Attached files
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[x]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
fiscal year ended December 31, 2009
OR
[ ]
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from ______ to ______
Commission
file
number: 1-1445
HAVERTY
FURNITURE COMPANIES, INC.
Maryland
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58-0281900
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(State
of Incorporation)
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(IRS
Employer Identification Number)
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780
Johnson Ferry Road, Suite 800
Atlanta,
Georgia
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30342
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(Address
of principal executive offices)
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(Zip
Code)
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(404)
443-2900
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(Registrant’s
telephone number, including area
code)
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Securities
registered pursuant to Section 12(b) of the Act:
Title
of each Class
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Name
of each exchange of which registered
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Common
Stock ($1.00 Par Value)
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New
York Stock Exchange, Inc.
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Class
A Common Stock ($1.00 Par Value)
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New
York Stock Exchange, Inc.
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Securities registered pursuant to
Section 12(g) of the Act: None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act.Yes ¨ No x
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 whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes ¨ No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K 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. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See definition of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
(Do
not check if a smaller reporting company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12B-2 of the Exchange Act). Yes ¨ No x
As of
June 30, 2009, the aggregate market value of the registrant’s common stock held
by non-affiliates of the registrant was $174,515,615 (based on the closing sale
prices of the registrant’s two classes of common stock as reported by the New
York Stock Exchange).
There
were 17,534,348 shares of common stock and 3,892,532 shares of Class A common
stock, each with a par value of $1.00 per share outstanding at February 28,
2010.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s Proxy Statement for the Annual Meeting of Stockholders to be
held May 10, 2010 are incorporated by reference in Part III.
HAVERTY
FURNITURE COMPANIES, INC.
Annual
Report on Form 10-K for the year ended December 31, 2009
Table
of Contents
Page
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PART
I
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Item
1.
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Business
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1
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Item
1A.
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Risk
Factors
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5
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Item
1B.
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Unresolved
Staff Comments
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9
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Item
2.
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Properties
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9
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Item
3.
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Legal
Proceedings
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10
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Item
4.
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Reserved
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10
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PART
II
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Item
5.
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Market
for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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11
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Item
6.
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Selected
Financial Data
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14
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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15
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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26
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Item
8.
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Financial
Statements and Supplementary Data
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27
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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27
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Item
9A.
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Controls
and Procedures
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27
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Item
9B.
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Other
Information
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30
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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30
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Item
11.
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Executive
Compensation
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31
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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31
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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32
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Item
14.
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Principal
Accounting Fees and Services
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32
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PART
IV
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Item
15.
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Exhibits,
Financial Statement Schedules
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32
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ITEM
1. BUSINESS
Unless
otherwise indicated by the context, we use the terms “Havertys," "we," "our," or
"us" when referring to the consolidated operations of Haverty Furniture
Companies, Inc.
This
document contains “forward-looking statements” – that is, statements related to
future, not past, events. In this context, forward-looking statements often
address our expected future business and financial performance and financial
condition.
Forward-looking
statements include, but are not limited to:
·
|
projections
of revenues, costs, earnings per share, capital expenditures, dividends or
other financial measures;
|
·
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descriptions
of anticipated plans or objectives of our management for operations or
products;
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·
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forecasts
of performance; and
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·
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assumptions
regarding any of the foregoing.
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Because
these statements involve anticipated events or conditions, forward-looking
statements often include words such as “anticipate,” “believe,” “estimate,”
“expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,”
“should,” “will,” “would,” or similar expressions. Do not unduly rely on
forward-looking statements. They represent our expectations about the future and
are not guarantees. Forward-looking statements are only as of the date they are
made and they might not be updated to reflect changes as they occur after the
forward-looking statements are made.
For
example, forward-looking statements include expectations regarding:
·
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sales
or comparable store sales;
|
·
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gross
profit;
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·
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SG&A
expenses; and
|
·
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capital
expenditures.
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Overview
Havertys
is a specialty retailer of residential furniture and accessories. Our founder,
J.J Haverty began the business in 1885 in Atlanta, Georgia with one store and
made deliveries using horse-drawn wagons. The Company grew to 18 stores and
accessed additional capital for growth through its initial public offering in
October 1929.
Havertys
has grown to over 100 stores in 17 states in the Southern and Midwest regions.
All of our stores are operated using the Havertys name and we do not franchise
our stores. We provide our customers a wide selection of products and styles
primarily in the middle to upper-middle price ranges. A majority of the
furniture merchandise we carry bears the Havertys brand. We also offer
nationally well-known bedding product lines of Sealy®, Serta® and
Tempur-Pedic®. We tailor our merchandise presentation to the needs
and tastes of the local markets we serve with a product mix that is roughly 12%
regionalized. This varietal mix allows us to offer more “coastal” or “western”
or “urban” looks to the appropriate markets.
We have
avoided utilizing lower quality, promotional price-driven merchandise favored by
many national chains, which we believe would devalue the Havertys brand with the
consumer. As an added convenience to our customers, we offer
financing through an internal revolving charge credit plan or by a third-party
finance company.
1
Revenues
The
following table sets forth the approximate percentage contributions by product
and service to our gross revenues for the past three years:
Year ended
December 31,
|
||||||||||||
2009
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2008
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2007
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||||||||||
Merchandise:
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||||||||||||
Living
Room Furniture
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48.4 | % | 48.2 | % | 48.1 | % | ||||||
Bedroom
Furniture
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20.4 | 21.4 | 21.3 | |||||||||
Dining
Room Furniture
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11.4 | 11.7 | 11.6 | |||||||||
Bedding
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10.1 | 9.4 | 10.1 | |||||||||
Accessories
and Other (1)
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9.5 | 9.0 | 8.6 | |||||||||
Credit
Service Charges
|
0.2 | 0.3 | 0.3 | |||||||||
100.0 | % | 100.0 | % | 100.0 | % |
(1) Includes
delivery charges and product protection.
Stores
We strive
to have our stores reflect the distinctive style and comfort consumers expect to
find when purchasing their home furnishings. The store’s curb appeal
is important to the type of middle to upper-middle income consumer that we
target and our use of classical facades and attractive landscaping complements
the quality and style of our merchandise. Interior details such as
floor surfaces, lighting and music have been carefully chosen as backgrounds for
a pleasant and inviting shopping experience. We persistently review
our showrooms’ floor layouts to ensure that we are merchandising in the best
manner.
As of
December 31, 2009, we operated 121 stores serving 80 cities in 17 states. We
have executed a program of remodeling and expanding showrooms and replacing
older smaller stores in growth markets with new larger stores, closing certain
locations and moving into new markets. Accordingly, the number of retail
locations has increased by 18 since the end of 1999, but total square footage
has increased approximately 25%.
The
downturn in the retail sector has generated a number of available “empty boxes”
and we are considering select locations within our geographic
footprint. We are also evaluating our existing stores for relocation
or closure. Two stores that reached the end of their lease were
closed in early 2010. We expect to reduce our retail square footage
by 1% to 2% in 2010.
Internet
Our
website has proven to be useful in reaching the growing number of consumers that
use the internet to pre-shop before going to a store. The site also
provides our sales associates a tool to further engage the customer while she is
in the store and extend her shopping experience when she returns
home. We limit on-line sales of our furniture to within our delivery
network, and accessories to the continental United States. We believe
that a direct-to-customer business complements our retail store operations by
building brand awareness and is an effective advertising vehicle.
The first
stage of our improved website went live in early October 2007 and featured
enhanced shopping, consumer product reviews, credit application and delivery
availability. Our site now provides consumers with room planners,
allows them to develop “wish lists,” place orders on-line and set delivery of
their purchases. Post-purchase features include “follow the
truck” for deliveries and customer service opportunities. Our
website received approximately 6 million unique visitors during 2009, a 17%
increase over 2008.
2
Suppliers
We have
developed strong relationships with our suppliers and believe that we receive
excellent pricing and service from our key vendors due to the volume and
reliability of our purchase commitments. We buy our merchandise from
numerous foreign and domestic manufacturers and importers, the largest of which
accounted for approximately 9% of our purchasing during
2009. Wood products, or “case goods,” are generally imported
from Asia, with less than 7% of our selected case goods at December 31, 2009
produced domestically. Upholstered items are not as heavily imported,
with the exception of our leather products. Approximately 93% of our
leather merchandise was imported from Mexico or Asia during 2009.
Competition
The
retail sale of home furnishings is a highly fragmented and competitive business.
The degree and source of competition vary by geographic area. We compete with
numerous individual retail furniture stores as well as chains and certain
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. Furniture
manufacturers have also opened their own dedicated retail stores in an effort to
control and protect the distribution prospects of their branded
merchandise.
We
believe Havertys is uniquely positioned in the marketplace, with a targeted mix
of merchandise that appeals to customers who are somewhat more affluent than
those of competitive price-oriented furniture store chains. We believe that our
customer segment responds more cautiously to typical discount promotions and
focuses on the product quality and customer service offered by a retailer. We
believe our ability to make prompt delivery of orders through maintenance of
inventory and to tailor merchandise to customers’ desires on a local market
basis are significant competitive advantages. We also consider our experienced
sales personnel and customer service as important factors in our competitive
success.
Employees
As of
December 31, 2009, we had approximately 3,000 employees: 2,310 in individual
retail store operations, 150 in our corporate and credit operations, 40 in our
customer-service call centers, and 500 in our warehouse and delivery
points. Our full-time headcount decreased by approximately 16%
in 2009 compared to 2008. These reductions were necessary to align
staffing levels with the sales declines. None of our employees are a
party to any union contract.
Trademarks
and Domain Names
We have
registered our various logos, trademarks and service marks. We
believe that our trademark position is adequately protected in all markets in
which we do business. In addition, we have registered and
maintain numerous internet domain names including
“havertys.com.” Collectively, the trademarks, service marks and
domain names that we hold are of material importance to us. We
believe that our trade names are recognized by consumers and are associated with
a high level of quality, value and service.
Governmental
Regulation
Our
operations are required to meet federal, state and local regulatory standards in
the areas of safety, health and environmental pollution controls. Historically,
compliance with these standards has not had a material adverse effect on our
operations. We believe that our facilities are in compliance, in all material
respects,
with applicable federal, state and local laws and regulations concerned with
safety, health and environmental protection.
3
The
products we sell are subject to federal regulatory standards including, but not
limited to, those outlined in the Consumer Product Safety Improvement
Act. We have processes in place to ensure compliance with these
standards and that these processes are adjusted as necessary for changes in the
regulations. We believe that the products we sell are in substantial
compliance with the regulatory standards governing such products.
The
extension of credit to consumers is a highly regulated area of our business.
Numerous federal and state laws impose disclosure and other requirements on the
origination, servicing and enforcement of credit accounts. These laws include,
but are not limited to, the Federal Truth and Lending Act, Equal Credit
Opportunity Act, Credit CARD Act, and Federal Trade Commission Act. State laws
impose limitations on the maximum amount of finance charges that we can charge
and also impose other restrictions on consumer creditors, such as us, including
restrictions on collection and enforcement. We routinely review our contracts
and procedures to ensure compliance with applicable consumer credit laws.
Failure on our part to comply with applicable laws could expose us to
substantial penalties and claims for damages and, in certain circumstances, may
require us to refund finance charges already paid and to forego finance charges
not yet paid under non-complying contracts. We believe that we are in
substantial compliance with all applicable federal and state consumer credit and
collections laws.
For
More Information About Us
Filings
with the SEC
As a
public company, we regularly file reports and proxy statements with the
Securities and Exchange Commission. These reports are required by the Securities
Exchange Act of 1934 and include:
·
|
annual
reports and Form 10-K (such as this
report);
|
·
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quarterly
reports on Form 10-Q;
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·
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current
reports on Form 8-K; and
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·
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proxy
statements on Schedule 14A.
|
The SEC
maintains an internet site that contains our reports, proxy and information
statements, and our other SEC filings; the address of that site is
http://www.sec.gov.
Also, we
make our SEC filings available on our own internet site as soon as reasonably
practicable after we have filed with the SEC. Our internet address is
http://www.havertys.com. The information on our website is not
incorporated by reference into this annual report on Form 10-K.
Corporate
Governance
We have a
Code of Business Conduct for our employees and members of our Board of
Directors. A copy of the code and additional information about our corporate
governance guidelines are posted on our website. Click on the “About
Us” and then “Corporate Governance” buttons to find, among other
things:
·
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Corporate
Governance Guidelines;
|
·
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Charter
of the Audit Committee;
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·
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Charter
of the Compensation Committee; and
|
·
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Charter
of the Governance and Nominating
Committee.
|
4
Any of
these items are available in print free of charge to any stockholder who
requests them. Requests should be sent to Corporate Secretary, Haverty Furniture
Companies, Inc., 780 Johnson Ferry Road, Suite 800, Atlanta,
Georgia 30342.
ITEM
1A. RISK FACTORS
The
following discussion of risk factors contains “forward-looking statements,” as
discussed in Item 1. “Business”. These risk factors may be important to
understanding any statement in this Annual Report on Form 10-K or elsewhere. The
following information should be read in conjunction with Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” (MD&A), and the consolidated financial statements and related
notes in Part II, Item 8. “Financial Statements and Supplementary Data” of this
Form 10-K Report.
We
routinely encounter and address risks, some of which will cause our future
results to be different – sometimes materially different – than we presently
anticipate. Below, we describe certain important operational and strategic
risks. Our reactions to material future developments as well as our competitors’
reactions to those developments will affect our future results.
Changes in economic conditions could
adversely affect demand for our products.
A large
portion of our sales represent discretionary spending by our customers. A number
of economic factors, including, but not limited to availability of consumer
credit, interest rates, consumer confidence and debt levels, retail trends,
housing starts, sales of existing homes, and the level of mortgage refinancing,
generally affect demand for our products. Higher unemployment rates, higher fuel
and other energy costs, and higher tax rates adversely affect demand. The
decline in economic activity and conditions in the markets in which we operate
has, and may continue to, adversely affect our financial condition and results
of operations for the foreseeable future.
The
financial crisis could adversely affect our business and financial
performance.
The
ongoing financial crisis has tightened credit markets and lowered liquidity
levels. Lower credit availability may increase borrowing costs. Some of our
suppliers are experiencing serious financial problems due to reduced access to
credit and lower revenues. Financial duress may prompt some of our suppliers to
seek to renegotiate terms with us, reduce production or file for bankruptcy
protection. Our customers may be unable to obtain financing to purchase products
and meet their payment obligations to us. The occurrence of these
events may adversely affect our operations, earnings, cash flows and/or
financial position.
We
face significant competition from national, regional and local retailers of home
furnishings.
The
retail market for home furnishings is highly fragmented and intensely
competitive. We currently compete against a diverse group of retailers,
including national department stores, regional or independent specialty stores,
and dedicated franchises of furniture manufacturers. National mass merchants
such as COSTCO also have limited product offerings. We also compete with
retailers that market products through store catalogs and the Internet. In
addition, there are few barriers to entry into our current and contemplated
markets, and new competitors may enter our current or future markets at any
time.
5
We
may not be able to compete successfully against existing and future competitors.
Some of our competitors have financial resources that are substantially greater
than ours and may be able to purchase inventory at lower costs and better
sustain economic downturns. Our competitors may respond more quickly to new or
emerging technologies and may have greater resources to devote to promotion and
sale of products.
Our
existing competitors or new entrants into our industry may use a number of
different strategies to compete against us, including:
·
|
aggressive
advertising, pricing and marketing;
|
·
|
extension
of credit to customers on terms more favorable than we
offer;
|
·
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larger
store size, which may result in greater operational efficiencies, wider
product assortments or innovative store
formats;
|
·
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adoption
of improved retail sales methods;
and
|
·
|
expansion
by our existing competitors or entry by new competitors into markets where
we currently operate.
|
Competition
from any of these sources could cause us to lose market share, revenues and
customers, increase expenditures or reduce prices, any of which could have a
material adverse effect on our results of operations.
If
new products are not introduced or consumers do not accept new products, our
sales may decline.
Our
ability to maintain and increase revenues depends to a large extent on the
periodic introduction and availability of new products. We believe that the
introduction and consumer acceptance of our proprietary Havertys brand is a
significant part of our ability to maintain or increase revenues. These products
are subject to fashion changes and pricing limitations which could affect the
success of these and other new products.
If
we fail to anticipate changes in consumer preferences, our sales may
decline.
Our
products must appeal to our target consumers whose preferences cannot be
predicted with certainty and are subject to change. Our success depends upon our
ability to anticipate and respond in a timely manner to fashion trends relating
to home furnishings. If we fail to identify and respond to these changes, our
sales of these products may decline. In addition, we often make commitments to
purchase products from our vendors in advance of proposed delivery dates.
Significant deviation from the projected demand for products that we sell may
have a material adverse effect on our results of operations and financial
condition, either from lost sales or lower margins due to the need to reduce
prices to dispose of excess inventory.
We
import a substantial portion of our merchandise from foreign sources. Changes in
exchange rates or tariffs could impact the price we pay for these goods,
resulting in potentially higher retail prices and/or lower gross profit on these
goods.
During
2009, approximately 71% of our furniture purchases, on a dollar basis were for
goods not produced domestically. All of these purchases were denominated in U.S.
dollars. As exchange rates between the U.S. dollar and certain other currencies
become unfavorable, the likelihood of price increases from our vendors
increases. Some of the products we purchase are also subject to tariffs. If
tariffs are imposed on additional products or the tariff rates are increased our
vendors may increase their prices. Such price increases, if they occur, could
have one or more of the following impacts:
·
|
we
could be forced to raise retail prices so high that we are unable to sell
the products at current unit
volumes;
|
6
·
|
if
we are unable to raise retail prices commensurately with the costs
increases, gross profit as recognized under our LIFO inventory accounting
method could be negatively impacted;
or
|
·
|
we
may be forced to find alternative sources of comparable product, which may
be more expensive than the current product, of lower quality, or the
vendor may be unable to meet our requirements for quality, quantities,
delivery schedules or other key
terms.
|
Fluctuations and volatility in the
cost of raw materials and components could adversely affect our
profits.
The
primary materials our vendors use to produce and manufacture our products are
various woods and wood products, resin, steel, leather, cotton, and certain oil
based products. On a global and regional basis, the sources and prices of those
materials and components are susceptible to significant price fluctuations due
to supply/demand trends, transportation costs, government regulations and
tariffs, changes in currency exchange rates, price controls, the economic
climate, and other unforeseen circumstances. Significant increases in these and
other costs in the future could materially affect our vendors’ costs and our
profits as discussed above.
As
a result of our reliance on foreign sourcing our ability to service customers
could be adversely affected and result in lower sales and earnings.
