shall mean shares of the $1.00 par value Common Stock of the Company.
(e) "Committee" shall mean the Stock Option Committee of the Board of Directors of the Company.
(f) "Subsidiary" shall mean any corporation, if the Company owns or controls, directly or indirectly, more than 50 percent of the voting stock of such corporation.
(g) "Eligible Employee" shall mean a person regularly employed by the Company or a Subsidiary on the effective date of any offering of stock pursuant to the Plan; provided, however, that no person shall be considered an Eligible Employee unless he or she is customarily employed by the Company or a Subsidiary for at least twenty hours per week and as of such effective date has been employed by the Company or a Subsidiary for more than one year; and provided further, that the Board of Directors may exclude the employees of any specified Subsidiaries from any offering under the Plan.
(h) "Offer Period" shall mean, with respect to any offering of Stock hereunder, the period specified by the Committee (which shall normally consist of six (6) calendar months) during which such offering is effective and outstanding.
(i) "Grant Date" shall mean the commencement date of the applicable Offer Period.
(j) "Exercise Date" shall mean the termination date of the applicable Offer Period.
(k) "Options" shall mean the right or rights granted to Eligible Employees to purchase the Company's Common Stock under an offering made under the Plan and pursuant to such Eligible Employees' elections to participate in such offering.
(l) "Fair Market Value" shall mean the closing price of the Company's $1.00 par value Common Stock as quoted on the National Association of Securities Dealers, Inc. National Market System.
(m) "Annual Pay" shall mean, with respect to any Eligible Employee, the taxable earnings paid by the Employer to the Eligible Employee and reported on his Form W-2 for the calendar year preceding the year in which the applicable offering commences; provided that Annual Pay will INCLUDE (a) basic salary or wages, (b) overtime pay, (c) bonuses, (d) commissions, (e) amounts deferred under Internal Revenue Code Sections 401(k) and/or 125 pursuant to the Eligible Employee's salary reduction agreement, and (f) amounts deferred under the Company's Top Hat Mutual Fund Option Plan and/or any other deferred compensation plan maintained by the Company and Annual Pay will EXCLUDE (a) employer-paid FICA taxes and contributions under any qualified pension plan to the extent not currently taxable to the Eligible Employee, (b) amounts realized from the exercise of nonqualified stock options or the lapse of restrictions on stock or other disposition of stock acquired under a qualified or incentive stock option, (c) the imputed value of group term life insurance, (d) cash and noncash fringe benefits including taxable fringe benefits from the use of Company-owned vehicles, (e) reimbursements and expense allowances, (f) moving expenses, (g) welfare benefits, (h) income realized upon a participant's actual or constructive receipt of amounts payable under any deferred compensation plan maintained by the Company, including, without limitation, pursuant to exercise of an option to acquire mutual fund shares at a discount pursuant to the Company's Top Hat Mutual Fund Option Plan, and (i) other amounts which receive special tax benefits.
(n) "Minimum Contribution" shall mean, with respect to any offering under the Plan, 1% of Annual Pay.
3. SHARES RESERVED FOR PLAN. The Shares of the Company's Common Stock to be sold to Eligible Employees under the Plan may, at the election of the Company, be either treasury shares or shares originally issued for such purpose. The maximum number of Shares which shall be reserved and made available for sale under the Plan shall be 1,500,000 (giving effect to the June 30, 1993 stock split and the August 25, 1999 stock split) of which 396,500 shares remained available for issuance as of August 25, 1999 (after giving effect to the August 25,
1999 stock split). The Shares reserved may be issued and sold pursuant to one or more offerings under the Plan. With respect to each offering, the Board of Directors, or the Committee, will specify the number of Shares to be made available, the commencement date and the termination date of the applicable Offer Period and such other terms and conditions not inconsistent with the Plan as may be necessary or appropriate. In no event shall the Offer Period for any offering exceed 27 months.
In the event of a subdivision, combination or reclassification of the Company's Shares, the maximum number of Shares which may thereafter be issued and sold under the Plan and the number of Shares subject to options to purchase at the time of such subdivision, combination or reclassification will be proportionately increased or decreased, the terms relating to the price at which Shares subject to options to purchase will be sold will be appropriately adjusted, and such other action will be taken as in the opinion of the Board of Directors is appropriate under the circumstances.
4. ADMINISTRATION OF THE PLAN. Except as otherwise provided herein, the Plan shall be administered by the Committee. Subject to the provisions of Paragraph 6, the Committee shall be vested with full authority to make, administer and interpret such equitable rules and regulations regarding the Plan as it may deem advisable. Except as otherwise provided herein, any determination, decision or action of the Committee in connection with the construction, interpretation, administration or application of the Plan shall be final, conclusive and binding upon all Eligible Employees and any and all persons claiming under or through an Eligible Employee.
The Committee may act by a majority vote at a regular or special meeting of the Committee or by decision reduced to writing and signed by a majority of the members of the Committee without holding a formal meeting. Vacancies in the membership of the Committee shall be filled by the Board of Directors.
The Committee may request that the management of the Company appoint a "Plan Administrator" to carry out the administrative and ministerial functions necessary to implement the determinations, decisions and actions of the Committee with respect to any offering under the Plan.
5. OFFERINGS. The Plan will be implemented by offerings made by the Company from time to time as determined by the Committee, but in any event not more than two times per year. Participation in any offering under the Plan shall neither limit, nor require, participation in any other offering except that no employee may have more than one authorization for a payroll deduction in effect simultaneously.
6. PARTICIPATION IN THE PLAN. (a) Options to purchase the Company's Common Stock under the Plan shall be granted only to Eligible Employees. With respect to any offering under the Plan, options to purchase Shares shall be granted to all Eligible Employees of the Company and its Subsidiaries (other than any Subsidiary whose employees have been excluded from such offering by the Board of Directors) who have elected to participate in such offering as provided hereunder; provided, however, that the Board of Directors may determine that any offering of Common Stock under the Plan will not be extended to highly compensated
employees (within the meaning of Section 414(q) of the Code) of the Company or its Subsidiaries, and provided further that in no event may an employee be granted an option under this Plan if such employee, immediately after the option is granted, owns Stock possessing five percent or more of the total combined voting power or value of all classes of capital stock of the Company or any Subsidiary.
(b) For the purposes of determining stock ownership under this Paragraph 6, the rules of Section 424(d) of the Code shall apply and Stock which the employee may purchase under all outstanding options (whether or not granted under this Plan) shall be treated as Stock owned by the employee. Any decision relating to whether to include or exclude any officer or highly compensated employee of the Company pursuant to this Paragraph 6 shall be made only by the members of the Board of Directors who are not executive officers of the Company and who have not participated in this Plan or any similar employee stock option plan of the Company (except the Company's 1986, 1988 and 1993 Non-Qualified Stock Option Plans) for a period of at least one year prior to such determination.
(c) An Eligible Employee may become a participant by completing the form provided by the Company for such purpose in connection with the applicable offering and filing it with the Plan Administrator (or such other person as may be designated by the Company on such form) prior to the commencement date of the applicable offering.
(d) With respect to any offer hereunder, each participating Eligible Employee shall have the same rights and privileges subject to the limitations set forth in Paragraph 10; provided, that the use of Annual Pay (which varies among Eligible Employees) as the basis for determining the number of Shares for which an Eligible Employee may be granted an option shall not be construed to create a difference in such rights and privileges so long as each Eligible Employee has the right to elect the same percentage of his Annual Pay as a payroll deduction under Paragraph 8.
7. PURCHASE PRICE. The purchase price for Shares purchased pursuant to the Plan will be the lesser of (a) an amount equal to 85% of the Fair Market Value of the Stock on the Grant Date, or if no Shares were traded on that day, on the last day prior thereto on which Shares were traded; or (b) an amount equal to 85% of the Fair Market Value of the Stock on the Exercise Date, or if no Shares were traded on that day, on the last day prior thereto on which Shares were traded. The purchase price for Shares purchased pursuant to the Plan will be payable only by means of payroll deductions as provided herein.
