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 internet only retailers, regional or independent specialty stores, dedicated franchises of furniture manufacturers and national department stores. National mass merchants and electronics and appliance retailers also have limited product offerings. 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. 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, social media campaigns and extension of credit to customers on terms more favorable than we offer. Furthermore, some of our competitors have greater financial resources and larger customer bases than we have, and as a result may have a more advanced multichannel platform, be able to adapt quicker to changes in consumer behavior, have
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.
We import a substantial portion of our merchandise from foreign sources. This exposes us to certain risks that include political and economic conditions. In an effort to discourage U.S. corporations from outsourcing manufacturing and production activities to foreign jurisdictions and curb what are considered to be unfair trade practices,Changes in exchange rates or tariffs could impact the United States imposed tariffsprice we pay for these goods, resulting in potentially higher retail prices and/or lower gross profit on goods manufactured in China. The tariffs began in September 2018 at 10% of product costs and increased to 25% on March 4, 2019. If the tariffs are increased further or new tariffs on goods produced in other countries were enacted this could adversely affect our results of operations or profitability.these goods.
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.
Significant 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 and political 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.
We are dependent upon the ability of our third-party producers many of whom are located in foreign countries, to meet our requirements; any failures by these producers, to meet our requirements, or the unavailability of suitable producerssuppliers at reasonable prices or limitations on our ability to source from certain third-party producers may negatively impact our ability to deliver quality productsmerchandise to our customers on a timely basis or result in higher costs or reduced net sales.
We source substantially all of our products from non-exclusive, third-party producers, many of which are located in foreign countries. Although we have long-term relationships with many of our suppliers, we must compete with other companies for the production capacity of these independent manufacturers. We regularly depend upon the ability of third-party producers to secure a sufficient supply of raw materials, a skilled workforce, adequately finance the production of goods ordered and maintain sufficient manufacturing and shipping capacity. Although we monitor production and quality in many third-party manufacturing locations, we cannot be certain that we will not experience operational difficulties with our manufacturers, such as the reduction of availability of production capacity, errors in complying with product specifications, insufficient quality control, failures to meet production deadlines or increases in manufacturing costs. Such difficulties may negatively impact our ability to deliver quality products to our customers on a timely basis, which may, in turn, have a negative impact on our customer relationships and result in lower net sales.
We also require third-party producers to meet certain standards in terms of working conditions, environmental protection and other matters before placing business with them. As a result of costs relating to compliance with these standards, we may pay higher prices than some of our competitors for products. In addition, failure by our independent manufacturers to adhere to labor or other laws or business practices accepted as ethical, and the potential litigation, negative publicity and political pressure relating to any of these events, could disrupt our operations or harm our reputation.
Our vendors might fail in meeting our quality control standards or reacting to changes to the legislative or regulatory framework regarding product safety.
All of our vendors must comply with applicable product safety laws and regulations, and we are dependent on them to ensure that the products we buy comply with all safety standards. Any actual, potential or perceived product safety concerns could expose us to government enforcement action or private litigation and result in recalls and other liabilities. These could harm our brand'sbrand’s image and negatively affect our business and operating results.
Significant fluctuations in the price, availability and quality of raw materials and components have resulted in increased costs and caused production delays which, if continued, could result in a decline in sales, either of which could materially adversely impact our earnings.
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 and political climate, and other unforeseen circumstances. Furthermore, global supply chains have been negatively impacted by COVID-19 shutdowns and shipping delays. These global supply chain challenges could continue and in turn materially adversely impact the ability of our suppliers to fulfil our orders in a timely manner, it at all, and may lead to increased prices, which we may not be able to pass through to our customers.
Our revenue couldcan be adversely affected by risks inour ability to successfully forecast our supply chain.chain needs and our foreign manufacturers’ ability to comply with international trade rules and regulations.
Optimal product flow is dependent on demand planning and forecasting, production to plan by suppliers, and timely transportation. We often make commitments to purchase products from our vendors in advance of proposed production dates. Significant deviation from the projected demand for products that we sell may have an 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. 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.
We face risks associated with our overseas suppliers including, but not limited to, political or economic instability, geopolitical events, environmental events, widespread health emergencies, such as the novel coronavirus, natural disasters, or social and labor unrest.
In addition, there is a risk that compliance lapses by our foreign manufacturers could occur which could lead to investigations by U.S. government agencies responsible for international trade compliance. Resulting penalties or enforcement actions could delay future imports or otherwise negatively impact our business. There also remains a risk that one or more of our foreign manufacturers will not adhere to applicable legal requirements or our compliance standards such as fair labor standards, the prohibition on child labor and other product safety or manufacturing safety standards. The violation of applicable legal requirements, including labor, manufacturing and safety laws, by any of our manufacturers, the failure of any of our manufacturers to adhere to our global compliance standards or the divergence of the labor practices followed by any of our manufacturers from those generally accepted in the U.S., could disrupt our supply of products from our manufacturers, result in potential liability to us and harm our reputation and brand, any of which could negatively affect our business and operating results.
Recent supply chain management disruption has had, and could continue to have, a material adverse effect on our results of operations.
Supply chain challenges have been faced by the entire home furnishings industry, including the Company, as a result of COVID-19 related labor shortages and supply chain disruptions. These supply chain disruptions have created significant delays in our ability to fulfill customer orders and increased backlogs. The risereceipt of inventory sourced from impacted areas has been slowed or disrupted and our merchandise suppliers are expected to face similar challenges in receiving materials and fulfilling our orders. In addition, ocean freight capacity issues continue to persist worldwide due to the ongoing global COVID-19 pandemic as there is much greater demand for shipping and reduced capacity and equipment, which has resulted in recent price increases per shipping container. Streamline ships are charging priority booking fees to allocate space as they have less ships and workers operating. While we continue to manage and evaluate our freight carriers, there is no indication that shipping container rates will return to historical levels in the near-term and these increases could have a material adverse effect on our consolidated results of operations.
Furthermore, transportation delays, higher oil and gasoline prices, could affectincreases on shipping containers rates, more extensive travel restrictions, closures or disruptions of businesses and facilities or social, economic, political or labor instability in the affected areas, may impact our profitability.
A significant increaseor our suppliers’ operations and in oil and gasoline pricesturn could adversely affect our profitability. In addition, governmental efforts to combat climate change through reduction of greenhouse gases may result in higher fuel costs through taxation or other means. We deliver substantially all of our customers’ purchases to their homes. Our distribution system, which utilizes three DCs and multiple home delivery centers is very transportation dependent to reach the 22 states we deliver to from our stores across 16 Southern and Midwestern states.
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.
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.damaged or experience significant business interruption. If such an interruption were to occur, our ability to deliver our products in a timely manner would likely be impacted.
OurWe rely extensively on information technology infrastructure is vulnerablesystems to damage thatprocess transactions, summarize results, and manage our business. Disruptions in our information technology systems could harmadversely affect our business.business and operating results.
Our ability to operate our business from day to day, in particular our ability to manage our point-of-sale, distribution system and credit operations,payment information, 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 receipt of goods in the DCs to delivery to our customers’ homes. These systems are subject to damage or interruption from power outages, computer and telecommunications failures, viruses, phishing attempts, cyber‑attacks, malware and ransomware attacks, security breaches, severe weather, natural disasters, and errors by employees.
The failure of these systems to operate effectively, problems with integrating various data sources, challenges in transitioning to upgraded or replacement systems, difficulty in integrating new systems, or a breach in security of these systems could adversely impact the operations of our business. Though losses arising from some of these issues would be covered by insurance, interruptions of our critical business information technology systems or failure of our back-up systems could result in longer production times or negatively impact customers resulting in damage to our reputation and a reduction in sales. If our critical information technology systems or back-up systems were damaged or ceased to function properly, we might have to make a significant investment to repair or replace them.
Successful cyber-attacks and the failure to maintain adequate cyber-security systems and procedures could materially harm our business.
Cyber threats are rapidly evolving and those threats and the means for obtaining access to information in digital and other storage media are becoming increasingly sophisticated. Cyber threats and cyber-attackers, including ransomware attacks, can be sponsored by countries or sophisticated criminal organizations or be the work of single "hackers"“hackers” or small groups of "hackers."“hackers.”
We invest in industry standard security technology to protect the Company’s data and business processes against risk of data security breach and cyber-attack. Our data security management program includes identity, trust, vulnerability and threat management business processes as well as adoption of standard data protection policies. We measure our data security effectiveness through industry accepted methods. We are continuously installing new and upgrading existing information technology systems. We use employee awareness training around phishing, malware, and other cyber risks to ensure that the Company is protected, to the greatest extent possible, against cyber risks and security breaches. We are regularly the target of attempted cyber and other security threats and must continuously monitor and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access, misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly a concern for all companies, including ours. Additionally, we certify our major technology suppliers and any outsourced services through accepted security certification standards.
Nevertheless, as cyber threats evolve, change and become more difficult to detect and successfully defend against, one or more cyber-attacks might defeat our or a third-party service provider'sprovider’s security measures in the future and obtain the personal information of customers, employees or employees.business partners. Employee error or other irregularities may also result in a failure of security measures and a breach of information systems. Moreover, hardware, software or applications we use may have inherent defects of design, manufacture or operations or could be inadvertently or intentionally implemented or used in a manner that could compromise information security.
A security breach and loss of information may not be discovered for a significant period of time after it occurs. While we have no knowledge of a material security breach to date, any compromise of data security could result in a violation of applicable privacy and other laws or standards, the loss of valuable business data, or a disruption of our business. AIn addition, the costs to eliminate or alleviate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful, resulting potentially in the theft, loss, destruction or corruption of information we store electronically, as well as unexpected interruptions, delays or cessation of service, any of which could cause harm to our business operations. Moreover, a security breach involving the misappropriation, loss or other unauthorized disclosure of sensitive or confidential information could give rise to unwanted media attention, materially damage our customer relationships and reputation, and result in fines, fees, or potential liabilities, which may not be covered by our insurance policies.policies, as well as risk of litigation, each of which could have a material adverse effect on our business, results of operations and financial condition.
Our business is dependent on certain key personnel; if we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed.
The success of our business depends upon our ability to retain continued service of certain key personnel, and to attract and retain additional qualified key personnel in the future. We face risks related to loss of any key personnel and we also face risks related to any changes that may occur in key senior leadership executive positions. Any disruption in the services of our key personnel could make it more difficult to successfully operate our business and achieve our business goals and could adversely affect our results of operation and financial condition. These changes could also increase the volatility of our stock price.
Competition for qualified employees and personnel in the retail industry is intense and we may be unable to retain personnel that are important to our business or hire additional qualified personnel. The process of identifying personnel with the combination of skills and attributes required to carry out our goals is often lengthy. Our success depends to a significant degree upon our ability to attract, retain and motivate qualified management, marketing and sales personnel, and store managers, and upon the continued contributions of these people. In addition, our operations require the services of qualified and experienced management personnel, with expertise in the areas including information technology and supply chain management. We cannot assure you that we will be successful in attracting and retaining qualified executives and personnel.
Furthermore, a significant portion of our success depends in part upon our ability to attract, motivate and retain a sufficient number of store and other employees who understand and appreciate our corporate culture and customers. Turnover in the retail industry is generally high. Excessive employee turnover will result in higher employee costs associated with finding, hiring and training new store employees. If we are unable to hire and
retain store and other personnel capable of consistently providing a high level of customer service, our ability to open new stores and service the needs of our customers may be impaired, the performance of our existing and new stores and operations could be materially adversely affected and our brand image may be negatively impacted.
Risks Related to Our Industry
An overall decline in the health of the economy and consumer spending may affect consumer purchases of discretionary items, which could reduce demand for our products and materially harm our sales, profitability and financial condition.
Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence general consumer spending on discretionary items in particular. Factors influencing consumer spending include general economic conditions, consumer disposable income, fuel prices, inflation, recession and fears of recession, unemployment, inclement weather, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, sales tax rates and rate increases, sustained periods of inflation, civil disturbances and terrorist activities, foreign currency exchange rate fluctuations, consumer confidence in future economic and political conditions, natural disasters, and consumer perceptions of personal well‑being and security, including health epidemics or pandemics, such as the COVID-19 pandemic. Prolonged or pervasive economic downturns could slow the pace of new store openings or cause current stores to temporarily or permanently close. Adverse changes in factors affecting discretionary consumer spending have reduced and may continue to further reduce consumer demand for our products, thus reducing our sales and harming our business and operating results.
Historically, because customers consider home furnishings to be postponable purchases, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects. Should the current economic recovery falter or the current recovery in housing starts to stall, consumer confidence and demand for home furnishings could deteriorate, which could adversely affect our business through its impact on the performance of our stores.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.None.
ITEM 2. PROPERTIES
Stores
Our retail store space at December 31, 20192021 totaled approximately 4.4 million square feet for 121 stores. The following table sets forth the number of stores we operated at December 31, 20192021 by state:
State | Number of Stores | | State | Number of Stores | Number of Stores | | State | Number of Stores |
Florida | 29 | | Maryland | 4 | 30 | | Maryland | 4 |
Texas | 22 | | Arkansas | 3 | 21 | | Arkansas | 3 |
Georgia | 18 | | Louisiana | 3 | 17 | | Louisiana | 3 |
North Carolina | 8 | | Kentucky | 2 | 8 | | Kentucky | 2 |
Virginia | 8 | | Missouri | 2 | 8 | | Missouri | 2 |
South Carolina | 6 | | Ohio | 2 | 7 | | Ohio | 2 |
Alabama | 6 | | Indiana | 1 | 6 | | Indiana | 1 |
Tennessee | 6 | | Kansas | 1 | 6 | | Kansas | 1 |
The 3940 retail locations which we owned at December 31, 20192021 had a net book value for land and buildings of $74.7$65.4 million. The remaining 8281 locations are leased by us with various termination dates through 20322035 plus renewal options.
Distribution Facilities
We lease or ownall of our distribution facilities except for the Virginia property. Our regional distribution facilities are in the following locations:
Location | Owned or Leased | Approximate Square Footage | |
Braselton, Georgia | Leased | | 808,000 | |
Coppell, Texas | Owned | | 394,000 | |
Lakeland, Florida | Owned | | 335,000 | |
Colonial Heights, Virginia | Owned | | 129,000 | |
Fairfield, Ohio | Leased | | 50,000 | |
Theodore, Alabama | Leased | | 42,000 | |
Memphis, Tennessee | Leased | | 30,000 | |
Corporate Facilities
We lease approximately 48,000 square feet on two floors of a suburban mid-rise office building located at 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia.
We believe that our facilities are suitable and adequate for present purposes, and that the productive capacity in such facilities is substantially being utilized. 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 pendingFrom time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to whichinherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we arebelieve will have a partymaterial adverse effect on our business, financial condition or of which any of our properties is the subject.operating results.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
OF THE REGISTRANT
The following are the names, ages and current positions of our executive officers and, if they have not held those positions for the past five years, their former positions during that period with Havertys or other companies.
Name, age and office (at December 31, 2019) and year elected to office | | Principal occupation during last five years other than office of the Company currently held | |
Name, age and office (as of March 1, 2022) and year elected to office | | Name, age and office (as of March 1, 2022) and year elected to office | | Principal occupation during last five years other than office of the Company currently held |
Clarence H. Smith | 69 | Chairman of the Board President and Chief Executive Officer Director | 2012 2002 1989 | | President and Chief Executive Officer | 71 | Chairman of the Board Chief Executive Officer Director | 2012 2002 1989 | | President and Chief Executive Officer, 2002-March 1, 2021 |
Steven G. Burdette | 58 | Executive Vice President, Operations | 2017 | | Executive Vice President, Stores, 2008-2017 | 60 | President | 2021 | | Executive Vice President, Operations 2017-March 1, 2021 Executive Vice President, Stores, 2008-2017 |
J. Edward Clary | 59 | Executive Vice President, and Chief Information Officer | 2015 | | Senior Vice President, Distribution and Chief Information Officer 2008-2015 | 61 | Executive Vice President, and Chief Information Officer | 2015 | | Senior Vice President, Distribution and Chief Information Officer 2008-2015 |
John L. Gill | 56 | Executive Vice President, Merchandising | 2019 | | Senior Vice President, Merchandising 2018-2019; Vice President, Merchandising 2017-2018; Eastern Regional Manager 2016-2018; Vice President, Operations 2015-2017; Western Regional Manager 2005-2015 | 58 | Executive Vice President, Merchandising | 2019 | | Senior Vice President, Merchandising 2018-2019; Vice President, Merchandising 2017-2018; Vice President, Operations 2015-2017; Eastern Regional Manager 2016-2018. |
Richard B. Hare | 53 | Executive Vice President and Chief Financial Officer | 2017 | | Senior Vice President, Finance, Treasurer and Chief Financial Officer of Carmike Cinemas, Inc., 2006-2016 | 55 | Executive Vice President and Chief Financial Officer | 2017 | | Senior Vice President, Finance, Treasurer and Chief Financial Officer of Carmike Cinemas, Inc., 2006-2016 |
Helen B. Bautista | | 55 | Senior Vice President, Marketing | 2021 | | Vice President, Marketing for Havertys, 2019-March 1, 2021; Senior Vice President Group Account Director, 2018-2019, Vice President Group Account Director 2016-2018, Group Account Director, 2013-2016 all for Fitzco, a McCann World Group Agency |
Kelley A. Fladger | 50 | Senior Vice President and Chief Human Resources Officer | 2019 | | Vice President, Human Resource Services, 2016-2019 and Chief Diversity and Inclusion Officer, 2017-2019 for Perdue Farms, Inc.; Vice President, People Strategy and Corporate Human Resources 2014-2016 for Belk, Inc. | 52 | Senior Vice President and Chief Human Resources Officer | 2019 | | Vice President, Human Resource Services, 2016-2019 and Chief Diversity and Inclusion Officer, 2017-2019 for Perdue Farms, Inc.; Vice President, People Strategy and Corporate Human Resources 2014-2016 for Belk, Inc. |
Rawson Haverty, Jr. | 63 | Senior Vice President, Real Estate and Development Director | 1988 1992 | | Has held this position for the last five years | |
Name, age and office (at December 31, 2019) and year elected to office | | Principal occupation during last five years other than office of the Company currently held |
Jenny Hill Parker | 61 | Senior Vice President, Finance, and Corporate Secretary | 2010 | | Has held this position for the last five years |
Janet E. Taylor | 58 | Senior Vice President, General Counsel | 2010 | | Has held this position for the last five years |
Helen B. Bautista | 53 | Vice President, Marketing | 2019 | | Senior Vice President Group Account Director, 2018-2019, Vice President Group Account Director 2016-2018, Group Account Director, 2013-2016 all for Fitzco, a McCann World Group Agency. |
Name, age and office (as of March 1, 2022) and year elected to office | | Principal occupation during last five years other than office of the Company currently held |
Rawson Haverty, Jr. | 65 | Senior Vice President, Real Estate and Development Director | 1988 1992 | | Has held this position for the last five years |
Jenny Hill Parker | 63 | Senior Vice President, Finance, and Corporate Secretary | 2019 | | Senior Vice President, Finance, Treasurer and Corporate Secretary 2010-2019 |
Janet E. Taylor | 60 | Senior Vice President, General Counsel | 2010 | | Has held this position for the last five years |
Rawson Haverty, Jr. and Clarence H. Smith are first cousins.
Our executive 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.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
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.
Stockholders
Based on the number of individual participants represented by security position listings, there are approximately 4,40512,469 holders of our common stock and 161181 holders of our Class A common stock as of February 26, 2020.10, 2022.
Dividends
We have historically paid and expect to continue to pay for the foreseeable future, quarterly cash dividends on our Common Stock and Class A Common Stock. 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 have paid a cash dividend in each year since 1935. Our credit agreement includes covenants that may restrict our ability to pay dividends. For more information, see Note 6,5, “Credit Arrangements,Arrangement,” and Note 11, “Stockholders9, “Stockholders’ Equity,” in the Notes to Consolidated Financial Statements.