Our
overseas vendors may not supply goods that meet our quality specifications or
are in conformity with the regulations set forth in the Consumer Product Safety
Improvements Act or other federal regulations. If suppliers do not
provide a general conformity certificate then U.S. Customs may turn the goods
away at the port. We may reject product that does not meet our
specifications. Accordingly, we may be forced to find alternative
sourcing arrangements at a higher cost or to discontinue the
product.
Our
revenue could be adversely affected by a disruption in our supply
chain.
Disruptions
to our supply chain could result in late arrivals of product. This could
negatively affect sales due to increased levels of out-of-stock merchandise and
loss of confidence by customers in our ability to deliver goods as
promised.
The
rise of oil and gasoline prices could affect our profitability.
A
significant increase in oil and gasoline prices could adversely affect our
profitability. Our distribution system, which utilizes three distribution
centers and multiple home delivery centers to reach our markets across 17
Southern and Midwestern states, is very transportation dependent. Additionally,
we deliver substantially all of our customers’ purchases to their
homes.
If
transportation costs exceed amounts we are able to effectively pass on to the
consumer, either by higher prices and/or higher delivery charges, then our
profitability will suffer.
Our business depends on our ability
to meet our labor needs.
Our
success depends on hiring and retaining quality managers and sales associates to
maintain consistency in the high level of customer service in our stores. Also,
our sales associates are compensated under a commission structure which
historically fosters a high rate of turnover. We are also dependent
on the employees who staff our distribution centers, many of whom are skilled.
We may be unable to meet our labor needs and control our costs due to external
factors such as unemployment levels, minimum wage legislation and wage
inflation. Although none of our employees are currently covered under collective
bargaining agreements, we cannot guarantee that our employees will not elect to
be represented by labor unions in the future.
7
Because
of our limited number of distribution centers, should one become damaged, our
operating results could suffer.
We
utilize three large distribution centers to flow our merchandise from the vendor
to the consumer. This system is very efficient for reducing inventory
requirements, but makes us operationally vulnerable should one of these
facilities become damaged.
Our
information technology infrastructure is vulnerable to damage that could harm
our business.
Our
ability to operate our business from day to day, in particular our ability to
manage our point-of-sale, credit operations and distribution system, largely
depends on the efficient operation of our computer hardware and software
systems. We use management information systems to communicate customer
information, provide real-time inventory information, manage our credit
portfolio and to handle all facets of our distribution system from receiving of
goods in the DCs to delivery to our customers’ homes. These systems and our
operations are vulnerable to damage or interruption from:
·
|
power
loss, computer systems failures and Internet, telecommunications or data
network failures.
|
·
|
operator
negligence or improper operation by, or supervision of,
employees;
|
·
|
physical
and electronic loss of data or security breaches, misappropriation and
similar events;
|
·
|
computer
viruses;
|
·
|
intentional
acts of vandalism and similar events;
and
|
·
|
tornadoes,
fires, floods and other natural
disasters.
|
Any
failure due to any of these causes, if it is not supported by our disaster
recovery plan and redundant systems, could cause an interruption in our
operations and result in reduced net sales and profitability.
We
may incur costs resulting from security risks we face in connection with our
electronic processing and transmission of confidential customer
information.
We accept
electronic payment cards for payment in our stores. During 2009, approximately
50% of our sales were attributable to credit card transactions, and credit card
usage could continue to increase.
We may in
the future become subject to claims for purportedly fraudulent transactions
arising out of the actual or alleged theft of credit or debit card information,
and we may also be subject to lawsuits or other proceedings in the future
relating to these types of incidents. Proceedings related to theft of credit or
debit card information may be brought by payment card providers, banks and
credit unions that issue cards, cardholders (either individually or as part of a
class action lawsuit) and federal and state regulators. Any such proceedings
could distract our management from running our business and cause us to incur
significant unplanned losses and expenses. Consumer perception of our brand
could also be negatively affected by these events, which could further adversely
affect our results and prospects.
Significant
differences between actual results and estimates of the amount of future funding
for our pension plans and significant changes in funding assumptions or
significant increases in funding obligations due to regulatory changes could
adversely affect our financial results.
We have a
funded non-contributory defined benefit pension plan that covers most of our
employees. We also have an unfunded non-qualified, non-contributory
supplemental executive retirement plan (SERP). The Employee
Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code
govern the funding obligations for our pension plans. Our defined
benefit plan was frozen as of December 31, 2006 for substantially all
participants. For 2007 and beyond, Havertys employees may participate in our
enhanced defined contribution plan.
As of
December 31, 2009, our projected benefit obligations under our retirement plans
exceeded the fair value of plan assets by an aggregate of approximately $14.4
million ($9.6 million of which was
8
attributable
to the defined pension plan and $4.8 million of which was attributable to the
SERP). Estimates for the amount and timing of the future funding obligations of
these plans are based on various assumptions. These assumptions include the
discount rates and expected long-term rate of return on plan assets. These
assumptions are subject to change based on interest rates on high quality bonds,
and stock and bond market returns. Significant differences in results
or significant changes in assumptions may materially affect our retirement plan
obligations and related future contributions and expense.
The terms of our revolving credit
facility impose operating and financial restrictions on us, which may constrain
our ability to respond to changing business and economic conditions. This
constraint could have a significant adverse impact on our
business.
Our
current revolving credit facility contains provisions which restrict our ability
to, among other things, incur additional indebtedness, issue additional shares
of capital stock in certain circumstances, make particular types of investments,
incur certain types of liens, pay cash dividends, redeem capital stock,
consummate mergers of certain sizes, enter into transactions with affiliates or
make substantial asset sales. In addition, our obligations under the revolving
credit facility are secured by interests in substantially all of our personal
property, primarily our inventories, accounts receivable and cash, excluding
store and distribution center equipment and fixtures. In the event of a
significant loss in value of our inventory the amount available to borrow will
be reduced and may place us in default. In the event of insolvency,
liquidation, dissolution or reorganization, the lenders under our revolving
credit facility would be entitled to payment in full from our assets before
distributions, if any, were made to our stockholders.
If we are
unable to generate sufficient cash flows from operations in the future, we may
have to refinance all or a portion of our debt and/or obtain additional
financing. We cannot assure you that refinancing or additional financing on
favorable terms could be obtained.
Use
of Estimates
Our
Consolidated Financial Statements and accompanying Notes include estimates and
assumptions made by Management that affect reported amounts. Actual results
could differ materially from those estimates.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
Not
applicable.
ITEM
2. PROPERTIES
Stores
Our
retail store space at December 31, 2009 totaled approximately 4,278,000 square
feet for 121 stores compared to 4,292,000 square feet for 122 stores at December
31, 2008. The following table sets forth the number of stores we
operated at December 31, 2009 by state for our 121 locations:
State
|
Number
of Stores
|
State
|
Number
of Stores
|
|
Florida
|
28
|
Kentucky
|
4
|
|
Texas
|
21
|
Maryland
|
3
|
|
Georgia
|
16
|
Arkansas
|
2
|
|
Virginia
|
9
|
Mississippi
|
1
|
|
North
Carolina
|
8
|
Ohio
|
2
|
|
Alabama
|
7
|
Indiana
|
1
|
|
South
Carolina
|
7
|
Kansas
|
1
|
|
Tennessee
|
6
|
Missouri
|
1
|
|
Louisiana
|
4
|
9
The 41
retail locations which we owned at December 31, 2009, had a net book value of
land and buildings of $95.7 million. Additionally, we have three
leased locations with a net book value of $6.2 million which, due to financial
accounting rules, are included in our financial statements. The
remaining 77 locations are leased by us with various termination dates through
2025 plus renewal options.
Distribution
Facilities
We lease
or own regional distribution facilities in the following locations:
Location
|
Owned
or Leased
|
Approximate
Square Footage
|
Braselton,
Georgia
|
Leased
|
808,000
|
Coppell,
Texas
|
Owned
|
238,000
|
Lakeland,
Florida
|
Owned
|
226,000
|
Colonial
Heights, Virginia
|
Owned
|
129,000
|
Fairfield,
Ohio
|
Leased
|
50,000
|
Jackson,
Mississippi
|
Leased
|
26,000
|
We also
use five smaller leased cross-dock facilities, one of which is attached to a
retail location.
Corporate
Facilities
Our
executive and administrative offices are located at 780 Johnson Ferry Road,
Suite 800, Atlanta, Georgia. These leased facilities contain approximately
48,000 square feet of office space on two floors of a mid-rise office building.
Havertys Credit leases 7,000 square feet of office space in Chattanooga,
Tennessee.
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 to which we are a party or of which any of
our properties is the subject.
ITEM
4. RESERVED
10
PART
II
ITEM
5.
|
MARKET
FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Market
Information
The
Company’s common stock and Class A common stock are traded on the New York Stock
Exchange under the trading symbols “HVT” and “HVTA”. Information
regarding the high and low sales prices per share of both classes of common
stock in 2009 and 2008 is included in Note 16, “Market Prices and Dividend
Information,” to the Company’s Consolidated Financial Statements.
Stockholders
The
number of stockholders was approximately 2,850 for our common stock and 250 for
our Class A common stock as of December 31 2009.
Dividends
The
payment of dividends and the amount are determined by the Board of Directors and
depend upon, among other factors, our earnings, operations, financial condition,
capital requirements and general business outlook at the time such dividend is
considered. We had paid a quarterly cash dividend since 1935 but
given the general economic decline, the board suspended the dividend in the
fourth quarter of 2008. The board approved a dividend in the fourth
quarter of 2009. Information regarding the payments of dividends for
2009 and 2008 is included in Note 16, “Market Prices and Dividend Information,”
to our Consolidated Financial Statements
Equity
Compensation Plans
Information concerning
the Company’s equity compensation plans is set forth in Item 11 of Part II of
this Annual Report on Form 10-K.
11
Stock
Performance Graph
The
following graph compares the performance of Havertys’ common stock and Class A
common stock against the cumulative return of the NYSE/AMEX/Nasdaq Home
Furnishings & Equipment Stores Index (SIC Codes 5700 – 5799) and the S&P
Smallcap 600 Index for the period of five years commencing December 31, 2004 and
ended December 31, 2009. The graph assumes an initial investment of
$100 on January 1, 2004 and reinvestment of dividends.
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
|||||||||||||||||||
HVT
|
$ | 100.0 | $ | 70.98 | $ | 83.06 | $ | 51.70 | $ | 54.69 | $ | 80.65 | ||||||||||||
HVT-A
|
$ | 100.0 | $ | 74.55 | $ | 88.36 | $ | 54.67 | $ | 59.57 | $ | 85.14 | ||||||||||||
S&P
600 Index – Total Return
|
$ | 100.0 | $ | 107.68 | $ | 123.96 | $ | 123.59 | $ | 85.19 | $ | 106.98 | ||||||||||||
SIC
Codes 5700-5799
|
$ | 100.0 | $ | 117.92 | $ | 117.70 | $ | 108.88 | $ | 60.61 | $ | 89.75 |
12
We are
also presenting a ten-year performance graph comparing the yearly percentage
change in the cumulative total stockholder return on Havertys’ common stock and
Class A common stock against the cumulative return of the NYSE/AMEX/Nasdaq Home
Furnishings & Equipment Stores Index (SIC Codes 5700-5799) and the S&P
Smallcap 600 Index for the period of ten years commencing December 31, 1999, and
ended December 31, 2009. The graph assumes an initial investment of
$100 on January 1, 1999 and reinvestment of dividends.
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
||||||||||||||||||||||||||||||||||
HVT
|
$ | 100.00 | $ | 79.66 | $ | 135.55 | $ | 115.50 | $ | 167.55 | $ | 158.15 | $ | 112.26 | $ | 131.37 | $ | 81.77 | $ | 86.50 | $ | 127.55 | ||||||||||||||||||||||
HVT-A
|
$ | 100.00 | $ | 75.59 | $ | 131.08 | $ | 113.87 | $ | 164.95 | $ | 145.50 | $ | 108.47 | $ | 128.56 | $ | 79.55 | $ | 86.67 | $ | 123.87 | ||||||||||||||||||||||
S&P
600 Index
Total
Return
|
$ | 100.00 | $ | 118.80 | $ | 119.11 | $ | 101.68 | $ | 141.13 | $ | 173.09 | $ | 186.39 | $ | 214.56 | $ | 213.92 | $ | 147.46 | $ | 185.17 | ||||||||||||||||||||||
SIC
Codes
5700-5799
|
$ | 100.00 | $ | 56.64 | $ | 68.40 | $ | 43.82 | $ | 67.92 | $ | 70.76 | $ | 83.44 | $ | 83.28 | $ | 77.04 | $ | 42.88 | $ | 63.50 |
13
ITEM
6. SELECTED
FINANCIAL DATA
The
following selected financial data should be read in conjunction with
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in Item 7 below and the Consolidated Financial Statements
and Notes thereto included in Item 8 below.
Year
ended December 31,
|
||||||||||||||||||||
(Dollars
in thousands, except per share data)
|
2009
|
2008
|
2007
|
2006
|
2005
|
|||||||||||||||
Net
sales
|
$ | 588,264 | $ | 691,079 | $ | 784,613 | $ | 859,101 | $ | 827,658 | ||||||||||
Gross
profit
|
305,498 | 357,089 | 389,750 | 426,155 | 395,567 | |||||||||||||||
Percent
of net sales
|
51.9 | % | 51.7 | % | 49.7 | % | 49.6 | % | 47.8 | % | ||||||||||
Selling,
general and administrative expenses
|
310,523 | 364,080 | 391,105 | 404,518 | 377,435 | |||||||||||||||
Percent
of net sales
|
52.8 | % | 52.7 | % | 49.8 | % | 47.1 | % | 45.6 | % | ||||||||||
(Loss)
income before income taxes
|
(5,408 | ) | (6,532 | ) | 1,944 | 25,624 | 23,554 | |||||||||||||
Net
(loss) income1
|
(4,179 | ) | (12,101 | ) | 1,758 | 16,000 | 15,054 | |||||||||||||
Basic
net (loss) earnings per share
|
||||||||||||||||||||
Common
Stock
|
$ | (0.20 | ) | $ | (0.57 | ) | $ | 0.08 | $ | 0.72 | $ | 0.67 | ||||||||
Class
A
|
$ | (0.19 | ) | $ | (0.55 | ) | $ | 0.07 | $ | 0.67 | $ | 0.63 | ||||||||
Diluted net
(loss) earnings per share
|
||||||||||||||||||||
Common
Stock
|
$ | (0.20 | ) | $ | (0.57 | ) | $ | 0.08 | $ | 0.70 | $ | 0.66 | ||||||||
Class
A
|
$ | (0.19 | ) | $ | (0.55 | ) | $ | 0.07 | $ | 0.67 | $ | 0.63 | ||||||||
Cash
dividends:
|
$ | 473 | $ | 4,246 | $ | 5,979 | $ | 6,014 | $ | 5,678 | ||||||||||
Amount
per share:
|
||||||||||||||||||||
Common
Stock
|
$ | 0.0225 | $ | 0.2025 | $ | 0.270 | $ | 0.270 | $ | 0.255 | ||||||||||
Class
A
|
$ | 0.0200 | $ | 0.1875 | $ | 0.250 | $ | 0.250 | $ | 0.235 | ||||||||||
Accounts
receivable, net
|
$ | 16,143 | $ | 26,383 | $ | 66,751 | $ | 78,970 | $ | 91,110 | ||||||||||
Credit
service charges
|
1,210 | 1,974 | 2,450 | 2,823 | 3,506 | |||||||||||||||
Provision
for doubtful accounts
|
978 | 1,654 | 1,328 | 656 | 1,011 | |||||||||||||||
Inventories
|
$ | 93,301 | $ | 103,743 | $ | 102,452 | $ | 124,764 | $ | 107,631 | ||||||||||
Capital
expenditures
|
$ | 3,259 | $ | 9,544 | $ | 13,830 | $ | 23,640 | $ | 35,007 | ||||||||||
Depreciation/amortization
expense
|
19,346 | 21,603 | 22,416 | 21,663 | 21,035 | |||||||||||||||
Property
and equipment, net
|
176,363 | 197,423 | 209,912 | 221,245 | 217,391 | |||||||||||||||
Total
assets
|
$ | 360,933 | $ | 363,393 | $ | 421,937 | $ | 469,754 | $ | 463,052 | ||||||||||
Long-term
debt, including current portion
|
$ | 7,183 | $ | 7,494 | $ | 28,684 | $ | 37,849 | $ | 44,161 | ||||||||||
Total
debt
|
7,183 | 7,494 | 28,684 | 50,449 | 48,461 | |||||||||||||||
Interest
expense (income), net
|
805 | 390 | (1,307 | ) | (363 | ) | 1,362 | |||||||||||||
Accounts
receivable, net to debt
|
224.7 | % | 352.1 | % | 232.7 | % | 156.6 | % | 188.0 | % | ||||||||||
Debt
to total capital
|
2.9 | % | 3.0 | % | 9.3 | % | 14.7 | % | 14.8 | % | ||||||||||
Stockholders’
equity
|
$ | 244,557 | $ | 244,968 | $ | 278,845 | $ | 291,923 | $ | 279,270 | ||||||||||
Shares
outstanding (in thousands):
|
||||||||||||||||||||
Common
|
17,519 | 17,291 | 17,308 | 18,473 | 18,133 | |||||||||||||||
Class
A
|
3,908 | 4,032 | 4,136 | 4,202 | 4,306 | |||||||||||||||
Total
shares
|
21,427 | 21,323 | 21,444 | 22,675 | 22,439 | |||||||||||||||
Other
Supplemental Data:
|
||||||||||||||||||||
Employees
|
3,000 | 3,600 | 4,200 | 4,500 | 4,400 | |||||||||||||||
Retail
sq. ft. (in thousands)
|
4,278 | 4,292 | 4,324 | 4,208 | 4,144 | |||||||||||||||
Number
of retail locations
|
121 | 122 | 123 | 120 | 118 | |||||||||||||||
Annual
net sales per weighted average sq. ft.
|
$ | 139 | $ | 160 | $ | 186 | $ | 206 | $ | 202 |
(1)
|
During
the fourth quarter of 2008 we recorded an $8.2 million charge to income
tax expense to record a valuation allowance on certain of our deferred tax
assets. For additional information see page 20 in Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
|
14
ITEM
7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We focus
on several key metrics in managing and evaluating our operating performance and
financial condition including the following: comparable store sales,
sales per square foot, gross profit, operating costs as a percentage of sales,
cash flow, total debt to total capital, and earnings (loss) per
share.