8. PAYROLL DEDUCTIONS. (a) In the form filed pursuant to Paragraph 6(c) a participant shall specify an amount which, in the aggregate during such offering, is not less than one percent (1%) and not more than ten percent (10%) of his Annual Pay which will be deducted from his pay in equal (or as nearly equal as is practicable) installments on each payday during the time he is a participant in such offering. Payroll deductions for a participant shall commence on the commencement date of the offering to which the authorization for a payroll deduction is applicable and shall end on the termination date of such offering unless sooner terminated by the Participant as provided in Paragraph 13.
(b) Intentionally omitted.
(c) All payroll deductions made for a participant shall be credited to his account under the Plan.
(d) A participant may discontinue his participation in the Plan as provided in Paragraph 13. During each Offer Period, a participant may reduce the rate of his payroll deductions one time for that offering by giving written notice of such reduction to the Plan Administrator; provided, however, that a participant who is not discontinuing his participation in the Plan as provided in Paragraph 13 may not reduce the rate of his payroll deductions below that required to enable the participant to make the Minimum Contribution. If for any reason other than the termination of the participant's employment subject to Paragraph 13(c), a participant has no pay or his pay is insufficient (after other authorized deductions) to permit deduction of his scheduled payroll deductions hereunder during a portion of the Offer Period and such participant's actual payroll deductions during the Offer Period equal less than the Minimum Contribution, such participant shall be deemed to have elected to withdraw from the offering effective on the termination date of such offering as provided in Paragraph 11(a)(i).
9. GRANTS OF OPTIONS. Subject to the limitations set forth below in this Paragraph 9 or in Paragraph 10, each Eligible Employee participating in an offering shall be granted an option to purchase a fixed maximum number of Shares determined by the following procedure:
Step 1- Determine the aggregate amount which would be withheld from
the Eligible Employee's pay during the applicable Offer
Period in accordance with such Eligible Employee's
authorization for a payroll deduction;
Step 2 - Determine the figure which represents 85% of the Fair Market
Value on the Grant Date;
Step 3 - Divide the figure determined in Step 1 by the figure
determined in Step 2 and round off the quotient to the
nearest whole number. Subject to the limitations set forth
herein, this final figure shall be the fixed maximum number
of Shares for which the Eligible Employee may be granted an
option to purchase under the applicable offering.
|
In the event the total maximum number of Shares for which options would otherwise be granted in accordance with this Paragraph 9 under any offering hereunder exceeds the number of Shares offered, the Company shall reduce the maximum number of Shares for which Eligible Employees may be granted options to allot the Shares available in such manner as it shall determine, but generally pro rata, and shall grant options to purchase only for such reduced number of Shares. In such event, the payroll deductions to be made pursuant to the authorizations therefor shall be reduced accordingly (without regard to the otherwise applicable Minimum Contribution) and the Company shall give written notice of such reduction to each employee affected thereby.
On the Grant Date each participating Eligible Employee shall be granted an option to purchase the number of Shares determined under this Paragraph 9, subject to the limitations set forth in Paragraph 10. Notice that an option has been granted shall be given to each participating Eligible Employee and such notice shall show the maximum number of Shares subject to such option and the amount to be deducted from the Eligible Employee's pay for each payroll period during the applicable Offer Period.
All Shares included in any offering under the Plan in excess of the total number of Shares for which options are granted hereunder and all Shares with respect to which options granted hereunder are not exercised shall continue to be reserved for the Plan and shall be available for inclusion in any subsequent offering under the Plan.
10. LIMITATIONS OF NUMBER OF OPTIONS WHICH MAY BE GRANTED AND SHARES WHICH MAY BE PURCHASED. The following limitations shall apply h with respect to the number of Shares for which each Eligible Employee who elects to participate in an offering under the Plan may be granted an option hereunder:
(1) No Eligible Employee may purchase Shares under any one offering pursuant to the Plan for an aggregate purchase price in excess of 10% of his Annual Pay; and
(2) No Eligible Employee participating in an offering and not withdrawing therefrom may purchase Shares under any one offering pursuant to the Plan for an aggregate purchase price which is less than 1% of his Annual Pay, unless such purchase relates to the full number of shares subject to the option granted to such Eligible Employee pursuant to the Plan; and
(3) No Eligible Employee shall be granted an option to purchase Shares under the Plan if such Eligible Employee immediately after such option is granted, owns stock or holds options to purchase stock possessing in the aggregate five percent or more of the total combined voting power or value of the capital stock of the Company or of any Subsidiary (under the rules set forth in Section 424(d) of the Code); and
(4) No Eligible Employee may be granted an option to purchase Shares which permits his right to purchase Stock under the Plan and all other stock option plans of the Company and of any Subsidiary pursuant to Section 423 of the Code to accrue at a rate which exceeds in any one calendar year $25,000 of the fair market value of such Stock (determined on the Grant Date).
11. EXERCISE OF OPTION. (a) Unless a participant's aggregate payroll deductions with respect to an offering are less than the Minimum Contribution (other than as the result of a reduction in payroll deductions pursuant to Section 9 hereof) or the participant gives written notice to the Company as hereinafter provided, his option to purchase Shares in such offering will be exercised automatically for him on the termination date of the applicable offering, for the purchase of the number of whole Shares subject to such participant's option which the accumulated payroll deductions in his account at that time will purchase at the applicable option price.
(b) By written notice to the Company not earlier than ninety (90) days prior to the termination date of the applicable offering and not later than the day prior to such termination date, a participant may elect, effective on the termination date of such offering, to:
(i) Withdraw all the accumulated payroll deductions in his account at the termination date; or
(ii) Exercise his option for a specified number of whole Shares less than the number of whole Shares subject to such option which the accumulated payroll deductions in his account at the termination date will purchase at the applicable option price; provided, however, no participant may exercise an option pursuant to this Paragraph 11(a)(2)(ii) for a number of whole shares which is less than the number of whole shares which such participant's Minimum Contribution would purchase at the applicable option price.
12. DELIVERY. As promptly as practicable after the termination of each offering, the Company will deliver to each participant, as appropriate, either the Shares purchased upon the exercise of his option together with a cash payment equal to the balance of any payroll deductions credited to his account during such offering which were not used for the purchase of Shares, or a cash payment equal to the total of the payroll deductions credited to his account during such offering.
13. WITHDRAWAL. (a) A participant may withdraw payroll deductions credited to his account under the Plan at any time by giving written notice to the Company. All of the participant's payroll deductions credited to his account will be paid to him promptly after receipt of his notice of withdrawal, and no further payroll deductions will be made from his pay except in accordance with an authorization for a new payroll deduction filed with respect to a different offering in accordance with Paragraph 6(c).
(b) A participant's withdrawal will not have any effect upon his eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company.
(c) Upon termination of the participant's employment for any reason, including retirement, the payroll deductions credited to his account will be returned to him, or, in the case of his death, to the person or persons entitled thereto under Paragraph 14 and all options granted to such participant hereunder and not previously exercised shall be deemed canceled.
14. DESIGNATION OF BENEFICIARY. A participant may file a written designation of a beneficiary who is to receive any Shares and cash to the participant's credit under the Plan in the event of such participant's death prior to delivery to him of such Shares and cash. Such designation of beneficiary may be changed by the participant at any time by written notice. Upon the death of a participant and upon receipt by the Company of proof of the identity and existence at the participant's death of a beneficiary validly designated by him under the Plan, the Company shall deliver such Shares and cash to such beneficiary. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such Shares and cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company) the Company shall deliver such Shares and cash to the applicable court having jurisdiction over the administration of such estate. No designated beneficiary shall, prior to the death of the participant by whom he has been designated, acquire any interest in the Shares or cash credited to the participant under the Plan.
15. RIGHTS AS STOCKHOLDER. An Eligible Employee shall have no rights as a stockholder with respect to Shares subject to an option until such option has been exercised with respect to such Shares in connection with the terms hereunder. A certificate for the Shares purchased will be issued as soon as practicable after the termination of the applicable offering. Such Shares will be registered in the name of the applicable Eligible Employee.