Equity Compensation Plans
For information regarding securities authorized for issuance under our equity compensation plans, see Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Stock Repurchase ProgramIssuer Purchases of Equity Securities
The board
In August and November 2021, our Board of directors hasDirectors authorized management, at its discretion, to purchase and retire limitedadditional amounts under a share repurchase program. We made cash payments of $41.8 million for repurchases of our common stock through open market purchases during 2021 and Class A common stock. A program was initially approved by the board on November 3, 1986 with subsequent authorizations made as to the number of shares tothere is approximately $25.0 million at December 31, 2021 that may yet be purchased or amount to be purchased in total dollars. On August 9, 2019,under the board authorized the Company to purchase up to $10.0 million of its common and Class A common stock after the balance of approximately $7.0 million from a previous authorization is utilized. In addition to using cash flow for profitable growth and the payment of dividends, opportunistic repurchases during periods of favorable market conditions is another way to enhance stockholder value.existing authorization.
The following table presents information with respect to our repurchaserepurchases of Havertys’ common stock during the fourth quarter of 2019.2021:
| | (a) Total Number of Shares Purchased | | | (b) Average Price Paid Per Share | | | (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | | (d) Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs | |
October 1 – October 31 | | | — | | | | — | | | | — | | | $ | 16,963,000 | |
November 1 – November 30 | | | 269,429 | | | $ | 19.69 | | | | 269,429 | | | $ | 11,659,000 | |
December 1 – December 31 | | | 247,333 | | | $ | 20.76 | | | | 247,333 | | | $ | 6,523,000 | |
Total | | | 516,762 | | | | | | | | 516,762 | | | | | |
| | (a) | | | (b) | | | (c) | | | (d) | |
| |
Total Number of Shares Purchased | | |
Average Price Paid Per Share | | |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | |
Approximate Dollar Value of Shares That May Yet be Purchased Under the Plans or Programs | |
October 1 – October 31 | | | — | | | | — | | | | — | | | $ | 22,321,200 | |
November 1 – November 30 | | | 403,627 | | | $
| 33.08 | | | | 403,627 | | | $ | 33,970,000 | |
December 1 – December 31 | | | 291,000 | | | $
| 30.80 | | | | 291,000 | | | $ | 25,006,000 | |
Total | | | 694,627 | | | | | | | | 694,627 | | | | | |
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 SmallcapSmallCap 600 Index for the period of five years commencing December 31, 20142016 and ended December 31, 2019.2021. The graph assumes an initial investment of $100 on January 1, 20142015 and reinvestment of dividends. NOTE: Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved. Copyright 1980-2022. Index Data: Copyright Standard and Poor’s, Inc. Used with permission. All rights reserved.
| | 2016 | | | 2017 | | | 2018 | | | 2019 | | | 2020 | | | 2021 | |
| | | | | | | | | | | | | | | | | | |
HVT | | $ | 100.00 | | | $ | 97.18 | | | $ | 87.46 | | | $ | 97.59 | | | $ | 149.14 | | | $ | 179.89 | |
HVT-A | | $ | 100.00 | | | $ | 101.11 | | | $ | 85.79 | | | $ | 97.65 | | | $ | 155.27 | | | $ | 175.86 | |
S&P SmallCap 600 Index | | $ | 100.00 | | | $ | 113.23 | | | $ | 103.63 | | | $ | 127.24 | | | $ | 141.60 | | | $ | 179.58 | |
SIC Codes 5700-5799 | | $ | 100.00 | | | $ | 127.28 | | | $ | 102.02 | | | $ | 151.70 | | | $ | 206.24 | | | $ | 286.79 | |
| | 2014 | | | 2015 | | | 2016 | | | 2017 | | | 2018 | | | 2019 | |
| | | | | | | | | | | | | | | | | | |
HVT | | $ | 100.00 | | | $ | 98.97 | | | $ | 117.03 | | | $ | 113.73 | | | $ | 102.35 | | | $ | 114.21 | |
HVT-A | | $ | 100.00 | | | $ | 99.56 | | | $ | 116.19 | | | $ | 117.48 | | | $ | 99.68 | | | $ | 113.46 | |
S&P SmallCap 600 Index | | $ | 100.00 | | | $ | 98.03 | | | $ | 124.06 | | | $ | 140.48 | | | $ | 128.56 | | | $ | 157.85 | |
SIC Codes 5700-5799 | | $ | 100.00 | | | $ | 78.43 | | | $ | 77.96 | | | $ | 97.26 | | | $ | 77.21 | | | $ | 113.51 | |
ITEM 6. SELECTED FINANCIAL DATARESERVED
The following selected financial data and non-GAAP financial measures 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 the Notes to Consolidated Financial Statements” included in Item 8 below.
| | Year ended December 31, | |
(Dollars in thousands, except per share data) | | 2019 | | | 2018 | | | 2017 | | | 2016 | | | 2015 | |
Results of Operations | | | | | | | | | | | | | | | |
Net sales | | $ | 802,291 | | | $ | 817,733 | | | $ | 819,866 | | | $ | 821,571 | | | $ | 804,870 | |
Net sales change over prior year | | | (1.9 | )% | | | (0.3 | )% | | | (0.2 | )% | | | 2.1 | % | | | 4.7 | % |
Comp-store sales change over prior year | | | (1.4 | )% | | | 0.3 | % | | | (1.3 | )% | | | 2.1 | % | | | 2.5 | % |
Gross profit | | | 434,488 | | | | 446,542 | | | | 444,923 | | | | 443,337 | | | | 430,776 | |
Percent of net sales | | | 54.2 | % | | | 54.6 | % | | | 54.3 | % | | | 54.0 | % | | | 53.5 | % |
Selling, general and administrative expenses(1) | | | 407,456 | | | | 404,856 | | | | 402,884 | | | | 399,236 | | | | 384,801 | |
Percent of net sales | | | 50.8 | % | | | 49.5 | % | | | 49.1 | % | | | 48.6 | % | | | 47.8 | % |
Income before income taxes(1) | | | 28,724 | | | | 40,408 | | | | 43,223 | | | | 45,821 | | | | 45,275 | |
Net income(1) | | | 21,865 | | | | 30,307 | | | | 21,075 | | | | 28,356 | | | | 27,789 | |
Share Data | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share | | | | | | | | | | | | | | | | | | | | |
Common Stock(1) | | $ | 1.08 | | | $ | 1.42 | | | $ | 0.98 | | | $ | 1.30 | | | $ | 1.22 | |
Class A Common Stock | | | 1.03 | | | | 1.39 | | | | 0.94 | | | | 1.27 | | | | 1.17 | |
Cash dividends – amount per share: | | | | | | | | | | | | | | | | | | | | |
Common Stock(2) | | $ | 0.76 | | | $ | 1.720 | | | $ | 0.540 | | | $ | 1.440 | | | $ | 0.360 | |
Class A Common Stock(2) | | $ | 0.72 | | | $ | 1.630 | | | $ | 0.510 | | | $ | 1.365 | | | $ | 0.340 | |
Shares outstanding (in thousands): | | | | | | | | | | | | | | | | | | | | |
Common Stock | | | 17,581 | | | | 18,780 | | | | 19,452 | | | | 19,287 | | | | 20,124 | |
Class A Common Stock | | | 1,531 | | | | 1,757 | | | | 1,767 | | | | 1,818 | | | | 2,032 | |
Total shares | | | 19,112 | | | | 20,537 | | | | 21,219 | | | | 21,104 | | | | 22,156 | |
Financial Position | | | | | | | | | | | | | | | | | | | | |
Inventories | | $ | 104,817 | | | $ | 105,840 | | | $ | 103,437 | | | $ | 102,020 | | | $ | 108,896 | |
Capital expenditures | | $ | 16,841 | | | $ | 21,473 | | | $ | 24,465 | | | $ | 29,838 | | | $ | 27,143 | |
Depreciation/amortization expense | | | 20,596 | | | | 29,806 | | | | 30,516 | | | | 29,045 | | | | 25,756 | |
Total assets | | $ | 560,072 | | | $ | 440,179 | | | $ | 461,329 | | | $ | 454,505 | | | $ | 471,251 | |
Total debt(3) | | | — | | | | 50,803 | | | | 54,591 | | | | 55,474 | | | | 53,125 | |
Stockholders’ equity | | | 260,503 | | | | 274,629 | | | | 294,142 | | | | 281,871 | | | | 301,739 | |
Debt to total capital | | | N/A | | | | 15.6 | % | | | 15.7 | % | | | 16.4 | % | | | 15.0 | % |
Net cash provided by operating activities | | | 63,419 | | | | 70,392 | | | | 52,457 | | | | 60,054 | | | | 52,232 | |
Other Supplemental Data: | | | | | | | | | | | | | | | | | | | | |
Employees | | | 3,425 | | | | 3,418 | | | | 3,551 | | | | 3,656 | | | | 3,596 | |
Retail sq. ft. (in thousands) at year end | | | 4,426 | | | | 4,417 | | | | 4,517 | | | | 4,494 | | | | 4,380 | |
Annual sales per weighted average sq. ft. | | $ | 183 | | | $ | 185 | | | $ | 185 | | | $ | 188 | | | $ | 185 | |
Average sale per written ticket | | $ | 2,323 | | | $ | 2,184 | | | $ | 2,091 | | | $ | 2,048 | | | $ | 2,002 | |
Due to rounding amounts may not add to totals.
(1) Includes impairment loss of $2.4 million, or $1.8 million after tax, on a retail store in the fourth quarter of 2019 which impacted diluted earnings per share $0.09.
(2) Includes special dividends of $1.00 for Common Stock and $0.95 for Class A Common Stock paid in the fourth quarter of 2016 and 2018.
(3) Debt is comprised completely of lease obligations accounted for under ASC 840, prior to adoption of ASU 2016-02. See Note 1, Recently Adopted Accounting Standards in the Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Industry
The retail residential furniture industry'sindustry’s results are influenced by the overall strength of the economy, new and existing housing sales, consumer confidence, spending on large ticket items, interest rates, and availability of credit. These factors remain tempered by rising consumer debt, home inventory constraints, and tight access to home mortgage credit, all of which provide impediments to industry growth.
Our Business
We sell home furnishings in our retail stores and via our website and record revenue when the products are delivered to our customer. Our products are selected to appeal to a middle to upper-middle income consumer across a variety of styles. Our commissioned sales associatesteam members receive a high level of product training and are provided a number of tools with which to serve our customers. We also have over 120 in‑home designers serving most of our stores. These individuals work with our sales associatesteam members to provide customers additional confidence and inspiration in their furniture purchase journey. We do not outsource the delivery function, something common in the industry, but instead ensure that the “last contact” is handled by a customer-oriented Havertys delivery team. We are recognized as a provider of high-quality fashionable products and exceptional service in the markets we serve.
2019Impact of COVID-19
Sales were slightly lowerThe COVID-19 pandemic continues to impact numerous aspects of our business.
Our sales remain at record levels as we have experienced unprecedented customer demand for our products during the COVID-19 pandemic. Consumers not negatively impacted financially are spending on their homes. Our online shopping and chat continued to surge during 2021 and outpaced similar activity in 2019 than in 2018, falling 1.9% or $15.4 million. Our2020. Store traffic remained strong as customers shop online but want to touch, see, and comfort test before purchasing. Consumers are also favoring quality over price and our average ticket rose in 2021 compared to 2020. Our main priority continues to be the health, safety and well-being of our customers and employees. We continue to invest in supplies for the protection of our employees and customers and increased 6.4% but store traffic was down mid-single digits. Gross profitthe frequency of cleaning and disinfecting our stores. Demand is outpacing product availability in many categories. Manufacturers are challenged to ensure safe work environments and have encountered raw material shortages and transportation capacity issues. Our supply chain and sales teams, supported by a strong IT infrastructure, are working to communicate with customers and manage delivery expectations.
The long-term impact to our business remains unknown as a percentwe are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity and transmissibility of net sales decreased 40 basis pointsthe disease, the duration of the outbreak, the likelihood of additional variants and resurgences of the outbreak, actions that may be taken by governmental authorities in response to 54.2%. SG&A costs, excluding a $2.4 million impairment charge, were relatively flat but with less leverage increased 98 basis points as a percentthe disease, the distribution, efficacy and public acceptance of sales. Our pre-tax income was $28.7 million, a decreasevaccines, and unintended consequences of 29.0% or $11.7 million. Our fourth quarter results were pre-tax income of $7.6 million, down from $12.3 millionthe foregoing. Furthermore, the continuing pandemic and related economic uncertainty may result in the prior year period. We made $16.8 million in important capital expenditure investments inprolonged disruption and volatility to our business and returned $44.8 millionmagnify certain risks, including risks associated with our supply chain and sourcing quality merchandise domestically and outside the U.S.; our ability to shareholderspromptly adjust inventory levels to meet fluctuations in customer demand; our ability to comply with $15.0 million in dividendscomplex and $29.8 million in repurchasesevolving laws and regulations related to customers’ and employees’ health and safety; our ability to open new store locations and expand or remodel existing stores; and our ability to hire and train qualified employees to address temporary or sustained labor shortages.
At this point, we cannot reasonably estimate the duration of common stock.the pandemic’s influence on consumers and the “nesting” economy.
Management is focused on capturing more market share and increasing sales per square foot of showroom space. This organic growth will be driven by concentrating our efforts on our customers with improved interactions highlighted by new products, services, enhanced storeshigh touch service and better technology. The Company’s strategies for profitability include gross margin focus, targeted marketing initiatives, productivity and process improvements, and efficiency and cost-saving measures. Our focus is to serve our customers better and distinguish ourselves in the marketplace.
Key Performance Indicators
We evaluate our performance based on several key metrics which include net sales, comparable store sales and written comparable store sales, sales per weighted average square foot, gross profit, operatingselling, general and administrative costs as a percentage of sales, EBITDA,operating income, cash flow, total debt to total capital, and earnings per share. The goal of utilizing these measurements is to provide tools in economic decision-making such as store growth, capital allocation and product pricing. We also employ metrics that are customer focused (customer satisfaction score, on-time-delivery and quality), and internal effectiveness and efficiency metrics (sales per employee, average sale per ticket, closing ratios per customer store visit, inventory out-of-stock, exceptions per deliveries, and lost time incident rate). These measurements aid us in determining areas of our operations that are in need of additional attention but are not evaluated in isolation from others, so as not to conflict with our company goals.
Net Salessales is the revenues from merchandise sales and related fees, net of expected returns and sales tax. We record our sales when the merchandise is delivered to the customer.
Comparable-store or “comp-store” sales is a measure which indicates the performance of our existing stores and website by comparing the growth in sales in store and online for a particular periodmonth over the corresponding periodmonth in the prior year. Stores are considered non-comparable if they were not open for less than 12 full calendar monthsduring the corresponding month in the prior year or if the selling square footage has been changed significantly during the past 12 full calendar months.by more than 10%. Large clearance sales events from warehouses or temporary locations are also excluded from comparable store sales. The method we use to compute comp-store sales asmay not be the same method used by other retailers.
We also track written sales and written comp-store sales. Written sales are periods when stores are closeda customer makes a deposit or being remodeled.pays in full, and places an order. Written sales shows the current pace or trend of customer transactions. The lag time between customers placing orders and delivery grew in 2020 and remained high during 2021 due to demand outpacing merchandise supply and disruptions in supply chain. As a retailer, comp‑store sales isand written comp‑store sales are an indicator of relative customer spending and store performance. Comp-store sales, total written sales and written comp-store sales are intended only as supplemental information and is not a substitute for net sales presented in accordance with US GAAP.
Sales per weighted average (“WAVG”) square foot is calculated by dividing net sales by WAVG square footage. WAVG square footage is a daily WAVG based on the ratio of the days open in a period to the total days in the period.
Total sales decreased $15.4 million or 1.9%
Results of Operations and Non-GAAP Measures
The table and discussion below should be read in 2019conjunction with our consolidated financial statements and $2.2 million or 0.3%related notes included in 2018. Comparable store sales, which includes online sales, decreased 1.4% or $11.6 million in 2019 and increased 0.3% or $2.2 million in 2018. The remaining $3.8 million in 2019 and $4.4 million in 2018 of the changes were from closed, new and otherwise non-comparable stores.this report.