Our sales
are generated by customer purchases of home furnishings in our retail stores or
via our website and recorded as revenue when delivered to the
customer. There is typically a two-week lag between a customer
placing an order and their ability to arrange their schedule for
delivery. Comparable-store or “comp-store” sales is a measure which
indicates the performance of our existing stores by comparing the growth in
sales for these stores for a particular period over the corresponding period in
the prior year. Stores are considered non-comparable if open for less
than 12 full calendar months or if the selling square footage has been changed
significantly during the past 12 full calendar months. Large
clearance sales events from warehouses or temporary locations are also excluded
from comparable store sales, as are periods when stores are closed or being
remodeled. As a retailer, comp-store sales is an indicator of relative customer
spending and store performance.
Our cost
of sales consist primarily of the purchase price of the merchandise together
with inbound freight, handling within our distribution centers and
transportation costs to the local markets we serve. Our gross profit
is primarily dependent upon vendor pricing, the mix of products sold and
promotional pricing activity. Many retailers have used the lower
costs from overseas production to support their heavy promotional
pricing. Our approach has been to offer products with greater value
at our established middle to upper-middle price points. Substantially all of our
occupancy and home delivery costs are included in selling, general and
administrative expenses as is a portion of our warehousing
expenses. Accordingly, our gross profit may not be comparable to
those entities that include these expenses in cost of goods sold.
The
longer lead times required for deliveries from overseas factories and the
production of merchandise exclusively for Havertys makes it imperative for us to
have both warehousing capabilities and effective supply chain
control. Our Eastern Distribution Center has sufficient capacity to
store imported goods and flow product from our domestic upholstery
suppliers. Our distribution facilities are currently under utilized
due to the severe recession in retail home furniture sales. We
believe our infrastructure could service $1 billion in sales. During
2008 and 2009 we made significant reductions in our warehouse and distribution
workforce in response to the lower sales levels. Product flow
from overseas manufacturers is currently particularly
challenging. Our merchandising and advertising teams provide input to
the ordering process such that we currently have overall inventory levels within
an appropriate range and have reduced the amount of written sales awaiting
product for delivery. Advancements in the availability of real-time
information allow our supply chain team to more closely follow our import orders
from the manufacturing plant through each stage of transit. Using
this tool we can more accurately set customer delivery dates prior to receipt of
product.
Cash
flows continued to be strong during 2009 as we reduced costs and managed our
inventories and generated a $40.8 million increase in cash. Our total
debt to total capital was 2.9% at December 31, 2009.
15
Operating
Results
The
following table sets forth for the periods indicated selected statement of
operations data, expressed as a percentage of net sales:
Percentage
of Net Sales
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Net
Sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost
of sales
|
48.1 | 48.3 | 50.3 | |||||||||
Gross
profit
|
51.9 | 51.7 | 49.7 | |||||||||
Credit
service charges
|
0.2 | 0.3 | 0.3 | |||||||||
Selling,
general and administrative expenses
|
52.8 | 52.7 | 49.9 | |||||||||
Provision
for doubtful accounts
|
0.2 | 0.2 | 0.2 | |||||||||
(Loss)
income before income taxes
|
(0.9 | ) | (0.9 | ) | 0.3 | |||||||
Net
(loss) income
|
(0.7 | ) | (1.8 | ) | 0.2 |
Net
Sales
Total
sales declined $102.8 million or 14.9% in 2009 and $93.5 million or 11.9% in
2008, respectively. Comparable store sales declined 14.2% or $94.6
million in 2009 and 14.3% or $109.5 million in 2008. The remaining
$8.2 million and $16.0 million of the changes in 2009 and 2008, respectively,
were from closed, new and otherwise non-comparable stores.
The
following outlines our sales and comp-store sales increases and decreases for
the periods indicated. (Amounts and percentages may not always add to totals due
to rounding.)
December
31,
|
|||||||||||||||||||||
2009
|
2008
|
2007
|
|||||||||||||||||||
Net
Sales
|
Comp-Store
Sales
|
Net
Sales
|
Comp-Store
Sales
|
Net
Sales
|
Comp-Store
Sales
|
||||||||||||||||
Period
Ended
|
Dollars
in
millions
|
%
Increase
(decrease)
over
prior
period
|
%
Increase
(decrease)
over
prior
period
|
Dollars
in
millions
|
%
Increase
(decrease)
over
prior
period
|
%
Increase
(decrease)
over
prior
period
|
Dollars
in
millions
|
%
Increase
(decrease)
over
prior
period
|
%
Increase
(decrease)
over
prior
period
|
||||||||||||
Q1 |
$
|
144.2
|
(22.1
|
)%
|
(22.9
|
)%
|
$
|
185.2
|
(3.1)
|
%
|
(6.3)
|
%
|
$
|
191.1
|
(8.6)
|
%
|
(10.4)
|
%
|
|||
Q2 |
129.7
|
(23.0
|
)
|
(22.6
|
)
|
168.4
|
(10.0)
|
(12.7)
|
187.1
|
(11.3)
|
(12.7)
|
||||||||||
Q3 |
151.9
|
(13.5
|
)
|
(11.9
|
)
|
175.6
|
(12.5)
|
(14.9)
|
200.6
|
(10.0)
|
(11.6)
|
||||||||||
Q4 |
162.4
|
0.4
|
2.0
|
161.9
|
(21.3)
|
(22.6)
|
205.8
|
(4.7)
|
(7.7)
|
||||||||||||
Year
|
$
|
588.3
|
(14.9
|
)%
|
(14.2
|
)%
|
$
|
691.1
|
(11.9)
|
% |
(14.3)
|
%
|
$
|
784.6
|
(8.7)
|
%
|
(10.6)
|
%
|
Sales in 2007 declined as consumers reined in their spending and postponed non-essential purchases. There was an increased concentration of sales volume around traditional sales events as consumers believed the best pricing and credit offers were available during these periods. There was significant pressure in our industry as home sales slowed, home prices declined and credit standards tightened.
Sales in
2008 mirrored retail sales in the home furnishings industry which were worse
than the general economic downturn, with the declines accelerating in the fourth
quarter. During the first half of the year we promoted a longer-term
no interest financing offer through a third-party and special pricing on select
merchandise to help stimulate sales. We remained competitive but not
overly aggressive with our general merchandise pricing as we did not believe
such stimulus would be sufficiently accretive to earnings.
16
Sales in
2009 continued to fall as housing sales, one driver of furniture purchases,
remained at historically low levels. Home values have declined and
lending has tightened such that consumers have less access to funding for large
discretionary purchases. We continued to promote longer term no
interest financing but for somewhat shorter periods than last
year. We highlighted more of our price point sensitive items within
our merchandise line-up and showcased their value to appeal to the more cost
conscious consumer.
2010
Outlook
There are
no current indications that the very difficult macro environment is improving in
the near term. We expect to gain share as weak competitors exit the
markets we serve. Our total sales for 2010 and comparable store sales
are expected to be positive given the severity of the declines in 2009, but we
believe total sales will still be below our 2008 levels.
Gross
Profit
Year-to-Year
Comparisons
Gross
profit as a percentage of net sales was relatively flat in 2009 compared to
2008. Strengthened inventory management reduced the impact of
close-out and damaged merchandise by approximately $2.5 million in 2009 compared
to 2008. There was modest deflation and inventory levels declined in
2009. The impact of the change to our LIFO reserve was approximately
a $1.1 million benefit in 2009 compared to a $1.0 million expense in
2008. These changes, along with improvements generated by new
products helped offset much of the impact from promotional pricing discounts on
our gross profit.
Gross
profit improved approximately 200 basis points in 2008 compared to
2007. Reductions in markdowns and our cessation of in-house free
financing for terms greater than one year were the primary contributors to the
improvement. We maintained our pricing discipline and strengthened
our product sourcing which also aided our results.
2010
Outlook
We do not
expect to implement heavy price promotions to stimulate sales. Our
strategy is to generally use promotional pricing selectively during traditional
holiday and other sales events or to highlight specific products or categories.
We expect that gross margins for 2010 will return to our 2008
levels. We anticipate increasing freight costs and labor rates for
our suppliers will generate pressure on product costs which may be difficult to
initially recover in our retail pricing.
Selling,
General and Administrative Expenses
SG&A
expenses are comprised of five categories: selling; occupancy;
delivery and certain warehousing costs; advertising and
administrative. Selling expenses primarily are comprised of
compensation of sales associates and sales support staff, and fees paid to
credit card and third-party finance companies. Occupancy costs
include rents, depreciation charges, insurance and property taxes, repairs and
maintenance expense and utility costs. Delivery costs include
personnel, fuel costs, and depreciation and rental charges for rolling
stock. Warehouse costs include demurrage, supplies, depreciation and
rental charges for equipment. Advertising expenses are primarily
media production and space, direct mail costs, market research expenses,
employee compensation and agency fees. Administrative expenses are
comprised of compensation costs for store management, information systems,
executive finance, merchandising, supply chain, real estate and human resource
departments.
Year-to-Year
Comparisons
Our
SG&A costs decreased $53.6 million for 2009 compared to 2008, a decrease of
14.7%, which mirrors the reduction in sales volume of 14.9% in
2009. Total SG&A costs, as a percentage of net sales were 52.8%
for 2009 as compared to 52.7% in 2008 and 49.9% in 2007.
17
Selling
expenses generally vary with sales volume. The cost of our
third-party financing offers will vary based on usage and the types of credit
programs we offer and those selected by our customers. These costs
were relatively flat as a percentage of net sales in 2009 compared to
2008. During 2008, we offered more promotional credit programs in the
first half of the year and the usage of third-party financing by our customers
increased over 2007. This resulted in increased costs related to
these programs of approximately 24 basis points of sales in 2008.
Occupancy
costs in 2009 decreased $4.8 million from 2008. Reductions in
utilities, depreciation and facility closing costs were partially offset by
increases in store rents. Occupancy expenses increased $0.9 million
in 2008 over 2007 due primarily to higher rents for two new and two relocated
stores.
Warehouse
expenses in 2009 were $7.3 million lower than in 2008 as sales continued to
decline and personnel costs were reduced. Warehouse expenses
decreased $4.8 million in 2008 compared to 2007 as wages and labor costs were
reduced to more closely reflect business conditions.
Delivery
costs decreased in 2009 by approximately $8.8 million from 2008 levels
reflecting the further reductions made in our delivery teams as our business
weakened. Delivery costs decreased in 2008 relative to 2007 by
approximately $2.3 million primarily due to reductions in compensation related
to lower sales volumes offset by the increase in fuel prices.
Total
advertising and marketing costs as a percentage of sales were 6.6% for 2009,
7.0% for 2008 and 7.4% for 2007. Our spending decreased $9.5 million
in 2009 from 2008. We adjusted our advertising mix in 2009 with less
focus on newspaper and more on direct mail and our television advertising is
being shown more frequently during shorter cycles of time for greater impact.
Our spending decreased $9.7 million in 2008 over 2007 without significant
changes in our media mix. We continue to focus on television branding
messages, targeted mail and electronic advertising. These approaches
are a continuation of the “HAVE” brand building campaign begun in late
2006.
Administrative
costs decreased $9.0 million or 11.1% for 2009 over 2008 due primarily to
reductions in staffing levels and related compensation costs partially offset by
increased pension costs. Administrative costs for 2008 declined $3.9 million or
4.6% from 2007 amounts due to reductions in compensation and general insurance
costs.
2010
Outlook
We expect
that SG&A expenses will be lower for 2010 compared to 2009 as a percentage
of net sales as we leverage our fixed costs. Although we are always
looking for ways to contain spending and improve efficiencies, we believe our
fixed cost reductions are significantly complete.
We
believe that we have good controls over our spending and that 2010 sales levels
of approximately $150 to $152 million per quarter at a 51.5% gross margin are
needed to cover our expected fixed and variable operating costs.
18
Credit
Service Charge Revenue and Allowance for Doubtful Accounts
The
following highlights the changes in credit service charge revenue, credit
promotions, related accounts receivable and allowance for doubtful accounts
(dollars in thousands):
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Credit
Service Charges
|
$ | 1,210 | $ | 1,974 | $ | 2,450 | ||||||
Amount
Financed as a % of Sales:
|
||||||||||||
Havertys
|
6.2 | % | 8.1 | % | 15.4 | % | ||||||
Third
Party
|
37.0 | 36.3 | 31.2 | |||||||||
43.2 | % | 44.4 | % | 46.6 | % | |||||||
%
Financed by Havertys:
|
||||||||||||
No
Interest for 12 Months
|
64.6 | % | 62.2 | % | 18.8 | % | ||||||
No
Interest for > 12 Months
|
— | 5.0 | 59.6 | |||||||||
No
Interest for < 12 Months
|
4.9 | 10.3 | 8.1 | |||||||||
Other
|
30.5 | 22.5 | 13.5 | |||||||||
100.0 | % | 100.0 | % | 100.0 | % | |||||||
Accounts
receivable
|
$ | 17,143 | $ | 28,083 | $ | 68,901 | ||||||
Allowance
for doubtful accounts
|
$ | 1,000 | $ | 1,700 | $ | 2,150 | ||||||
Allowance
as a % of accounts receivable
|
5.8 | % | 6.1 | % | 3.1 | % |
Our
credit service charge revenue has continued to decline as our receivables
portfolio is reduced and customers choose credit promotions with no interest
features.
The
in-house financing program most frequently chosen by our customers carries no
interest for 12 months, or longer periods if offered, and requires equal monthly
payments. These programs generate very minor credit revenue, but
incur lower bad debts relative to our deferred payment in-house credit
programs. In addition, we offer our customers different credit
promotions through a third-party credit provider. Sales financed by
this provider are not Havertys’ receivables, and accordingly, we do not have any
credit risk or service responsibility for these accounts, and there is no credit
or collection recourse to Havertys. The most popular programs offered
through the third-party provider for 2009 were no interest offers requiring 18
to 24 monthly payments and a no payment program for 12 months. The
deferred payment offer has an interest accrual that is waived if the entire
balance is paid in full by the end of the deferral period.
The
allowance as a percent of total accounts receivable decreased in 2009 as we
experienced improvement in the delinquency and problem category
percentages. The dollar amount of the allowance is lower compared to
2008 due to the reduction in total accounts receivable.
19
Interest
Expense, Net
Interest
expense (income), net is primarily comprised of interest expense on the
Company’s debt and the amortization of the discount on the Company’s receivables
which have no interest terms for greater than 12 months. The
following table summarizes the components of interest expense (income), net (in
thousands):
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Interest
on debt
|
$ | 973 | $ | 1,997 | $ | 3,456 | ||||||
Amortization
of discount on accounts receivable
|
(56 | ) | (1,351 | ) | (4,340 | ) | ||||||
Other,
including capitalized interest and interest
income
|
(112 | ) | (256 | ) | (423 | ) | ||||||
$ | 805 | $ | 390 | $ | (1,307 | ) |
Interest
expense on debt decreased in 2009 and 2008 as average debt decreased and the
effective interest rate was relatively unchanged.
We have
made available to customers in-house interest free credit programs, which mostly
ranged from 12 to 18 months. In connection with these programs, which
are greater than 12 months, we are required to discount the payments to be
received over the expected life (considering prepayments) of the interest free
credit program. On the basis of the credit worthiness of the
customers and our low delinquency rates under these programs, we discounted the
receivables utilizing the prime rate of interest at the date of
sale. The discount is recorded as a contra receivable and charged to
cost of goods sold and is amortized as a credit to interest expense over the
life of the receivable.
The
amount of amortization is decreasing as we ceased these promotions at the
beginning of 2008.
Provision
for Income Taxes
Our
effective tax rate was 22.7%, (85.3)% and 9.6% for 2009, 2008 and
2007, respectively. Refer to Note 7 of the Notes to the Consolidated Financial
Statements for a reconciliation of our income tax expense to the Federal income
tax rate.
Our 2009
rate included the impact of the changes in Federal tax laws enacted in the
fourth quarter of 2009 related to the treatment of net operating loss carrybacks
and the amending of prior years’ tax returns. These changes resulted
in a reduction of current tax expense of approximately $671,000 for additional
refunds and a related increase in deferred tax expense of $495,000 for the
decrease in alternative minimum tax credit carryforwards. The 2009
rate also includes the unfavorable impact of $700,000 for the increase in our
deferred tax valuation allowance.
Our 2008
rate included the unfavorable impact of $8.2 million related to our deferred tax
asset valuation allowance. During the fourth quarter of 2008 we
increased the valuation allowance $14.7 million. We charged $8.2
million to tax expense and the portion of the increase related to our pension
plan of $6.5 million was charged to accumulated other comprehensive
loss. Although this valuation allowance reduces the amount of the net
deferred tax assets on the balance sheet, we will be able to utilize these
assets to reduce tax expense in future profitable periods. The tax
rate was also positively impacted by $276,000 related to changes in the reserve
for uncertain tax positions.
20
Our 2007
rate included: a $342,000 adjustment related to basis differences for
property and equipment, a reduction of expense of $308,000 related to changes in
the reserve for uncertain tax positions, and recognition of $100,000 of Federal
tax telecom credits.
Liquidity
and Cash Flow Review
Liquidity
and Capital Resources
Our
sources of capital include, but are not limited to, cash flows from operations,
the issuance of public or private placement debt, bank borrowings and the
issuance of equity securities. We believe that available short-term
and long-term capital resources are sufficient to fund our capital expenditures,
working capital requirements, scheduled debt payments, benefit plan
contributions, income tax obligations and stock repurchases for the foreseeable
future.
Our $60
million revolving credit facility (the “Credit Agreement”) is with two banks and
terminates in December 2011. The Credit Agreement is secured by our
inventory, accounts receivable and cash, and should provide more flexibility
during this difficult economic cycle. There were no amounts
outstanding under the Credit Agreement at December 31, 2009. We had
letters of credit in the amount of $7.6 million outstanding at December 31, 2009
and these amounts are considered part of the Credit Agreement’s
usage. Our net availability was $40.7 million at December 31,
2009. See Note 5 in the Notes to Consolidated Financial Statements
included herein under Item 8, “Financial Statements and Supplementary
Data”.
During
2009, we continued to use our available cash flow to keep borrowings under the
Credit Agreement to a minimum. We had no funded debt outstanding at
December 31, 2009 and our long-term debt-to-total capital ratio was
2.9%.
Summary
of Cash Activities
2009
Our
principal source of cash consisted of $38.5 million derived from operations and
$6.6 million in proceeds from a sale-leaseback transaction. Our
primary use of cash was for capital expenditures totaling $3.3
million.
2008
Our
principal source of cash was $40.7 million derived from
operations. Our primary uses of cash were (1) repayments on debt of
$21.2 million; (2) capital expenditures totaling $9.5 million; and (3) dividend
payments totaling $4.2 million.