16. OPTIONS NOT TRANSFERABLE. Neither an Eligible Employee's options nor the payroll deductions credited to such Eligible Employee's account may be sold, pledged, assigned or transferred in any manner otherwise than by will or by the laws of descent and distribu tion, and during the lifetime of the Eligible Employee, such options may only be exercised by him or her. If this provision is violated the right of the Eligible Employee to exercise such options shall terminate and the only right remaining hereunder with respect to such options and such payroll deductions will be to have paid over to the person entitled thereto the amount then credited to the Eligible Employee's account.
17. APPLICATION OF FUNDS. All funds received by the Company pursuant to payroll deductions authorized in accordance with the terms hereof and held by the Company at any time may be used for any valid corporate purpose and will not be maintained in a segregated account. Participants shall not be entitled to earn interest on any such funds held by the Company hereunder. Until paid over to the applicable Eligible Employee or used to purchase Shares as provided hereunder, the amount of each Eligible Employee's payroll deductions in connection with any applicable offering shall represent an indebtedness of the Company to such Eligible Employee.
18. GOVERNMENTAL APPROVALS OR CONSENTS. The Plan shall not be effective unless it is approved by the stockholders of the Company within 12 months after the Plan is adopted by the Board of Directors of the Company. The Plan and any offerings and sales to Eligible Employees under it are subject to any governmental approvals or consents that may be or become applicable in connection therewith. The Board of Directors of the Company may make such changes in the Plan and include such terms in any offering under the Plan as may be necessary or desirable, in the opinion of counsel, so that the Plan will comply with the rules and regulations of any governmental authority and so that Eligible Employees participating in the Plan will be eligible for tax benefits under the Code or the laws of any state.
19. AMENDMENT OR TERMINATION. The Board of Directors of the Company may at any time terminate or amend the Plan. No such termination shall affect options previously granted, nor may an amendment make any change in any option theretofore granted which would
adversely affect the rights of any participant nor may an amendment be made without prior approval of the stockholders of the Company if such amendment would:
(1) Increase the maximum number of shares authorized under Paragraph 3 for sale under the Plan otherwise than as required to reflect a subdivision, a combination or a reclassification as provided in Paragraph 3 hereof; or
(2) Expand the persons eligible to participate in the Plan beyond the employees of the Company and its Subsidiaries.
20. NOTICES. All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received by the Treasurer of the Company or when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
SELECTED 5-YEAR FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1997 1996 1995
-------- -------- -------- -------- ----------
Net sales $618,796 $540,298 $490,007 $456,860 $ 395,470
Cost of goods sold 325,792 285,749 259,203 239,976 209,000
Income before income taxes 42,870 26,295 20,787 19,132 19,444
Income taxes 15,470 9,460 7,400 6,885 7,261
Net income 27,400 16,835 13,387 12,247 12,183
-------- -------- -------- -------- --------
Earnings per Common Share $ 1.23 $ 0.73 $ 0.57 $ 0.52 $ 0.53
-------- -------- -------- -------- --------
Diluted earnings per
Common Share $ 1.19 $ 0.72 $ 0.57 $ 0.52 $ 0.53
-------- -------- -------- -------- --------
Cash dividends:
Amount $ 4,179 $ 3,745 $ 3,675 $ 3,508 $ 3,406
Per share: Common Stock 0.190 0.165 0.160 0.153 0.150
Class A Common Stock 0.180 0.155 0.150 0.143 0.140
-------- -------- -------- -------- --------
Accounts receivable, net $179,090 $186,172 $202,763 $200,909 $172,877
Credit service charges 14,925 16,960 16,111 13,390 12,376
Provision for doubtful accounts 4,125 6,456 7,648 4,416 2,854
-------- -------- -------- -------- --------
Inventories $ 84,447 $ 82,084 $ 80,713 $ 77,385 $ 73,597
-------- -------- -------- -------- --------
Capital expenditures $ 30,768 $ 11,144 $ 14,528 $ 16,463 $ 44,896
Depreciation/amortization expense 14,844 14,272 13,792 12,644 10,634
Property and equipment, net 126,997 111,333 114,618 114,350 112,405
-------- -------- -------- -------- --------
Total assets $404,648 $392,901 $406,514 $399,875 $371,778
-------- -------- -------- -------- --------
Long-term debt $146,778 $171,489 $120,434 $128,340 $137,206
Total debt 155,578 177,889 202,934 208,840 190,606
Interest expense 11,402 13,183 14,330 14,463 11,158
-------- -------- -------- -------- --------
Stockholders' equity $168,793 $158,058 $159,554 $150,916 $140,955
Book value per share 7.81 7.08 6.82 6.42 6.07
-------- -------- -------- -------- --------
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Haverty Furniture Companies, Inc. 13 1999 ANNUAL REPORT
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 statements we make in this report, and other written or oral statements made by or on behalf of the Company, may constitute "forward-looking statements" within the meaning of the federal securities laws. Examples of such statements in this report include descriptions of our plans with respect to new store openings and relocations, our plans to enter new markets and expectations relating to our continuing growth. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections. Management believes that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. Such statements speak only as of the date they are made and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of future events, new information or otherwise. The following are some of the factors that could cause the Company's actual results to differ materially from the expected results described in the Company's forward-looking statements: the ability to maintain favorable arrangements and relationships with key suppliers (including domestic and international sourcing); conditions affecting the availability and affordability of retail real estate sites; the ability to attract, train and retain highly qualified associates to staff corporate positions, existing and new stores and distribution facilities; general economic and financial market conditions, which affect consumer confidence and the spending environment for big ticket items; competition in the retail furniture industry, changes in laws and regulations, including changes in accounting standards, tax statutes or regulations.
FINANCIAL HIGHLIGHTS
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.
1999 1998 1997
------------------------------------------
Net Sales 100.0% 100.0% 100.0%
Gross profit 47.4 47.1 47.1
Credit service charges 2.4 3.1 3.3
Selling, general and administrative 40.4 41.6 41.7
Provision for doubtful accounts 0.7 1.2 1.6
Other expense (income), net (0.1) 0.1 0.0
Income before income taxes 6.9 4.9 4.2
Net income 4.4 3.1 2.7
Effective tax rate 36.1% 36.0% 35.6%
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Haverty Furniture Companies, Inc. 14 1999 ANNUAL REPORT
1999 COMPARED TO 1998
Record earnings were achieved in 1999 as net income increased 62.8% over the previous record year of 1998 and 104.7% over 1997. This increase reflects the Company's continued success in increasing sales and gross margins, coupled with better management in key operational processes. Stock repurchases further improved earnings per share.
Net sales for 1999 increased 14.5% to $618.8 million from $540.3 million. This increase was primarily attributable to comparable-store sales that rose 12.1% on top of the 7.1% increase recorded in 1998. A store's results are included in the comparable-store sales computation on the anniversary of its opening. The Company opened eight stores during 1999, one store in each of three new markets, three additional store locations in existing markets, and two replacement stores. The Company also closed three stores (including a clearance center) which were not replaced. Net selling space increased 4% in 1999 to approximately 3,419,000 square feet. The Company entered five new markets in 1998 by leasing five existing retail sites. The Company closed two stores in 1998, including a clearance center in its largest market.
Management believes that sales increases during the year were attributable to the favorable economic environment, the Company's style-oriented advertising focus on brand name product and accessory items, effective merchandising in its stores, and straightforward sales and customer service practices appropriate for its educated middle to upper-middle income target customer. The continued strong housing sales were a positive factor for the industry and increasing wages and accumulation of wealth by the Company's customer base were particularly evident in the Company's largest markets of operations. The Company's advertising provides a consistent and effective message of the Company's breadth of fashionable merchandise rather than marketing a variety of promotional opportunities. During 1999, the Company reviewed and employed new controls that enabled its advertising to be delivered at a more favorable cost. Management continues to believe that the advertising and merchandising of well known brand name product and accessory items selected to appeal to its customer base have improved sales for all of the Company's merchandise.