Statement of Earnings Data | | Year Ended December 31, | |
(Dollars in thousands, except per share data) | | 2021 | | | 2020(1) | | | 2019 | | | 2018 | | | 2017 | |
Net sales | | $ | 1,012,799 | | | $ | 748,252 | | | $ | 802,291 | | | $ | 817,733 | | | $ | 819,866 | |
Gross profit | | | 574,625 | | | | 418,994 | | | | 434,488 | | | | 446,542 | | | | 444,923 | |
Percent of net sales | | | 56.7 | % | | | 56.0 | % | | | 54.2 | % | | | 54.6 | % | | | 54.3 | % |
Selling, general and administrative expenses(2) | | | 456,267 | | | | 377,288 | | | | 407,456 | | | | 404,856 | | | | 402,884 | |
Percent of net sales | | | 45.1 | % | | | 50.4 | % | | | 50.8 | % | | | 49.5 | % | | | 49.1 | % |
Income before income taxes(2)(3) | | | 118,535 | | | | 76,731 | | | | 28,724 | | | | 40,408 | | | | 43,223 | |
Percent of net sales | | | 11.7 | % | | | 10.3 | % | | | 3.6 | % | | | 4.9 | % | | | 5.3 | % |
Net income(2)(3) | | | 90,803 | | | | 59,148 | | | | 21,865 | | | | 30,307 | | | | 21,075 | |
Percent of net sales | | | 9.0 | % | | | 7.9 | % | | | 2.7 | % | | | 3.7 | % | | | 2.6 | % |
Share Data | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per Common share(2)(3) | | $ | 4.90 | | | $ | 3.12 | | | $ | 1.08 | | | $ | 1.42 | | | $ | 0.98 | |
Cash dividends – per share: | | | | | | | | | | | | | | | | | | | | |
Common Stock(4) | | $ | 2.97 | | | $ | 2.77 | | | $ | 0.76 | | | $ | 1.72 | | | $ | 0.54 | |
Class A Common Stock(4) | | $ | 2.79 | | | $ | 2.62 | | | $ | 0.72 | | | $ | 1.63 | | | $ | 0.51 | |
Diluted weighted average common shares outstanding | | | 18,543 | | | | 18,932 | | | | 20,261 | | | | 21,295 | | | | 21,599 | |
Balance Sheet Data | | | | | | | | | | | | | | | | | | | | |
Total assets | | $ | 686,290 | | | $ | 680,372 | | | $ | 560,072 | | | $ | 440,179 | | | $ | 461,329 | |
Inventories | | | 112,031 | | | | 89,908 | | | | 104,817 | | | | 105,840 | | | | 103,437 | |
Net property and equipment(5) | | | 126,099 | | | | 108,366 | | | | 156,534 | | | | 218,852 | | | | 229,215 | |
Right-of-use lease assets | | | 222,356 | | | | 228,749 | | | | 175,474 | | | | — | | | | — | |
Lease liabilities | | | 230,352 | | | | 233,666 | | | | 179,055 | | | | — | | | | — | |
Customer deposits | | | 98,897 | | | | 86,183 | | | | 30,121 | | | | 24,465 | | | | 27,813 | |
Total debt(6) | | | — | | | | — | | | | — | | | | 50,803 | | | | 54,591 | |
Stockholders’ Equity | | | 255,970 | | | | 252,967 | | | | 260,503 | | | | 274,629 | | | | 294,142 | |
Statement of Cash Flows Data | | | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | $ | 97,242 | | | $ | 130,191 | | | $ | 63,419 | | | $ | 70,392 | | | $ | 52,457 | |
Depreciation and amortization(5) | | | 16,304 | | | | 18,207 | | | | 20,596 | | | | 29,806 | | | | 30,516 | |
Capital expenditures | | | 34,090 | | | | 10,927 | | | | 16,841 | | | | 21,473 | | | | 24,465 | |
Dividends paid | | | 52,446 | | | | 50,521 | | | | 15,056 | | | | 35,464 | | | | 11,392 | |
Share repurchases | | | 41,809 | | | | 19,708 | | | | 29,757 | | | | 18,732 | | | | — | |
Other Supplemental Data and Metrics | | | | | | | | | | | | | | | | | | | | |
Number of stores | | | 121 | | | | 120 | | | | 121 | | | | 120 | | | | 124 | |
Retail square footage at year-end | | | 4,354 | | | | 4,352 | | | | 4,426 | | | | 4,417 | | | | 4,517 | |
Sales per WAVG retail square foot ($) | | | 232 | | | | 173 | | | | 183 | | | | 185 | | | | 185 | |
Average ticket ($)(7) | | | 2,865 | | | | 2,482 | | | | 2,323 | | | | 2,184 | | | | 2,091 | |
Net sales increases (%) | | | 35.4 | % | | | (6.7 | )% | | | (1.9 | )% | | | (0.3 | )% | | | (0.2 | )% |
Comparable store sales increase (%) | | | 17.9 | % | | | 5.0 | % | | | (1.4 | )% | | | 0.3 | % | | | (1.3 | )% |
Employees | | | 2,845 | | | | 2,766 | | | | 3,425 | | | | 3,418 | | | | 3,551 | |
(1) | Stores were closed and delivery operations were paused for approximately six weeks due to COVID-19. |
(2) | Includes impairment loss of $2.4 million, or $1.8 million after tax, on a retail store in 2019 which impacted diluted earnings per share $0.09. |
(3) | Includes gain of $31.6 million on a sale-leaseback transaction in 2020 which impacted diluted earnings per share $1.24. |
(4) | Includes special dividends of $2.00 for Common Stock and $1.90 for Class A Common Stock paid in the fourth quarter of 2021 and 2020 and $1.00 for Common Stock and $0.95 for Class A Common Stock paid in the fourth quarter of 2018. |
(5) | We adopted ASC 840 effective January 1, 2019. The cumulative effect included a reduction of property and equipment, net of $53,519,000. Amortization of buildings under lease was included in depreciation expense. |
(6) | Debt is comprised completely of lease obligations accounted for under ASC 840, prior to adoption of ASU 2016-02. |
(7) | Average ticket is calculated by dividing total sales by the number of orders. |
Net Sales
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, | |
| | 2019 | | 2018 | | 2017 | |
| | 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 | | | $ | 187.2 | | | | (6.1 | )% | | | (4.7 | )% | | $ | 199.4 | | | | (0.5 | )% | | | (1.1 | )% | | $ | 200.4 | | | | 3.0 | % | | | 1.6 | % |
Q2 | | | | 191.9 | | | | (3.5 | ) | | | (2.3 | ) | | | 198.8 | | | | 1.0 | | | | 1.3 | | | | 196.8 | | | | 1.1 | | | | (0.2 | ) |
Q3 | | | | 209.3 | | | | (0.6 | ) | | | (0.4 | ) | | | 210.5 | | | | 1.4 | | | | 2.6 | | | | 207.6 | | | | (1.9 | ) | | | (2.9 | ) |
Q4 | | | | 213.8 | | | | 2.3 | | | | 1.4 | | | | 209.0 | | | | (2.8 | ) | | | (1.6 | ) | | | 215.0 | | | | (2.6 | ) | | | (3.5 | ) |
Year | | | $ | 802.3 | | | | (1.9 | )% | | | (1.4 | )% | | $ | 817.7 | | | | (0.3 | )% | | | 0.3 | % | | $ | 819.9 | | | | (0.2 | )% | | | (1.3 | )% |
| | December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | 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 | | $ | 236.5 | | | 31.8 | % | | | 11.5 | % | | $ | 179.4 | | | (4.2 | )% | | | 11.6 | % | | $ | 187.2 | | | (6.1 | )% | | | (4.7 | )% |
Q2 | | | 250.0 | | | 127.3 |
| | | 46.9 |
| | | 110.0 | | | (42.7 | ) | | | (15.2 | ) | | | 191.9 | | | (3.5 | ) | | | (2.3 | ) |
Q3 | | | 260.4 | | | 19.7 |
| | | 17.7 |
| | | 217.5 | | | 3.9 | | | | 4.0 | | | | 209.3 | | | (0.6 | ) | | | (0.4 | ) |
Q4 | | | 265.9 | | | 10.2 |
| | | 9.2 |
| | | 241.3 | | | 12.9 | | | | 13.7 | | | | 213.8 | | | 2.3 | | | | 1.4 | |
Year | | $ | 1,012.8 | | | 35.4 | % | | | 17.9 | % | | $ | 748.3 | | | (6.7 | )% | | | 5.0 | % | | $ | 802.3 | | | (1.9 | )% | | | (1.4 | )% |
Sales in 2021 reached record levels for each quarter as customer demand remained strong despite ongoing COVID concerns and supply chain challenges. The comparisons for 2020 reflect the impact of our store closures in mid‑March and re-opening on May 1, and the surge in business that followed. In response to increasing product and freight costs, we raised our retail prices. The impact of the supply chain disruptions is reflected in our sales by merchandise category. Our mattress business, as a percent of total sales, continues to lag at 8.9% compared to its pre-pandemic level of 11.3%. The impact of the factory closures in Vietnam affected our sales of bedroom furniture, particularly in the fourth quarter, and we expect this may continue into the second quarter of 2022. Our upholstery suppliers made good strides towards meeting demand and sales in this category in 2021 increased 37.3% over 2020 and as a percent of total sales increased 60 basis points. COVID concerns continue to affect sales generated by our in-home designers and as a percent of our total sales they remain at the 2020 level of 22.8%.
Our ability to deliver customer orders has improved from 2020 but is still longer than pre-pandemic time frames. Manufacturers are beginning to recover from raw material shortages but are still challenged by worker shortages. Transportation logistics continue to contribute to the supply chain disruption. Our warehouse and delivery operations are also adjusting to personnel shortages. Time between purchase and delivery lengthened from our pre-pandemic average of 3 to 5 days for in stock items to 1 to 2 weeks due to staffing constraints. We have added additional team members and purchases of in stock product were generally delivered within 3 to 5 days during the last quarter of 2021. The disruptions to our supply chain have resulted in lower inventory and for out‑of‑stock merchandise delivery times can be 8 to 12 weeks. Our vendor partners for special order products continue to experience delays, but are reducing their backlogs and delivery on these orders are now 12 to 20 weeks on average.
Sales in 2020 were impacted by COVID-19. Our written sales suffered during the first weeks of March as information and news coverage concerning the pandemic increased. We closed our stores and paused operations mid-March. We enacted our business continuity plan in April which anticipated continued low levels of sales. Most stores reopened on May 1 with approximately 76% of their original staff, store hours were reduced 17%, and delivery capacity was also reduced. Our business was very strong upon reopening, total written sales for the two months ended June 30, 2020 were up 13.9% and written comparable store sales were up 17.5% compared to the same two-month period in 2019. Our written sales remained strong during the third quarter of 2020 with total written sales up 22.8% and written comparable store sales rose 22.6% over the same period in 2019. Our written sales in the fourth quarter were up 16.7% and written comp-store sales rose 17.5%.
Our delivery capacity was reduced as part of our business continuity plan in 2020. Deliveries resumed on May 5 with reduced personnel and capacity and total sales from May 5 through June 30, 2020 were down 13.4% compared with the same period of 2019. Demand quickly began to outpace supply and we worked during the third quarter to increase our inventory levels and delivery capacity. We adjusted our operations during the third quarter, adding additional personnel and worked with our vendors to accelerate orders.
Revenues by product category as a percentage of net sales in 2020 increased over 2019 by 220 basis points in upholstery sales and by 60 basis points in home office due to “nesting” buying, and our mattress business declined 160 basis points due to supply-chain disruption caused by COVID-19. Our in-home designer sales were hampered during 2020 but were 22.8% of our total sales compared to 25.3% in 2019. Total sales for 2020 decreased $54.0 million or 6.7% compared to 2019. Our comp-store sales, which includes online sales, increased 5.0% or $32.7 million in 2020 compared to 2019. The remaining $86.8 million of the change was primarily from our store closures in March through April and from new, closed and otherwise non-comparable stores.
Sales in 2019 declined for the year due to severe supply-chain disruptions as we moved several product lines out of China due to the increased tariffs. Although these changes willwere not be fully resolved until the first quarter of 2020, we did see improvement late in the third quarter of 2019. Revenues by product category reflected the supply-chain disruption with a drop in case goods sales. Our mattress business saw an increase of 6.5% over 2018 due to customer purchases of new higher price point offerings. We offer a number of custom upholstery items and sales in this category rose 6.8% in 2019 over 2018. Our average ticket increased 6.4%Total sales for 2019 decreased $15.4 million or 1.9% compared to $2,323. The average ticket for our in-home designers was $4,6662018. Comp-store sales decreased 1.4% or $11.6 million in 2019 compared to 2018 and were part of 25.3% of our sales.
Sales in 2018 declined for the year as business slowed markedly in the last halfremaining $3.8 million of the fourth quarter. Our revenues by category remained relatively consistent with prior years with increases in our accessories saleschange was from closed, new and delivery revenue. Our average ticket increased 4.4% to $2,184 which helped offset the decline in the number of transactions. Our in-home designers were part of 21.5% of our sales and their average ticket was $4,466.otherwise non-comparable stores.
Sales in 2017 declined slightly as the level of our store traffic weakened throughout the year. Our average ticket increased 2.1% allowing our sales results to not moderate at the same pace as traffic. Our in-home designers were part of 20.6% of our sales, with their average ticket twice the overall average.
20202022 Outlook
We believe ascannot predict the general economic outlook continues to improve, andimpact of consumer spending andon home furnishings post-pandemic. We believe the strong housing market strengthens,benefits our business will benefit.as our footprint covers many of the fastest growing markets. We are improving our customers’ online experience and furthering our targeted marketing. We have an appealing online presence and upgradedwell positioned stores, and we offer on-trend merchandise, knowledgeable salespeople, free in-home design service, and special order capabilities which will be important drivers for our 2020 sales results. We do not expect our retail square footage to increase in 2020.special-order capabilities.
Gross Profit
Our cost of goods sold consists 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. 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 some of these expenses in cost of goods sold.
Year-to-Year Comparisons
Gross profit as a percentage of net sales was 54.2%56.7% in 20192021 compared to 54.6%56.0% in 2018. This decrease2020. The increase of 70 basis points was driven by higherprimarily due to merchandise price increases and disciplined discounting offsetting product cost and freight costs. Tariffs on products imported from China began in September 2018 and increased to 25% in March 2019.increases. The use of the LIFO method generated a $1.8$12.3 million charge in 20192021 versus $0.8$0.6 million in 2018. These2020, or a negative impacts were partly offset by110 basis points impact to the increasing sales generated by our in‑home designers. These sales generally have a higher margin driven by custom upholstery and accessories sales.total gross profit change.
Gross profit as a percentage of net sales was 54.6%56.0% in 20182020 compared to 54.3%54.2% in 2017. This improvement2019. The increase was predominately driven by our execution onprimarily due to less discounting and sales promotions and product mix and pricing.mix. The impositionuse of tariffsthe LIFO method generated a $0.6 million charge in 2020 versus $1.8 million in 2019. The impact of 10.0% on products imported from China beganchanges in late September 2018. We raisedreserves, including LIFO, contributed approximately 23 basis points to the selling prices on some impacted products and worked with our suppliers to minimize cost increases.total gross profit improvement.
20202022 Outlook
Our expectations for 20202022 are for annual gross profit margins of approximately 54.6%56.6% to 57.0%. This assumes no changes in tariffs for imported goods.merchandise and freight costs and its impact on the LIFO reserve.
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 associatesteam members 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 supplies, depreciation, and rental charges for equipment. Advertising expenses are primarily media production and space, direct mail costs, market research expenses and agency fees. Administrative expenses are comprised of compensation costs for store personnel exclusive of sales associates,team members, information systems, executive, accounting, merchandising, advertising, supply chain, real estate and human resource departments.
We classify our SG&A expenses as either variable or fixed and discretionary. Our variable expenses include the costs in the selling and delivery categories and certain warehouse expenses as these amounts will generally move in tandem with our level of sales. The remaining categories and expenses are classified as fixed and discretionary because these costs do not fluctuate with sales. The following table outlines our SG&A expenses by classification:
| 2019 | | 2018 | | | 2017 | | 2021 | | | 2020 | | | 2019 | |
(In thousands) | | | | % of Net Sales | | | | | % of Net Sales | | | | | % of Net Sales | | | | % of Net Sales | | | | | % of Net Sales | | | | | | % of Net Sales | |
Variable | | $ | 147,415 | | | 18.4 | % | | $ | 149,973 | | | 18.3 | % | | $ | 149,694 | | | 18.2 | % | $ | 173,810 | | 17.2 | % | | $ | 135,286 | | 18.1 | % | | $ | 147,415 | | 18.4 | % |
Fixed and discretionary | | | 260,041 | | | | 32.4 | | | | 254,883 | | | | 31.2 | | | | 253,190 | | | | 30.9 | | | 282,457 | | | 27.9 | | | | 242,002 | | | 32.3 | | | | 260,041 | | | 32.4 | |
| | $ | 407,456 | | | | 50.8 | % | | $ | 404,856 | | | | 49.5 | % | | $ | 402,884 | | | | 49.1 | % | $ | 456,267 | | | 45.1 | | | $ | 377,288 | | | 50.4 | % | | $ | 407,456 | | | 50.8 | % |
Year-to-Year Comparisons
Our SG&A dollars as a percent of sales decreased to 45.1% in 2021 from 50.4% in 2020. We were able to leverage our fixed and discretionary costs as we achieved record sales throughout the year. We increased 130our advertising spend $9.5 million in 2021 to $49.3 million. Our occupancy costs increased $3.9 million driven by greater rent expense primarily on the distribution facilities in the sale-leaseback in 2020 and higher utilities and repairs and maintenance partly offset by lower depreciation expense. Warehouse and transportation expense rose $10.6 million on higher salaries and benefits, temporary labor and $4.2 million in accessorial and demurrage fees. Administrative expense increased $18.9 million primarily from increased wages and related costs, higher amortization expense on performance stock awards, and increased incentive compensation costs.
Our SG&A dollars as a percent of sales decreased 40 basis points to 50.4% in 2020 from 50.8% in 2019 from 49.5% in 2018.2019. Our fixed and discretionary expenses increased $5.2fell $18.0 million or 2.0%6.9% in 20192020 over 2018.2019. This changedrop was primarily due to an impairment lossactions taken as part of our business continuity plan. Advertising expenditures decreased approximately $9.4 million. Our occupancy costs were down $5.4 million in 2020 versus 2019 due to rent abatements in 2020 and a $2.4 million for a retail store and increasesimpairment charge in 2019. The workforce reduction in April also contributed to the reduction in our advertisingfixed and marketing expenses of $1.5 million. Our administrative costs rose $1.4 million driven primarily by increases in benefit costs including group medical expenses partly offset by lower incentive compensation.discretionary costs. Our variable expenses increased slightlydecreased 30 basis points as a percent of sales due to higher sellingreduced third-party financing costs.
Our SG&A costs as a percent of sales increased 40 basis points to 49.5% in 2018 from 49.1% in 2017. Our fixed and discretionary expenses increased $1.7 million or 0.7% in 2018 over 2017. This change was primarily due to increases in administrative costs of $1.5 million which included a $2.0 million increase in group medical expenses. We also had increases in our advertising and marketing expenses, warehouse costs and other occupancy costs totaling $1.4 million. These increases were partly offset by $0.7 million in lower depreciation expense and rent expense. Our variable expenses increased slightly due to higher transportation and delivery costs.
20202022 Outlook
Fixed and discretionary type expenses within SG&A are expected to be in the $265.0$295.0 to $267.0$298.0 million range for 2020.2022. We anticipate higher advertising and marketing costs in 2020,2022, increased compensation and incentive expense, and additional costs associated with new stores. Fixed and discretionary type expenses are expected to be at similar quarterly levels in 20202022 as in 2019,2021, as adjusted for the overall increases.
Variable costs within SG&A for 20202022 are expected to be between 18.4%17.2% and 18.6%17.4% as a percent of sales.
Interest Expense
Our interest expense for the years 2018 and 2017 This increase is primarily driven by amounts relatedwage inflation and higher delivery costs.
Interest (Income) Expense, Net
We earned $0.1 million less interest income in 2021 than in 2020 due to our lease obligations. For leases accounted for as capitallower rates and financing lease obligations under prior lease guidance, we recorded straight‑line rent expense for the land portion in occupancy costs in SG&A along with amortization on the additional asset recorded. Rental payments were recognized as a reduction of the obligations and asincurred $0.2 million less interest expense during 2017 and 2018. Refer to Note 1, “Description of Business and Summary of Significant Accounting Policies, Recently Adopted Accounting Pronouncements, Leases” of the Notes to Consolidated Financial Statements for information about the impact of the changes in lease accounting.under our credit agreement.
Provision for Income Taxes
The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017. The Tax Act significantly revised the U.S. corporate income tax by lowering the statutory corporate tax rate from 35% to 21%. It also eliminated certain deductions and enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property. We estimated the effects of the Tax Act and recorded in our financial statements as of December 31, 2017 approximately $5.9 million in additional tax expense for the remeasurement of net deferred tax assets and liabilities. We completed our analysis in 2018 and no additional adjustments were made for the impact of the Tax Act.
Our effective tax rate was 23.4% in 2021, 22.9% in 2020 and 23.9% in 2019, 25.0% in 2018 and 51.2% in 2017.2019. The 2019 and 2018 rates vary from the U.S. federal statutory rate primarily due to state income taxes. The 2017 rate is impacted by the negative effect of $5.9 millionrates in 2021 and 2020 also benefitted from the Tax Act. recognition of state quality jobs credits of $481,000 and $1,527,000, respectively. See Note 7, “Income Taxes” of the Notes to Consolidated Financial Statements for further information about our income taxes.
Liquidity and Capital Resources
OverviewCash and Cash Equivalents at End of LiquidityYear
Our primary cash requirements include working capital needs, contractual obligations, benefit plan contributions, income tax obligations and capital expenditures. We have funded these requirements exclusively through cash generated from operations and have not used our credit facility since 2008. We believe funds generated from our expected results of operations and availableAt December 31, 2021, we had $166.1 million in cash and cash equivalents, willand $6.7 million in restricted cash equivalents. See Note 1 to our consolidated financial statements for further discussion of our restricted cash equivalents. We believe that our current cash position, cash flow generated from operations, funds available from our credit agreement, and access to the long-term debt capital markets should be sufficient for our operating requirements and to enable us to fund our primarycapital expenditures, dividend payments, and lease obligations and complete projects thatthrough the next several years. In addition, we believe we have underway or currently contemplate for the next fiscal and foreseeable future years.
At December 31, 2019, our cash, cash equivalents and restricted cash equivalents balance was $82.4 million, an increaseability to obtain alternative sources of $2.6 million compared to December 31, 2018. This change primarily resulted from solid operating results offset by purchases of property and equipment and dividends paid to stockholders and repurchases of common stock. Additional discussion of our cash flow results, including the comparison of 2019 activity to 2018, is set forth in the Analysis of Cash Flows section.
At December 31, 2019, we had no amounts outstanding and $54.3 million available under our revolving credit facility.
Capital Expenditures
Our primary capital requirements have been focused on our stores, distribution centers, and the development of both proprietary and purchased information systems.financing. We have successfully concluded our store remodeling program and in 2018 we completed the expansion of our Western Distribution Center. Ourexpect capital expenditures were $16.8of approximately $37.0 million in 2019, $4.6 million less than in 2018.2022.