2007
Our
principal sources of cash consisted of $39.1 million derived from operations and
$3.5 million in proceeds from dispositions of capital assets. Our
primary uses of cash were (1) capital expenditures totaling $13.8 million; (2)
net repayments on revolving credit facilities of $12.6 million; (3) repayments
on debt of $10.4 million; (4) acquisition of treasury stock totaling $12.4
million; and (5) dividend payments totaling $6.0 million.
Operating
Activities
2009
versus 2008
Our net
cash derived from operating activities decreased $2.2 million in 2009 to $38.5
million. This change was the result of a $2.8 million change in
our operating assets and liabilities, a deferred tax benefit of $2.2 million in
2009 compared to a $9.1 million expense in 2008 and a $7.9 million decrease in
our net loss. For additional information about the changes in our
assets and liabilities, refer to our Financial Position discussion
below.
21
2008
versus 2007
Our net
cash derived from operating activities increased $1.6 million in 2008 to $40.7
million. This increase was the result of favorable changes in
our working capital, a deferred tax expense of $9.1 million in 2008 compared to
a $6.1 million benefit in 2007 and a $13.9 million decrease in our net income.
For additional information about the changes in our assets and liabilities,
refer to our Financial
Position discussion below.
Investing
Activities
2009
versus 2008
Our net
cash provided by investing activities increased $12.2 million in 2009 to $3.4
million. We generated proceeds of $6.6 million from a sale-leaseback
transaction. Our capital asset investments were lower with capital
expenditures of $3.3 million compared to $9.5 million in 2008. For a summary of
our capital asset investments for the years ended December 31, 2009 and 2008,
refer to our Store Expansion
and Capital Expenditures discussion below.
2008
versus 2007
Our net
cash used in investing activities decreased $1.3 million in 2008 to $8.8 million
from $10.1 million in 2007. We increased our capital asset
investments by $9.5 million compared to $13.8 million in 2007. Our
proceeds from sales of capital assets were $0.3 million compared to $3.5 million
in 2007. For a summary of our capital asset investments for the years
ended December 31, 2008 and 2007, refer to our Store Expansion and Capital
Expenditures discussion below.
Financing
Activities
2009
versus 2008
Our net
cash used in financing activities decreased $27.2 million in 2009 to $1.2
million from $28.4 million in 2008. We decreased our long-term debt
and lease obligations by $0.3 million during 2009 compared to $21.2 million in
2008. During 2009, we paid dividends of $0.5 million compared to $4.2 million in
2008.
2008
versus 2007
Our net
cash used in financing activities decreased $12.6 million in 2008 to $28.4
million from $40.9 million in 2007. We decreased our long-term debt
and lease obligations by $21.2 million during 2008 compared to $10.4 million in
2007, and we maintained a net zero borrowing under the revolving credit
facilities at the end of 2008, compared to 2007 when we decreased our borrowings
by $12.6 million. During 2008, we purchased $1.8 million in treasury
stock compared to $12.4 million in repurchases in 2007.
Financial
Position
Assets
2009
versus 2008
Accounts
receivable decreased $10.9 million, or 39.0%, to $17.1 million at December 31,
2009. This decrease is the result of our continued emphasis on the
use of a third-party finance company for customer receivables, particularly for
those credit programs exceeding 12 months. Inventory decreased $10.4 million, or
10.0%, to $93.3 million at December 31, 2009. We reduced our
inventory in response to our lower sales levels.
Liabilities
and Stockholders’ Equity
2009
versus 2008
Accounts
payable decreased $3.6 million at December 31, 2009. We reduced our
purchases as business slowed resulting in lower balances owed to merchandise
vendors. Customer deposits increased $1.2 million at December 31,
2009 as our written business was greater in December 2009 compared to December
2008. Accrued liabilities increased $1.2 million primarily due to
accruals for sales taxes and facilities closing costs increasing $1.0 million in
2009 compared to 2008.
22
Off-Balance
Sheet Arrangements
We do not
generally enter into off-balance sheet arrangements. We did not have
any relationships with unconsolidated entities or financial partnerships which
would have been established for the purposes of facilitating off-balance sheet
financial arrangements at December 31, 2009. Accordingly, we are not
materially exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in such relationships.
Contractual
Obligations
The
following summarizes our contractual obligations and commercial commitments as
of December 31, 2009 (in thousands):
Payments
Due or Expected by Period
|
||||||||||||||||||||
Total
|
Less
than
1
Year
|
1-3
Years
|
3-5
Years
|
After
5
Years
|
||||||||||||||||
Lease
obligations(1)
|
$ | 10,242 | $ | 818 | $ | 1,755 | $ | 1,776 | $ | 5,893 | ||||||||||
Operating
leases
|
259,766 | 31,340 | 57,000 | 48,226 | 123,200 | |||||||||||||||
Other
liabilities
|
987 | 358 | 629 | — | — | |||||||||||||||
Purchase
obligations
|
60,031 | 60,031 | — | — | — | |||||||||||||||
Total
contractual obligations
|
$ | 331,026 | $ | 92,547 | $ | 59,384 | $ | 50,002 | $ | 129,093 |
(1)
|
These
amounts are for our lease obligations, including interest
amounts. For additional information about our leases, refer to
Note 8 of the Notes to the Consolidated Financial
Statements.
|
Store
Expansion and Capital Expenditures
We have
entered several new markets and made continued improvements and relocations of
our store base. The following outlines the change in our selling
square footage for the three years ended December 31 (square footage in
thousands):
2009
|
2008
|
2007
|
|||||||||||
Store
Activity:
|
#
of
Stores
|
Square
Footage
|
#
of
Stores
|
Square
Footage
|
#
of
Stores
|
Square
Footage
|
|||||||
Opened
|
1
|
31
|
4
|
119
|
6
|
198
|
|||||||
Closed
|
2
|
45
|
5
|
151
|
3
|
82
|
|||||||
Year
end balances
|
121
|
4,278
|
122
|
4,292
|
123
|
4,324
|
Net
selling space in 2009 decreased modestly by approximately 14,000 square
feet. The following table summarizes our store activity in
2009.
Location
|
Month
Opened
|
Month
Closed
|
Category
|
Hattiesburg,
Mississippi
|
—
|
March
|
Store
Closure
|
Little
Rock, Arkansas
|
May
|
—
|
Relocation
|
Little
Rock, Arkansas
|
—
|
May
|
Relocation
|
Our plans
for 2010 include opening a store in a new market, store relocations and closing
two or more additional stores during 2010. These changes should
decrease net selling space in 2010 by approximately 1% to 2% assuming the new
stores open and existing stores close as planned.
23
Our
investing activities in stores and operations in 2009, 2008 and 2007 and planned
outlays for 2010 are categorized in the table below. Capital
expenditures for stores in the years noted do not necessarily coincide with the
years in which the stores open.
(Approximate
in thousands)
|
Proposed
2010
|
2009
|
2008
|
2007
|
||||||||||||
Stores:
|
||||||||||||||||
New
stores
|
$ | 6,000 | $ | 300 | $ | 1,600 | $ | 7,500 | ||||||||
Remodels/Expansions
|
2,200 | — | 4,400 | — | ||||||||||||
Other
Improvements
|
2,300 | 1,400 | 900 | 2,000 | ||||||||||||
Total
stores
|
10,500 | 1,700 | 6,900 | 9,500 | ||||||||||||
Distribution
|
300 | 100 | 700 | 1,100 | ||||||||||||
Information
Technology
|
4,400 | 1,500 | 1,900 | 3,200 | ||||||||||||
Total
|
$ | 15,200 | $ | 3,300 | $ | 9,500 | $ | 13,800 |
Cash
balances, funds from operations, proceeds from sales of properties and use of
our Credit Agreement are expected to be adequate to finance our 2010 capital
expenditures.
Critical
Accounting Estimates and Assumptions
Our
discussion and analysis is based upon our consolidated financial statements,
which have been prepared in accordance with U.S. generally accepted accounting
principles. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures. On an
on-going basis, we evaluate our estimates, including those related to accounts
receivable and allowance for doubtful accounts, long-lived assets and facility
closing costs, pension and retirement benefits, self-insurance and realizability
of deferred tax assets. We base our estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
An
accounting policy is deemed to be critical if it requires an accounting estimate
to be made based on assumptions about matters that are highly uncertain at the
time the estimate is made, and if different estimates that reasonably could have
been used or changes in the accounting estimate that are reasonably likely to
occur could materially change the financial statements.
We
believe the following critical accounting policies reflect our more significant
estimates and assumptions used in the preparation of our consolidated financial
statements:
Accounts
Receivable. We are required to estimate the collectibility of
our accounts receivable. We provide an allowance for doubtful
accounts using a method that considers the balances in problem and delinquent
categories, historical write-offs and 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. We assess the adequacy of the allowance
at the end of each quarter.
For the
years ended December 31, 2009, 2008 and 2007, we recorded provisions for bad
debts of $1.0 million, $1.7 million and $1.3 million,
respectively. As of December 31, 2009 and 2008, our gross receivables
of $17.1 million and $28.1 million, had reserves of $1.0 million and $1.7
million, respectively. Our allowance for doubtful accounts as a
percentage of the receivables pool is lower in 2009 due to improvement in the
delinquency and problem category percentages. While our customer base
is large and geographically dispersed, the economic conditions affecting our
target customers could
24
result in
higher than expected defaults, and therefore the need to revise estimates for
bad debts. A one-percentage-point increase in the delinquency rate
assumption would impact 2009 expense by approximately $40,000, a 4.1%
change. We believe that the allowance for doubtful accounts as of
December 31, 2009 is reasonable in light of portfolio balance, portfolio
quality, historical charge-offs and reasonable charge-off
forecasts.
Impairment of Long-Lived Assets and
Facility Closing Costs. We evaluate the recoverability of
long-lived assets whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. We evaluate
long-lived assets for impairment at the individual property or store level,
which is the lowest level at which individual cash flows can be identified. For
stores with two consecutive years of negative net contribution, we perform an
impairment analysis. When evaluating these assets for potential impairment, we
first compare the carrying amount of the asset to the store’s estimated future
cash flows (undiscounted and without interest charges). If the
estimated future cash flows are less than the carrying amount of the asset, an
impairment loss calculation is prepared. The impairment loss
calculation compares the carrying amount of the asset to the store’s assets’
estimated fair value, which is determined on the basis of market value for
similar assets or future cash flows (discounted and with interest
charges). If required, an impairment loss is recorded for the
difference in the asset’s carrying value and the asset’s estimated fair
value.
We
account for closed store and warehouse lease termination costs in the period we
close a store or warehouse, by recording as an obligation the present value of
estimated costs that will not be recovered. These costs include any
estimated loss on the sale of the land and buildings, the book value of any
abandoned leasehold improvements and amounts for future lease payments, less any
estimated sublease income. At December 31, 2009 and 2008, our reserve
for facility closing costs approximated $843,000 and $1,647,000,
respectively. In the future, these costs could increase or decrease
based upon general economic conditions in specific markets including the impact
of new competition, the fair market value of owned properties, our ability to
sublease facilities and the accuracy of our related estimates.
Leases. Many of
our stores and distribution centers are operated from leased facilities under
operating lease agreements. The substantial majority of these leases
contain predetermined fixed escalations of the minimum rentals during the term
of the lease. For these leases, we recognize the related rental
expense on a straight-line basis over the life of the lease, beginning with the
point at which we obtain control and possession of the leased
properties. We record the difference between the amounts charged to
operations and amounts paid as deferred escalating minimum rent. The
liability for deferred escalating minimum rent is included as a component of
other long-term liabilities and approximated $11,674,000 and $11,057,000 at
December 31, 2009 and 2008, respectively. In connection with
leases for which there are significant construction activities other than normal
leasehold improvements, we analyze these transactions to determine if we meet
the accounting criteria for being deemed the owner of the building.
Pension and Retirement
benefits. Pension and other retirement plans’ costs require
the use of assumptions for discount rates, investment returns, projected salary
increases and mortality rates. The actuarial assumptions used in our
pension and retirement benefit reporting are reviewed annually and compared with
external benchmarks to ensure that they appropriately account for our future
pension and retirement benefit obligations. While we believe that the
assumptions used are appropriate, differences between assumed and actual
experience may affect our operating results. A one-percentage-point
change in the discount rate would impact the 2009 expense for the defined
benefit pension plan by approximately $540,000, a 35% change. A
one-percentage-point change in the expected return on plan assets would impact
the 2009 expense for the defined benefit pension plan by approximately $480,000,
a 31% change. In addition, see Note 10 to the Notes to Consolidated
Financial Statements for a discussion of these assumptions.
25
Self-Insurance. We
are self-insured for certain losses related to worker’s compensation, general
liability and vehicle claims. Our reserve is developed based on
historical claims data and contains an actuarially developed incurred but not
reported component. The resulting estimate is discounted and recorded
as a liability. Our actuarial assumptions and discount rates are
reviewed periodically and compared with actual claims experience and external
benchmarks to ensure that our methodology and assumptions are
appropriate. A one-percentage-point change in the actuarial
assumption for the discount rate would impact 2009 expense for insurance by
approximately $85,000, a 1.9% change.
Valuation Allowance of Deferred Tax
Assets. We must assess whether valuation allowances should be established
against our deferred tax assets based on consideration of all available
evidence, both positive and negative, using a “more likely than not”
standard. Due to the losses in the fourth quarter of 2008, and
considering projections for 2009 we expected to be in a cumulative loss position
in 2009. We recorded a $14.7 million increase to a valuation
allowance against substantially all of our net deferred tax assets during the
fourth quarter of 2008.
We
evaluate our deferred income tax assets quarterly to determine if valuation
allowances are required or should be adjusted. During 2009, we
increased our valuation allowance by $682,000. While our recent performance and
long-term financial outlook remains positive, based on the weight of the
negative evidence, a valuation allowance is necessary at December 31,
2009.
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market
risk represents the potential loss arising from adverse changes in the value of
financial instruments. The risk of loss is assessed based on the
likelihood of adverse changes in fair values, cash flows or future
earnings.
In the
ordinary course of business, we are exposed to various market risks, including
fluctuations in interest rates. To manage the exposure related to
this risk, we may use various derivative transactions. As a matter of
policy, we do not engage in derivatives trading or other speculative
activities. Moreover, we enter into financial instruments
transactions with either major financial institutions or high credit-rated
counter parties, thereby limiting exposure to credit and performance-related
risks.
We have
exposure to floating interest rates through our Credit
Agreement. Therefore, interest expense will fluctuate with changes in
LIBOR and other benchmark rates. We do not believe a 100 basis point
change in interest rates would have a significant adverse impact on our
operating results or financial position.
26
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
report of independent registered public accounting firm, the Consolidated
Financial Statements of Havertys and the Notes to Consolidated Financial
Statements, and the supplementary financial information called for by this Item
8, are set forth on pages F-1 to F-23 of this report. Specific
financial statements and supplementary data can be found at the pages listed in
the following index:
Index
|
Page
|
Financial
Statements
|
|
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements | F-1 |
Consolidated
Balance Sheets
|
F-2
|
Consolidated
Statements of Operations
|
F-3
|
Consolidated
Statements of Stockholders’ Equity
|
F-4
|
Consolidated
Statements of Cash Flows
|
F-5
|
Notes
to Consolidated Financial Statements
|
F-6
|
Schedule
II – Valuation and Qualifying Accounts
|
F-24
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
|
Not
Applicable.
|
ITEM
9A. CONTROLS AND
PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Our
management has evaluated, with the participation of our President and Chief
Executive Officer and Executive Vice President and Chief Financial Officer, the
effectiveness of the design and operation of the Company’s “disclosure controls
and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this report. Based on that evaluation, our President and Chief
Executive Officer and Executive Vice President and Chief Financial Officer
concluded that our disclosure controls and procedures were effective to provide
reasonable assurance that we record, process, summarize and report the
information we must disclose in reports that we file or submit under the
Securities Exchange Act. During the fourth quarter of 2009, there
were no changes in our internal control over financial reporting that have
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
27
Report
of Management on Internal Control over Financial Reporting
Management’s
Responsibility for the Financial Statements
Management
is responsible for establishing and maintaining adequate internal controls over
financial reporting. The Company’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the Company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial
statements. Management recognizes that there are inherent limitations
in the effectiveness of any internal control over financial reporting, including
the possibility of human error and the circumvention or overriding of internal
control. Accordingly, even effective internal control over financial
reporting can provide only reasonable assurance with respect to financial
statement preparation. Further, because of changes in conditions, the
effectiveness of internal control over financial reporting may vary over
time.
In order
to ensure that the Company’s internal control over financial reporting is
effective, management regularly assesses such controls and did so most recently
as of December 31, 2009. This assessment was based on criteria for
effective internal control over financial reporting described in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment,
management believes the Company maintained effective internal control over
financial reporting as of December 31, 2009. Ernst & Young, LLP,
the independent registered public accounting firm that audited the consolidated
financial statements included in this Annual Report on Form 10-K, has also
audited the effectiveness of our internal control over financial reporting as of
December 31, 2009, as stated in their report included under Item 8 of this
Annual Report.
Audit
Committee’s Responsibility
The Board
of Directors, acting through its Audit Committee, is responsible for the
oversight of the Company’s accounting policies, financial reporting and internal
control. The Audit Committee of the Board of Directors is comprised
entirely of outside directors who are independent of management. The
Audit Committee is responsible for the appointment and compensation of our
independent registered public accounting firm and approves decisions regarding
the appointment or removal of our Vice President, Internal Audit. It
meets periodically with management, the independent registered public accounting
firm and the internal auditors to ensure that they are carrying out their
responsibilities. The Audit Committee is also responsible for
performing an oversight role by reviewing and monitoring the financial,
accounting and auditing procedures of the Company in addition to reviewing the
Company’s financial reports. Our independent registered public
accounting firm and our internal auditors have full and unlimited access to the
Audit Committee, with or without management, to discuss the adequacy of internal
control over financial reporting, and any other matters which they believe
should be brought to the attention of the Audit Committee.
/s/
CLARENCE H. SMITH
|
|
President
and CEO
|
|
/s/ DENNIS L. FINK |
|
Executive
Vice President and CFO
|
|
/s/ JENNY HILL PARKER |
|
Vice
President, Secretary and Treasurer
|
|
Atlanta,
Georgia
|
|
March
5, 2010
|
28
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
Board of
Directors and Stockholders of
Haverty
Furniture Companies, Inc.