Gross profit as a percent of net sales was 47.4% for 1999, an improvement of 25 basis points from 1998. This gross profit level is more representative of the Company's historical percentage. The two prior years' percentages had been depressed slightly as the Company liquidated inventory upon the move of a large distribution facility and closure of several clearance centers. Additionally, the industry experienced pricing pressure from heavy promotional activity as several large retailers attempted to maintain financial viability. The LIFO charge was 0.03% of net sales in 1999 and 0.05% in 1998, consistent with low levels of inflation.
Credit service charges decreased again in 1999 to 2.4% as a percent of net sales, down from 3.1% in 1998. The amount financed under the Company's credit programs as a percent of net sales continued to decline in 1999 to 46% from 49% in 1998 as customers increased their usage of third party credit cards and cash. Also, usage of the popular 12 months, no interest (12 equal payments) promotion increased by one-third. This promotion generates very minor credit service charge revenues, but helps reduce the Company's interest expense and bad debts due to the faster pay out relative to other credit programs offered.
Haverty Furniture Companies, Inc. 15 1999 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The provision for doubtful accounts as a percent of net sales was 0.7% in 1999, down from 1.2% in 1998 as there continued to be improvement in the Company's receivables portfolio and moderation in the rate of bankruptcy filings by its customers.
Selling, general and administrative expenses as a percent of net sales were 40.4% in 1999, a 1.2% reduction from the 1998 level. Efficiencies were gained as the Company's increase in comparable store sales created leverage in its occupancy and administrative expenses and, as previously noted, improvements were made in managing its advertising costs.
Interest expense in 1999 declined 13.5% in dollars to 1.8% of net sales from 2.4% in 1998. Average borrowings decreased 11.9% and the effective interest rate decreased ten basis points to 7.1%.
The Company manages its exposure to changes in short-term interest rates, particularly to reduce the impact on its floating-rate term notes, by entering into interest rate swap agreements. 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 has not been significant. The level of floating-rate debt not fixed by swap agreements was not significant during the year and management does not expect a significant increase in these amounts in 2000. Accordingly, the Company does not presently believe it has material exposure to potential, near-term losses in future earnings and/or cash flows from reasonably possible near-term changes in market rates.
For information concerning the provision for income taxes, as well as information regarding differences between effective tax rates and statutory rates, see Note 8 of the Notes to the Consolidated Financial Statements.
1998 COMPARED TO 1997
Net sales for 1998 increased 10.3% to $540.3 million from $490.0 million. This increase was primarily attributable to comparable-store sales that increased 7.1%. Net selling space increased 4% in 1998 to approximately 3,295,000 square feet. There were five new stores in five new markets opened and two stores closed (including a clearance center in the Company's largest market) in 1998 as compared to ten stores opened (seven as replacement stores) in 1997.
Gross profit as a percent of net sales was 47.1% for 1998, which was unchanged from the 1997 level. The Company was able to maintain its margins despite increased pricing pressure from the promotional activity of its competitors and the inventory close-out sales in connection with the closure of its largest clearance centers. The LIFO charge was 0.05% of net sales in 1998 and 0.1% in 1997.
Credit service charges as a percent of net sales decreased to 3.1% in 1998, down from 3.3% in 1997. The amount financed under the Company's credit programs as a percent of net sales declined in 1998 to 49% from 55% in 1997 as customers increased their usage of third party credit cards and cash.
Haverty Furniture Companies, Inc. 16 1999 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The provision for doubtful accounts as a percent of net sales was 1.2% in 1998, down from 1.6% in 1997 and trending back to the 1.0% level recorded in 1996. The Company tightened its credit approval criteria slightly in the third quarter of 1997 and made managerial and systems improvements in the credit operations.
Selling, general and administrative expense as a percent of net sales was 41.6% in 1998, which was essentially unchanged from the 1997 level and down from 42.1% in 1996. Additional resources were used during 1998 to more effectively manage the Company's inventories and credit operations.
Interest expense in 1998 declined to 2.4% of net sales from 2.9% in 1997, with an 8.0% decrease in the total dollar amount of interest expense. Average borrowings decreased 11.3% and the effective interest rate increased 20 basis points to 7.2%. The effect of adjustments to interest expense for the differential arising from the Company's interest rate swap agreements was not significant during 1998.
Other expense (income), net included expenses totaling $1,184,000, to recognize the future net lease expense for locations in which the Company had ceased operations, of which $940,000 was recorded in the fourth quarter.
LIQUIDITY AND SOURCES OF CAPITAL
The Company has historically used internally generated funds, bank borrowings and private placements with institutions to finance its operations and growth. Net cash provided by operating activities was $70.0 million in 1999. The Company has negotiated more favorable payment terms with many of its suppliers resulting in an increase in accounts payable of $10.3 million.
Investing activities used $31.3 million of cash in 1999. During 1999, capital expenditures of $30.8 million included the purchase and remodeling of four stores and improvements to four additional leased store locations that opened in 1999. Expenditures were also made for ten store remodelings, various information systems equipment and software, and for real estate projects that will be completed in 2000.
Financing activities used $38.8 million of cash during 1999. The Company made $22.3 million in total debt repayments and used $18.0 million to repurchase 1,337,000 shares of its stock. At December 31, 1999, there were approximately 1,333,000 shares remaining under the Board of Directors' authorization for stock repurchases.
The Company has two five-year revolving credit facilities totaling $105 million. These facilities, which expire in 2003, were syndicated with five commercial banks and provide a multi-year commitment for the Company's capital requirements. The Company also has uncommitted line-of-credit agreements with two banks to borrow up to $25 million, of which $24.2 million was unused at December 31, 1999. Borrowings under the revolving credit facilities were $53.8 million ($51.2 million unused), of which $45 million was classified as long-term debt because the Company expects that at least such amount will remain outstanding under these facilities for an uninterrupted period through 2000. Borrowings under all of these agreements are unsecured and accrue interest at competitive money-market rates.
Haverty Furniture Companies, Inc. 17 1999 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In addition to cash flows from operations, the Company uses bank lines of credit on an interim basis to finance capital expenditures and share repurchases and to repay long-term debt. Longer-term transactions such as private placements of senior notes and sale/leasebacks 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 and capped-rate debt as determined by the interest rate environment (91% of total debt was interest-rate protected at December 31, 1999). The Company's average effective interest rate on all borrowings (excluding capital leases) was 7.4% at December 31, 1999.
Capital expenditures in 2000 are presently expected to include the construction of three new store locations in existing markets, improvements for one new leased store location, the remodeling of five existing stores, leasehold improvements in the Company's new corporate office location, as well as the purchase of various information systems equipment and software. The preliminary estimate of capital expenditures in 2000 is approximately $40 million. Management expects that there will be disposition costs for stores to be relocated which will likely offset any gains generated from the sale of the Company's current corporate office. 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.
YEAR 2000
The Company completed its plans for addressing Year 2000 issues. This Company-wide effort resulted in there being no discernible difficulties related to Year 2000 in the Company's numerous mission critical processes. Through December 31, 1999, the Company incurred expenses of approximately $1 million to achieve Year 2000 compliance. These expenses are not incremental costs but represent the MIS and managerial time dedicated to this issue rather than for new projects that were postponed. Upgrade or replacement expenditures for IT hardware, operating systems and third-party software have not been included in these amounts as most of the items purchased met new Company requirements with respect to additional capacity, speed or functionality in addition to compliance with Year 2000 issues.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
During 1999, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP). The SOP, which has been adopted prospectively as of January 1, 1999,
Haverty Furniture Companies, Inc. 18 1999 ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
requires that companies capitalize qualifying costs incurred during the application development stage. All other costs incurred in connection with an internal use software project are to be expensed as incurred. Prior to the adoption of this SOP, the Company expensed all internal use software related costs as incurred. The effect of adopting the SOP was to increase net income for the year ended December 31, 1999, by $269,000 or $0.01 per share.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133), as amended. Management expects to adopt the new requirements effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. Management has not yet determined what the effect of FAS 133 will be on the Company's earnings and financial position. Given the complexity of FAS 133 and that the impact hinges on market values at the date of adoption, it is extremely difficult to estimate the impact of adoption unless adoption is imminent.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements". This bulletin provides guidance on revenue recognition matters and, in accordance therewith, the Company will change its method of recognizing sales. The Company has historically recognized merchandise sales when certain criteria were met, such as receipt of full payment, credit approval for charge sales and merchandise in stock. These conditions were typically met at the point of sale. Under the new method, revenue from merchandise sales will be recognized upon delivery to the customer. Management will adopt the new method effective January 1, 2000. The cumulative effect of this change in accounting will be to decrease net income by approximately $3,356,000 or $0.15 per share in the first quarter of 2000. Had the new method of recognizing sales been in effect during 1999 and 1998, net income would have increased $124,000 (an increase of $0.01 per share) in 1999 and decreased $406,000 (a decrease of $0.01 per share) in 1998. Management further notes that on a quarterly basis, there is a recurring seasonal pattern which would have decreased sales and earnings in the first and third calendar quarters and increased sales and earnings in the fourth quarter, when deliveries to customers are normally at the highest level.