Our future capital requirements will depend in large part on the number of and timing for new stores we open within a given year, the investments we make for the maintenance of our existing stores, and our investment in new information systems to support our key strategies. In 2020, we anticipate that our capital expenditures will be approximately $17.0 million, refer to our Store Expansion and Capital Expenditures discussion below.
Analysis of Cash Flows
The following table illustrates the main components of our cash flows (in thousands):
| | Year Ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
Net cash provided by operating activities | | $ | 63,419 | | | $ | 70,392 | | | $ | 52,457 | |
Capital expenditures | | | (16,841 | ) | | | (21,473 | ) | | | (24,465 | ) |
Free cash flow | | $ | 46,578 | | | $ | 48,919 | | | $ | 27,992 | |
Net cash used in investing activities | | $ | (14,571 | ) | | $ | (18,972 | ) | | $ | (21,527 | ) |
Net cash used in financing activities | | $ | (46,255 | ) | | $ | (59,217 | ) | | $ | (14,839 | ) |
Cash flows from operating activities. During 2019, net cash provided by operating activities was $63.4 million. The primary components of the changes in operating assets and liabilities are listed below:
Decrease in inventories of $1.0 million as we returned operating inventory to a more normalized level.
Increase in customer deposits of $5.7 million.
Increase in accounts payable of $8.0 million
Decrease in other liabilities of $7.6 million primarily due to a transition adjustment of $9.5 million to comply with ASU 2016-02.
During 2018, net cash provided by operating activities was $70.4 million. The primary components of the changes in operating assets and liabilities are listed below:
Increase in inventories of $2.4 million as we increased stock in advance of Chinese New Year when suppliers are closed and before the imposition of tariffs on goods imported from China.
Decrease in prepaid expenses of $3.2 million primarily associated with income taxes.
Decrease in customer deposits of $3.3 million.
Increase in other liabilities of $3.8 million primarily due to receipt of incentives that will amortize over six years.
During 2017, net cash provided by operating activities was $52.5 million. The primary components of the changes in operating assets and liabilities are listed below:
Increase in inventories of $2.1 million as we increased stocking levels in the distribution centers in advance of Chinese New Year and added a new store.
Increase in prepaid expenses of $2.5 million primarily from the timing of the payment of taxes and computer maintenance agreements.
Increase in customer deposits of $2.9 million.
Decrease in accounts payable of $5.2 million.
Decrease in accrued liabilities of $4.3 million primarily from the timing of payments for compensation and real estate and property taxes.
Cash flows used in investing activities. Net cash used in investing activities was $14.6 million, $19.0 million, and $21.5 million for 2019, 2018 and 2017, respectively. In each of these years, the amounts of cash used in investing activities consisted principally of capital expenditures related to store construction and improvements, distribution, and information technology projects, refer to our Store Expansion and Capital Expenditures discussion below. During 2019 and 2018, we received $2.3 million and $2.4 million, respectively, in proceeds from sales of property and equipment. During 2017, we received approximately $2.0 million in insurance proceeds to offset costs of rebuilding and repairing two stores.
Cash flows used in financing activities. Net cash used in financing activities was $46.3 million for 2019, $59.2 million for 2018 and $14.8 million for 2017. During 2019, we spent $29.8 million for treasury stock purchases and paid $15.1 million in dividends. During 2018, we purchased $18.7 million in treasury stock, paid $15.0 million in dividends, and paid $20.4 million as a special dividend. During 2017, we paid $11.4 million in dividends.
Long-Term Debt
In September 2019,May 2020, we entered into the SecondThird Amendment to our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) with a bank. The Credit Agreement, amends our credit facility to extend the maturity date towhich matures September 27, 2024, from March 31, 2021 and changes certain collateral reporting requirements. The Credit Agreement provides for a $60.0 million revolving credit facility. Refer toSee Note 6,5, “Credit Arrangement” of the Notes to Consolidated Financial Statements for information about our Credit Agreement.
Off-Balance Sheet Arrangements
Leases
We have not entered into agreements which meet the SEC’s definition of an off-balance sheet arrangement other thanuse operating leases to fund a portion of our real estate, including our stores, distribution centers, and havestore support space.
On May 18, 2020, we completed a sale and leaseback transaction of three facilities which we initiated in April as part of our business continuity plan. The total sales price for these properties, excluding costs and taxes, was $70.0 million and their net book value was approximately $37.9 million. In August 2021, we purchased one of these facilities. See Note 8, “Leases” of the Notes to Consolidated Financial Statements for further discussion of our operating leases.
Share Repurchases
In August and November 2021, our Board of Directors authorized additional amounts under a share repurchase program. We made no financial commitmentscash payments of $41.8 million for repurchases of our common stock through open market purchases during 2021 and there is approximately $25.0 million at December 31, 2021 that may yet be purchased under the existing authorization.
Cash Flows Summary
Operating Activities. Cash flow generated from operations provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, employee compensation, operations, and occupancy costs.
Cash provided by or used in operating activities is also subject to or guarantees with respectchanges in working capital. Working capital at any specific point in time is subject to any unconsolidated entities or financial partnerships or special purpose entities.many variables, including seasonality, inventory selection, the timing of cash receipts and payments, and vendor payment terms.
Net cash provided by operating activities in 2021 was $97.2 million driven primarily by net income of $90.8 million and non-cash adjustments to net income of $25.5 million consisting primarily of depreciation and amortization and stock-based compensation expense, and by working capital inflows driven primarily by customer deposits and outflows for inventory turnover and timing of inventory purchases.
Net cash provided by operating activities in 2020 was $130.2 million driven primarily by net income of $59.1 million and non-cash adjustments to net income of $14.0 million, consisting of gains from sales of property and equipment, depreciation and amortization, stock-based compensation expense and changes in deferred income taxes, and by working capital inflows driven primarily by customer deposits, inventory turnover and timing of inventory purchases.
Investing Activities. Cash used in investing activities in 2021 primarily reflected $34.1 million of capital expenditures.
Cash provided by investing activities in 2020 primarily reflected $76.3 million of proceeds from sale of property and equipment, primarily from the sale-leaseback transaction, net of $10.9 million of capital expenditures.
Financing Activities. Cash used in financing activities in 2021 primarily reflected $52.4 million of cash dividends paid and $41.8 million of share repurchases.
Cash used in financing activities in 2020 primarily reflected $50.5 million of cash dividends paid and $19.7 million of share repurchases.
Contractual Obligations
We have no short-term borrowings or funded debt. The following summarizes our contractual obligations and commercial commitments as of
December 31, 20192021 (in thousands):
| Payments Due or Expected by Period | | | Payments Due or Expected by Period | |
| Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | After 5 Years | | | Total | | | Less than 1 Year | | | 1-3 Years | | | 3-5 Years | | | After 5 Years | |
Operating leases(1) | | $ | 236,695 | | | $ | 40,228 | | | $ | 71,562 | | | $ | 46,881 | | | $ | 78,024 | | | $ | 290,696 | | | $ | 45,277 | | | $ | 78,992 | | | $ | 59,622 | | | $ | 106,805 | |
Rent deferrals(2) | | | 351 | | | 131 | | | — | | | 32 | | | 188 | |
Purchase orders | | 98,586 | | | 98,586 | | | — | | | — | | | — | | | 201,520 | | | 201,520 | | | — | | | — | | | — | |
Total contractual obligations (2) | | $ | 335,281 | | | $ | 138,814 | | | $ | 71,562 | | | $ | 46,881 | | | $ | 78,024 | | |
Total contractual obligations (3) | | | $ | 492,567 | | | $ | 246,928 | | | $ | 78,992 | | | $ | 59,654 | | | $ | 106,993 | |
(1) | These amounts are for our undiscounted lease obligations recorded in our consolidated balance sheets, as lease liabilities. For additional information about our leases, refer to Note 8, “Leases” of the Notes to the Consolidated Financial Statements. |
(2) | Lease concessions related to the impact of COVID-19. For additional information about our leases, refer to Note 8, “Leases” of the Notes to the Consolidated Financial Statements. |
(3) | The contractual obligations do not include any amounts related to retirement benefits. For additional information about our plans, refer to Note 10, “Benefit Plans” of the Notes to the Consolidated Financial Statements. |
(1) These amounts are for our undiscounted lease obligations recorded in our consolidated balance sheets, as lease liabilities. For additional information about our leases, refer to Note 9, “Leases” of the Notes to the Consolidated Financial Statements.
(2) The contractual obligations do not include any amounts related to retirement benefits. For additional information about our plans, refer to Note 12, “Benefit Plans” of the Notes to the Consolidated Financial Statements
Store Expansion and Capital Expenditures
We have entered new markets and made continued improvements and relocations of our store base. The following outlines the change in our selling square footage for each of the three years ended December 31 (square footage in thousands):
| | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
Store Activity: | | # of Stores | | | Square Footage | | | # of Stores | | | Square Footage | | | # of Stores | | | Square Footage | | | # of Stores | | | Square Footage | | | # of Stores | | | Square Footage | | | # of Stores | | | Square Footage | |
Opened | | 3 | | | 98 | | | 1 | | | 29 | | | 3 | | | 100 | | | 2 | | | 44 | | | 1 | | | 28 | | | 3 | | | 98 | |
Closed | | | 2 | | | | 88 | | | | 5 | | | | 143 | | | | 3 | | | | 85 | | | | 1 | | | | 42 | | | | 2 | | | | 102 | | | | 2 | | | | 88 | |
Year end balances | | | 121 | | | | 4,426 | | | | 120 | | | | 4,418 | | | | 124 | | | | 4,517 | | | | 121 | | | | 4,354 | | | | 120 | | | | 4,352 | | | | 121 | | | | 4,426 | |
The following table summarizes our store activity in 20192021 and plans for 2020.2022.
Location | Opening (Closing) Quarter Actual or Planned | Category |
Myrtle Beach, SC | Q-1-21 | Open-New Market
|
The Villages, FL | Q-3-21 | CategoryOpen
|
Dallas, TX | Q-3-21 | Closure |
Austin, TX | Q-2-22 | Open |
Indianapolis, IN | Q-3-22 | Relocation |
Metro DC | Q-3-22 | Open |
Atlanta, GA | Q-3-19Q-3-22 | OpenClosure |
St. Louis, MOTBA | Q-3-19Q-4-22 | Open – New Market |
Baton Rouge, LA | Q-4-19 | Relocation |
Atlanta, GA | Q-4-19 | Closure – Clearance Center |
Atlanta, GA | Q-1-20 | Closure |
Myrtle Beach, FL | Q-2-20 | Open – New Market |
Dallas/Ft. Worth, TX | Q-3-20 | Open |
To be named | Q-3-20 | Open – New Market |
To be named | Q-3-20 | Closure |
These plans and other changes should keepincrease net selling space in 2020 the same as in 20192022 approximately 1% over 2021 assuming the new stores open and existing stores close as planned.
Our investing activities in stores and operations in 2019, 20182021, 2020 and 20172019 and planned outlays for 20202022 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 2020 | | | 2019 | | | 2018 | | | 2017 | |
Stores: | | | | | | | | | | | | |
New or replacement stores | | $ | 3,700 | | | $ | 5,700 | | | $ | 600 | | | $ | 6,300 | |
Remodels/expansions | | | 2,500 | | | | 500 | | | | 2,300 | | | | 5,300 | |
Other improvements | | | 3,500 | | | | 4,100 | | | | 3,300 | | | | 3,600 | |
Total stores | | | 9,700 | | | | 10,300 | | | | 6,200 | | | | 15,200 | |
Distribution | | | 3,300 | | | | 2,700 | | | | 12,800 | | | | 6,500 | |
Information technology | | | 4,000 | | | | 3,800 | | | | 2,500 | | | | 2,800 | |
Total | | $ | 17,000 | | | $ | 16,800 | | | $ | 21,500 | | | $ | 24,500 | |
(Approximate in thousands) | | Proposed 2022 | | | 2021 | | | 2020 | | | 2019 | |
Stores: | | | | | | | | | | | | |
New or replacement stores(1) | | $ | 10,000 | | | $ | 7,000 | | | $ | 1,000 | | | $ | 5,700 | |
Remodels/expansions | | | 3,600 | | | | 4,300 | | | | 600 | | | | 500 | |
Other improvements | | | 5,700 | | | | 4,500 | | | | 3,200 | | | | 4,100 | |
Total stores | | | 19,300 | | | | 15,800 | | | | 4,800 | | | | 10,300 | |
Distribution(1) | | | 13,500 | | | | 15,300 | | | | 3,600 | | | | 2,700 | |
Information technology | | | 4,200 | | | | 3,000 | | | | 2,500 | | | | 3,800 | |
Total | | $ | 37,000 | | | $ | 34,100 | | | $ | 10,900 | | | $ | 16,800 | |
(1) | In 2021 we purchased one retail location and one distribution facility that were previously leased. |
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 self-insurance. 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 theand evaluate our estimates and judgments required by our policies on an ongoing 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 orupdate them as appropriate based on changing conditions.
An accounting policy is deemed to beAccounting estimates are considered critical if it requires an accounting estimateboth of the following conditions are met: (a) the nature of the estimates or assumptions is material because of the levels of subjectivity and judgment needed to be made based on assumptions aboutaccount for matters that are highly uncertain atand susceptible to change and (2) the timeeffect of 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 policy reflects our more significant estimates and assumptions used inis material to the preparation offinancial statements.
We have reviewed our consolidated financial statements:
Self-Insurance. We are self-insured for certain losses relatedaccounting estimates, and none were deemed to worker’s compensation, general liability and vehicle claims for amounts up to a deductible per occurrence. 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 appropriateness. A one-percentage-point change in the actuarial assumptionbe considered critical for the discount rate would impact 2019 expense for insurance by approximately $72,000, a 1.0% change.accounting periods presented.
We are primarily self-insured for employee group health care claims. We have purchased insurance coverage in order to establish certain limits to our exposure on a per claim basis. We record an accrual for the estimated amount of self-insured health care claims incurred by all participants but not yet reported (IBNR) using an actuarial method of applying a development factor to the reported monthly claims amounts. The Company's risk management and accounting management utilize a consistent methodology which involves various assumptions, judgment and other factors. The most significant factors which impact the determination of a required accrual are the historical pattern of the timeliness of claims processing, any changes in the nature or types of benefit plans, changes in the plan benefit designs, and medical trends and inflation. Historical experience is continually monitored, and accruals are adjusted when warranted by changes in facts and circumstances. The Company believes that the total health care cost accruals are reasonable and adequate to cover future payments on incurred claims.
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 counterparties, thereby limitingOur exposure to creditinterest rate risk relates to the interest income generated by cash, cash equivalents, and performance-related risks.
We have never had any borrowings under our Credit Agreement. We have exposure to floating interest rates through our Credit Agreement since interest expense relatedon the Credit Facility. The primary objective of our investment policy is to any borrowings will fluctuate with changes in LIBOR and other benchmark rates.preserve principal while maximizing income without significantly increasing risk. We do not believe a 100-basis point changethat an increase or decrease in interest rates of 100 basis points would have a significant adverse impactmaterial effect on our operating results or financial position.
LIBOR is the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms and other pressure may cause LIBOR to disappear entirely or to perform differently than in the past. The consequences of these developments cannot be entirely predicted but, as noted above, could impact the interest earned on our investments and our interest expense. If LIBOR iscondition. During 2021, we had no longer widely available, or otherwise at our option, we will pursue alternative interest rate calculations inoutstanding borrowings under our Credit Agreement and other financial instruments.(as discussed in Note 5 to the Consolidated Financial Statements), which bears interest based on variable rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of our 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-23F-22 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 (PCAOB ID 248) | | F-1 |
Consolidated Balance Sheets | | F-2 |
Consolidated Statements of Comprehensive Income | | 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-23 | F-22 |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Our management has evaluated, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), 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 CEO and CFO concluded that our disclosure controls and procedures were effective for the purpose of providing reasonable assurance that the information we must disclose in reports that we file or submit under the Securities Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosures.
(b) Management’s Annual Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on that evaluation, our management concluded that our internal control over financial reporting is effective as of December 31, 2019.2021.
Attestation Report of the Independent Registered Public Accounting Firm. Grant Thornton LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this annual report on Form 10-K and, as part of their audit, has issued their report, included herein, on the effectiveness of our internal control over financial reporting.
(c) Changes in Internal Control over Financial Reporting. During the fourth quarter of 2019,2021, 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.
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Haverty Furniture Companies, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Haverty Furniture Companies, Inc. (a Maryland corporation)Corporation) and subsidiary (the “Company”) as of December 31, 2019,2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019,2021, and our report dated March 5, 20201, 2022 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’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 Management’s Annual Report 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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and limitations of internal control over financial reporting
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.
/s/ GRANT THORNTON LLP
Atlanta, Georgia
March 5, 20201, 2022
ITEM 9B. OTHER INFORMATION
None
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.Applicable
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
We have adopted a Code of Conduct (the “Code”) for our directors, officers (including our principal executive officer, and principal financial and accounting officer) and
employees.team members. The Code is available on our website at
www.havertys.com.www.havertys.com. In the event we amend or waive any provisions of the Code applicable to our principal executive officer or principal financial and 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 annual report on Form 10-K and should not be considered part of this or any other report that we file or furnish to the SEC.
We provide some information about our executive officers in Part I of this report under the heading “Executive Officers and Certain Significant Employees of the Registrant.“Information about our Executive Officers.” The remaining information called for by this item is incorporated by reference to “Election“Proposal 1: Nominees for Election by Holders of Directors,Class A Common Stock and Nominees for Election by Holders of Common Stock,” “Corporate Governance,” “Board“Committees of the Board” and Committees”“Certain Relationships and “Other InformationRelated Transactions – Delinquent Section 16(a) Beneficial Ownership Reporting Compliance”Reports” in our 20202022 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information contained in our 20202022 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 20202022 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 “Ownership of Company Stock by our Directors and Management” and “Equity Compensation Plan Information,” is incorporated herein by reference in response to this item.
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 20202022 Proxy Statement with respect to certain relationships, related party transactions and director independence under the headings “Certain Relationships and Related Transactions” and “Corporate Governance – Governance Guidelines and Policies – 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 20202022 Proxy Statement is incorporated herein by reference to this item.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) | The following documents are filed as part of this report: |
(a) (1) Financial Statements.The following documents are filed as part of this report:
Consolidated Balance Sheets – December 31, 20192021 and 20182020.
Consolidated Statements of Comprehensive Income – Years ended December 31, 2019, 20182021, 2020 and 20172019.
Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2019, 20182021, 2020 and 20172019.
Consolidated Statements of Cash Flows – Years ended December 31, 2019, 20182021, 2020 and 20172019.
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.