We have
audited Haverty Furniture Companies, Inc.’s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). Haverty
Furniture Companies, Inc.’s management is responsible for maintaining effective
internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting included in the
accompanying Report of Management on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
In our
opinion, Haverty Furniture Companies, Inc. maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2009,
based on the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the 2009 consolidated financial statements of
Haverty Furniture Companies, Inc. and our report dated March 5, 2010 expressed
an unqualified opinion thereon.
/s/
Ernst & Young LLP
Atlanta,
Georgia
March 5,
2010
29
ITEM
9B. OTHER
INFORMATION
Not
applicable.
PART
III
ITEM
10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information
about our directors is in our proxy statement for the annual meeting of our
stockholders to be held on May 10, 2010 (our “2010 Proxy
Statement”). The information is under the headings “Nominees for
Election by Holders of Class A Common Stock” and “Nominees for Election by
Holders of Common Stock” and is incorporated into this report by
reference.
The
following table sets forth certain information as of March 1, 2010, regarding
our executive officers:
Name
|
Age
|
Position
with the Company
|
|
Clarence
H. Smith
|
59
|
President
and Chief Executive Officer
Director
President
Chief
Operating Officer
Vice
President, Stores
Joined
the Company
|
2003
– Present
1989
- Present
2002
–2003
2000
– 2002
1996
– 2000
1973
|
Steven
G. Burdette
|
48
|
Executive
Vice President, Stores
Senior
Vice President, Operations
Vice
President, Operations
Vice
President, Merchandising
Joined
the Company
|
2008
– Present
2003-2008
2002-2003
1994
– 2002
1983
|
J.
Edward Clary
|
49
|
Senior
Vice President, Distribution and Chief Information Officer
Chief
Information Officer
Vice
President, Management Information Services
Joined
the Company
|
2008
– Present
2000-2008
1994
– 2000
1990
|
Thomas
P. Curran
|
57
|
Senior
Vice President, Marketing
Vice
President, Advertising
Assistant
Vice President, Advertising
Joined
the Company
|
2005
– Present
1987
– 2005
1985
– 1987
1982
|
Allan
J. DeNiro
|
56
|
Chief
People Officer
Vice
President, Human Resources
Joined
the Company
|
2005
– Present
2004-2005
2004
|
Dennis
L. Fink
|
58
|
Executive
Vice President, Chief Financial Officer
Senior
Vice President, Chief Financial Officer
Joined
the Company
|
1996
– Present
1993
– 1996
1993
|
Richard
D. Gallagher
|
48
|
Senior
Vice President, Merchandising
Vice
President, Merchandising
Assistant
Vice President, Stores
Joined
the Company
|
2009
– Present
2005
– 2009
2004
– 2005
1988
|
30
Name
|
Age
|
Position
with the Company
|
|
Rawson
Haverty, Jr.
|
53
|
Senior
Vice President, Real Estate and Development
Director
Vice
President, Real Estate and Insurance
Joined
the Company
|
1998
– Present
1992
- Present
1992
– 1998
1984
|
Jenny
Hill Parker
|
51
|
Vice
President, Secretary and Treasurer
Joined
the Company
|
1998
– Present
1994
|
Janet
E. Taylor
|
48
|
Vice
President, General Counsel
Vice
President, Law
Partner
at King & Spalding
|
2006
– Present
2005
– 2006
2000
– 2005
|
These
officers are elected or appointed annually by the Board of Directors for terms
of one year or until their successors are elected and qualified, subject to
removal by the Board at any time. Rawson Haverty, Jr. and Clarence H. Smith are
first cousins.
Information
about compliance with the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended, by our executive officers and
directors, persons who own more than ten percent of our stock, and their
affiliates who are required to comply with such reporting requirements, is in
our 2010 Proxy Statement under the heading “Section 16(a) Beneficial Ownership
Reporting Compliance,” and is incorporated into this report by
reference.
Our 2010
Proxy Statement has information about the Audit Committee and the Audit
Committee Financial Expert under the heading “Board Committees and Related
Matters – Audit Committees,” and is incorporated into this report by
reference.
We have
adopted a Code of Business Conduct and Ethics (the “Code”) for our directors,
officers (including our principal executive officer, principal financial officer
and principal accounting officer) and employees. The Code is available on our
website at www.havertys.com. In the event we amend or waive any
provisions of the Code applicable to our principal executive officer, principal
financial officer or principal accounting officer, we will disclose the same by
filing a Form 8-K. The information contained on or connected to our
Internet website is not incorporated by reference into this Form 10-K and should
not be considered part of this or any other report that we file or furnish to
the SEC.
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
information contained in our 2010 Proxy Statement with respect to executive
compensation and transactions under the heading “Compensation Discussion and
Analysis” is incorporated herein by reference in response to this
item.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
information contained in our 2010 Proxy Statement with respect to the ownership
of common stock and Class A common stock by certain beneficial owners and
management, and with respect to our compensation plans under which equity
securities are authorized for issuance under the headings “Information regarding
Beneficial Ownership of Directors and Management” and “Equity Compensation Plan
Information,” is incorporated herein by reference in response to this
item.
31
For
purposes of determining the aggregate market value of our common stock and Class
A common stock held by non-affiliates, shares held by all directors and
executive officers have been excluded. The exclusion of such shares
is not intended to, and shall not, constitute a determination as to which
persons or entities may be “affiliates” as defined under the Securities Exchange
Act of 1934.
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The
information contained in our 2010 Proxy Statement with respect to certain
relationships, related party transactions and director independence under the
headings “Certain Transactions and Relationships” and “Corporate Governance –
Director Independence” is incorporated herein by reference in response to this
item.
ITEM
14. PRINCIPAL
ACCOUNTING FEES AND SERVICES
The
information under the heading “Audit Fees and Related Matters” in our 2010 Proxy
Statement is incorporated herein by reference to this item.
PART
IV
ITEM
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
(a)
|
(1)
|
Financial
Statements. The following documents are filed as part of
this report:
|
Consolidated
Balance Sheets – December 31, 2009 and 2008
Consolidated
Statements of Operations – Years ended December 31, 2009, 2008 and
2007
Consolidated
Statements of Stockholders’ Equity – Years ended December 31, 2009, 2008 and
2007
Consolidated
Statements of Cash Flows – Years ended December 31, 2009, 2008 and
2007
Notes to
Consolidated Financial Statements
(2)
|
Financial Statement
Schedule.
|
The
following financial statement schedule of Haverty Furniture Companies, Inc. is
filed as part of this Report and should be read in conjunction with the
Consolidated Financial Statements:
Schedule
II – Valuation and Qualifying Accounts
All other
schedules have been omitted because they are inapplicable or the required
information is included in the Consolidated Financial Statements or notes
thereto.
(3)
|
Exhibits:
|
Reference
is made to Item 15(b) of this Report.
Each
exhibit identified below is filed as part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an “*”; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated. Exhibits designated with a “+” constitute a
management contract or compensatory plan or arrangement. Our SEC File
Number is 1-14445 for all exhibits filed with the Securities Exchange Act
reports.
32
Exhibit
No.
|
Exhibit
|
3.1
|
Articles
of Amendment and Restatement of the Charter of Haverty Furniture
Companies, Inc. effective May 2006 (Exhibit 3.1 to our 2006 Second Quarter
Form 10-Q).
|
3.2
|
Amended
and Restated By-Laws of Haverty Furniture Companies, Inc., as amended on
February 26, 2004 (Exhibit 3.2 to our 2003 Form 10-K).
|
10.1
|
Credit
Agreement, dated December 22, 2008, by and among the financial
institutions party hereto as Lenders, SunTrust Bank, as the Issuing Bank
and SunTrust Bank, as the Administrative Agent, and SunTrust Robinson
Humphrey, Inc. as Lead Arranger. (Exhibit 10.1 to our Form 8-K filed
December 23, 2008).
|
+10.2
|
1998
Stock Option Plan, effective as of December 18, 1997 (Exhibit 10.1 to our
Registration Statement on Form S-8, File No. 333-53215); Amendment No. 1
to our 1998 Stock Option Plan effective as of July 27, 2001 (Exhibit 10.2
to our Registration Statement on Form S-8, File No.
333-66012).
|
+10.3
|
2004
Long-Term Incentive Compensation Plan effective as of May 10, 2004
(Exhibit 5.1 to our Registration Statement on Form S-8, File No.
333-120352).
|
+10.4
|
Directors’
Compensation Plan, effective as of May 16, 2006 (Exhibit 10.8 to our 2006
Second Quarter Form 10-Q).
|
+10.5
|
Amended
and Restated Supplemental Executive Retirement Plan, effective January 1,
2009.
|
+10.6
|
Form
of Agreement dated January 27, 2009 Regarding Change in Control with the
following Named Executive Officers: Clarence H. Ridley, Dennis
L. Fink, Clarence H. Smith and M. Tony Wilkerson (Exhibit 10.3 to our
Current Report on Form 8-K dated February 2, 2009).
|
+10.7
|
Form
of Agreement dated January 27, 2009, Regarding Change in Control with the
following employee director: Rawson Haverty, Jr. (Exhibit 10.4
to our Current Report on Form 8-K dated February 2,
2009).
|
+10.8
|
Top
Hat Mutual Fund Option Plan, effective as of January 15, 1999 (Exhibit
10.15 to our 1999 Form 10-K).
|
10.9
|
Lease
Agreement dated July 26, 2001; Amendment No. 1 dated November, 2001 and
Amendment No. 2 dated July 29, 2002 between Haverty Furniture Companies,
Inc. as Tenant and John W. Rooker, LLC as Landlord (Exhibit 10.1 to our
2002 Third Quarter Form 10-Q). Amendment No. 3 dated July 29,
2005 and Amendment No. 4 dated January 22, 2006 between Haverty Furniture
Companies, Inc. as Tenant and ELFP Jackson, LLC as predecessor in interest
to John W. Rooker, LLC as Landlord (Exhibit 10.15.1 to our 2006 Form
10-K).
|
10.10
|
Contract
of Sale dated August 6, 2002, between Haverty Furniture Companies, Inc. as
Seller and HAVERTACQII LLC, as Landlord (Exhibit 10.2 to our 2002 Third
Quarter Form 10-Q).
|
10.11
|
Lease
Agreement dated August 6, 2002, between Haverty Furniture Companies, Inc.
as Tenant and HAVERTACQII LLC, as Landlord (Exhibit 10.3 to our 2002 Third
Quarter Form 10-Q).
|
+10.12
|
Form
of Restricted Stock Award Agreement in connection with the 2004 Long-Term
Incentive Compensation Plan (Exhibit 10.1 to our Current Report on Form
8-K dated December 22, 2004).
|
33
Exhibit No. | Exhibit |
+10.13
|
Form
of Stock-Settled Appreciation Rights Award Notice and Form of Performance
Accelerated Restricted Stock Award Notice in connection with the 2004
Long-Term Incentive Compensation Plan (Exhibits 10.1 and 10.2 to our
Current Report on Form 8-K dated February 12, 2008).
|
+10.14
|
Form
of Stock-Settled Appreciation Rights Award Notice and Form of Performance
Accelerated Restricted Stock Unit Award Notice in connection with the 2004
Long-Term Incentive Compensation Plan (Exhibits 10.1 and 10.2 to our
Current Report on Form 8-K dated February 2, 2009.
|
+10.15
|
Form
of Restricted Stock Units Award Agreement in connection with the 2004
Long-Term Incentive Compensation Plan (Exhibit 10.1 to our Current Report
on Form 8-K dated January 22, 2010).
|
*21
|
Subsidiaries
of Haverty Furniture Companies, Inc.
|
*23.1
|
Consent
of Independent Registered Public Accounting Firm.
|
*31.1
|
Certification
pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.
|
*31.2
|
Certification
pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange
Act of 1934, as amended.
|
*32.1
|
Certification
pursuant to 18 U.S.C. Section 1350.
|
34
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities and 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
5, 2010
|
By:
|
/s/
CLARENCE H. SMITH
|
Clarence
H. Smith
|
||
President
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
/s/
CLARENCE H. SMITH
|
President,
Chief Executive Officer
|
March
5, 2010
|
||
Clarence
H. Smith
|
and
Director
|
|||
/s/
DENNIS L. FINK
|
Executive
Vice President
|
March
5, 2010
|
||
Dennis
L. Fink
|
and
Chief Financial Officer
|
|||
/s/
RAWSON HAVERTY, JR.
|
Senior
Vice President
|
March
5, 2010
|
||
Rawson
Haverty, Jr.
|
and
Director
|
|||
/s/
JENNY HILL PARKER
|
Vice
President, Corporate Secretary
|
March
5, 2010
|
||
Jenny
Hill Parker
|
and
Treasurer
|
|||
/s/
CLARENCE H. RIDLEY
|
Chairman
of the Board
|
March
5, 2010
|
||
Clarence
H. Ridley
|
||||
/s/
JOHN T. GLOVER
|
Director
|
March
5, 2010
|
||
John
T. Glover
|
||||
/s/
L. PHILLIP HUMANN
|
Director
|
March
5, 2010
|
||
L.
Phillip Humann
|
||||
/s/
MYLLE H. MANGUM
|
Director
|
March
5, 2010
|
||
Mylle
H. Mangum
|
||||
/s/
FRANK S. McGAUGHEY, III
|
Director
|
March
5, 2010
|
||
Frank
S. McGaughey, III
|
||||
/s/
TERENCE F. McGUIRK
|
Director
|
March
5, 2010
|
||
Terence
F. McGuirk
|
||||
/s/
VICKI R. PALMER
|
Director
|
March
5, 2010
|
||
Vicki
R. Palmer
|
||||
/s/
FRED L. SCHUERMANN
|
Director
|
March
5, 2010
|
||
Fred
L. Schuermann
|
||||
/s/
AL TRUJILLO
|
Director
|
March
5, 2010
|
||
Al
Trujillo
|
35
Report
of Independent Registered Public Accounting Firm on Consolidated Financial
Statements
Board of
Directors and Stockholders of
Haverty
Furniture Companies, Inc.
We have
audited the accompanying consolidated balance sheets of Haverty Furniture
Companies, Inc. and subsidiaries as of December 31, 2009 and 2008, and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2009. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a). These financial statements and schedule are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (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, 2009 and 2008, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, 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
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Haverty Furniture Companies, Inc.’s internal
control over financial reporting as of December 31, 2009, based on criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission and our report dated March
5, 2010 expressed an unqualified opinion thereon.
/s/
Ernst & Young LLP
Atlanta,
Georgia
March 5,
2010
F-1
Haverty
Furniture Companies, Inc.
Consolidated Balance
Sheets
December
31,
|
||||||||
(In
thousands, except per share data)
|
2009
|
2008
|
||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 44,466 | $ | 3,697 | ||||
Accounts
receivable
|
15,299 | 24,301 | ||||||
Inventories
|
93,301 | 103,743 | ||||||
Prepaid
expenses
|
8,741 | 11,569 | ||||||
Other
current assets
|
6,494 | 6,436 | ||||||
Total
current assets
|
168,301 | 149,746 | ||||||
Accounts
receivable, long-term
|
844 | 2,082 | ||||||
Property
and equipment
|
176,363 | 197,423 | ||||||
Deferred
income taxes
|
9,114 | 7,813 | ||||||
Other
assets
|
6,311 | 6,329 | ||||||
Total assets
|
$ | 360,933 | $ | 363,393 | ||||
Liabilities
and Stockholders’ Equity
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable
|
$ | 19,128 | $ | 22,696 | ||||
Customer
deposits
|
14,002 | 12,779 | ||||||
Accrued
liabilities
|
30,208 | 28,993 | ||||||
Deferred income
taxes
|
7,750 | 6,891 | ||||||
Current
portion of lease obligations
|
357 | 311 | ||||||
Total current
liabilities
|
71,445 | 71,670 | ||||||
Lease
obligations, less current portion
|
6,826 | 7,183 | ||||||
Other
liabilities
|
38,105 | 39,572 | ||||||
Total
liabilities
|
116,376 | 118,425 | ||||||
Commitments
|
||||||||
Stockholders’
equity
|
||||||||
Capital
Stock, par value $1 per share
|
||||||||
Preferred
Stock, Authorized – 1,000 shares; Issued: None
|
||||||||
Common
Stock, Authorized – 50,000 shares; Issued: 2009 – 25,288; 2008 – 25,074
shares
|
25,288 | 25,074 | ||||||
Convertible
Class A Common Stock, Authorized – 15,000 shares; Issued: 2009
– 4,431; 2008 – 4,555 shares
|
4,431 | 4,555 | ||||||
Additional
paid-in capital
|
62,614 | 61,258 | ||||||
Retained
earnings
|
244,953 | 249,605 | ||||||
Accumulated
other comprehensive loss
|
(16,685 | ) | (19,345 | ) | ||||
Less
treasury stock at cost – Common Stock (2009 – 7,769; 2008 – 7,783 shares)
and Convertible Class A Common Stock (2009 and 2008 – 522
shares)
|
(76,044 | ) | (76,179 | ) | ||||
Total stockholders’
equity
|
244,557 | 244,968 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 360,933 | $ | 363,393 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-2
Haverty
Furniture Companies, Inc.
Consolidated Statements of
Operations
Year
Ended December 31,
|
||||||||||||
(In
thousands, except per share data)
|
2009
|
2008
|
2007
|
|||||||||
Net
sales
|
$ | 588,264 | $ | 691,079 | $ | 784,613 | ||||||
Cost
of goods sold
|
282,766 | 333,990 | 394,863 | |||||||||
Gross
profit
|
305,498 | 357,089 | 389,750 | |||||||||
Credit
service charges
|
1,210 | 1,974 | 2,450 | |||||||||
Gross
profit and other revenue
|
306,708 | 359,063 | 392,200 | |||||||||
Expenses:
|
||||||||||||
Selling,
general and administrative
|
310,523 | 364,080 | 391,105 | |||||||||
Interest,
net
|
805 | 390 | (1,307 | ) | ||||||||
Provision
for doubtful accounts
|
978 | 1,654 | 1,328 | |||||||||
Other
income, net
|
(190 | ) | (529 | ) | (870 | ) | ||||||
Total
expenses
|
312,116 | 365,595 | 390,256 | |||||||||
(Loss)
income before income taxes
|
(5,408 | ) | (6,532 | ) | 1,944 | |||||||
Income
tax (benefit) expense
|
(1,229 | ) | 5,569 | 186 | ||||||||
Net
(loss) income
|
$ | (4,179 | ) | $ | (12,101 | ) | $ | 1,758 | ||||
Basic
and diluted net (loss) earnings per share:
|
||||||||||||
Common
Stock
|
$ | (0.20 | ) | $ | (0.57 | ) | $ | 0.08 | ||||
Class
A Common Stock
|
$ | (0.19 | ) | $ | (0.55 | ) | $ | 0.07 | ||||
Basic
weighted average common shares outstanding:
|
||||||||||||
Common
Stock
|
17,415 | 17,186 | 18,300 | |||||||||
Class
A Common Stock
|
3,973 | 4,096 | 4,165 | |||||||||
Diluted
weighted average common shares outstanding:
|
||||||||||||
Common
Stock
|
21,388 | 21,282 | 22,589 | |||||||||
Class
A Common Stock
|
3,973 | 4,096 | 4,165 |
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
Haverty
Furniture Companies, Inc.