Haverty Furniture Companies, Inc. 19 1999 ANNUAL REPORT
CONSOLIDATED
BALANCE SHEETS
December 31
(In thousands, except per share data) 1999 1998
-------------------------------------- ---- ----
ASSETS
Current assets
Cash and cash equivalents $ 1,762 $ 1,874
Accounts receivable (Note 2) 179,090 186,172
Inventories (Note 3) 84,447 82,084
Other current assets 6,379 8,047
- -------- --------
Total current assets 271,678 278,177
- -------- --------
Property and equipment (Notes 4 and 7) 126,997 111,333
Deferred income taxes (Note 8) 3,137 1,264
Other assets 2,836 2,127
- -------- --------
$404,648 $392,901
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable to banks (Note 5) $ 8,800 $ 6,400
Accounts payable and accrued expenses (Note 6) 76,191 52,500
Deferred income taxes (Note 8) 1,352 1,856
Current portion of long-term debt and capital lease
obligations (Notes 7 and 12) 12,091 9,711
- -------- --------
Total current liabilities 98,434 70,467
- -------- --------
Long-term debt and capital lease obligations,
less current portion (Notes 7 and 12) 134,687 161,778
Other liabilities 2,734 2,598
- -------- --------
Total liabilities 235,855 234,843
======= =======
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:
1999 - 21,639 shares;
1998 -20,786 shares (including shares in treasury:
1999 and 1998 - 4,810 and 3,478, respectively) 21,639 20,786
Convertible Class A Common Stock,
Authorized - 15,000 shares;
Issued: 1999 - 5,303 shares;
1998 -5,544 shares (including
shares in treasury:
1999 and 1998 - 522) 5,303 5,544
Additional paid-in capital 32,004 27,173
Retained earnings 156,428 133,207
- -------- --------
215,374 186,710
Less cost of Common Stock and Convertible
Class A Common Stock in treasury 46,581 28,652
- -------- --------
Total stockholders' equity 168,793 158,058
======= =======
$404,648 $392,901
======== ========
|
See accompanying notes to consolidated financial statements.
Haverty Furniture Companies, Inc. 20 1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31
(In thousands, except per share data) 1999 1998 1997
------------------------------------- --------- -------- ---------
Net sales $ 618,796 $540,298 $ 490,007
Cost of goods sold 325,792 285,749 259,203
--------- -------- ---------
Gross profit 293,004 254,549 230,804
Credit service charges 14,925 16,960 16,111
--------- -------- ---------
Gross profit and other revenue 307,929 271,509 246,915
Expenses:
Selling, general and administrative 249,796 224,951 204,239
Interest 11,402 13,183 14,330
Provision for doubtful accounts 4,125 6,456 7,648
Other (income) expense, net (264) 624 (89)
--------- -------- ---------
Total expenses 265,059 245,214 226,128
--------- -------- ---------
Income before income taxes 42,870 26,295 20,787
Income taxes (Note 8) 15,470 9,460 7,400
--------- -------- ---------
Net Income $ 27,400 $ 16,835 $ 13,387
========= ======== =========
Earnings per Common Share $ 1.23 $ 0.73 $ 0.57
Diluted Earnings per Common Share $ 1.19 $ 0.72 $ 0.57
========= ======== =========
Weighted average common shares 22,224 22,912 23,340
Weighted average diluted common shares 22,982 23,404 23,532
|
See accompanying notes to consolidated financial statements.
Haverty Furniture Companies, Inc. 21 1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Class A Additional
Stock Common Stock Paid-in Retained Treasury
(In thousands, except per share data) ($1 Par Value) ($1 Par Value) Capital Earnings Stock Total
-------------- -------------- ------- --------- -------- ---------
BALANCE AT DECEMBER 31, 1996 $18,612 $ 6,384 $21,058 $ 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 - $0.16
Class A Common - $0.15
Conversion of Class A Common Stock 192 (192) -- -- -- --
Stock option transactions, net 404 -- 1,605 -- -- 2,009
Treasury stock transactions, net -- -- -- -- (3,083) (3,083)
------- ------- ------- --------- -------- ---------
BALANCE AT DECEMBER 31, 1997 19,208 6,192 22,663 120,117 (8,626) 159,554
Net income -- -- -- 16,835 -- 16,835
Cash dividends on common stock:
Amount -- -- -- (3,745) -- (3,745)
Per share:
Common - $0.165
Class A Common - $0.155
Conversion of Class A Common Stock 582 (582) -- -- -- --
Stock option transactions, net 996 (66) 4,510 -- -- 5,440
Treasury stock transactions, net -- -- -- -- (20,026) (20,026)
------- ------- ------- --------- -------- ---------
BALANCE AT DECEMBER 31, 1998 20,786 5,544 27,173 133,207 (28,652) 158,058
Net income -- -- -- 27,400 -- 27,400
Cash dividends on common stock:
Amount -- -- -- (4,179) -- (4,179)
Per share:
Common - $0.19
Class A Common - $0.18
Conversion of Class A Common Stock 241 (241) -- -- -- --
Stock option transactions, net 612 -- 4,831 -- -- 5,443
Treasury stock transactions, net -- -- -- -- (17,929) (17,929)
------- ------- ------- --------- -------- ---------
BALANCE AT DECEMBER 31, 1999 $21,639 $ 5,303 $32,004 $ 156,428 $(46,581) $ 168,793
======= ======= ======= ========= ======== =========
|
See accompanying notes to consolidated financial statements.
Haverty Furniture Companies, Inc. 22 1999 ANNUAL REPORT
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31
(In thousands) 1999 1998 1997
-------- -------- --------
OPERATING ACTIVITIES
Net income $ 27,400 $ 16,835 $ 13,387
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 14,844 14,272 13,792
Provision for doubtful accounts 4,125 6,456 7,648
Deferred income taxes (2,377) 228 (768)
Loss (gain) on sale of property and equipment 37 (57) 294
-------- -------- --------
Subtotal 44,029 37,734 34,353
Changes in operating assets and liabilities:
Accounts receivable 2,957 10,135 (9,502)
Inventories (2,363) (1,371) (3,328)
Other current assets 1,668 (2,284) (1,341)
Accounts payable and accrued expenses 23,691 11,202 4,570
-------- -------- --------
Net cash provided by operating activities 69,982 55,416 24,752
-------- -------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (30,768) (11,144) (14,528)
Proceeds from sale of property and equipment 223 214 174
Other investing activities (709) 140 128
-------- -------- --------
Net cash used in investing activities (31,254) (10,790) (14,226)
-------- -------- --------
FINANCING ACTIVITIES
Net increase (decrease) in short-term borrowings 2,400 (76,100) 2,000
Proceeds from issuance of long-term debt -- 60,000 --
Payments on long-term debt and capital lease obligations (24,711) (8,945) (7,906)
Treasury stock acquired (17,967) (20,056) (3,130)
Exercise of stock options 5,443 5,440 2,009
Dividends paid (4,179) (3,745) (3,675)
Other financing activities 174 264 152
-------- -------- --------
Net cash used in financing activities (38,840) (43,142) (10,550)
-------- -------- --------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (112) 1,484 (24)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,874 390 414
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,762 $ 1,874 $ 390
======== ======== ========
|
See accompanying notes to consolidated financial statements.