Exhibit No. | Exhibit | |
3.1 | | |
3.2 | | |
*4.1 | |
10.1 | Amended and Restated Credit Agreement by and among Haverty Furniture Companies, Inc. and Havertys Credit Services, Inc., as the Borrowers, SunTrust Bank, as the Issuing Bank and Administrative Agent and SunTrust Robinson Humphrey, Inc. as Lead Arranger, dated September 1, 2011 (Exhibit (Incorporated by reference to Exhibit 10.1 to our 2011 Third Quarter Form 10-Q). First Amendment to Amended and Restated Credit Agreement, dated March 31, 2016 (Exhibit(Incorporated by reference to Exhibit 10.1 to our 2016 First Quarter Form 10‑Q); Second Amendment to Amended and Restated Credit Agreement by and among HavertyArticles of Amendment and Restatement of the Charter of Haverty Furniture Companies, Inc. effective May 2006 Furniture Companies, Inc. and Havertys Credit Services, Inc., as the Borrowers, and SunTrust Bank, as the Issuing Bank and Administrative Agent (Exhibit (Incorporated by reference to Exhibit 10.1 to our 2019 Third Quarter Form 10-Q). Third Amendment to Amended and Restated Credit Agreement by and among Haverty Furniture Companies, Inc. and Havertys Credit Services, Inc. as Borrowers, and Truist Bank (successor by merger to SunTrust Bank) as the Issuing Bank and Administrative Agent (Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated May 20, 2020). | |
10.2
10.2 | Haverty Furniture Companies, Inc., Class A Shareholders Agreement (the “Agreement”), made as of June 5, 2012, by and among, Haverty Furniture Companies, Inc., Villa Clare Partners, L.P., Clarence H. Smith, H5, L.P., Rawson Haverty, Jr., Ridge Partners, L.P. and Frank S. McGaughey (Exhibit (Incorporated by reference to Exhibit 10.1 to our Form 8-K filed June 8, 2012); Parties added to the Agreement and Revised Annex I as of November 1, 2012 – Marital Trust FOB Margaret M. Haverty and Marital Trust B FOB Margaret M. Haverty; Parties added to the Agreement as of December 11, 2012 – Margaret Munnerlyn Haverty Revocable Trust (Exhibit (Incorporated by reference to Exhibit 10.1 to our First Quarter 2013 Form 10-Q); Parties added to the Agreement as of July 5, 2013 – Richard McGaughey (Exhibit (Incorporated by reference to Exhibit 10.1 to our Second Quarter 2013 Form 10-Q) ;. Amendment to Class A Shareholders Agreement, as of December 30, 2016 (Exhibitremoving Ridge Partners, L.P. and Frank S. McGaughey (Incorporated by reference to Exhibit 10.2.1 to our 2016 Form 10-K) . | |
+10.3 | ; 2004 Long-Term Incentive Plan effectiveParties added to the Agreement as of May 10, 2004 (Exhibit 10.11, 2019 – H5-MHG, LLC, H5-JMH, LLC, H5-JRH, LLC, H5-MEH, LLC, H5-BMH, LLC (Incorporated by reference to our Registration Statement on Form S-8, File No. 333-120352; Amendment No. OneExhibit 99.1 to our 2004 Long-Term Incentive Plan effective as ofH5, L.P.’s Schedule 13 D/A filed May 9, 2011 (Exhibit 4.1 to our Registration Statement on Form S-8, File No. 333-176100)22, 2019). | |
+10.410.3 | | |
+10.4 | |
+10.5 | | |
+10.6 | | |
+10.7 | | |
+10.8 | | |
+10.8.1 | |
+10.14 | | |
+10.15 | | |
+10.16 | | |
+10.17 | | |
+10.18 | | |
10.19 | 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 (Incorporated by reference to Exhibit 10.1 to our 2002 Third Quarter Form 10-Q). AmendmentAmendment 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 successor in interest to John W. Rooker, LLC as Landlord (Exhibit (Incorporated by reference to Exhibit 10.15.1 to our 2006 Form 10-K). Fifth Amendment entered into as of December 3, 2018 to Lease Agreement dated July 26, 2001, as amended by and between 1090 Broadway Avenue Distribution Investors, LLC, as successor in interest to ELFP Jackson, LLC as Landlord and Haverty Furniture Companies, Inc., as Tenant. (Exhibit(Incorporated by reference to Exhibit 10.21.1 to our 2018 Form 10-K). | |
10.2010.17 | | |
10.2110.18 | | |
10.2210.19 | |
*2110.20 | Purchase Agreement, dated as of May 18, 2020 between Haverty Furniture Companies, Inc. (“Seller”), and HF Coppel TX Landlord, LLC, HF Lakeland FL Landlord, LLC and HF Colonial Heights VA Landlord, LLC (each a “Buyer” and collectively, the “Buyers”) (Incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated May 20, 2020). |
10.21 | |
10.22 | |
*21.1 | Subsidiaries of Haverty Furniture Companies, Inc. |
*101 | The following financial information from our Report on Form 10-K for the year ended December 31, 2019,2021, formatted in XBRL (eXtensible Business Reporting Language):inline XBRL: (i) Consolidated Balance Sheets for the years ended December 31, 20192021 and 2018,2020, (ii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, (iv) Consolidated Statements of Cash Flow for the years ended December 31, 2019, 20182021, 2020 and 2017,2019, and (v) the Notes to Consolidated Financial Statements. |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* Filed herewith.
+ Indicates a management contract or compensatory plan or arrangement required to be filed as exhibits pursuant to Item 15(b) of Form 10-K.
# Furnished herewith.
ItemITEM 16.
FormFORM 10-K
SummarySUMMARY
Not Applicable.None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 5, 2020.
| HAVERTY FURNITURE COMPANIES, INC.
|
| By: | /s/ CLARENCE H. SMITH |
| | Clarence H. Smith |
| | Chairman of the Board, 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 indicated, on March 5, 2020.
/s/ CLARENCE H. SMITH | | | | /s/ RICHARD B. HARE |
Clarence H. Smith
Chairman of the Board, President and
Chief Executive Officer
(principal executive officer)
| | | | Richard B. Hare
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
|
| | | | |
/s/ L. ALLISON DUKES | | | | /s/ MYLLE H. MANGUM |
L. Allison Dukes
Director
| | | | Mylle H. Mangum
Director
|
| | | | |
| | | | |
/s/ JOHN T. GLOVER | | | | /s/ VICKI R. PALMER |
John T. Glover
Lead Director
| | | | Vicki R. Palmer
Director
|
| | | | |
| | | | |
/s/ RAWSON HAVERTY, JR. | | | | /s/ G. THOMAS HOUGH |
Rawson Haverty, Jr.
Director
| | | | G. Thomas Hough
Director
|
| | | | |
| | | | |
/s/ AL TRUJILLO | | | | |
Al Trujillo
Director
| | | | |
30REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Haverty Furniture Companies, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Haverty Furniture Companies, Inc. (a Maryland corporation) and subsidiary (the “Company”) as of December 31, 20192021 and 2018,2020, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019,2021, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192021 and 2018,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019,2021, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2019,2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 5, 20201, 2022 expressed an unqualified opinion.
Change in accounting principle
As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2016.
Atlanta, Georgia
March 5, 20201, 2022
HAVERTY FURNITURE COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
| | December 31, | |
(In thousands, except per share data) | | 2019 | | | 2018 | |
ASSETS | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 75,739 | | | $ | 71,537 | |
Restricted cash equivalents | | | 6,663 | | | | 8,272 | |
Accounts receivable, net | | | 1,527 | | | | 1,833 | |
Inventories | | | 104,817 | | | | 105,840 | |
Prepaid expenses | | | 7,652 | | | | 8,106 | |
Other current assets | | | 8,125 | | | | 6,262 | |
Total current assets | | | 204,523 | | | | 201,850 | |
Accounts receivable, long-term, net | | | 195 | | | | 226 | |
Property and equipment, net | | | 156,534 | | | | 216,852 | |
Right-of-use lease assets | | | 175,474 | | | | — | |
Deferred income taxes | | | 13,198 | | | | 12,544 | |
Other assets | | | 10,148 | | | | 8,707 | |
Total assets | | $ | 560,072 | | | $ | 440,179 | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 27,830 | | | $ | 19,840 | |
Customer deposits | | | 30,121 | | | | 24,465 | |
Accrued liabilities | | | 39,654 | | | | 39,903 | |
Current lease liabilities | | | 29,411 | | | | — | |
Current portion of lease obligations | | | — | | | | 4,018 | |
Total current liabilities | | | 127,016 | | | | 88,226 | |
Noncurrent lease liabilities | | | 149,594 | | | | — | |
Lease obligations, less current portion | | | — | | | | 46,785 | |
Other liabilities | | | 22,959 | | | | 30,539 | |
Total liabilities | | | 299,569 | | | | 165,550 | |
Stockholders’ equity | | | | | | | | |
Capital Stock, par value $1 per share | | | | | | | | |
Preferred Stock, Authorized – 1,000 shares; Issued: None | | | | | | | | |
Common Stock, Authorized – 50,000 shares; Issued: 2019 – 29,431; 2018 – 29,079 | | | 29,431 | | | | 29,079 | |
Convertible Class A Common Stock, Authorized – 15,000 shares; Issued: 2019 – 2,054; 2018 – 2,280 | | | 2,054 | | | | 2,280 | |
Additional paid-in capital | | | 93,208 | | | | 91,394 | |
Retained earnings | | | 295,999 | | | | 282,366 | |
Accumulated other comprehensive income (loss) | | | (2,087 | ) | | | (1,465 | ) |
Less treasury stock at cost – Common Stock (2019 – 11,850; 2018 – 10,300) and Convertible Class A Common Stock (2019 and 2018 – 522) | | | (158,102 | ) | | | (129,025 | ) |
Total stockholders’ equity | | | 260,503 | | | | 274,629 | |
Total liabilities and stockholders’ equity | | $ | 560,072 | | | $ | 440,179 | |
| | December 31, | |
(In thousands, except per share data) | | 2021 | | | 2020 | |
Assets | | | | | | |
Current assets | | | | | | |
Cash and cash equivalents | | $ | 166,146 | | | $ | 200,058 | |
Restricted cash equivalents | | | 6,716 | | | | 6,713 | |
Inventories | | | 112,031 | | | | 89,908 | |
Prepaid expenses | | | 12,418 | | | | 9,580 | |
Other current assets | | | 11,746 | | | | 9,985 | |
Total current assets | | | 309,057 | | | | 316,244 | |
Property and equipment, net | | | 126,099 | | | | 108,366 | |
Right-of-use lease assets | | | 222,356 | | | | 228,749 | |
Deferred income taxes | | | 16,375 | | | | 15,814 | |
Other assets | | | 12,403 | | | | 11,199 | |
Total assets | | $ | 686,290 | | | $ | 680,372 | |
| | | | | | | | |
Liabilities and Stockholders’ Equity | | | | | | | | |
Current liabilities | | | | | | | | |
Accounts payable | | $ | 31,235 | | | $ | 31,429 | |
Customer deposits | | | 98,897 | | | | 86,183 | |
Accrued liabilities | | | 46,664 | | | | 52,963 | |
Current lease liabilities | | | 33,581 | | | | 33,466 | |
Total current liabilities | | | 210,377 | | | | 204,041 | |
Noncurrent lease liabilities | | | 196,771 | | | | 200,200 | |
Other liabilities | | | 23,172 | | | | 23,164 | |
Total liabilities | | | 430,320 | | | | 427,405 | |
Stockholders’ equity | | | | | | | | |
Capital Stock, par value $1 per share | | | | | | | | |
Preferred Stock, Authorized – 1,000 shares; Issued: NaNne | | | 0 | | | | 0 | |
Common Stock, Authorized – 50,000 shares; Issued: 2021 – 29,907; 2020 – 29,600 | | | 29,907 | | | | 29,600 | |
Convertible Class A Common Stock, Authorized – 15,000 shares; Issued: 2021 – 1,809; 2020 – 1,996 | | | 1,809 | | | | 1,996 | |
Additional paid-in capital | | | 102,572 | | | | 96,850 | |
Retained earnings | | | 342,983 | | | | 304,626 | |
Accumulated other comprehensive loss | | | (2,293 | ) | | | (2,560 | ) |
Treasury stock at cost – Common Stock (2021 – 14,069; 2020 – 12,862) and Convertible Class A Common Stock (2021 and 2020 – 522) | | | (219,008 | ) | | | (177,545 | ) |
Total stockholders’ equity | | | 255,970 | | | | 252,967 | |
Total liabilities and stockholders’ equity | | $ | 686,290 | | | $ | 680,372 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-2
HAVERTY FURNITURE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| | Year Ended December 31, | | | Year Ended December 31, | |
(In thousands, except per share data) | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
Net sales | | $ | 802,291 | | | $ | 817,733 | | | $ | 819,866 | | | $ | 1,012,799 | | | $ | 748,252 | | | $ | 802,291 | |
Cost of goods sold | | | 367,803 | | | | 371,191 | | | | 374,943 | | | | 438,174 | | | | 329,258 | | | | 367,803 | |
Gross profit | | 434,488 | | | 446,542 | | | 444,923 | | | | 574,625 | | | | 418,994 | | | | 434,488 | |
Credit service charges | | | 79 | | | | 103 | | | | 161 | | |
Gross profit and other revenue | | | 434,567 | | | | 446,645 | | | | 445,084 | | |
| | | | | | | | | | | | | | | | | | | | | |
Expenses: | | | | | | | | | | | | | | | | | | | | | |
Selling, general and administrative | | 407,456 | | | 404,856 | | | 402,884 | | | | 456,267 | | | | 377,288 | | | | 407,456 | |
Provision for doubtful accounts | | 90 | | | 68 | | | 224 | | |
Other income, net | | | (416 | ) | | | (110 | ) | | | (3,358 | ) | |
Other expense (income), net | | | | 54 | | | | (34,899 | ) | | | (405 | ) |
Total expenses | | | 407,130 | | | | 404,814 | | | | 399,750 | | | | 456,321 | | | | 342,389 | | | | 407,051 | |
| | | | | | | | | | | | | | | | | | | | | |
Income before interest and income taxes | | 27,437 | | | 41,831 | | | 45,334 | | | | 118,304 | | | | 76,605 | | | | 27,437 | |
Interest (income) expense, net | | | (1,287 | ) | | | 1,423 | | | | 2,111 | | |
Interest income, net | | | | 231 | | | | 126 | | | | 1,287 | |
Income before income taxes | | 28,724 | | | 40,408 | | | 43,223 | | | | 118,535 | | | | 76,731 | | | | 28,724 | |
Income tax expense | | | 6,859 | | | | 10,101 | | | | 22,148 | | | | 27,732 | | | | 17,583 | | | | 6,859 | |
Net income | | $ | 21,865 | | | $ | 30,307 | | | $ | 21,075 | | | $ | 90,803 | | | $ | 59,148 | | | $ | 21,865 | |
Other comprehensive (loss) income, net of tax: | | | | | | | | | | |
Defined benefit pension plan adjustments; net of tax expense (benefit) of $(238), $226 and $(105) | | $ | (622 | ) | | $ | 679 | | | $ | (314 | ) | |
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | |
Defined benefit pension plan adjustments; net of tax expense (benefit) of $89, $(159) and $(238) | | | $ | 267 | | | $ | (473 | ) | | $ | (622 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Comprehensive income | | $ | 21,243 | | | $ | 30,986 | | | $ | 20,761 | | | $ | 91,070 | | | $ | 58,675 | | | $ | 21,243 | |
| | | | | | | | | | | | | | | | | | | | | |
Basic earnings per share: | | | | | | | | | | | | | | | | | | | | | |
Common Stock | | $ | 1.10 | | | $ | 1.45 | | | $ | 1.00 | | | $ | 5.06 | | | $ | 3.18 | | | $ | 1.10 | |
Class A Common Stock | | $ | 1.04 | | | $ | 1.39 | | | $ | 0.95 | | | $ | 4.75 | | | $ | 3.04 | | | $ | 1.04 | |
| | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share: | | | | | | | | | | | | | | | | | | | | | |
Common Stock | | $ | 1.08 | | | $ | 1.42 | | | $ | 0.98 | | | $ | 4.90 | | | $ | 3.12 | | | $ | 1.08 | |
Class A Common Stock | | $ | 1.03 | | | $ | 1.39 | | | $ | 0.94 | | | $ | 4.69 | | | $ | 3.04 | | | $ | 1.03 | |
The accompanying notes are an integral part of these consolidated financial statements.