Consolidated Statements of Stockholders’
Equity
Year
Ended December 31,
|
||||||||||||||||||||||||
(In
thousands, except share data)
|
2009
|
2008
|
2007
|
|||||||||||||||||||||
Shares
|
Dollars
|
Shares
|
Dollars
|
Shares
|
Dollars
|
|||||||||||||||||||
Common
Stock:
|
||||||||||||||||||||||||
Beginning
balance
|
25,073,869 | $ | 25,074 | 24,874,095 | $ | 24,874 | 24,717,383 | $ | 24,717 | |||||||||||||||
Conversion
of Class A Common Stock
|
123,886 | 124 | 104,380 | 104 | 65,540 | 65 | ||||||||||||||||||
Stock
compensation transactions, net
|
90,057 | 90 | 95,394 | 96 | 91,172 | 92 | ||||||||||||||||||
Ending
balance
|
25,287,812 | 25,288 | 25,073,869 | 25,074 | 24,874,095 | 24,874 | ||||||||||||||||||
Class
A Common Stock:
|
||||||||||||||||||||||||
Beginning
balance
|
4,554,511 | 4,555 | 4,658,891 | 4,659 | 4,724,431 | 4,724 | ||||||||||||||||||
Conversion
to Common Stock
|
(123,886 | ) | (124 | ) | (104,380 | ) | (104 | ) | (65,540 | ) | (65 | ) | ||||||||||||
Ending
balance
|
4,430,625 | 4,431 | 4,554,511 | 4,555 | 4,658,891 | 4,659 | ||||||||||||||||||
Treasury
Stock:
|
||||||||||||||||||||||||
Beginning
balance (includes 522,410 shares Class A Stock for each of the years
presented; remainder are Common Stock)
|
(8,305,757 | ) | (76,179 | ) | (8,088,784 | ) | (74,470 | ) | (6,767,140 | ) | (62,159 | ) | ||||||||||||
Directors’
Plan
|
14,200 | 135 | 10,227 | 97 | 7,756 | 74 | ||||||||||||||||||
Purchases
|
— | — | (227,200 | ) | (1,806 | ) | (1,329,400 | ) | (12,385 | ) | ||||||||||||||
Ending
balance
|
(8,291,557 | ) | (76,044 | ) | (8,305,757 | ) | (76,179 | ) | (8,088,784 | ) | (74,470 | ) | ||||||||||||
Additional
Paid-in Capital:
|
||||||||||||||||||||||||
Beginning
balance
|
61,258 | 59,819 | 57,195 | |||||||||||||||||||||
Stock
option and restricted stock issuances
|
(477 | ) | (228 | ) | — | |||||||||||||||||||
Tax
cost related to stock-based plans
|
— | (168 | ) | (54 | ) | |||||||||||||||||||
Directors’
Plan
|
165 | 206 | 854 | |||||||||||||||||||||
Amortization
of restricted stock grants
|
1,668 | 1,629 | 1,824 | |||||||||||||||||||||
Ending
balance
|
62,614 | 61,258 | 59,819 | |||||||||||||||||||||
Retained
Earnings:
|
||||||||||||||||||||||||
Beginning
balance
|
249,605 | 265,952 | 269,873 | |||||||||||||||||||||
Net
(loss) income
|
(4,179 | ) | (12,101 | ) | 1,758 | |||||||||||||||||||
Cash
dividends
(Common
Stock: 2009 - $0.0225, 2008 - $0.2025 and 2007 - $0.270 per
share
Class
A Common Stock: 2009 - $0.0200, 2008 - $0.1875 and 2007 -
$0.250 per share)
|
(473 | ) | (4,246 | ) | (5,979 | ) | ||||||||||||||||||
Impact
of adopting FIN 48
|
— | — | 300 | |||||||||||||||||||||
Ending
balance
|
244,953 | 249,605 | 265,952 | |||||||||||||||||||||
Accumulated
Other Comprehensive Loss:
|
||||||||||||||||||||||||
Beginning
balance
|
(19,345 | ) | (1,989 | ) | (2,427 | ) | ||||||||||||||||||
Pension
liability adjustment, net of taxes
|
2,459 | (17,213 | ) | 312 | ||||||||||||||||||||
Other
|
201 | (143 | ) | 126 | ||||||||||||||||||||
Ending
balance
|
(16,685 | ) | (19,345 | ) | (1,989 | ) | ||||||||||||||||||
Total
Stockholders’ Equity
|
$ | 244,557 | $ | 244,968 | $ | 278,845 | ||||||||||||||||||
Net
(loss) income
|
$ | (4,179 | ) | $ | (12,101 | ) | $ | 1,758 | ||||||||||||||||
Other
comprehensive income (loss), net of tax
|
2,660 | (17,356 | ) | 438 | ||||||||||||||||||||
Total
comprehensive (loss) income
|
$ | (1,519 | ) | $ | (29,457 | ) | $ | 2,196 |
The accompanying
notes are an integral part of these consolidated financial
statements
F-4
Haverty
Furniture Companies, Inc.
Consolidated Statements of Cash flows
Year
ended December 31,
|
||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Cash
Flows from Operating Activities
|
||||||||||||
Net
(loss) income
|
$ | (4,179 | ) | $ | (12,101 | ) | $ | 1,758 | ||||
Adjustments
to reconcile net (loss) income to net cash
provided
by operating activities:
|
||||||||||||
Depreciation
and amortization
|
19,346 | 21,603 | 22,416 | |||||||||
Deferred
income taxes
|
(2,200 | ) | 9,073 | (6,063 | ) | |||||||
Share-based
compensation expense
|
1,668 | 1,629 | 1,824 | |||||||||
Provision
for doubtful accounts
|
978 | 1,654 | 1,328 | |||||||||
Net
gain on sale of property and equipment
|
(21 | ) | (4 | ) | (221 | ) | ||||||
Other
|
707 | (547 | ) | (103 | ) | |||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
receivable
|
9,263 | 38,714 | 10,891 | |||||||||
Inventories
|
10,442 | (1,291 | ) | 22,312 | ||||||||
Customer
deposits
|
1,222 | (4,404 | ) | (2,491 | ) | |||||||
Other
assets and liabilities
|
3,620 | (4,862 | ) | 825 | ||||||||
Accounts
payable and accrued liabilities
|
(2,351 | ) | (8,764 | ) | (13,367 | ) | ||||||
Net
Cash Provided by Operating Activities
|
38,495 | 40,700 | 39,109 | |||||||||
Cash
Flows from Investing Activities
|
||||||||||||
Capital
expenditures
|
(3,259 | ) | (9,544 | ) | (13,830 | ) | ||||||
Proceeds
from sale-leaseback transaction
|
6,625 | — | — | |||||||||
Proceeds
from sale of property and equipment
|
31 | 273 | 3,523 | |||||||||
Other
investing activities
|
43 | 469 | 173 | |||||||||
Net
Cash Provided by (Used in)
Investing
Activities
|
3,440 | (8,802 | ) | (10,134 | ) | |||||||
Cash
Flows from Financing Activities
|
||||||||||||
Proceeds
from borrowings under revolving credit facilities
|
5,800 | 161,390 | 378,775 | |||||||||
Payments
of borrowings under revolving credit facilities
|
(5,800 | ) | (161,390 | ) | (391,375 | ) | ||||||
Net
change in borrowings under revolving credit facilities
|
— | — | (12,600 | ) | ||||||||
Payments
on long-term debt and lease obligations
|
(311 | ) | (21,190 | ) | (10,367 | ) | ||||||
Treasury
stock acquired
|
— | (1,806 | ) | (12,385 | ) | |||||||
Proceeds
from exercise of stock options
|
92 | 366 | 346 | |||||||||
Dividends
paid
|
(473 | ) | (4,246 | ) | (5,979 | ) | ||||||
Other
financing activities
|
(474 | ) | (1,492 | ) | 38 | |||||||
Net
Cash Used In Financing Activities
|
(1,166 | ) | (28,368 | ) | (40,947 | ) | ||||||
Increase
(Decrease) in cash and Cash Equivalents
|
40,769 | 3,530 | (11,972 | ) | ||||||||
Cash
and Cash Equivalents at Beginning of Year
|
3,697 | 167 | 12,139 | |||||||||
Cash
and Cash Equivalents at End of Year
|
$ | 44,466 | $ | 3,697 | $ | 167 |
The
accompanying notes are an integral part of these consolidated financial
statements
F-5
Notes
To Consolidated Financial Statements
Note 1, Description of
Business and Summary of Significant Accounting Policies:
Organization:
Haverty
Furniture Companies, Inc. (“Havertys,” “we,” “our,” or “us”) is a retailer of a
broad line of residential furniture in the middle to upper-middle price
ranges. We have over 100 showrooms in 17 states all operated
using the Havertys name and we do not franchise our stores. As an
added convenience to our customers, we offer financing through an internal
revolving charge credit plan as well as a third-party finance
company. We operate in one reportable segment, home furnishings
retailing.
Basis
of Presentation:
The
consolidated financial statements include the accounts of Havertys and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. We also consolidated a
variable interest entity, a lessor of a distribution center and four retail
locations for which we were the primary beneficiary until these properties were
acquired by us in October 2008 and the variable interest entity was
dissolved.
Reclassification:
We have
reclassified amounts in components of the prior period cash flow statement
primarily related to deferred taxes to conform to the current year’s
presentation. These reclassifications do not change the amount
reported as “cash provided by operating activities.”
Use
of Estimates:
The
preparation of financial statements in conformity with U.S. 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.
Cash
Equivalents:
Cash and
cash equivalents includes all liquid investments with a maturity date of less
than three months when purchased. Cash equivalents are stated at cost, which
approximates fair value due to their short-term nature.
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 and assets under capital lease are
amortized over the shorter of the estimated useful life or the lease term of the
related asset. Amortization of capital leases is included in
depreciation expense.
Estimated
useful lives for financial reporting purposes are as follows:
Buildings
|
25
– 33 years
|
Improvements
|
5 –
15 years
|
Furniture
and Fixtures
|
3 –
15 years
|
Equipment
|
3 –
15 years
|
Capital
leases
|
15
years
|
F-6
Customer
Deposits:
Customer
deposits consist of customer advance payments and deposits on credit sales for
undelivered merchandise and cash collections on sales of undelivered
merchandise.
Revenue
Recognition:
We
recognize revenue from merchandise sales and related service fees, net of sales
taxes, upon delivery to the customer. A reserve for merchandise returns and
customer allowances is estimated based on our historical returns and allowance
experience and current sales levels.
We
typically offer our customers an opportunity for us to deliver their purchases.
Delivery fees of approximately $19,236,000, $19,606,000 and $20,821,000 were
charged to customers in 2009, 2008 and 2007, respectively and are included in
net sales. The costs associated with deliveries are included in selling, general
and administrative expenses and were approximately $30,081,000, $38,909,000 and
$41,215,000 in 2009, 2008 and 2007, respectively.
Credit
service charges are recognized as revenue as assessed to customers according to
contract terms. The costs associated with credit approval, account servicing and
collections are included in selling, general and administrative
expenses.
Cost
of Goods Sold:
Our cost
of goods sold includes the direct costs of products sold, warehouse handling and
transportation costs.
Selling,
General and Administrative Expenses:
Our
selling, general and administrative (“SG&A”) expenses are comprised of
advertising, selling, occupancy, delivery and administrative costs as well as
certain warehouse expenses. The costs associated with our purchasing,
warehousing, delivery and other distribution costs included in SG&A expense
were approximately $57,962,000, $74,959,000 and $80,487,000 in 2009, 2008 and
2007, respectively.
Deferred
Escalating Minimum Rent and Lease Incentives:
Certain
of our operating leases contain predetermined fixed escalations of the minimum
rentals during the term of the lease. For these leases, we recognize the related
rental expense on a straight-line basis over the life of the lease, beginning
with the point at which we obtain control and possession of the leased
properties, and record the difference between the amounts charged to operations
and amounts paid as deferred escalating minimum rent. The liability for deferred
escalating minimum rent approximated $11,674,000 and $11,057,000 at December 31,
2009 and 2008, respectively. Any lease incentives we receive are deferred and
subsequently amortized over a straight-line basis over the life of the lease as
a reduction of rent expense. The liability for lease incentives approximated
$1,866,000 and $2,109,000 at December 31, 2009 and 2008,
respectively.
Advertising
Expense:
Advertising
costs, which include television, radio, newspaper and other media advertising,
are expensed upon first showing. The total amount of prepaid
advertising costs included in other current assets was approximately $966,000
and $720,000 at December 31, 2009 and 2008, respectively. We incurred
approximately $38,223,000, $47,087,000 and $55,762,000 in advertising expense
during 2009, 2008 and 2007, respectively.
Interest
Expense, net:
Interest
expense is comprised of amounts incurred related to our debt obligations, net of
the amortization of the discount for interest-free credit programs that we
ceased offering in early 2008 and minor amounts of interest income. Amortization
of the discount on receivables was approximately $56,000, $1,351,000 and
$4,340,000 in 2009, 2008 and 2007, respectively. We capitalized interest costs
for real estate projects while under construction of approximately $8,000,
$9,000 and $188,000 for 2009, 2008 and 2007, respectively.
F-7
Other
Income, net:
Other
income, net includes any gains or losses on sales of property and equipment and
miscellaneous income or expense items which are non-recurring. Net gains from
the sales of property and equipment were approximately $21,000, $4,000 and
$221,000 in 2009, 2008 and 2007, respectively.
Self-Insurance:
We are
self-insured, subject to certain retention limits, for losses related to general
liability, workers’ compensation and vehicle claims. The expected ultimate cost
for claims incurred as of the balance sheet date is discounted and is recognized
as a liability. The expected ultimate cost of claims is estimated based upon
analysis of historical data and actuarial estimates. The reserve for
self-insurance is included in accrued liabilities and other liabilities and
totaled $5,470,000 and $5,265,000 at December 31, 2009 and 2008,
respectively.
Fair
Values of Financial Instruments:
The fair
values of our cash and cash equivalents, accounts receivable, accounts payable
and customer deposits approximate their carrying amounts due to their short-term
nature. The assets that are related to our self-directed,
non-qualified deferred compensation plan for certain executives and employees
are valued using quoted market prices, a Level 1 valuation
technique. The assets totaled approximately $1,485,000 and $1,168,000
at December 31, 2009 and 2008, respectively and are included in other
assets. The related liability of the same amount is included in other
liabilities.
Impairment
of Long-Lived Assets:
We review
long-lived assets for impairment when circumstances indicate the carrying amount
of an asset may not be recoverable. We evaluate long-lived assets for impairment
at the individual property or store level, which is the lowest level at which
individual cash flows can be identified. For stores with two consecutive years
of negative net contribution, we perform an impairment analysis. When evaluating
these assets for potential impairment, we first compare the carrying amount of
the asset to the store’s estimated future cash flows (undiscounted and without
interest charges). If the estimated future cash flows are less than
the carrying amount of the asset, an impairment loss calculation is
prepared. The impairment loss calculation compares the carrying
amount of the asset to the store’s assets’ estimated fair value, which is
determined on the basis of fair value for similar assets or future cash flows
(discounted and with interest charges). If required, an impairment
loss is recorded in SG&A expense for the difference in the asset’s carrying
value and the asset’s estimated fair value. The impairment loss was
approximately $412,000 in 2009 and immaterial in 2008 and 2007.
Earnings
(Loss) Per Share:
We report
our earnings (loss) per share using the two class method. The income
(loss) per share for each class of common stock is calculated assuming 100% of
our earnings (loss) are distributed as dividends to each class of common stock
based on their contractual rights. See Note 9 for further
discussion.
The
amounts of earnings (loss) used in calculating diluted earnings (loss) per share
of Common Stock is equal to net income (loss) since the Class A shares are
assumed to be converted. Diluted earnings (loss) per share of Class A Common
Stock includes the effect of dilutive common stock options which reduces the
amount of undistributed earnings allocated to the Class A Common Stock. See Note
12 for the computational components of basic and diluted earnings per
share.
Comprehensive
Income:
The
components of accumulated other comprehensive income, net of income taxes, were
comprised primarily of unrecognized pension adjustments totaling approximately
$16,166,000 and $18,626,000 at December 31, 2009 and 2008,
respectively.
F-8
Note 2, Accounts
Receivable:
Amounts financed under our in-house
credit programs were, as a percent of net sales, approximately 6.2% in 2009,
8.1% in 2008 and 15.4% in 2007. Accounts receivable are shown net of the
allowance for doubtful accounts of approximately $1,000,000 and $1,700,000 at
December 31, 2009 and 2008, respectively, and net of discounts for interest-free
credit with terms of payment longer than 12 months. 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. Interest assessments
are continued on past-due accounts but no “interest on interest” is
recorded.
Accounts
receivable balances resulting from certain credit promotions have scheduled
payment amounts which extend beyond one year. These receivable balances have
been historically collected earlier than the scheduled dates. The amounts due
per the scheduled payment dates approximate as follows: $14,306,000
in 2010, $1,904,000 in 2011, $751,000 in 2012 and $144,000 in 2013 for
receivables outstanding at December 31, 2009.
We
provide 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. We assess the adequacy of the allowance account at the end of each
quarter.
We
believe that the carrying value of existing customer receivables, net of
allowances, approximates fair value because of their short average maturity.
Concentrations of credit risk with respect to customer receivables are limited
due to the large number of customers comprising our account base and their
dispersion across 17 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 current costs and revenues. The
excess of current costs over our carrying value of inventories was approximately
$16,356,000 and $17,490,000 at December 31, 2009 and 2008, respectively. The use
of the LIFO valuation method as compared to the FIFO method had a positive
impact of approximately $1,134,000 on our 2009 cost of goods sold, and a
negative impact of $997,000 in 2008 and $389,000 in 2007. We believe this
information is meaningful to the users of these Consolidated Financial
Statements.