Haverty Furniture Companies, Inc. 23 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Summary of Significant Accounting Policies
ORGANIZATION:
The Company is a full-service home furnishings retailer with 103 showrooms in 14 states. The Company sells a broad line of furniture in the middle to upper-middle price ranges selected to appeal to its predominant target market. As an added convenience to its customers, the Company offers financing through a revolving charge credit plan.
BASIS OF PRESENTATION:
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. Stockholders' equity, share and per share amounts for all periods presented have been adjusted for a two-for-one stock split effected in the form of a stock dividend on August 25, 1999.
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.
REVENUE RECOGNITION:
Merchandise sales are typically recognized at the point of sale, as long as certain conditions are met. As discussed in Note 1, Impact of Recently Issued Accounting Standards, effective January 1, 2000, the Company will change its method of recognizing revenues from merchandise sales.
Credit service charges are recognized as assessed to customers according to contract terms.
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.
Estimated useful lives for financial reporting purposes are as follows:
Buildings 25 - 33 years Improvements 5 - 15 years Equipment 3 - 15 years Capital leases 20 - 25 years |
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.
Haverty Furniture Companies, Inc. 24 1999 ANNUAL REPORT
FAIR VALUES OF FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash, accounts receivable, accounts payable, long-term debt and interest-rate swap agreements. 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 exchange of fixed-rate amounts for floating-rate amounts 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 agreements are not recognized in the consolidated financial statements.
ADVERTISING EXPENSE:
The cost of advertising is expensed upon first showing. The Company incurred $36,700,000, $35,500,000 and $31,800,000 in advertising costs during 1999, 1998, and 1997, respectively.
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 incentive and non-qualified 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:
Earnings per common share are computed based on the weighted average number of common shares outstanding. 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 758,000, 492,000 and 192,000 in 1999, 1998 and 1997, respectively.
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 antidilutive: 1998 - 516,800 shares at a price of $10.13 and 1997 - 364,000 shares at prices ranging from $6.88 to $8.57.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS:
During 1999, the Company adopted Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP). The SOP, which has been adopted prospectively as of January 1, 1999, requires that companies capitalize qualifying costs incurred during the application development stage. All other costs incurred in connection with an internal use software project are to be expensed as incurred. Prior to the adoption of
Haverty Furniture Companies, Inc. 25 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
this SOP, the Company expensed all internal use software related costs as incurred. The effect of adopting the SOP was to increase net income for the year ended December 31, 1999, by $269,000 or $0.01 per share.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, which is required to be adopted in 2001. The Company expects to adopt the new requirements effective January 1, 2001. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of FAS 133 will be on the earnings and financial position of the Company. Given the complexity of FAS 133 and that the impact hinges on market values at the date of adoption, it is extremely difficult to estimate the impact of adoption unless adoption is imminent.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements. This bulletin provides guidance on revenue recognition matters and, in accordance therewith, the Company will change its method of recognizing sales. The Company has historically recognized revenue for sales of merchandise when certain criteria were met, such as receipt of full payment, credit approval for charge sales and merchandise in stock. These conditions were typically met at the point of sale. Under the new method, revenue from merchandise sales will be recognized upon delivery to the customer. The Company will adopt the new method effective January 1, 2000. The cumulative effect of this change in accounting will be to decrease net income in the first quarter of 2000 by approximately $3,356,000 or $0.15 per share. Had the new method of recognizing sales been in effect during 1999 and 1998, net income would have increased $124,000 ($0.01 per share) in 1999 and decreased $406,000 ($0.01 per share) in 1998.
NOTE 2 - Accounts Receivable
Amounts financed under Company credit programs were, as a percent of net sales, approximately 46% in 1999, 49% in 1998, and 55% in 1997. Accounts receivable are shown net of the allowance for doubtful accounts of $7,000,000 and $8,300,000 at December 31, 1999 and 1998, respectively. 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 have scheduled payment amounts which are historically collected at a rate faster than the scheduled rate. The scheduled approximate collection amounts are due as follows: $131,779,000 in 2000, $35,685,000 in 2001, $17,261,000 in 2002, and $1,365,000 in 2003 for receivables outstanding at December 31, 1999. The total receivables of approximately $186,090,000 are included in current assets in accordance with trade practice.
Haverty Furniture Companies, Inc. 26 1999 ANNUAL REPORT
The Company provides an allowance for doubtful accounts utilizing a methodology which considers the balances in problem and delinquent categories of accounts, historical write-offs and management judgment. Delinquent accounts are generally written off automatically after the passage of nine months without receiving a full scheduled monthly payment. Accounts are written off sooner in the event of a discharged bankruptcy or other circumstances that make further collections unlikely. The Company assesses the adequacy of the allowance account at the end of each quarter.
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 fourteen states.
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 $14,970,000 and $14,770,000 at December 31, 1999 and 1998, respectively. Use of the LIFO valuation method as compared to the FIFO method had the effect of decreasing earnings per common share by $0.01, $0.01 and $0.02 in 1999, 1998 and 1997, 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):
1999 1998
-------- --------
Land $ 25,183 $ 20,986
Buildings and improvements 119,801 103,029
Equipment 71,682 64,318
Capital leases 5,564 8,276
Construction in progress 769 205
-------- --------
222,999 196,814
Less accumulated depreciation 92,023 79,060
Less accumulated capital lease amortization 3,979 6,421
-------- --------
Property and equipment, net $126,997 $111,333
======== ========
|
Haverty Furniture Companies, Inc. 27 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - Credit Arrangements
At December 31, 1999, the Company owed $53,800,000 in short-term or revolving loans to banks, of which $45,000,000 was classified as long-term debt as described in Note 7. The Company also has uncommitted line-of-credit arrangements with banks to borrow up to $25,000,000, of which $24,200,000 were unused at December 31, 1999.
The weighted average stated interest rates for these outstanding borrowings at December 31, 1999 and 1998 were 6.6% and 5.9%, respectively.
NOTE 6 - Accounts Payable and Accrued Expenses
The components of accounts payable and accrued expenses are as follows (in thousands):
1999 1998
------- -------
Accounts payable, trade $36,214 $25,920
Accrued compensation 10,638 8,283
Taxes other than income taxes 7,187 6,931
Other 22,152 11,366
------- -------
$76,191 $52,500
======= =======
|
NOTE 7 - Long-Term Debt and Capital Lease Obligations
Long-term debt and capital lease obligations are summarized as follows (in thousands):
1999 1998
-------- --------
Revolving credit notes (a) $ 45,000 $ 60,000
Unsecured term note (b) 28,000 29,000
7.95% unsecured term note (c) 15,000 15,000
7.44% unsecured term note (d) 15,000 15,000
7.16% unsecured term note (e) 30,000 30,000
10.1% unsecured term note (f) 2,500 7,500
Secured debt (g) 9,234 12,494
6.3% to 10.5% capital lease obligations,
due through 2016 2,044 2,495
-------- --------
146,778 171,489
Less portion classified as current 12,091 9,711
-------- --------
$134,687 $161,778
======== ========
|
Haverty Furniture Companies, Inc. 28 1999 ANNUAL REPORT
(a) The Company has two five-year revolving credit facilities totaling $105,000,000 under which $53,800,000 had been borrowed at December 31, 1999. Borrowings of $45,000,000 have been excluded from current liabilities because the Company expects that at least such amount will remain outstanding under these facilities for an uninterrupted period through 2000. Borrowings under these facilities have either a bid rate option or floating rate of interest of LIBOR plus a varying amount.
(b) The note is payable in quarterly installments of $250,000, 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%.
(c) 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.
(d) 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.
(e) The note is payable in semi-annual installments of $2,143,000 commencing in October 2000 and matures in April 2007. Interest is payable quarterly.