HAVERTY FURNITURE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| | Year Ended December 31, | | | Year Ended December 31, | |
(In thousands, except per share data) | | 2019 | | | 2018 | | | 2017 | | | 2021 | | | 2020 | | | 2019 | |
| | Shares | | | Dollars | | | Shares | | | Dollars | | | Shares | | | Dollars | | | Shares | | | Dollars | | | Shares | | | Dollars | | | Shares | | | Dollars | |
COMMON STOCK: | | | | | | | | | | | | | | | | | | | |
Common Stock: | | | | | | | | | | | | | | | | | | | |
Beginning balance | | 29,079 | | | $ | 29,079 | | | 28,950 | | | $ | 28,950 | | | 28,793 | | | $ | 28,793 | | | | 29,600 | | | $ | 29,600 | | | | 29,431 | | | $ | 29,431 | | | | 29,079 | | | $ | 29,079 | |
Conversion of Class A Common Stock | | 226 | | | 226 | | | 10 | | | 10 | | | 50 | | | 50 | | | | 187 | | | | 187 | | | | 58 | | | | 58 | | | | 226 | | | | 226 | |
Stock compensation transactions, net | | | 126 | | | | 126 | | | | 119 | | | | 119 | | | | 107 | | | | 107 | | | | 120 | | | | 120 | | | | 111 | | | | 111 | | | | 126 | | | | 126 | |
Ending balance | | | 29,431 | | | | 29,431 | | | | 29,079 | | | | 29,079 | | | | 28,950 | | | | 28,950 | | | | 29,907 | | | | 29,907 | | | | 29,600 | | | | 29,600 | | | | 29,431 | | | | 29,431 | |
CLASS A COMMON STOCK: | | | | | | | | | | | | | | | | | | | |
Class A Common Stock: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | 2,280 | | | 2,280 | | | 2,290 | | | 2,290 | | | 2,340 | | | 2,340 | | | | 1,996 | | | | 1,996 | | | | 2,054 | | | | 2,054 | | | | 2,280 | | | | 2,280 | |
Conversion to Common Stock | | | (226 | ) | | | (226 | ) | | | (10 | ) | | | (10 | ) | | | (50 | ) | | | (50 | ) | | | (187 | ) | | | (187 | ) | | | (58 | ) | | | (58 | ) | | | (226 | ) | | | (226 | ) |
Ending balance | | | 2,054 | | | | 2,054 | | | | 2,280 | | | | 2,280 | | | | 2,290 | | | | 2,290 | | | | 1,809 | | | | 1,809 | | | | 1,996 | | | | 1,996 | | | | 2,054 | | | | 2,054 | |
TREASURY STOCK: | | | | | | | | | | | | | | | | | | | |
Beginning balance (includes 522,410 shares Class A Stock for each of the years presented; remainder are Common Stock) | | (10,822 | ) | | (129,025 | ) | | (10,020 | ) | | (111,322 | ) | | (10,028 | ) | | (111,412 | ) | |
Treasury Stock: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance (includes 522 shares Class A Stock for each of the years presented; remainder are Common Stock) | | | | (13,384 | ) | | | (177,545 | ) | | | (12,372 | ) | | | (158,102 | ) | | | (10,822 | ) | | | (129,025 | ) |
Directors’ Compensation Plan | | 55 | | | 680 | | | 88 | | | 1,029 | | | 8 | | | 90 | | | | 25 | | | | 346 | | | | 21 | | | | 265 | | | | 55 | | | | 680 | |
Purchases | | | (1,605 | ) | | | (29,757 | ) | | | (890 | ) | | | (18,732 | ) | | | — | | | | — | | | | (1,232 | ) | | | (41,809 | ) | | | (1,033 | ) | | | (19,708 | ) | | | (1,605 | ) | | | (29,757 | ) |
Ending balance | | | 12,372 | | | | (158,102 | ) | | | (10,822 | ) | | | (129,025 | ) | | | (10,020 | ) | | | (111,322 | ) | | | (14,591 | ) | | | (219,008 | ) | | | (13,384 | ) | | | (177,545 | ) | | | (12,372 | ) | | | (158,102 | ) |
ADDITIONAL PAID-IN CAPITAL: | | | | | | | | | | | | | | | | | | | |
Additional Paid-In Capital: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | | | | 91,394 | | | | | | 88,978 | | | | | | 86,273 | | | | | | | | 96,850 | | | | | | | | 93,208 | | | | | | | | 91,394 | |
Stock option and restricted stock issuances | | | | | (1,568 | ) | | | | | (1,352 | ) | | | | | (1,662 | ) | | | | | | | (3,014 | ) | | | | | | | (1,063 | ) | | | | | | | (1,568 | ) |
Directors’ Compensation Plan | | | | | (53 | ) | | | | | (590 | ) | | | | | 549 | | | | | | | | 523 | | | | | | | | 330 | | | | | | | | (53 | ) |
Stock-based compensation | | | | | | 3,435 | | | | | | | 4,358 | | | | | | | 3,818 | | | | | | | | 8,213 | | | | | | | | 4,375 | | | | | | | | 3,435 | |
Ending balance | | | | | | 93,208 | | | | | | | 91,394 | | | | | | | 88,978 | | | | | | | | 102,572 | | | | | | | | 96,850 | | | | | | | | 93,208 | |
RETAINED EARNINGS: | | | | | | | | | | | | | | | | | | | |
Retained Earnings: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | | | | 282,366 | | | | | | 287,390 | | | | | | 277,707 | | | | | | | | 304,626 | | | | | | | | 295,999 | | | | | | | | 282,366 | |
Impact of adoption of new accounting pronouncement | | | | | 6,824 | | | | | | 133 | | | | | | — | | | | | | | | 0 | | | | | | | | 0 | | | | | | | | 6,824 | |
Net income | | | | | 21,865 | | | | | | 30,307 | | | | | | 21,075 | | | | | | | | 90,803 | | | | | | | | 59,148 | | | | | | | | 21,865 | |
Cash dividends (Common Stock: 2019 - $0.76; 2018 – $1.72; and 2017 – $ 0.54; per share Class A Common Stock: 2019 - $0.72; 2018 – $1.63 and 2017- $0.51 per share) | | | | | | (15,056 | ) | | | | | | (35,464 | ) | | | | | | (11,392 | ) | |
Cash dividends (Common Stock: 2021 – $2.97; 2020 - $2.77; and 2019 – $0.76; per share Class A Common Stock: 2021 - $2.79; 2020 - $2.62; and 2019 – $0.72; per share) | | | | | | | | (52,446 | ) | | | | | | | (50,521 | ) | | | | | | | (15,056 | ) |
Ending balance | | | | | | 295,999 | | | | | | | 282,366 | | | | | | | 287,390 | | | | | | | | 342,983 | | | | | | | | 304,626 | | | | | | | | 295,999 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): | | | | | | | | | | | | | | | | | | | |
Accumulated Other Comprehensive Loss: | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | | | | | (1,465 | ) | | | | | (2,144 | ) | | | | | (1,830 | ) | | | | | | | (2,560 | ) | | | | | | | (2,087 | ) | | | | | | | (1,465 | ) |
Pension liabilities adjustment, net of taxes | | | | | | (622 | ) | | | | | | 679 | | | | | | | (314 | ) | | | | | | | 267 | | | | | | | | (473 | ) | | | | | | | (622 | ) |
Ending balance | | | | | | (2,087 | ) | | | | | | (1,465 | ) | | | | | | (2,144 | ) | | | | | | | (2,293 | ) | | | | | | | (2,560 | ) | | | | | | | (2,087 | ) |
TOTAL STOCKHOLDERS’ EQUITY | | | | | $ | 260,503 | | | | | | $ | 274,629 | | | | | | $ | 294,142 | | |
Total Stockholders’ Equity | | | | | | | $ | 255,970 | | | | | | | $ | 252,967 | | | | | | | $ | 260,503 | |
The accompanying notes are an integral part of these consolidated financial statements
HAVERTY FURNITURE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | Year ended December 31, | |
(In thousands) | | 2019 | | | 2018 | | | 2017 | |
CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | |
Net income | | $ | 21,865 | | | $ | 30,307 | | | $ | 21,075 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 20,596 | | | | 29,806 | | | | 30,516 | |
Net loss on asset impairment | | | 2,415 | | | | — | | | | — | |
Stock-based compensation | | | 3,435 | | | | 4,358 | | | | 3,818 | |
Deferred income taxes | | | (2,691 | ) | | | (439 | ) | | | 5,559 | |
Provision for doubtful accounts | | | 90 | | | | 68 | | | | 224 | |
Gain on insurance recovery | | | — | | | | (307 | ) | | | (2,848 | ) |
Proceeds from insurance recovery received for business interruption and destroyed inventory | | | — | | | | 266 | | | | 2,867 | |
Other | | | 616 | | | | 863 | | | | 82 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
Accounts receivable | | | 247 | | | | 535 | | | | 1,820 | |
Inventories | | | 1,023 | | | | (2,403 | ) | | | (2,112 | ) |
Customer deposits | | | 5,656 | | | | (3,348 | ) | | | 2,890 | |
Other assets and liabilities | | | 1,586 | | | | 9,196 | | | | (932 | ) |
Accounts payable and accrued liabilities | | | 8,581 | | | | 1,490 | | | | (10,502 | ) |
Net Cash Provided by Operating Activities | | | 63,419 | | | | 70,392 | | | | 52,457 | |
CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | |
Capital expenditures | | | (16,841 | ) | | | (21,473 | ) | | | (24,465 | ) |
Proceeds from sale of property and equipment | | | 2,270 | | | | 2,446 | | | | 951 | |
Proceeds from insurance for destroyed property and equipment | | | — | | | | 55 | | | | 1,987 | |
Net Cash Used in Investing Activities | | | (14,571 | ) | | | (18,972 | ) | | | (21,527 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | | | | |
Proceeds from borrowings under revolving credit facilities | | | — | | | | — | | | | — | |
Payments of borrowings under revolving credit facilities | | | — | | | | — | | | | — | |
Net change in borrowings under revolving credit facilities | | | — | | | | — | | | | — | |
Construction allowance receipts | | | — | | | | — | | | | 1,590 | |
Payments on lease obligations | | | — | | | | (3,788 | ) | | | (3,482 | ) |
Dividends paid | | | (15,056 | ) | | | (35,464 | ) | | | (11,392 | ) |
Common stock repurchased | | | (29,757 | ) | | | (18,732 | ) | | | — | |
Taxes on vested restricted shares | | | (1,442 | ) | | | (1,233 | ) | | | (1,555 | ) |
Net Cash Used in Financing Activities | | | (46,255 | ) | | | (59,217 | ) | | | (14,839 | ) |
Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash Equivalents | | | 2,593 | | | | (7,797 | ) | | | 16,091 | |
Cash, Cash Equivalents and Restricted Cash Equivalents at Beginning of Year | | | 79,809 | | | | 87,606 | | | | 71,515 | |
Cash and Cash Equivalents and Restricted Cash Equivalents at End of Year | | $ | 82,402 | | | $ | 79,809 | | | $ | 87,606 | |
The accompanying notes are an integral part of these consolidated financial statementsstatements.
Notes to Consolidated Financial Statements
Note 1, Description of Business and Summary of Significant Accounting Policies:
Business:
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 121 showrooms in 16 states at December 31, 2019.2021. All of our stores are operated using the Havertys name and we do not franchise our stores. We also have an online presence through which our customers can make purchases. We offer financing through third-party finance companies as well as an internal revolving charge credit plan.
COVID-19:
In an effort to mitigate the spread of COVID‑19 and protect our team members, customers, and communities, in 2020 Havertys closed all of its stores on March 19 and halted deliveries on March 21, with the expectation at that time of reopening stores on April 2. Affected team members were paid during this period and most corporate personnel transitioned to working remotely. On April 1, we extended our store closure for another 30 days and furloughed 3,033 team members or approximately 87% of our workforce. During this period, we paid the cost of enrolled health benefits of those furloughed. Given the dramatic shock to the economy caused by the pandemic and uncertainty of the ongoing impact, we made a permanent reduction in our workforce of approximately 1,200 team members effective April 30 and extended the furlough of approximately 730 team members until June 1. We reopened 103 of our stores on May 1 and the remaining 17 were opened by June 20 and deliveries restarted on May 5.
The pandemic continues to disrupt several segments of the economy. Although our stores and other businesses are open, some business sectors are operating on a reduced scale. Our business has been very strong since reopening. Consumers not negatively impacted financially are spending on their homes. The COVID-19 pandemic is complex and continues to evolve with sporadic resurgences, new virus variants, and the vaccine rollout. At this point, we cannot reasonably estimate the duration of the pandemic’s influence on consumers and the “nesting” economy. Accordingly, the estimates and assumptions management made as of December 31, 2021 could change in subsequent interim reports, and it is reasonably possible that such changes could be significant (although the potential effects cannot be estimated at this time). The Company has evaluated subsequent events through the date the consolidated financial statements covered by this annual report were issued.
Basis of Presentation:
The consolidated financial statements include the accounts of Havertys and its wholly-owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates:
The preparation of financial statements in conformity with United States of America generally accepted accounting principles (“U.S. GAAP”) 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.
Recently Adopted Accounting Pronouncements
Leases. In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02 which amended various aspects of existing guidance for leases including FASB’s Accounting Standards Codification (ASC) Topic 840, Leases. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. The main difference between ASU 2016-02 and previous U.S. GAAP is the recognition of lease assets and lease liabilities by lessees on the balance sheet for those leases classified as operating leases under previous U.S. GAAP. As a result, we have recognized a liability representing our lease payments and a right-of-use asset representing our right to use the underlying asset for the lease term on the balance sheet. We adopted the requirements of the new lease standard effective January 1, 2019 using the modified retrospective method and have not restated comparative periods.
We elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. We did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use assets. Further, we elected a short-term lease exception policy, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less). For our real property leases, we did not elect the accounting policy to account for lease and non-lease components as a single component.
The cumulative effect of the significant changes made to our consolidated January 1, 2019 balance sheet for the adoption of the new standard were as follows:
(in thousands) | | Balance at December 31, 2018 | | | Adjustments for New Standard | | | Balance at January 1, 2019 | |
Property and income, net | | $ | 216,852 | | | $ | (53,519 | ) | | $ | 163,333 | |
Right-of-use lease assets | | | — | | | | 177,868 | | | | 177,868 | |
Deferred income taxes - asset | | | 12,544 | | | | (2,275 | ) | | | 10,269 | |
Lease liabilities | | | — | | | | 175,377 | | | | 175,377 | |
Lease obligations | | | 50,803 | | | | (50,803 | ) | | | — | |
Other liabilities | | | 30,539 | | | | (9,470 | ) | | | 21,069 | |
Retained earnings | | | 282,366 | | | | 6,824 | | | | 289,190 | |
Since we are not restating prior periods as part of adopting this guidance, our results in 2019 are not directly comparable to our results for periods before 2019. Specifically, for those leases that were previously recognized on our balance sheet prior to 2019, their associated depreciation and interest expense will be characterized as rent expense. The adoption of ASU 2016-02 had an immaterial impact on our consolidated statement of income and our consolidated statement of cash flows for the year ended December 31, 2019.
Cash and Cash Equivalents:
Cash and cash equivalents includesinclude all liquid investments with a maturity date of less than three months when purchased. Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions which typically settle within five days.
Restricted Cash Equivalents:
Our insurance carrier requires us to collateralize a portion of our workers’ compensation obligations. These funds are investments in money market funds held by an agent. The agreement with our carrier governing these funds is on an annual basis expiring on December 31.
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 buildings under lease are amortized over the shorter of the estimated useful life or the lease term of the related asset. Amortization of buildings under lease is included in depreciation expense. See Recently Adopted Accounting Pronouncements, Leases above.below.
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 |
Buildings under lease | 15 years |
Customer Deposits:
Customer deposits consist of cash collections on sales of undelivered merchandise, customer advance payments, and deposits on credit sales for undelivered merchandise.
Revenue Recognition:
On January 1, 2018, we adopted ASU 2014-09, Revenue - Revenue from Contracts with Customers (ASC Topic 606).
Fiscal 2018 and Subsequent Periods.We recognize revenue from merchandise sales and related service fees, net of expected returns and sales tax, at the time the merchandise is delivered to the customer. The liability for sales returns, including the impact on gross profit, is estimated based on historical return levels and recognized at the transaction price. We also recognize a return asset, and corresponding adjustment to cost of sales, for our right to recover the goods returned by the customer, measured at the former carrying amount of the goods, less any expected recovery cost. At each financial reporting date, we assess our estimates of expected returns, refund liabilities, and return assets. When we receive payment from customers before delivery of merchandise, the amount received is recorded as a customer deposit.
Net sales also includesinclude amounts generated by product protection plans. We act as an agent for these sales and the service is provided by a third-party. Revenue, net of related costs, is recognized at the time the covered merchandise is delivered to the customer. We do not sell gift cards or have a loyalty program.
We internally finance less than 1%2% of sales. We do not adjust the promised consideration for the effects of a significant financing component since receivables from internally financed sales are typically paid within one year of delivery.
F-7
We expense sales commissions within SG&A at the time revenue is recognized because the amortization period would be one year or less. We do not disclose the value of unsatisfied performance obligations because delivery is made within one year of the customer purchase.
Fiscal 2017. We recognize revenue from merchandise sales and related service fees, net of estimated returns and sales tax, at the time the merchandise is delivered to the customer. The liability for sales returns, including the impact to gross profit, is estimated based on historical return levels. Net sales also includes revenue generated by sales of product protection plans. We act as an agent for these sales and the service is provided by a third-party. Revenue is recognized at the time the covered merchandise is delivered to the customer. When we receive payment from customers before delivery of merchandise, the amount received is recorded as a customer deposit.
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 asand certain warehouse expenses.and transportation related expenses including accessorial and demurrage fees. The costs associated with our purchasing, warehousing, delivery and other distribution costs included in SG&A expense were approximately $94,239,000, $71,838,000 and $77,668,000 $80,383,000in 2021, 2020 and $77,368,000 in 2019, 2018 and 2017, respectively.
Leases:
Fiscal
On January 1, 2019 we adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), using the modified retrospective method and did not restate prior periods. The adoption of ASU 2016-02 had an immaterial impact on our consolidated statement of income and our consolidated statement of cash flows for the year ended December 31, 2019.
We determine if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-useRight‑of-use (ROU) assets represent our right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases greater than 12 months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. As most of our leases do not provide the information required to determine the implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Our incremental borrowing rate approximates the rate we would get if borrowing on a collateralized basis based on information available at commencement date. We use the implicit rate when readily determinable.
Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases that have a term of 12 months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or a liability.
Lease expense for operating leases is recognized on a straight-line basis over the lease term. We have lease agreements with lease and non-lease components, primarily related to real estate and we account for the lease and non-lease components as a single lease component. See Note 9, "Leases,"8, “Leases,” for additional information.
Fiscal 2018 and 2017. In the case of certain leased stores, we may be deemed the “owner” for accounting purposes during the construction period and are required to capitalize the total fair market value of the portion of the leased property we use, excluding land, on our consolidated balance sheet. Following construction completion, we perform an analysis under ASC 840, Leases, to determine if we can apply sale-leaseback accounting. We have determined that each of the leases remaining on our consolidated balance sheet did not qualify for such accounting treatment. In conjunction with these leases, we also record financing obligations equal to the landlord reimbursements and fair market value of the assets. We do not report rent expense for the properties which are owned for accounting purposes. Rather, rental payments under the lease are recognized as a reduction of the financing obligation and interest expense. Depreciation expense is also recognized on the leased asset.
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 accrued liabilities. The liability for deferred escalating minimum rent approximated $7,608,000 at December 31, 2018. Any operating lease incentives we receive are deferred and subsequently amortized on a straight-line basis over the life of the lease as a reduction of rent expense. The liability for lease incentives approximated $1,209,000 at December 31, 2018.
Advertising Expense:
Advertising costs, which include television, radio, newspaper, digital, and other media advertising, are expensed upon first showing. The total amount of prepaid advertising costs included in other current assets was approximately $181,000$88,000 and $746,000$327,000 at December 31, 20192021 and 2018,2020, respectively. We incurred approximately $49,724,000, $48,315,000$49,338,000, $39,862,000 and $47,921,000$49,724,000 in advertising expense during 2019, 20182021, 2020 and 2017,2019, respectively.
Interest (Income) Expense,Income, net:
We report interest income net of interest expense. Interest income is generated by our cash equivalents and restricted cash equivalents. Interest expense is comprised of amountscharges incurred related to our debt and lease obligations recorded on our balance sheet.credit facility. The total amount of interest expense was approximately $152,000, $2,451,000$391,000 and $2,512,000$152,000 during 2019, 20182021, 2020 and 2017,2019, respectively.
Other Income, net:
Other income, net includes any gains or losses on sales of property and equipment and miscellaneousother income or expense items outside of core operations. On May 18, 2020, Havertys completed a sale and leaseback transaction which generated a gain of $31,600,000 and is included in other income. See Note 8, “Leases,” for additional information. The sale of former retail locations and other operating assets generated losses of $425,000 in 2018 andadditional gains of $525,000$3,500,000 in 2017. During 2017 we also recorded $2,851,0002020 and minor gains in gains from insured losses related to store damage, including property losses from Hurricane Irma.2021 and 2019.
Self-Insurance:
We are self-insured, for amounts up to a deductible per occurrence, for losses related to general liability, workers’ compensation and vehicle claims. We are primarily self-insured for employee group health care claims. We have purchased insurance coverage in order to establish certain limits to our exposure on a per claim basis. We maintain an accrual for these costs based on claims filed and an estimate of claims incurred but not reported or paid, based on historical data and actuarial estimates. The current portion of these self-insurance reserves is included in accrued liabilities and the non-current portion is included in other liabilities. These reserves totaled $7,802,000$8,306,000 and $8,933,000$7,810,000 at December 31, 20192021 and 2018,2020, respectively.
Fair Values of Financial Instruments:
The fair values of our cash and cash equivalents, restricted 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 plans for certain executives and employees are valued using quoted market prices, a Level 1 valuation technique. The assets totaled approximately $7,540,000 and $5,995,000 at December 31, 2019 and 2018, 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. If an indicator of impairment is identified, we evaluate the long-lived assets at the individual property or store level, which is the lowest level at which individual cash flows can be identified. We evaluate right-of-use assets at the same level and exclude operating lease liabilities when evaluating for impairment. When evaluating 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 of the store’s assets, which is determined on the basis of fair value for similar assets or discounted future cash flows. 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. An impairment loss of $2,415,000 for a retail store was recorded during the fourth quarter ofin 2019 and no0 impairment losses were recorded in 2018 or 2017.2021 and 2020.
F-9
The economic disruption due to COVID-19 was determined to be a triggering event during the second quarter of 2020, and as a result, management assessed its long-term assets, including right-of-use assets for impairment. No impairment loss was required to be recorded.
Earnings Per Share:
We report our earnings per share using the two-class method. The income per share for each class of common stock is calculated assuming 100% of our earnings are distributed as dividends to each class of common stock based on their contractual rights. See Note 1513 for the computational components of basic and diluted earnings per share.
Accumulated Other Comprehensive Income (Loss):
Accumulated other comprehensive income (loss) (“AOCI”), net of income taxes, was comprised of unrecognized retirement liabilities totaling approximately $2,087,000$2,293,000 and $1,465,000$2,560,000 at December 31, 20192021 and 2018,2020, respectively. See Note 1311 for the amounts reclassified out of AOCI to SG&A expense related to our supplemental executive retirement plan.
Recently Issued Accounting Pronouncements:
Changes to U.S. GAAP are established by the FASBFinancial Accounting Standards Board (“FASB”) in the form of ASUs to the FASB’s Accounting Standards Codification. We considered the applicability and impact of all ASUs. We assessed and determined none were either applicable or are expected to have minimal impact on our consolidated financial position or results of operations.