F-9
Note 4, Property and
Equipment:
Property
and equipment are summarized as follows:
(In
thousands)
|
2009
|
2008
|
||||||
Land
and improvements
|
$ | 44,973 | $ | 46,991 | ||||
Buildings
and improvements
|
211,155 | 214,455 | ||||||
Furniture
and fixtures
|
77,829 | 75,997 | ||||||
Equipment
|
34,029 | 34,160 | ||||||
Buildings
under lease
|
8,268 | 8,268 | ||||||
Construction
in progress
|
111 | 201 | ||||||
376,365 | 380,072 | |||||||
Less
accumulated depreciation
|
(197,886 | ) | (181,091 | ) | ||||
Less
accumulated lease amortization
|
(2,116 | ) | (1,558 | ) | ||||
Property
and equipment, net
|
$ | 176,363 | $ | 197,423 |
Note 5, Credit
Arrangements:
At
December 31, 2009, Havertys had a $60,000,000 revolving credit facility (the
“Credit Agreement”) with two banks secured by inventory, accounts
receivable, cash and certain other personal property. The Credit
Agreement includes negative covenants that limit our ability to, among other
things (a) create unsecured funded indebtedness or capital lease obligations
collectively in excess of $15,000,000 in aggregate outstandings at any one time,
(b) create indebtedness secured by real estate or engage in sale leaseback
transactions which together exceed $60,000,000 in the aggregate, (c) sell or
dispose of real property or other assets in excess of $30,000,000 in the
aggregate, and (d) pay dividends in excess of $6,000,000 or repurchase capital
stock in excess of $5,000,000 during any trailing twelve month
period. We are in compliance with the terms of the Credit Agreement
at December 31, 2009 and there exists no default or event of
default.
Borrowings
under the Credit Agreement have a floating rate of interest of LIBOR plus a
spread which is based on average availability under the
facility. There were no borrowings outstanding under the Credit
Agreement at December 31, 2009. Availability fluctuates under a borrowing base
calculation primarily consisting of eligible inventory and accounts receivable,
less customer deposits. The borrowing base at December 31, 2009 was $58,250,000.
Amounts available are reduced by outstanding letters of credit which were
$7,575,000 at December 31, 2009 as well as by $10,000,000 since a fixed charge
coverage ratio test was not met for the immediately preceding twelve month
period, resulting in a net availability of $40,675,000. The Credit Agreement has
provisions for commitment fees on unused amounts and terminates in December
2011.
F-10
Note 6, Accrued Liabilities
and Other Liabilities:
Accrued
liabilities and other liabilities consist of the following:
(In
thousands)
|
2009
|
2008
|
||||||
Accrued
liabilities:
|
||||||||
Employee
compensation, related taxes and benefits
|
$ | 9,848 | $ | 9,750 | ||||
Taxes
other than income and withholding
|
8,439 | 7,680 | ||||||
Self-insurance
reserves (current portion)
|
2,764 | 2,758 | ||||||
Other
|
9,157 | 8,805 | ||||||
$ | 30,208 | $ | 28,993 | |||||
Other
liabilities:
|
||||||||
Accrued
defined benefit pension plan
|
$ | 9,575 | 11,741 | |||||
Straight-line
lease liability
|
11,674 | 11,057 | ||||||
Other
|
16,856 | 16,774 | ||||||
$ | 38,105 | $ | 39,572 |
Note 7, Income
Taxes:
We
consider all income sources, including other comprehensive income, in
determining the amount of tax benefit allocated to continuing
operations. Accordingly, for the year ended December 31, 2009, we
recorded an income tax benefit of $1,229,000 with an offsetting income tax
expense of $1,507,000 in other comprehensive income. Our overall tax
provision is not impacted by this allocation.
Income
tax expense (benefit) consists of the following:
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Current
|
||||||||||||
Federal
|
$ | 818 | $ | (3,836 | ) | $ | 5,275 | |||||
State
|
153 | 332 | 974 | |||||||||
971 | (3,504 | ) | 6,249 | |||||||||
Deferred
|
||||||||||||
Federal
|
(2,264 | ) | 8,036 | (5,135 | ) | |||||||
State
|
64 | 1,037 | (928 | ) | ||||||||
(2,200 | ) | 9,073 | (6,063 | ) | ||||||||
$ | (1,229 | ) | $ | 5,569 | $ | 186 |
F-11
The
differences between income tax expense in the accompanying Consolidated
Financial Statements and the amount computed by applying the statutory Federal
income tax rate are as follows:
(In
thousands)
|
2009
|
2008
|
2007
|
|||||||||
Statutory
rates applied to (loss) income before income taxes
|
$ | (1,893 | ) | $ | (2,286 | ) | $ | 680 | ||||
State
income taxes, net of Federal tax benefit
|
(113 | ) | (68 | ) | 185 | |||||||
Net
non-deductible permanent differences
|
16 | 91 | 104 | |||||||||
Change
in valuation allowance
|
682 | 8,182 | — | |||||||||
Change
for net operating loss carrybacks and amended returns
|
(176 | ) | — | — | ||||||||
Change
in reserve for uncertain tax positions
|
— | (276 | ) | (308 | ) | |||||||
Share-based
compensation differences
|
165 | 102 | — | |||||||||
Property
and equipment basis differences adjustments
|
(107 | ) | 114 | (342 | ) | |||||||
Other
|
197 | (290 | ) | (133 | ) | |||||||
$ | (1,229 | ) | $ | 5,569 | $ | 186 |
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The amounts in the
following table are grouped based on broad categories of items that generate the
deferred tax assets and liabilities.
(In
thousands)
|
2009
|
2008
|
||||||
Deferred
tax assets:
|
||||||||
Accounts
receivable related
|
$ | 803 | $ | 1,025 | ||||
Net
property and equipment
|
9,534 | 6,320 | ||||||
Leases
|
4,910 | 4,827 | ||||||
Accrued
liabilities
|
3,541 | 2,754 | ||||||
State
tax credits
|
3,422 | 3,300 | ||||||
Other
comprehensive income
|
5,928 | 7,435 | ||||||
Other
|
355 | 1,298 | ||||||
Total
deferred tax assets
|
28,493 | 26,959 | ||||||
Deferred
tax liabilities:
|
||||||||
Inventory
related
|
7,553 | 7,090 | ||||||
Other
|
871 | 924 | ||||||
Total
deferred tax liabilities
|
8,424 | 8,014 | ||||||
Valuation
allowance
|
(18,705 | ) | (18,023 | ) | ||||
Net
deferred tax assets
|
$ | 1,364 | $ | 922 |
F-12
Deferred
tax assets and deferred tax liabilities which are current are netted against
each other as are non-current deferred tax assets and non-current deferred
liabilities as they relate to each tax-paying component for presentation on the
balance sheets. These groupings are detailed in the following
table:
(In
thousands)
|
2009
|
2008
|
||||||
Current
assets (liabilities):
|
||||||||
Current
deferred assets
|
$ | 3,333 | $ | 4,507 | ||||
Current
deferred liabilities
|
(9,611 | ) | (9,423 | ) | ||||
Valuation
allowance
|
(1,472 | ) | (1,975 | ) | ||||
(7,750 | ) | (6,891 | ) | |||||
Non-current
assets (liabilities):
|
||||||||
Non-current
deferred assets
|
39,025 | 36,614 | ||||||
Non-current
deferred liabilities
|
(12,678 | ) | (12,753 | ) | ||||
Valuation
allowance
|
(17,233 | ) | (16,048 | ) | ||||
9,114 | 7,813 | |||||||
Net
deferred tax assets
|
$ | 1,364 | $ | 922 |
We have
reviewed these deferred tax assets and believe there is insufficient evidence to
conclude that it is more likely than not they will be realized and therefore a
valuation allowance is required. During the fourth quarter of 2008,
based on our operating loss in 2008 and projected loss in 2009, we determined
our valuation allowance should be increased $14,723,000. Accordingly,
we recorded an $8,182,000 charge to income tax expense and, for the portion of
the allowance increase related to our pension plan, a $6,541,000 charge to
accumulated other comprehensive loss. During 2009 we increased the
allowance $682,000.
We file
income tax returns in the U.S. federal jurisdiction and various state and local
jurisdictions. With respect to U.S. federal, state and local
jurisdictions, with limited exceptions, we are no longer subject to income tax
audits for years before 2006. When we file our federal claims for
carrybacks and amended returns the 2003 and subsequent tax years will remain
subject to examination.
Uncertain Tax
Positions: A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows:
(In
thousands)
|
2009
|
2008
|
||||||
Balance
at January 1
|
$
|
785
|
$
|
1,102
|
||||
Reductions
for tax positions for prior years
|
—
|
(276
|
)
|
|||||
Settlements
|
—
|
(41
|
)
|
|||||
Balance
at December 31
|
785
|
785
|
We do not
anticipate our unrecognized benefits will significantly change during 2010 due
to the settlement of audits and the expiration of statutes of
limitations. The total amount of unrecognized tax benefits that, if
recognized, would affect the effective tax rate as of December 31, 2009 and was
approximately $697,000. We had approximately $202,000 and $166,000 of
accrued interest and penalties at December 31, 2009 and 2008,
respectively. Potential interest and penalties related to
unrecognized tax benefits are recognized as a component of income tax
expense.
F-13
Note 8, Long-Term Debt and
Lease Obligations:
Long-term
debt and lease obligations are summarized as follows:
(In
thousands)
|
2009
|
2008
|
||||||
Revolving
credit notes (a)
|
$ | — | $ | — | ||||
Lease
obligations (b)
|
7,183 | 7,494 | ||||||
7,183 | 7,494 | |||||||
Less
portion classified as current
|
357 | 311 | ||||||
$ | 6,826 | $ | 7,183 |
(a) We
have a revolving credit agreement as described in Note 5.
(b) The
obligations are related to three retail stores with properties under lease with
aggregate net book values of approximately $6,152,000 at December 31,
2009.
The
aggregate maturities of lease obligations during the five years subsequent to
December 31, 2009 and thereafter approximate as follows: 2010 -
$357,000; 2011 - $443,000; 2012 - $472,000; 2013 - $504,000, 2014 - $560,000 and
$4,847,000 thereafter. These maturities are net of imputed interest
of approximately $3,059,000 at December 31, 2009.
Cash
payments for interest were approximately $991,000, $2,337,000 and $3,598,000 in
2009, 2008 and 2007, 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 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.
Note 10, Benefit
Plans:
We have a
defined benefit pension plan (the “pension plan”) covering substantially all
employees hired on or before December 31, 2005. The pension plan was closed to
any employees hired after that date. The benefits are based on years of service
and the employee’s final average compensation. Effective January 1, 2007, there
are no new benefits earned under the pension plan for additional years of
service after December 31, 2006. All current participants in the
pension plan keep any and all benefits that they had accrued up until December
31, 2006, provided that they are vested at the time their employment
ends.
We also
have a non-qualified, non-contributory supplemental executive retirement plan
(the “SERP”) for employees whose retirement benefits are reduced due to their
annual compensation levels. The SERP provides annual benefits amounting to 55%
of final average earnings less benefits payable from our pension plan and Social
Security benefits. The SERP limits the total amount of annual retirement
benefits that may be paid to a participant in the SERP from all sources
(Retirement Plan, Social Security and the SERP) to $125,000. The SERP is not
funded so we pay benefits directly to participants.
F-14
The
following table summarizes information about our pension plan and
SERP.
Pension
Plan
|
SERP
|
|||||||||||||||
(In thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Change
in benefit obligation:
|
||||||||||||||||
Benefit
obligation at beginning of the year
|
$ | 61,297 | $ | 59,104 | $ | 4,746 | $ | 4,939 | ||||||||
Service
cost
|
— | — | 95 | 107 | ||||||||||||
Interest
cost
|
3,742 | 3,675 | 277 | 277 | ||||||||||||
Actuarial
losses (gains)
|
1,916 | 1,622 | (92 | ) | (390 | ) | ||||||||||
Benefits
paid
|
(3,352 | ) | (3,104 | ) | (201 | ) | (187 | ) | ||||||||
Benefit
obligation at end of year
|
63,603 | 61,297 | 4,825 | 4,746 | ||||||||||||
Change
in plan assets:
|
||||||||||||||||
Fair
value of plan assets at beginning of year
|
49,556 | 63,796 | — | — | ||||||||||||
Employer
contribution
|
— | — | 201 | 187 | ||||||||||||
Actual
return on plan assets
|
7,824 | (11,136 | ) | — | — | |||||||||||
Benefits
paid
|
(3,352 | ) | (3,104 | ) | (201 | ) | (187 | ) | ||||||||
Fair
value of plan assets at end of year
|
54,028 | 49,556 | — | — | ||||||||||||
Funded
status of the plan – underfunded
|
$ | (9,575 | ) | $ | (11,741 | ) | $ | (4,825 | ) | $ | (4,746 | ) | ||||
Accumulated
benefit obligations
|
$ | 63,603 | $ | 61,297 | $ | 4,683 | $ | 4,400 |
Amounts
recognized in the statement of financial position consist of:
Pension
Plan
|
SERP
|
|||||||||||||||
(In
thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Current
liabilities
|
$ | — | $ | — | $ | 193 | $ | 199 | ||||||||
Noncurrent
liabilities
|
9,575 | 11,741 | 4,632 | 4,547 | ||||||||||||
$ | 9,575 | $ | 11,741 | $ | 4,825 | $ | 4,746 |
Amounts
recognized in accumulated other comprehensive loss consist of:
Pension
Plan
|
SERP
|
|||||||||||||||
(In
thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Prior
service cost
|
$ | — | $ | — | $ | (1,479 | ) | $ | (1,689 | ) | ||||||
Net
actuarial loss
|
(13,840 | ) | (17,565 | ) | (233 | ) | (265 | ) | ||||||||
$ | (13,840 | ) | $ | (17,565 | ) | $ | (1,712 | ) | $ | (1,954 | ) |
F-15
Net
pension cost included the following components:
Pension
Plan
|
SERP
|
|||||||||||||||||||||||
(In
thousands)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||||||||||||||||||
Service
cost-benefits earned during the period
|
$ | — | $ | — | $ | — | $ | 95 | $ | 107 | $ | 114 | ||||||||||||
Interest
cost on projected benefit obligation
|
3,742 | 3,675 | 3,571 | 277 | 277 | 301 | ||||||||||||||||||
Expected
return on plan assets
|
(3,405 | ) | (4,668 | ) | (4,710 | ) | — | — | — | |||||||||||||||
Amortization
of prior service cost
|
— | — | — | 210 | 210 | 210 | ||||||||||||||||||
Amortization
of actuarial loss (gain)
|
1,222 | — | — | (61 | ) | (386 | ) | 31 | ||||||||||||||||
Net
pension costs (benefit)
|
$ | 1,559 | $ | (993 | ) | $ | (1,139 | ) | $ | 521 | $ | 208 | $ | 656 |
The
estimated amount that will be amortized from accumulated other comprehensive
loss into net periodic cost in 2010 is approximately $803,000 for the pension
plan and $210,000 for the SERP.
Assumptions
The
Company uses a measurement date of December 31 for its pension and other benefit
plans. Weighted-average assumptions used to determine benefit obligations at
December 31 are as follows:
2009
|
2008
|
|||||||
Discount
rate
|
6.0 | % | 6.2 | % | ||||
Rate
of compensation increase
|
3.5 | % | 3.5 | % |
Weighted-average
assumptions used to determine net periodic benefit cost for years ended
December 31 are as follows:
2009
|
2008
|
2007
|
||||||||||
Discount
rate
|
6.20 | % | 6.25 | % | 5.75 | % | ||||||
Expected
long-term return on plan assets
|
7.10 | % | 7.50 | % | 7.50 | % | ||||||
Rate
of compensation increase
|
3.50 | % | 3.50 | % | 3.50 | % |
Plan
Assets
The Board
of Director’s Executive Compensation and Employee Benefits Committee (the
“Compensation Committee”) is responsible for administering our pension plan. The
primary investment objective of the pension plan is to ensure, over its
long-term life, an adequate pool of assets to support the benefit obligations to
participants, retirees and beneficiaries. An important secondary objective is to
be able to improve the pension plan’s funded status which reduces employer
contributions. In meeting these objectives, the Compensation Committee seeks to
achieve a high level of investment return consistent with a prudent level of
portfolio risks.
Factors
such as asset class allocations, long-term rates of return (expected and
actual), and results of periodic asset liability modeling studies are considered
when constructing the long-term rate of return assumptions for our pension
plan. While historical rates of return are an important factor in the
analysis, we also take into consideration data points from other external
sources.
F-16
The
assets of the plan are being invested according to the following asset
allocation guidelines, established to reflect the growth expectations and risk
tolerance of the Compensation Committee.
Security
Class
|
Strategic
Target
|
Tactical
Range
|
||||||
Equity:
|
||||||||
International
Equity
|
20 | % | 18% — 29 | % | ||||
Domestic
Equity
|
35 | % | 25% — 46 | % | ||||
Haverty
Common Stock
|
5 | % | 0 % — 10 | % | ||||
Total
Equity
|
60 | % | 50% — 70 | % | ||||
U.S.