(f) The note is payable in semi-annual installments of $2,500,000 plus interest payable quarterly and matures in April 2000.
(g) 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 6.5% at December 31, 1999) to 70% of prime rate due through 2007. The Company may pre-pay the floating-rate notes at any time without penalty. Property and equipment with a net book value at December 31, 1999 of $24,787,000 is pledged as collateral on secured debt.
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 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, 1999.
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, 1999, the Company had six outstanding interest rate swap agreements, having notional amounts aggregating $76,311,000. Two of the agreements effectively fix the average interest rate on the Company's $28,000,000 floating-rate term note at 8.2% through 2006. The remaining agreements are at rates ranging from 5.74% to 5.95% maturing in 2000, 2002 and 2008. 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 gains relating to such instruments of $1,007,000 at December 31, 1999.
Haverty Furniture Companies, Inc. 29 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate maturities of long-term debt and capital lease obligations during the five years subsequent to December 31, 1999 are as follows: 2000 - $12,091,000; 2001 - $11,259,000; 2002 - $11,179,000; 2003 - $12,812,000; and 2004 - $12,573,000. Cash payments for interest were $11,036,000, $12,933,000 and $14,321,000 in 1999, 1998 and 1997, respectively.
NOTE 8 - Income Taxes
Income tax expense (benefit) consists of the following (in thousands):
1999 1998 1997
-------- ------- -------
Current
Federal $ 16,665 $ 8,936 $ 8,027
State 1,182 296 141
-------- ------- -------
17,847 9,232 8,168
-------- ------- -------
Deferred
Federal (2,220) 220 (756)
State (157) 8 (12)
-------- ------- -------
(2,377) 228 (768)
-------- ------- -------
$ 15,470 $ 9,460 $ 7,400
======== ======= =======
|
The differences between income tax expense in the accompanying consolidated financial statements and the amount computed by applying the statutory Federal income tax rate is as follows (in thousands):
1999 1998 1997
-------- ------ ------
Statutory rates applied to income
before income taxes $ 15,005 $9,203 $7,275
State income taxes, net of
Federal tax benefit 768 192 92
Other (303) 65 33
-------- ------ ------
$ 15,470 $9,460 $7,400
======== ====== ======
|
Haverty Furniture Companies, Inc. 30 1999 ANNUAL REPORT
Deferred tax assets and liabilities as of December 31, 1999 and 1998 were as follows (in thousands):
1999 1998
------ -------
Deferred tax assets:
Accrued liabilities $3,415 $ 2,146
Capitalized leases 409 402
Net property and equipment 1,921 467
Operating leases 571 740
Alternative minimum tax credits 251 114
------ -------
Total deferred tax assets 6,567 3,869
------ -------
Deferred tax liabilities:
Accounts receivable related 3,031 3,434
Inventory related 1,199 571
Other 552 456
------ -------
Total deferred tax liabilities 4,782 4,461
------ -------
Net deferred tax assets (liabilities) $1,785 $ (592)
====== =======
|
The Company made income tax payments of $13,879,000, $8,033,000 and $11,084,000 in 1999, 1998 and 1997, respectively.
NOTE 9 - Stockholders' Equity
Common Stock has a preferential dividend rate of at least 105% of the dividend paid on Class A Common Stock. Class A Common Stock has greater voting rights which include: voting as a separate class for the election of 75% of the total number of directors of the Company and on all other matters subject to shareholder vote, each share of Class A Common Stock has ten votes and votes with the Common Stock as a single class. 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 Plans
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.
Haverty Furniture Companies, Inc. 31 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31 (in thousands):
1999 1998
-------- --------
Change in benefit obligation:
Benefit obligation at beginning of year $ 38,823 $ 33,041
Service cost 2,442 1,985
Interest cost 2,555 2,361
Actuarial (gains) losses (7,390) 3,109
Benefits paid (1,736) (1,673)
-------- --------
Benefit obligation at end of year 34,694 38,823
-------- --------
Change in plan assets:
Fair value of plan assets at beginning of year 38,841 33,616
Actual return on plan assets 3,953 6,615
Company contributions 146 283
Benefits paid (1,736) (1,673)
-------- --------
Fair value of plan assets at end of year 41,204 38,841
-------- --------
Plan assets in excess of projected benefit obligations 6,510 18
Unrecognized actuarial gain (9,515) (1,414)
Unrecognized prior service cost 598 729
Unrecognized net asset (139) (341)
-------- --------
Accrued pension expense included in
the consolidated balance sheet $ (2,546) $ (1,008)
======== ========
|
Net pension cost included the following components (in thousands):
1999 1998 1997
------- ------- -------
Service cost-benefits earned
during the period $ 2,442 $ 1,985 $ 1,655
Interest cost on projected
benefit obligations 2,555 2,361 2,157
Expected return on plan assets (3,242) (2,799) (2,364)
Amortization of prior service cost 131 131 131
Amortization of transition asset (202) (202) (202)
------- ------- -------
Net pension cost $ 1,684 $ 1,476 $ 1,377
======= ======= =======
|
Haverty Furniture Companies, Inc. 32 1999 ANNUAL REPORT
The weighted-average discount rates used in determining the actuarial present value of benefit obligations were 8.00%, 6.75% and 7.25% at December 31, 1999, 1998 and 1997, respectively. The annual rate of increase for future compensation was 6% for 1999, 1998 and 1997. The expected long-term rate of return on plan assets was 8.5% for 1999, 1998 and 1997. The plan's assets consist primarily of U.S. Government securities and listed stocks and bonds. Included in the plan assets at December 31, 1999, were 68,000 shares of the Company's Common Stock and 287,000 shares of the Company's Class A Common Stock with an aggregate fair value of $4,553,000. The plan received $65,000 for dividends on Company shares in 1999.
The Company has a non-qualified, non-contributory supplemental executive retirement plan (SERP) which covers six 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, 1999, the projected benefit obligation for these plans totaled $2,666,000 of which $1,902,000 is included in the accompanying consolidated balance sheet. Pension expense recorded under the SERPs amounted to approximately $347,000, $431,000 and $320,000 for 1999, 1998 and 1997, respectively.
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 $1,032,000 in 1999, $927,000 in 1998 and $842,000 in 1997 in matching employer contributions under 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, 1999, the maximum number of options which may be granted under the stock option plans was 388,700.
Haverty Furniture Companies, Inc. 33 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The table below summarizes options activity for the past three years under the Company's stock option plans.
Weighted
Option Average
Shares Price
--------- -------
Outstanding at December 31, 1996 2,160,892 $ 5.93
Granted 848,000 6.88
Exercised (202,742) 4.40
Canceled or expired (12,500) 5.46
--------- -------
Outstanding at December 31, 1997 2,793,650 6.33
Granted 552,800 10.10
Exercised (1,168,204) 6.29
Canceled or expired (23,900) 7.52
Outstanding at December 31, 1998 2,154,346 7.31
Granted 631,100 13.88
Exercised (407,400) 6.41
Canceled or expired (5,600) 10.13
--------- -------
Outstanding at December 31, 1999 2,372,446 $ 9.20
========= =======
Exercisable at end of year 1,335,462 $ 7.56
========= =======
|
All of the options outstanding at December 31, 1999, were for Common Stock. Exercise prices for options outstanding as of December 31, 1999, ranged from $5.38 to $13.88. As of December 31, 1999, there were 1,239,746 options outstanding with exercise prices ranging from $5.38 to $9.44 with a weighted-average exercise price of $6.44 and weighted-average remaining contractual life of 3 years. Exercisable options in this exercise range as of December 31, 1999, totaled 974,462 with a weighted-average exercise price of $6.33. As of December 31, 1999, there were 1,132,700 options outstanding with exercise prices ranging from $10.13 to $13.88 with a weighted-average exercise price of $12.22 and weighted-average remaining contractual life of 9.6 years. Exercisable options in this exercise range as of December 31, 1999, totaled 361,000 with a weighted-average exercise price of $10.86. Options granted prior to 1997 generally vest on the grant date; the remaining options vest over periods from within one year of grant date increasing to four years as the number of options granted to an individual increases.