Note 2, Revenues and Segment ReportingReporting:
The following table presents our revenues disaggregated by each major product category and service for each of the last three years (dollars in thousands, amounts and percentages may not always add due to rounding):
| | Year Ended December 31, | |
| | 2019 | | | 2018 | | | 2017 | |
| | Net Sales | | | % of Net Sales | | | Net Sales | | | % of Net Sales | | | Net Sales | | | % of Net Sales | |
Merchandise: | | | | | | | | | | | | | | | | | | |
Case Goods | | | | | | | | | | | | | | | | | | |
Bedroom Furniture | | $ | 127,500 | | | | 15.9 | % | | $ | 131,673 | | | | 16.1 | % | | $ | 132,484 | | | | 16.2 | % |
Dining Room Furniture | | | 88,877 | | | | 11.1 | | | | 92,865 | | | | 11.4 | | | | 92,921 | | | | 11.3 | |
Occasional | | | 65,565 | | | | 8.2 | | | | 72,193 | | | | 8.8 | | | | 75,909 | | | | 9.2 | |
| | | 281,942 | | | | 35.1 | | | | 296,731 | | | | 36.3 | | | | 301,314 | | | | 36.7 | |
Upholstery | | | 321,024 | | | | 40.0 | | | | 326,114 | | | | 39.9 | | | | 330,340 | | | | 40.3 | |
Mattresses | | | 90,583 | | | | 11.3 | | | | 85,055 | | | | 10.4 | | | | 88,311 | | | | 10.8 | |
Accessories and Other (1) | | | 108,742 | | | | 13.6 | | | | 109,833 | | | | 13.4 | | | | 99,901 | | | | 12.2 | |
| | $ | 802,291 | | | | 100.0 | % | | $ | 817,733 | | | | 100.0 | % | | $ | 819,866 | | | | 100.0 | % |
| | Year Ended December 31, | |
| | 2021 | | | 2020 | | | 2019 | |
| | Net Sales | | | % of Net Sales | | | Net Sales | | | % of Net Sales | | | Net Sales | | | % of Net Sales | |
Merchandise: | | | | | | | | | | | | | | | | | | |
Case Goods | | | | | | | | | | | | | | | | | | |
Bedroom Furniture | | $ | 156,033 | | | | 15.4 | % | | $ | 116,753 | | | | 15.6 | % | | $ | 127,500 | | | | 15.9 | % |
Dining Room Furniture | | | 109,522 | | | | 10.8 | | | | 79,766 | | | | 10.7 | | | | 88,877 | | | | 11.1 | |
Occasional | | | 86,849 | | | | 8.6 | | | | 65,764 | | | | 8.8 | | | | 65,565 | | | | 8.2 | |
| | | 352,404 | | | | 34.8 | | | | 262,283 | | | | 35.1 | | | | 281,942 | | | | 35.1 | |
Upholstery | | | 433,525 | | | | 42.8 | | | | 315,714 | | | | 42.2 | | | | 321,024 | | | | 40.0 | |
Mattresses | | | 90,224 | | | | 8.9 | | | | 72,855 | | | | 9.7 | | | | 90,583 | | | | 11.3 | |
Accessories and Other (1) | | | 136,646 | | | | 13.5 | | | | 97,400 | | | | 13.0 | | | | 108,742 | | | | 13.6 | |
| | $ | 1,012,799 | | | | 100.0 | % | | $ | 748,252 | | | | 100.0 | % | | $ | 802,291 | | | | 100.0 | % |
(1) | Includes delivery charges and product protection. |
(1) Includes delivery charges and product protection.
Estimated refunds for returns and allowances are recorded based on estimated margin using our historical return patterns. We record estimated refunds for sales returns on a gross basis and the carrying value of the return asset is presented separately from inventory. Estimated return inventory of $765,000$822,000 and $730,000$853,000 at December 31, 20192021 and 2018,2020, respectively, is included in the line item “Other current assets” and the estimated refund liability of $2,023,000$2,447,000 and $1,950,000$2,378,000 at December 31, 20192021 and 2018,2020, respectively, is included in the line item “Accrued liabilities” on the Consolidated Balance Sheets.
We record customer deposits when payments are received in advance of the delivery of merchandise, which totaled $30,121,000$98,897,000 and $24,465,000$86,183,000 at December 31, 20192021 and December 31, 2018,2020, respectively. Of the customer deposit liabilities at December 31, 2018,2020, approximately $24,389,000$179,000 has not been recognized through net sales in the twelve months ended December 31, 2019.2021.
F-10
We typically offer our customers an opportunity for us to deliver their purchases and most choose this service. Delivery fees of approximately $34,580,000, $34,405,000$50,002,000, $30,824,000 and $25,728,000$34,580,000 were charged to customers in 2019, 20182021, 2020 and 2017,2019, respectively, and are included in net sales. The costs associated with deliveries are included in selling, general and administrative expenses and were approximately $45,914,000, $35,885,000, and $39,796,000 $40,236,000in 2021, 2020 and $39,582,000 in 2019, 2018 and 2017, 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.
We operate within a single reportable segment. We use a market area approach for both financial and operational decision making. Each of these market areas are considered individual operating segments. The individual operating segments all have similar economic characteristics. The retail stores within the market areas are similar in size and carry substantially identical products selected for the same target customer. We also use the same distribution methods chain-wide.
Note 3, Accounts Receivable:Inventories:
Amounts financed under our in-house credit programs, as a percent of net sales including sales tax, were approximately 0.4% in 2019, 0.5% in 2018 and 0.6% in 2017. The credit program selected most often by our customers is “12 months no interest with equal monthly payments.” The terms of the other programs vary as to payment terms (30 days to three years) and interest rates (0% to 21%). The receivables are collateralized by the merchandise sold.
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: $1,641,000 in 2020, $184,000 in 2021, $37,000 in 2022 and $20,000 in 2023 for receivables outstanding at December 31, 2019.
Accounts receivable are shown net of the allowance for doubtful accounts of approximately $160,000 and $175,000 at December 31, 2019 and 2018, respectively. We provide an allowance utilizing a methodology which considers the balances in problem and delinquent categories of accounts, historical write-offs, existing economic conditions and management judgment. We assess the adequacy of the allowance account at the end of each quarter. Interest assessments are continued on past-due accounts but no “interest on interest” is recorded. 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 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 16 states.
Note 4, Inventories:
Inventories are measured using the last-in, first-out (LIFO) method of 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 $21,758,000$34,704,000 and $19,947,000$22,394,000 at December 31, 20192021 and 2018,2020, respectively. The use of the LIFO valuation method as compared to the FIFO method had a negative impact on our cost of goods sold of approximately $12,310,000 in 2021, $636,000 in 2020 and $1,811,000 in 2019, $770,000 in 2018,2019. During 2020 and $1,231,000 in 2017. During 2019, and 2018, there were liquidations of LIFO inventory layers. The effect of the liquidations (included in the preceding LIFO impact amounts) decreased cost of goods sold. The effect of the liquidations during 2020 decreased cost of goods sold by approximately $562,000 or $0.03 per diluted share of common stock and was immaterial amounts. in 2019. We believe this information is meaningful to the users of these consolidated financial statements for analyzing the effects of price changes, for better understanding our financial position and for comparing such effects with other companies.
Note 5,4, Property and Equipment:
Property and equipment are summarized as follows:
(In thousands) | | 2019 | | | 2018 | |
Land and improvements | | $ | 44,044 | | | $ | 44,541 | |
Buildings and improvements | | | 243,386 | | | | 273,633 | |
Furniture and fixtures | | | 83,801 | | | | 86,235 | |
Equipment | | | 52,687 | | | | 51,833 | |
Buildings under lease | | | — | | | | 56,902 | |
Construction in progress | | | 497 | | | | 404 | |
| | | 424,415 | | | | 513,548 | |
Less accumulated depreciation | | | (267,881 | ) | | | (274,078 | ) |
Less accumulated lease amortization | | | — | | | | (22,618 | ) |
Property and equipment, net | | $ | 156,534 | | | $ | 216,852 | |
See
(In thousands) | | 2021 | | | 2020 | |
Land and improvements | | $ | 35,015 | | | $ | 32,903 | |
Buildings and improvements | | | 206,183 | | | | 191,272 | |
Furniture and fixtures | | | 90,070 | | | | 83,532 | |
Equipment | | | 56,895 | | | | 49,734 | |
Construction in progress | | | 3,125 | | | | 1,993 | |
| | | 391,288 | | | | 359,434 | |
Less accumulated depreciation | | | (265,189 | ) | | | (251,068 | ) |
Property and equipment, net | | $ | 126,099 | | | $ | 108,366 | |
Note 1, Recently Adopted Accounting Principles, Leases.
Note 6,5, Credit Arrangement:
In September 2019
On May 15, 2020 we entered into the SecondThird Amendment to our Amended and Restated Credit Agreement (as amended, the “Credit Agreement”) with a bank. The Credit Agreement amends our credit facilitybank to extend the maturity date to September 27, 2024 from March 31, 2021 and changepermit certain collateral reporting requirements. We have not had anysale-leaseback transactions as more fully described in Note 8. Our first borrowings under the facility, since its origination in 2008.2008, was in March 2020 and the $43.8 million borrowed was repaid June 2020.
The Credit Agreement is a $60.0 million revolving credit facility secured by our inventory, accounts receivable, cash, and certain other personal property.property, and matures on September 27, 2024. Availability fluctuates based on a borrowing base calculation reduced by outstanding letters of credit. Amounts available to borrow are based on the lesser of the borrowing base or the $60.0 million-line amount. The credit facility contains covenants that, among other things, limit our ability to incur certain types of debt or liens, enter into mergers and consolidations or use proceeds of borrowing for other than permitted uses. The covenants also limit our ability to pay dividends if unused availability is less than $12.5 million.
We borrowed $43.8 million under the Credit Agreement in March 2020 and repaid the borrowings in June 2020. The interest rates on the outstanding balance were based on the three-month Euro dollar LIBOR rate plus 1.25% and on a weighted average basis was approximately 2.37%. Total interest paid under the Credit Agreement was $0.4 million for the year ended December 31, 2020.
The borrowing base was $54.3$29.2 million at December 31, 20192021 and there were no0 outstanding letters of credit, accordingly, the net availability was $54.3$29.2 million.
Note 7,6, Accrued Liabilities and Other Liabilities:
Accrued liabilities and other liabilities consist of the following:
(In thousands) | | 2019 | | | 2018 | |
Accrued liabilities: | | | | | | |
Employee compensation, related taxes and benefits | | $ | 12,405 | | | $ | 12,628 | |
Taxes other than income and withholding | | | 8,483 | | | | 8,700 | |
Self-insurance reserves | | | 5,346 | | | | 6,143 | |
Other | | | 13,420 | | | | 12,432 | |
| | $ | 39,654 | | | $ | 39,903 | |
Other liabilities: | | | | | | | | |
Straight-line lease liability | | $ | — | | | $ | 7,608 | |
Self-insurance reserves | | | 2,456 | | | | 2,790 | |
Other | | | 20,503 | | | | 20,141 | |
| | $ | 22,959 | | | $ | 30,539 | |
(In thousands) | | 2021 | | | 2020 | |
Accrued liabilities: | | | | | | |
Employee compensation, related taxes and benefits | | $ | 21,651 | | | $ | 22,070 | |
Taxes other than income and withholding | | | 7,319 | | | | 8,386 | |
Self-insurance reserves | | | 5,268 | | | | 5,296 | |
Other | | | 12,426 | | | | 17,211 | |
| | $ | 46,664 | | | $ | 52,963 | |
Other liabilities: | | | | | | | | |
Self-insurance reserves | | | 3,038 | | | | 2,514 | |
Other | | | 20,134 | | | | 20,650 | |
| | $ | 23,172 | | | $ | 23,164 | |
Note 8,7, Income Taxes:
On December 22, 2017,
The provision for income taxes for the President signed into Public Law No. 115-97, commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act contains significant changes to corporate taxes, including a permanent reduction of the corporate tax rate from 35% to 21% effective January 1, 2018. The Tax Act’s other major changes applicable to Havertys include the elimination of certain deductions and an enhanced and extended option to claim accelerated depreciation deductions on qualified property.
We remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 25%. Atyears ended December 31 2017, we recorded an additional expense of $5,868,000 for the effects on our existing deferred tax balances related to the remeasurement of our deferred tax balance.
Income tax expense (benefit) consistsconsist of the following:
(In thousands) | | 2019 | | | 2018 | | | 2017 | |
Current | | | | | | | | | |
Federal | | $ | 7,701 | | | $ | 8,422 | | | $ | 14,239 | |
State | | | 1,849 | | | | 2,118 | | | | 2,350 | |
| | | 9,550 | | | | 10,540 | | | | 16,589 | |
Deferred | | | | | | | | | | | | |
Federal | | | (2,217 | ) | | | (232 | ) | | | 5,829 | |
State | | | (474 | ) | | | (207 | ) | | | (270 | ) |
| | | (2,691 | ) | | | (439 | ) | | | 5,559 | |
| | $ | 6,859 | | | $ | 10,101 | | | $ | 22,148 | |
(In thousands) | | 2021 | | | 2020 | | | 2019 | |
Current | | | | | | | | | |
Federal | | $ | 22,832 | | | $ | 16,831 | | | $ | 7,701 | |
State | | | 4,666 | | | | 3,210 | | | | 1,849 | |
| | | 27,498 | | | | 20,041 | | | | 9,550 | |
Deferred | | | | | | | | | | | | |
Federal | | | 589 | | | | (1,217 | ) | | | (2,217 | ) |
State | | | (355 | ) | | | (1,241 | ) | | | (474 | ) |
| | | 234 | | | | (2,458 | ) | | | (2,691 | ) |
Total income tax expense | | $ | 27,732 | | | $ | 17,583 | | | $ | 6,859 | |
Cares Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary suspension of certain payment requirements for the employer-paid portion of social security taxes, the creation of certain refundable employee retention credits, and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. We elected to defer the employer-paid portion of social security taxes beginning with pay dates on and after April 1, 2020 and through December 31, 2020 and have deferred $1,607,000 which is included in accrued liabilities. During 2020, we recorded $2,301,000 for refundable employee retention credits reducing selling, general and administrative expenses. We also benefited from the technical correction for qualified leasehold improvements eligible for 100% tax bonus depreciation which reduced our 2019 income tax liability by approximately $2,053,000 and we adjusted our deferred income taxes and income taxes receivable accordingly.
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) | | 2019 | | | 2018 | | | 2017 | |
Statutory rates applied to income before income taxes | | $ | 6,032 | | | $ | 8,486 | | | $ | 15,129 | |
State income taxes, net of Federal tax benefit | | | 1,149 | | | | 1,616 | | | | 1,306 | |
Net permanent differences | | | 228 | | | | 220 | | | | 95 | |
Other | | | (132 | ) | | | (221 | ) | | | (250 | ) |
Leases | | | (418 | ) | | | — | | | | — | |
Tax Act, net impact | | | — | | | | — | | | | 5,868 | |
| | | | | | | | | | | | |
| | $ | 6,859 | | | $ | 10,101 | | | $ | 22,148 | |
(In thousands) | | 2021 | | | 2020 | | | 2019 | |
Statutory rates applied to income before income taxes | | $ | 24,949 | | | $ | 16,164 | | | $ | 6,032 | |
State income taxes, net of Federal tax benefit | | | 3,836 | | | | 2,057 | | | | 1,149 | |
Net permanent differences | | | (498 | ) | | | 520 | | | | 228 | |
Other | | | 78 | | | | 48 | | | | (128 | ) |
Leases | | | 0 | | | | 0 | | | | (418 | ) |
Federal tax credits | | | (152 | ) | | | 0 | | | | 0 | |
State tax credits | | | (481 | ) | | | (1,206 | ) | | | (4 | ) |
| | $ | 27,732 | | | $ | 17,583 | | | $ | 6,859 | |
Our effective tax rate differs from the federal statutory rate primarily due to state income taxes. In 2020 we completed the computations and recorded in the fourth quarter, state quality jobs credits of $1,527,000 generated in 2018, 2019, and 2020.
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) | | 2019 | | | 2018 | |
Deferred tax assets: | | | | | | |
Accounts receivable | | $ | 545 | | | $ | 530 | |
Property and equipment | | | 10,517 | | | | 7,584 | |
Lease Liabilities | | | 44,751 | | | | — | |
Leases | | | — | | | | 4,135 | |
Accrued liabilities | | | 9,386 | | | | 8,172 | |
Retirement benefits | | | 504 | | | | 266 | |
Other | | | 50 | | | | 56 | |
Total deferred tax assets | | | 65,753 | | | | 20,743 | |
| | | | | | | | |
Deferred tax liabilities: | | | | | | | | |
Inventory related | | | 7,912 | | | | 7,649 | |
Right-of-use lease assets | | | 44,152 | | | | — | |
Other | | | 491 | | | | 550 | |
Total deferred tax liabilities | | | 52,555 | | | | 8,199 | |
Net deferred tax assets | | $ | 13,198 | | | $ | 12,544 | |
(In thousands) | | 2021 | | | 2020 | |
Deferred tax assets: | | | | | | |
Property and equipment | | $ | 6,944 | | | $ | 8,868 | |
Lease liabilities | | | 57,588 | | | | 58,417 | |
Accrued liabilities | | | 11,306 | | | | 9,885 | |
Retirement benefits | | | 573 | | | | 662 | |
State tax credits | | | 2,087 | | | | 943 | |
Other | | | 676 | | | | 660 | |
Total deferred tax assets | | | 79,174 | | | | 79,435 | |
| | | | | | | | |
Deferred tax liabilities: | | |
| | | | | |
Inventory related | | | 6,389 | | | | 7,135 | |
Right-of-use lease assets | | | 55,816 | | | | 56,032 | |
Other | | | 594 | | | | 454 | |
Total deferred tax liabilities | | | 62,799 | | | | 63,621 | |
Net deferred tax assets | | $ | 16,375 | | | $ | 15,814 | |
We review our deferred tax assets to determine the need for a valuation allowance. Based on evidence, we concludeconcluded that it is more-likely-than-not that our deferred tax assets will be realized and therefore a valuation allowance is not required.
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 2015.2018.
Uncertain Tax Positions
Interest and penalties associated with uncertain tax positions, if any, are recognized as components of income tax expense. No amounts for uncertain tax positions were recorded for the years currently open under statute of limitations.
Note 9 – Leases8, Leases:
We have operating leases for retail stores, offices, warehouses, and certain equipment. Our leases have remaining lease terms of between 1 year and 14 years, some of which include options to extend the leases for up to 20 years.years. We determine if an arrangement is or contains a lease at lease inception. Our leases do not have any residual value guarantees or any restrictions or covenants imposed by lessors. We have lease agreements for real estate with lease and non-lease components, which are accounted for separately.
In April 2020, the Financial Accounting Standards Board issued guidance allowing entities to make a policy election to account for lease concessions related to the COVID-19 pandemic as though enforceable rights and obligations for those concessions existed. The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. During the year ended December 31, 2020, we received concessions from certain landlords in the form of rent deferrals of approximately $4.5 million and abatements of approximately $1.8 million. We have elected to account for these rent concessions as though enforceable rights and obligations for those concessions existed in the original lease agreements and have recorded a non-interest bearing payable for the deferred rent payments.
On May 18, 2020, we completed a sale and leaseback transaction of 3 facilities which we initiated in April 2020 as part of our business continuity plan. The Coppell, TX location has approximately 394,000 distribution square feet used to serve our western stores, 44,000 retail square feet, and 20,000 square feet of office space used for a call center and general management purposes. The Lakeland, FL property is a distribution center with approximately 335,000 square feet and the Colonial Heights property is a distribution facility with 129,000 square feet. The facilities were leased back to Havertys via 15-year operating lease agreements with renewal options. The total sales price for these properties, excluding costs and taxes, was $70.0 million and their net book value was approximately $37.9 million. The gain of approximately $31.6 million was recognized in the second quarter of 2020 and is included in other income.
In August 2021, we repurchased the Colonial Heights property, that was part of the sale-leaseback transaction in 2020 for $8.5 million.
As of December 31, 2019,2021, we have entered into two2 leases for additional retail locations which have not yet commenced. Neither of these locationscommenced and are under construction.