Fixed Income
|
40 | % | 30% — 50 | % | ||||
Cash
|
0 | % | 0% — 10 | % | ||||
Total
Fund
|
100 | % |
Our
pension plan assets are valued based on observable inputs obtained from
independent sources. Most of the assets are valued using quoted
market prices for similar instruments in active markets, a Level 2 valuation
technique. The remaining assets are valued using quoted market
prices, a Level 1 valuation technique. The fair values by asset
category are as follows (in thousands):
Fair
Value Measurements at December 31, 2009
|
||||||||||||
Asset
Category
|
Total
|
Level
1
|
Level
2
|
|||||||||
Money
Market Funds
|
$ | 382 | $ | 382 | $ | |||||||
Equity
Securities:
|
||||||||||||
Haverty Class A Common
Stock
|
2,798 | 2,798 | ||||||||||
U.S. Large Cap Passive(a)
|
14,814 | 14,814 | ||||||||||
U.S. Small/Mid Cap
Growth
|
1,800 | 1,800 | ||||||||||
U.S. Small/Mid Cap
Value
|
1,797 | 1,797 | ||||||||||
International
Equity
|
12,440 | 12,440 | ||||||||||
33,649 | 33,649 | |||||||||||
Fixed
Income:
|
||||||||||||
Opportunistic(b)
|
2,905 | 2,905 | ||||||||||
Passive
|
1,464 | 1,464 | ||||||||||
Long Duration Active(c)
|
5,963 | 5,963 | ||||||||||
Long Duration
Passive
|
2,234 | 2,234 | ||||||||||
Long Duration Investment
Grade(d)
|
7,431 | 7,431 | ||||||||||
19,997 | 19,997 | |||||||||||
Total
|
$ | 54,028 | $ | 382 | $ | 53,646 |
(a)
|
This
category comprises low-cost equity index funds not actively managed that
track the S&P 500.
|
(b)
|
This
fund invests primarily in U.S. dollar-denominated, investment grade bonds,
including government securities, corporate bonds, and mortgage and
asset-backed securities. This fund may also invest a
significant portion of its assets in any combination of non-investment
grade bonds, non-U.S. dollar denominated bonds, and bonds issued by
issuers in emerging capital
markets.
|
(c)
|
This
category invests primarily in U.S. dollar-denominated, investment grade
bonds, including government securities, corporate bonds, and mortgage and
asset-backed securities, among
others.
|
(d)
|
This
category invests primarily in U.S. dollar-denominated, investment grade
corporate bonds as well as U.S. Treasury
bonds.
|
F-17
Cash
Flows
We expect
to contribute $3,000,000 to the pension plan in 2010. The following benefits
payments, which reflect expected future service, are expected to be paid (in
thousands):
Year(s)
|
Pension
Plan
|
SERP
|
||||||
2010
|
$ | 3,204 | $ | 193 | ||||
2011
|
3,313 | 228 | ||||||
2012
|
3,451 | 224 | ||||||
2013
|
3,582 | 221 | ||||||
2014
|
3,677 | 222 | ||||||
2015-2019
|
21,067 | 1,635 |
Other
Plans
Havertys
has an employee savings/retirement (401(k)) plan to which substantially all
employees may contribute. We match employee contributions 100% of the
first 1% of eligible pay and 50% of the next 5% contributed by participants. We
expensed matching employer contributions of approximately $2,293,000, $2,548,000
and $2,244,000 in 2009, 2008, and 2007, respectively. Individuals
with at least 10 years of service and whose age plus years of service equal 65
on December 31, 2006 received an additional contribution of 2% of eligible pay
in 2008 and 2007. We expensed approximately $262,000 in 2008 and $375,000 in
2007 and suspended these payments for 2009.
Havertys
offers no post-retirement benefits other than the plans discussed above and no
significant post employment benefits.
Note 11, Stock Based
Compensation Plans:
We have
options and awards outstanding for Common Stock under two stock-based employee
compensation plans, the 2004 Long Term Incentive Plan (the “2004 LTIP Plan”) and
the 1998 Stock Option Plan (the “1998 Plan”). As of December 31, 2009, 370,000
shares were available for awards and options under the 2004 LTIP
Plan. No new awards may be granted under the 1998 Plan.
The
following table summarizes our share option and award activity during the years
ended December 31, 2007, 2008 and 2009:
Option
Shares
|
Weighted-Average
Exercise
Price
|
Restricted
Shares
|
Weighted-Average
Award
Price
|
Stock-
Settled
Appreciation Rights
|
Weighted-Average
Award
Price
|
|||||||||||||||||||
Outstanding
at January 1, 2007
|
2,091,400 | $ | 15.07 | 218,575 | $ | 15.33 | ||||||||||||||||||
Granted
|
— | — | 125,400 | 15.61 | ||||||||||||||||||||
Exercised
or restrictions lapsed(1)
|
(34,600 | ) | 10.01 | (79,150 | ) | 15.23 | ||||||||||||||||||
Expired
or forfeited
|
(57,000 | ) | 15.97 | (5,800 | ) | 15.07 | ||||||||||||||||||
Outstanding
at December 31, 2007
|
1,999,800 | 15.13 | 259,025 | 15.50 | — | |||||||||||||||||||
Granted
|
— | — | 151,700 | 9.89 | 60,850 | $ | 9.19 | |||||||||||||||||
Exercised
or restrictions lapsed(1)
|
(18,400 | ) | 10.13 | (112,675 | ) | 15.52 | — | — | ||||||||||||||||
Expired
or forfeited
|
(149,000 | ) | 12.49 | (14,675 | ) | 12.77 | (2,850 | ) | 9.13 | |||||||||||||||
Outstanding
at December 31, 2008
|
1,832,400 | 15.40 | 283,375 | 12.63 | 58,000 | 9.19 | ||||||||||||||||||
Granted
|
— | — | 141,050 | 8.73 | 111,600 | 8.73 | ||||||||||||||||||
Exercised
or restrictions lapsed(1)
|
(7,500 | ) | 13.29 | (128,850 | ) | 13.51 | — | — | ||||||||||||||||
Expired
or forfeited
|
(319,875 | ) | 14.43 | (3,400 | ) | 9.49 | (17,500 | ) | 9.02 | |||||||||||||||
Outstanding
at December 31, 2009
|
1,505,025 | $ | 15.62 | 292,175 | $ | 10.37 | 152,100 | $ | 8.87 | |||||||||||||||
Exercisable
at December 31, 2009
|
1,505,025 | $ | 15.62 | 12,503 | $ | 9.17 | ||||||||||||||||||
Exercisable
at December 31, 2008
|
1,832,400 | $ | 15.40 | — | — | |||||||||||||||||||
Exercisable
at December 31, 2007
|
1,999,800 | $ | 15.13 | — | — |
(1) The
total intrinsic value of options exercised was approximately $12,500, $31,600,
and $124,000 in 2009, 2008 and 2007, respectively.
F-18
The
following table summarizes information about the stock options outstanding as of
December 31, 2009:
Range
of Exercise Prices
|
Number
Outstanding
and
Exercisable
|
Weighted-Average
Remaining
Contractual
Life (Years)
|
Weighted-Average
Exercise
Price
|
|||||||||||
$ | 9.81 – 12.90 | 617,000 | 2.0 | $ | 12.30 | |||||||||
$ | 13.75 – 15.94 | 438,025 | 2.0 | $ | 15.94 | |||||||||
$ | 17.01 – 20.75 | 450,000 | 1.4 | $ | 19.87 | |||||||||
$ | 9.81 – 20.75 | 1,505,025 | 1.8 | $ | 15.62 |
The
aggregate intrinsic value of options outstanding at December 31, 2009 was
approximately $881,000. Options granted before December 1, 2003 have
maximum terms of 10 years and grants after that date have maximum terms of seven
years.
Grants of
restricted common stock and stock-settled appreciation rights are made to
certain officers and key employees under the 2004 LTIP Plan. The forfeiture
provisions on the awards generally expire annually, over periods not exceeding
four years. The compensation is being charged to selling, general and
administrative expense over the respective grants’ vesting periods, primarily on
a straight-line basis, and was approximately $1,668,000, $1,629,000 and
$1,824,000 in 2009, 2008 and 2007, respectively. As of December 31, 2009, the
total compensation cost related to unvested equity awards was approximately
$2,033,000 and is expected to be recognized over a weighted-average period of
two years.
The
weighted-average fair value for the stock-settled appreciation rights granted
was estimated at the date of grant using a Black-Scholes pricing model with the
following weighted-average assumptions:
2009
|
2008
|
|||||||
Risk-free
interest rate
|
1.4 | % | 2.8 | % | ||||
Expected
life in years
|
5.0 | 5.0 | ||||||
Expected
volatility
|
38.8 | % | 36.6 | % | ||||
Expected
dividend yield
|
0.0 | % | 2.7 | % | ||||
Estimated
fair value of SSAR per share
|
$ | 3.13 | $ | 2.53 |
The
aggregate intrinsic value of vested and outstanding stock-settled appreciation
rights at December 31, 2009 was approximately $57,000 and $739,000,
respectively.
The total
fair value of restricted common stock shares that vested in 2009, 2008 and 2007
was approximately $1,321,000, $1,008,000 and $962,000,
respectively. The aggregate intrinsic value of outstanding restricted
common stock grants was $4,012,000 at December 31, 2009.
F-19
Note 12, Earnings Per
Share:
The
following is a reconciliation of the (loss) income and number of shares used in
calculating the diluted earnings per share for Common Stock and Class A Common
Stock (amounts in thousands except per share data):
Numerator:
|
2009
|
2008
|
2007
|
|||||||||
Common:
|
||||||||||||
Distributed
earnings
|
$ | 395 | $ | 3,476 | $ | 4,939 | ||||||
Undistributed
loss
|
(3,822 | ) | (13,316 | ) | (3,470 | ) | ||||||
Basic
|
(3,427 | ) | (9,840 | ) | 1,469 | |||||||
Class
A Common (loss) earnings
|
(752 | ) | (2,261 | ) | 289 | |||||||
Diluted
|
$ | (4,179 | ) | $ | (12,101 | ) | $ | 1,758 | ||||
Class
A Common:
|
||||||||||||
Distributed
earnings
|
$ | 78 | $ | 770 | $ | 1,041 | ||||||
Undistributed
loss
|
(830 | ) | (3,031 | ) | (752 | ) | ||||||
$ | (752 | ) | $ | (2,261 | ) | $ | 289 |
Denominator:
|
2009
|
2008
|
2007
|
|||||||||
Common:
|
||||||||||||
Weighted-average
shares outstanding - basic
|
17,415 | 17,186 | 18,300 | |||||||||
Assumed
conversion of Class A Common stock
|
3,973 | 4,096 | 4,165 | |||||||||
Dilutive
options, awards and common stock equivalents
|
— | — | 124 | |||||||||
Total
weighted-average diluted Common stock
|
21,388 | 21,282 | 22,589 | |||||||||
Class
A Common:
|
||||||||||||
Weighted-average
shares outstanding
|
3,973 | 4,096 | 4,165 | |||||||||
Basic
net (loss) earnings per share
|
||||||||||||
Common
Stock
|
$ | (0.20 | ) | $ | (0.57 | ) | $ | 0.08 | ||||
Class
A Common Stock
|
$ | (0.19 | ) | $ | (0.55 | ) | $ | 0.07 | ||||
Diluted
net (loss) earnings per share
|
||||||||||||
Common
Stock
|
$ | (0.20 | ) | $ | (0.57 | ) | $ | 0.08 | ||||
Class
A Common Stock
|
$ | (0.19 | ) | $ | (0.55 | ) | $ | 0.07 |
At
December 31, 2009, 2008 and 2007, we did not include stock options to purchase
approximately 1,630,000, 1,832,000 and 1,627,000 shares of Havertys Common
Stock, respectively, in the computation of diluted earnings (loss) per common
share because the exercise prices of those options were greater than the average
market price and their inclusion would have been antidilutive.
Note 13,
Commitments:
We lease
certain property and equipment under operating leases. 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. The leases generally require
Havertys to pay all maintenance, property taxes and insurance
costs.
F-20
The
following schedule outlines the future minimum lease payments and rentals under
operating leases:
(In
thousands)
|
Operating
Leases
|
|||
2010
|
$ | 31,785 | ||
2011
|
29,632 | |||
2012
|
27,609 | |||
2013
|
25,256 | |||
2014
|
22,970 | |||
Subsequent
to 2014
|
123,200 | |||
Total
minimum payments
|
260,452 | |||
Less
total minimum sublease rentals
|
(686 | ) | ||
Net
minimum lease payments
|
$ | 259,766 |
Step rent
and escalation clauses and other lease concessions (free rent periods) are taken
into account in computing lease expense on a straight-line basis. Lease
concessions for capital improvements have not been significant, but are recorded
as a reduction of expense over the term of the lease. Net rental expense
applicable to operating leases consisted of the following for the years ended
December 31:
2009
|
2008
|
2007
|
||||||||||
Property
|
||||||||||||
Minimum
|
$ | 30,555 | $ | 29,820 | $ | 28,907 | ||||||
Additional rentals based on
sales
|
282 | 389 | 584 | |||||||||
Sublease income
|
(1,081 | ) | (1,012 | ) | (1,364 | ) | ||||||
29,756 | 29,197 | 28,127 | ||||||||||
Equipment
|
1,603 | 2,319 | 2,700 | |||||||||
$ | 31,359 | $ | 31,516 | $ | 30,827 |
Note 14, Supplemental Cash
Flow Information:
Income
Taxes Paid
We paid
state and federal income taxes of approximately $534,000, $2,764,000 and
$8,179,000 in 2009, 2008 and 2007, respectively. We also received income tax
refunds of approximately $2,467,000, $3,743,000 and $4,779,000 in 2009, 2008 and
2007, respectively.
Non-Cash
Transactions
We
increased property and equipment and debt and lease obligations by approximately
$1,202,000 in 2007.
F-21
Note 15, Selected Quarterly
Financial Data (Unaudited):
The
following is a summary of the unaudited quarterly results of operations for the
years ended December 31, 2009 and 2008 (in thousands, except per share
data):
2009
Quarter Ended
|
||||||||||||||||
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||||||
Net
sales
|
$ | 144,238 | $ | 129,683 | $ | 151,945 | $ | 162,399 | ||||||||
Gross
profit
|
73,763 | 66,621 | 79,105 | 86,009 | ||||||||||||
Credit
service charges
|
393 | 311 | 267 | 240 | ||||||||||||
(Loss)
income before taxes
|
(7,193 | ) | (6,519 | ) | 696 | 7,608 | ||||||||||
Net
(loss) income
|
(7,263 | ) | (6,582 | ) | 501 | 9,165 | ||||||||||
Basic
net (loss) earnings per share:
|
||||||||||||||||
Common
|
(0.34 | ) | (0.31 | ) | 0.02 | 0.43 | ||||||||||
Class
A Common
|
(0.33 | ) | (0.30 | ) | 0.02 | 0.41 | ||||||||||
Diluted
net (loss) earnings per share:
|
||||||||||||||||
Common
|
(0.34 | ) | (0.31 | ) | 0.02 | 0.42 | ||||||||||
Class
A Common
|
(0.33 | ) | (0.30 | ) | 0.02 | 0.41 |
2008
Quarter Ended
|
||||||||||||||||
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||||||
Net
sales
|
$ | 185,253 | $ | 168,412 | $ | 175,579 | $ | 161,836 | ||||||||
Gross
profit
|
96,435 | 86,254 | 90,475 | 83,925 | ||||||||||||
Credit
service charges
|
565 | 497 | 468 | 443 | ||||||||||||
Income
(loss) before taxes
|
1,808 | (3,884 | ) | (2,282 | ) | (2,174 | ) | |||||||||
Net
income (loss)
|
1,032 | (2,309 | ) | (1,515 | ) | (9,309 | ) | |||||||||
Basic
net earnings (loss) per share:
|
||||||||||||||||
Common
|
0.05 | (0.11 | ) | (0.07 | ) | (0.44 | ) | |||||||||
Class
A Common
|
0.05 | (0.11 | ) | (0.07 | ) | (0.42 | ) | |||||||||
Diluted
net earnings (loss) per share:
|
||||||||||||||||
Common
|
0.05 | (0.11 | ) | (0.07 | ) | (0.44 | ) | |||||||||
Class
A Common
|
0.05 | (0.11 | ) | (0.07 | ) | (0.42 | ) |
The
fourth quarter of 2008 includes a charge to tax expense of $8,182,000 or $0.39
per share to increase the valuation allowance on deferred tax
assets. See Note 7.
Because
of the method used in calculating per share data, the quarterly per share data
will not necessarily add to the per share data as computed for the
year.
F-22
Note 16, Market Prices and
Dividend Information (Unaudited):
Our two
classes of common stock trade 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. The table below sets forth the high and low sales prices per share as
reported on the NYSE and the dividends declared for the last two
years:
2009
|
||||||||||||||||||||||||
Common
Stock
|
Class
A Common Stock
|
|||||||||||||||||||||||
Quarter
Ended
|
High
|
Low
|
Dividend
Declared
|
High
|
Low
|
Dividend
Declared
|
||||||||||||||||||
March
31
|
$ | 11.00 | $ | 7.61 | $ | — | $ | 10.94 | $ | 7.06 | $ | — | ||||||||||||
June
30
|
11.34 | 8.86 | — | 11.25 | 9.00 | — | ||||||||||||||||||
September
30
|
12.78 | 8.96 | — | 12.50 | 9.00 | — | ||||||||||||||||||
December
31
|
13.93 | 11.36 | 0.0225 | 13.80 | 11.47 | 0.0200 |
2008
|
||||||||||||||||||||||||
Common
Stock
|
Class
A Common Stock
|
|||||||||||||||||||||||
Quarter
Ended
|
High
|
Low
|
Dividend
Declared
|
High
|
Low
|
Dividend
Declared
|
||||||||||||||||||
March 31
|
$ | 11.16 | $ | 7.58 | $ | 0.0675 | $ | 11.02 | $ | 7.53 | $ | 0.0625 | ||||||||||||
June
30
|
11.17 | 8.80 | 0.0675 | 11.10 | 8.85 | 0.0625 | ||||||||||||||||||
September
30
|
12.27 | 10.00 | 0.0675 | 12.68 | 10.11 | 0.0625 | ||||||||||||||||||
December
31
|
11.75 | 7.98 | — | 11.68 | 7.97 | — |
Based on
the number of individual participants represented by security position listings,
there are approximately 2,850 holders of the Common Stock and 250 holders
of the Class A Common Stock at December 31, 2009.
F-23
Schedule
II – Valuation and Qualifying Accounts
Haverty
Furniture Companies, Inc. and subsidiaries:
Column
A
(In
thousands)
|
Column
B
Balance
at
beginning
of
period
|
Column
C
Additions
charged
to costs
and
expenses
|
Column
D
Deductions
Describe
(1)(2)
|
Column
E
Balance
at
end
of period
|
||||||||||||
Year
ended December 31, 2009:
|
||||||||||||||||
Allowance
for doubtful accounts
|
$ | 1,700 | $ | 978 | $ | 1,678 | $ | 1,000 | ||||||||
Reserve
for cancelled sales and allowances
|
$ | 1,105 | $ | 7,990 | $ | 7,875 | $ | 1,220 | ||||||||
Year
ended December 31, 2008:
|
||||||||||||||||
Allowance
for doubtful accounts
|
$ | 2,150 | $ | 1,654 | $ | 2,104 | $ | 1,700 | ||||||||
Reserve
for cancelled sales and allowances
|
$ | 1,438 | $ | 10,278 | $ | 10,611 | $ | 1,105 | ||||||||
Year
ended December 31, 2007:
|
||||||||||||||||
Allowance
for doubtful accounts
|
$ | 1,900 | $ | 1,328 | $ | 1,078 | $ | 2,150 | ||||||||
Reserve
for cancelled sales and allowances
|
$ | 1,475 | $ | 12,191 | $ | 12,228 | $ | 1,438 |
(1)
|
Allowance
for doubtful accounts: uncollectible accounts written off, net
of recoveries and the disposal value of
repossessions.
|
(2)
|
Reserve
for cancelled sales and allowances: impact of sales cancelled
after delivery plus amount of allowance given to
customers.
|
F-24