In addition, the Company had shares available for future purchases under the Employee Stock Purchase Plan at December 31, 1999. 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
Haverty Furniture Companies, Inc. 34 1999 ANNUAL REPORT
meets the requirements of APB 25 as a non-compensatory plan. The Plan enables the Company to grant options to purchase up to 1,500,000 of Common Stock, of which 1,230,847 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 1999, options for 252,363 shares were exercised at an average price of $9.29 per share. At December 31, 1999, options for 150,000 shares were outstanding at an option price of $13.23 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 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 1999, 1998 and 1997, respectively: risk-free interest rate of 6.5%, 7.4% and 5.8%; dividend yield of 1.3%, 2.0% and 2.5%; volatility factors of the expected market price of the Company's Common Stock of 35.9%, 34.6% and 34.9%, and a weighted average expected life of the options of 5.5 years, except for those granted 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 $5.66, $3.85 and $2.23 for the years 1999, 1998 and 1997, respectively. The weighted-average fair value of options granted under the Employee Stock Purchase Plan was $2.82, $1.86, and $1.25 for the years 1999, 1998 and 1997, 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.
Haverty Furniture Companies, Inc. 35 1999 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (in thousands except per share data):
1999 1998 1997
------- ------- -------
Net income
As reported $27,400 $16,835 $13,387
Pro forma 25,530 15,762 12,771
Earnings per common share
As reported 1.23 0.73 0.57
Pro forma 1.15 0.69 0.55
|
NOTE 12 - Commitments
The Company leases certain property and equipment. Initial lease terms range from 5 years to 30 years and certain leases contain renewal options ranging from 1 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, 1999, 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
--------- --------
2000 $ 491 $ 17,053
2001 353 16,223
2002 288 15,678
2003 198 14,457
2004 144 13,184
Subsequent to 2004 1,890 69,459
Less total minimum sublease rentals (7,085)
---------
Net minimum lease payments $138,969
---------
Total minimum lease amounts 3,364
Amounts representing interest (1,320)
---------
Present value of future minimum lease payments $ 2,044
=========
|
Haverty Furniture Companies, Inc. 36 1999 ANNUAL REPORT
Rental expense applicable to operating leases consisted of the following (in thousands):
1999 1998 1997
-------- -------- --------
Property
Minimum $ 16,401 $ 15,786 $ 13,315
Additional rentals based on sales 1,170 995 588
Sublease income (2,334) (1,626) (1,049)
--------- --------- ---------
15,237 15,155 12,854
Equipment 4,200 3,878 3,793
--------- --------- ---------
$ 19,437 $ 19,033 $ 16,647
========= ========= =========
|
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, 1999 and 1998 (in thousands, except per share data):
1999 Quarter Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- --------
Net sales $149,781 $142,239 $157,875 $168,901
Gross profit 70,808 67,002 75,106 80,088
Credit service charges 3,980 3,834 3,643 3,468
Income before income taxes 9,829 7,765 11,237 14,039
Net income 6,290 4,970 7,192 8,948
Earnings per common share 0.28 0.22 0.32 0.41
Diluted earnings per common share 0.27 0.21 0.31 0.40
|
1998 Quarter Ended
March 31 June 30 Sept 30 Dec. 31
-------- ------- ------- -------
Net sales $129,368 $121,996 $139,004 $149,930
Gross profit 60,931 57,155 65,477 70,986
Credit service charges 4,298 4,301 4,300 4,061
Income before income taxes 5,241 3,180 7,297 10,577
Net income 3,354 2,035 4,706 6,740
Earnings per common share 0.14 0.09 0.21 0.30
Diluted earnings per common share 0.14 0.09 0.20 0.30
|
The quarter ended December 31, 1998 includes a $940,000 charge to recognize the future net lease expense for locations in which the Company has ceased operations.
Haverty Furniture Companies, Inc. 37 1999 ANNUAL REPORT
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, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.
/s/Ernst & Young ------------------- Atlanta, Georgia February 2, 2000 |
Haverty Furniture Companies, Inc. 38 1999 ANNUAL REPORT
STOCKHOLDER
MARKET PRICES AND DIVIDEND INFORMATION
On August 28, 1998, the Company's two classes of common stock began trading on The New York Stock Exchange ("NYSE"). The trading symbol for the Common Stock is HVT and for Class A Common Stock is HVT.A. Prior to trading on the NYSE, the Company's stock was listed on the Nasdaq National Market ("NNM") under the symbols HAVT and HAVTA. The table below sets forth the high and low sales prices per share as reported on either the NYSE or NNM, as applicable, and the dividends paid for the last two years:
1999 1998
Common Stock Class A Common Stock
------------ --------------------
Quarter Dividend Dividend
Ended High Low Declared High Low Declared
----- ---- --- -------- ---- --- --------
Mar. 31 $12 3/4 $ 9 1/8 $0.0425 $12 1/2 $ 8 1/2 $0.0400
June 30 17 13/16 11 13/16 0.0475 17 11 3/4 0.0450
Sept. 30 19 15/16 13 7/8 0.0500 18 1/2 14 3/4 0.0475
Dec. 31 16 1/8 11 1/2 0.0500 16 12 11/16 0.0475
Common Stock Class A Common Stock
------------ --------------------
Quarter Dividend Dividend
Ended High Low Declared High Low Declared
----- ---- --- -------- ---- --- --------
Mar. 31 $10 $6 5/8 $0.0400 $10 $6 3/8 $ 0.0375
June 30 12 9 1/8 0.0400 12 11/16 9 7/8 0.0375
Sept. 30 11 3/16 9 3/16 0.0425 10 9 3/4 0.0400
Dec. 31 11 3/16 8 11/16 0.0425 10 1/2 9 9/16 0.0400
|
Based on the number of individual participants represented by security position listings, there are approximately 3,400 holders of the Common Stock and 200 holders of the Class A Common Stock.
Haverty Furniture Companies, Inc. 39 1999 ANNUAL REPORT
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
NAME STATE OF INCORPORATION ------------------------------- ------------------------------- Havertys Capital, Inc. Nevada Havertys Credit Services, Inc. Tennessee Havertys Enterprises, Inc. Nevada |
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 February 2, 2000 included in the 1999 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. 333-53215) pertaining to the 1998 Stock Option Plan of Haverty Furniture Companies, Inc., the 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 February 2, 2000 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 20, 2000
|
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF HAVERTY FURNITURE COMPANIES INC. AND SUBSIDIARIES AS OF DECEMBER 31, 1999 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR |
| FISCAL YEAR END | DEC 31 1999 |
| PERIOD START | JAN 01 1999 |
| PERIOD END | DEC 31 1999 |
| CASH | 1,762 |
| SECURITIES | 0 |
| RECEIVABLES | 186,090 |
| ALLOWANCES | 7,000 |
| INVENTORY | 84,447 |
| CURRENT ASSETS | 271,678 |
| PP&E | 222,999 |
| DEPRECIATION | 96,002 |
| TOTAL ASSETS | 404,648 |
| CURRENT LIABILITIES | 98,434 |
| BONDS | 146,778 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 26,942 |
| OTHER SE | 141,851 |
| TOTAL LIABILITY AND EQUITY | 404,648 |
| SALES | 618,796 |
| TOTAL REVENUES | 633,721 |
| CGS | 325,792 |
| TOTAL COSTS | 0 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 4,125 |
| INTEREST EXPENSE | 11,402 |
| INCOME PRETAX | 42,870 |
| INCOME TAX | 15,470 |
| INCOME CONTINUING | 27,400 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 27,400 |
| EPS BASIC | 1.23 1 |
| EPS DILUTED | 1.19 1 |
| 1 | A TWO FOR ONE STOCK SPLIT OCCURRED EFFECTED IN THE FORM OF A STOCK DIVIDEND ON AUGUST 25, 1999. PRIOR FINANCIAL DATA SCHEDULES HAVE NOT BEEN RESTATED. |