The table below presents the operating lease assets and liabilities recognized on the consolidated balance sheetsheets as of December 31, 2019 (in thousands):31:
| | December 31, 2019 | | |
(in thousands) | | | 2021 | | | 2020 | |
Operating Lease Assets: | | | | | | | | | |
Right-of use lease assets | | $ | 175,474 | | | $ | 222,356 | | | $ | 228,749 | |
Operating Lease Liabilities: | | | | | | | | | | | |
Current lease liabilities | | $ | 29,411 | | | $ | 33,581 | | | $ | 33,466 | |
Non-current lease liabilities | | | 149,594 | | | | 196,771 | | | | 200,200 | |
Total operating lease liabilities | | | 179,005 | | | $ | 230,352 | | | $ | 233,666 | |
Our leases generally do not provide an implicit rate, and therefore we use our incremental borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of the lease. We used incremental borrowing rates as of January 1, 2019 for operating leases that commenced prior to that date.
The weighted averageweighted-average remaining lease term and weighted averageweighted-average discount rate for operating leases as of December 31 2019 are:
| | December 31, 2019 | |
Weighted Average Remaining Lease Term | | | |
Operating leases | | 7.2 years | |
Weighted Average Discount Rate | | | |
Operating leases | | | 6.61 | % |
| | 2021 | | | 2020 | |
Weighted-average remaining lease term | | 8.1 years | | | 8.8 years | |
Weighted-average discount rate | | | 5.62 | % | | | 6.07 | % |
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable operating leases with terms of more than one year to the total lease liabilities recognized on the consolidated balance sheet as of December 31, 2019 (in thousands):2021:
| | Operating Leases | |
2020 | | $ | 40,228 | |
2021 | | | 38,479 | |
2022 | | | 33,083 | |
2023 | | | 26,532 | |
2024 | | | 20,349 | |
Thereafter | | | 78,024 | |
Total undiscounted future minimum lease payments | | | 236,695 | |
Less: difference between undiscounted lease payments and discounted operating lease liabilities | | | (57,690 | ) |
Total operating lease liabilities | | $ | 179,005 | |
(in thousands) | | Operating Leases | |
2022 | | $ | 45,277 | |
2023 | | | 41,509 | |
2024 | | | 37,483 | |
2025 | | | 32,059 | |
2026 | | | 27,563 | |
Thereafter | | | 106,805 | |
Total undiscounted future minimum lease payments | | | 290,696 | |
Less: difference between undiscounted lease payments and discounted operating lease liabilities | | | (60,344 | ) |
Total operating lease liabilities | | $ | 230,352 | |
Certain of our lease agreements for retail stores include variable lease payments, generally based on sales volume. The variable portion of payments are not included in the initial measurement of the right‑of-use asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. Certain of our equipment lease agreements include variable lease costs, generally based on usage of the underlying asset (mileage, fuel, etc.). The variable portion of payments are not included in the initial measurement of the right-of-use asset or lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred.
Components of lease expense for the year ended December 31which are included in selling, general, and administrative expenses within our consolidated statements of comprehensive income were as follows:
(in thousands) | | 2019 | |
Operating lease cost | | $ | 41,681 | |
Short-term lease cost | | | 90 | |
Variable lease cost | | | 5,653 | |
Total lease expense | | $ | 47,424 | |
| | Year Ended December 31, | |
(in thousands) | | 2021 | | | 2020 | | | 2019 | |
Operating lease cost | | $ | 46,774 | | | $ | 44,854 | | | $ | 41,681 | |
Short-term lease cost | | | 0 | | | | 0 | | | | 90 | |
Variable lease cost | | | 6,680 | | | | 5,827 | | | | 5,653 | |
Total lease expense | | $ | 53,454 | | | $ | 50,681 | | | $ | 47,424 | |
Supplemental cash flow information related to leases for the year ended December 31 is as follows:
(In thousands) | | 2019 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | |
Operating cash flows from operating leases | | $ | 40,403 | |
Right-of-use assets obtained in exchange for lease obligations: | | | | |
Operating leases | | $ | 31,888 | |
| | Year Ended December 31, | |
(In thousands) | | 2021 | | | 2020 | |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | |
Operating cash flows from operating leases | | $ | 47,607 | | | $ | 39,341 | |
Right-of-use assets obtained in exchange for lease obligations: | | | | | | | | |
Operating leases | | $ | 25,025 | | | $ | 89,082 | |
Future minimum lease payments for operating leases accounted for under ASC 840 “Leases,” with remaining non-cancelable terms in excess of one year were as follows at December 31, 2018:
(In thousands) | | Operating Leases | |
2019 | | $ | 29,912 | |
2020 | | | 28,123 | |
2021 | | | 25,923 | |
2022 | | | 20,484 | |
2023 | | | 14,740 | |
Subsequent to 2024 | | | 48,941 | |
Total minimum lease payments | | $ | 168,123 | |
For leases accounted for under ASC 840, step rent and other lease concessions (free rent periods) are taken into account in computing lease expense on a straight-line basis. Landlord allowances 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:
(In thousands) | | 2018 | | | 2017 | |
Property | | | | | | |
Minimum | | $ | 27,124 | | | $ | 27,543 | |
Additional rentals based on sales | | | 22 | | | | 21 | |
Sublease income | | | (130 | ) | | | (90 | ) |
| | | 27,016 | | | | 27,474 | |
Equipment | | | 3,029 | | | | 3,084 | |
| | $ | 30,045 | | | $ | 30,558 | |
Note 10, Long-Term Debt and Lease Obligations:
Long-term debt and lease obligations are summarized as follows:
(In thousands) | | 2019 | | | 2018 | |
Revolving credit notes (a) | | $ | — | | | $ | — | |
Lease obligations (b) | | | — | | | | 50,803 | |
| | | — | | | | 50,803 | |
Less portion classified as current | | | — | | | | (4,018 | ) |
| | $ | — | | | $ | 46,785 | |
(a) We have a revolving credit agreement as described in Note 6.
(b) These obligations are related to properties under lease with aggregate net book values of approximately $34,284,000 at December 31, 2018.
Note 11,9, 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 ten10 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.
A special cash dividend of $2.00 and $1.00 for Common Stock and $1.90 and $0.95 for Class A Common Stock was paid in the fourth quarter of 2018.2021 and 2020. Total dividends paid on Common Stock were $48,837,000, $46,564,000 and $13,913,000 $32,595,000in 2021, 2020 and $10,473,000 in 2019, 2018 and 2017, respectively. Total dividends paid on Class A Common Stock were $3,609,000, $3,957,000 and $1,143,000 $2,869,000in 2021, 2020 and $919,000 in 2019, 2018 and 2017, respectively.
Note 12,10, Benefit Plans:
We 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 was frozen as of December 31, 2015 and no additional benefits were earned or have been accrued after that date. The SERP provides annual benefits amounting to 55% of final average earnings less benefits payable from Social Security benefits and our former pension plan which was settled in 2014. The SERP limits the total amount of annual retirement benefits that may be paid to a participant from all sources (former pension plan, Social Security and the SERP) to $125,000. The SERP is not funded so we pay benefits directly to participants. The SERP was frozen as of December 31, 2015 and no additional benefits have been accrued after that date.
The following table summarizes information about our SERP.
(In thousands) | | 2019 | | | 2018 | |
Change in benefit obligation: | | | | | | |
Benefit obligation at beginning of the year | | $ | 7,394 | | | $ | 8,199 | |
Interest cost | | | 315 | | | | 290 | |
Actuarial losses (gains) | | | 906 | | | | (769 | ) |
Benefits paid | | | (316 | ) | | | (326 | ) |
Benefit obligation at end of year | | | 8,299 | | | | 7,394 | |
Change in plan assets: | | | | | | | | |
Employer contribution | | | 316 | | | | 326 | |
Benefits paid | | | (316 | ) | | | (326 | ) |
Fair value of plan assets at end of year | | | — | | | | — | |
Funded status of the plan – (underfunded) | | $ | (8,299 | ) | | $ | (7,394 | ) |
Accumulated benefit obligations | | $ | 8,299 | | | $ | 7,394 | |
F-17
(In thousands) | | 2021 | | | 2020 | |
Change in benefit obligation: | | | | | | |
Benefit obligation at beginning of the year | | $ | 9,001 | | | $ | 8,299 | |
Interest cost | | | 213 | | | | 266 | |
Actuarial (gains) losses | | | (99 | ) | | | 791 | |
Benefits paid | | | (359 | ) | | | (355 | ) |
Benefit obligation at end of year | | | 8,756 | | | | 9,001 | |
Change in plan assets: | | | | | | | | |
Employer contribution | | | 359 | | | | 355 | |
Benefits paid | | | (359 | ) | | | (355 | ) |
Fair value of plan assets at end of year | | | 0 | | | | 0 | |
Funded status of the plan – (underfunded) | | $ | (8,756 | ) | | $ | (9,001 | ) |
Accumulated benefit obligations | | $ | 8,756 | | | $ | 9,001 | |
Amounts recognized in the consolidated balance sheets consist of:
(In thousands) | | 2019 | | | 2018 | |
Current liabilities | | $ | (406 | ) | | $ | (366 | ) |
Noncurrent liabilities | | | (7,893 | ) | | | (7,028 | ) |
| | $ | (8,299 | ) | | $ | (7,394 | ) |
(In thousands) | | 2021 | | | 2020 | |
Current liabilities | | $ | (458 | ) | | $ | (438 | ) |
Noncurrent liabilities | | | (8,298 | ) | | | (8,563 | ) |
| | $ | (8,756 | ) | | $ | (9,001 | ) |
The net actuarial loss recognized in accumulated other comprehensive income (loss) before the effect of income taxes was $1,923,000$2,198,000 in 20192021 and $1,063,000$2,554,000 in 2018.2020.
Net pension cost included the following components:
| SERP | |
(In thousands) | 2019 | | 2018 | | 2017 | |
Interest cost on projected benefit obligation | | $ | 315 | | | $ | 290 | | | $ | 321 | |
Amortization of actuarial loss | | | 46 | | | | 136 | | | | 90 | |
Net pension costs | | $ | 361 | | | $ | 426 | | | $ | 411 | |
(In thousands) | | 2021 | | | 2020 | | | 2019 | |
Interest cost on projected benefit obligation | | $ | 213 | | | $ | 266 | | | $ | 315 | |
Amortization of actuarial loss | | | 257 | | | | 159 | | | | 46 | |
Net pension costs | | $ | 470 | | | $ | 425 | | | $ | 361 | |
The estimated amount that will be amortized from accumulated other comprehensive loss into net periodic cost in 2022 is approximately $217,000.
Assumptions
We use a measurement date of December 31 for our SERP plan. Assumptions used to determine net periodic benefit cost for years ended December 31 are as follows:
| SERP | |
| 2019 | | 2018 | | 2017 | |
Discount rate | | | 4.36 | % | | | 3.68 | % | | | 4.30 | % |
Rate of compensation increase | | | n/a | | | | n/a | | | | n/a | |
| | | 2021 | | | | 2020 | | | | 2019 | |
Discount rate | | | 2.41 | % | | | 3.29 | % | | | 4.36 | % |
Rate of compensation increase | | n/a | | | | n/a | | | | n/a | |
Assumptions used to determinedetermine benefit obligations at December 31 for the SERP are as follows:
| | 2019 | | | 2018 | |
Discount rate | | | 3.29 | % | | | 4.36 | % |
Rate of compensation increase | | | n/a | | | | n/a | |
| | 2021 | | | 2020 | |
Discount rate | | | 2.80 | % | | | 2.41 | % |
Rate of compensation increase | | | n/a | | | | n/a | |
Cash Flows
The following schedule outlines the expected benefit payments related to the SERP in future years. These expected benefits were estimated based on the same actuarial assumptions used to determine benefit obligations at December 31, 2019.2021.
(In thousands) | | 2020 | | | 2021 | | | 2022 | | | 2023 | | | 2024 | | | | 2025-2029 | |
Benefit Payments | | $ | 406 | | | $ | 435 | | | $ | 434 | | | $ | 427 | | | $ | 434 | | | $ | 2,668 | |
(In thousands) | | 2022 | | | 2023 | | | 2024 | | | 2025 | | | 2026 | | | 2027-2031 | |
Benefit Payments | | $ | 458 | | | $ | 448 | | | $ | 454 | | | $
| 499 | | | $ | 553 | | | $ | 2,722 | |
Other Plans
We have an employee savings/retirement (401(k)) plan to which substantially all our employees may contribute. We match employee contributions 100% up to 4% of a participant’s compensation, with a maximum match of $11,600 per participant. We suspended the first 4% contributed by participants and in 2018 made an additional discretionary contribution.matching contribution for six weeks during 2020 as part of our business continuity plan. We expensed employer contributions of approximately $6,046,000, $4,069,000 and $5,173,000 $4,770,000in 2021, 2020 and $3,932,000 in 2019, 2018 and 2017, respectively.
We offer participation in a self-directed, non-qualified deferred compensation plan to certain executives and employees. The plan allows a participant to defer a portion of their income. We may also make annual contributions based on the participant’s annual deferral, and our contributions were approximately $74,000, $43,000 and $61,000 in 2021, 2020, and 2019, respectively. The investments for the plan (and its predecessor plan) are held in rabbi trusts and are used to meet the obligations of the plans and precludes us from using such assets for operating purposes. The plans’ assets totaled approximately $9,184,000 and $7,949,000 at December 31, 2021 and 2020, respectively, and are included in other assets. The related liability under the plans of approximately $9,201,000 and $8,063,000 at December 31, 2021 and 2020, respectively, is included in other liabilities.
We offer no post-retirement benefits other than the plans discussed above and no significant post-employment benefits.
Note 13,11, Accumulated Other Comprehensive Income (loss):Loss:
The following summarizes the changes in the balance and the reclassifications out of accumulated other comprehensive income (loss)loss on our Consolidated Balance Sheets to the Consolidated Statements of Comprehensive Income:
| | Year Ended December 31, | |
(In thousands) | | 2019 | | | 2018 | | | 2017 | |
Beginning balance | | $ | (1,465 | ) | | $ | (2,144 | ) | | $ | (1,830 | ) |
Other comprehensive income (loss) | | | | | | | | | | | | |
Defined benefit pension plan: | | | | | | | | | | | | |
Net gain (loss) during year | | | (906 | ) | | | 769 | | | | (509 | ) |
Amortization of net loss(1) | | | 46 | | | | 136 | | | | 90 | |
| | | (860 | ) | | | 905 | | | | (419 | ) |
Tax expense (benefit) | | | (238 | ) | | | 226 | | | | (105 | ) |
Total other comprehensive income (loss) | | | (622 | ) | | | 679 | | | | (314 | ) |
Ending balance | | $ | (2,087 | ) | | $ | (1,465 | ) | | $ | (2,144 | ) |
| | Year Ended December 31, | |
(In thousands) | | 2021 | | | 2020 | | | 2019 | |
Beginning balance | | $ | (2,560 | ) | | $ | (2,087 | ) | | $ | (1,465 | ) |
Other comprehensive income (loss) | | | | | | | | | | | | |
Defined benefit pension plan: | | | | | | | | | | | | |
Net gain (loss) during year | | | 99 | | | | (791 | ) | | | (906 | ) |
Amortization of net loss(1) | | | 257 | | | | 159 | | | | 46 | |
| | | 356 | | | | (632 | ) | | | (860 | ) |
Tax expense (benefit) | | | 89 | | | | (159 | ) | | | (238 | ) |
Total other comprehensive income (loss) | | | 267 | | | | (473 | ) | | | (622 | ) |
Ending balance | | $ | (2,293 | ) | | $ | (2,560 | ) | | $ | (2,087 | ) |
(1) | These amounts are included in the computation of net periodic pension costs and were reclassified to selling, general and administrative costs. |
(1) These amounts are included in the computation of net periodic pension costs and were reclassified to selling, general and administrative costs.
Note 14,12, Stock-Based Compensation Plans:
We have issued and outstanding awards under two2 employee compensation plans, the 2021 Long-Term Incentive Plan (the “2021 LTIP Plan”) and the 2014 Long Term Incentive Plan (the “2014 LTIP Plan”) and the 2004 Long Term Incentive Plan (the “2004 LTIP Plan”). No new awards may be granted under the 20042014 LTIP Plan. Grants of stock-settled appreciation rights, restricted units, and performance units have been made to certain officers and key employees. All equity awards are settled in shares of Common Stock. As of December 31, 2019,2021, approximately 560,0001,500,000 shares were available for awards and options under the 20142021 LTIP Plan.
The following table summarizes our equity award activity during the years ended December 31, 2019, 2018,2021, 2020, and 2017:
| | Service-Based Restricted Stock Awards | | | Performance-Based Restricted Stock Awards | | | Stock-Settled Appreciation Rights | |
| | Shares or Units (#) | | | Weighted-Average Award Price($) | | | Shares or Units(#) | | | Weighted-Average Award Price ($) | | | Rights(#) | | | Weighted-Average Award Price($) | |
Outstanding at December 31, 2016 | | | 249,706 | | | | 21.22 | | | | 147,614 | | | | 22.35 | | | | 100,875 | | | | 18.14 | |
Granted/Issued | | | 135,986 | | | | 21.99 | | | | 63,396 | | | | 22.04 | | | | — | | | | | |
Awards vested or rights exercised | | | (128,691 | ) | | | 20.73 | | | | (28,715 | ) | | | 27.81 | | | | (43,875 | ) | | | 18.14 | |
Forfeited | | | (2,511 | ) | | | 21.38 | | | | (2,521 | ) | | | 20.60 | | | | — | | | | | |
Outstanding at December 31, 2017 | | | 254,490 | | | | 21.88 | | | | 179,774 | | | | 21.42 | | | | 57,000 | | | | 18.14 | |
Granted/Issued | | | 141,722 | | | | 22.73 | | | | 103,940 | | | | 22.95 | | | | — | | | | — | |
Awards vested or rights exercised | | | (132,872 | ) | | | 22.45 | | | | (48,661 | ) | | | 24.10 | | | | — | | | | — | |
Forfeited | | | (14,198 | ) | | | 21.94 | | | | (25,299 | ) | | | 21.40 | | | | — | | | | — | |
Outstanding at December 31, 2018 | | | 249,142 | | | | 22.05 | | | | 209,754 | | | | 21.56 | | | | 57,000 | | | | 18.14 | |
Granted/Issued | | | 137,768 | | | | 20.24 | | | | 113,522 | | | | 20.29 | | | | — | | | | — | |
Awards vested or rights exercised | | | (133,364 | ) | | | 22.27 | | | | (57,351 | ) | | | 18.93 | | | | (49,500 | ) | | | 18.14 | |
Forfeited | | | (18,736 | ) | | | 21.25 | | | | (51,116 | ) | | | 22.45 | | | | — | | | | — | |
Outstanding at December 31, 2019 | | | 234,810 | | | | 20.93 | | | | 214,809 | | | | 21.38 | | | | 7,500 | | | | 18.14 | |
Exercisable at December 31, 2019 | | | — | | | | — | | | | — | | | | — | | | | 7,500 | | | | 18.14 | |
Restricted units expected to vest | | | 234,810 | | | | 20.93 | | | | 136,668 | | | | 21.99 | | | | — | | | | — | |
Exercisable at December 31, 2018 | | | — | | | | — | | | | — | | | | — | | | | 57,000 | | | | 18.14 | |
Exercisable at December 31, 2017 | | | — | | | | — | | | | — | | | | — | | | | 57,000 | | | | 18.14 | |
2019:
F-19
| | Service-Based Restricted Stock Awards | | | Performance-Based Restricted Stock Awards | | | Stock-Settled Appreciation Rights | |
| | Shares or Units (#) | | | Weighted-Average Award Price($) | | | Shares or Units(#) | | | Weighted-Average Award Price ($) | | | Rights(#) | | | Weighted-Average Award Price($) | |
Outstanding at December 31, 2018 | | | 249,142 | | | | 22.05 | | | | 209,754 | | | | 21.56 | | | | 57,000 | | | | 18.14 | |
Granted | | | 137,768 | | | | 20.24 | | | | 113,522 | | | | 20.29 | | | | 0 | | | | — | |
Awards vested or rights exercised | | | (133,364 | ) | | | 22.27 | | | | (57,351 | ) | | | 18.93 | | | | (49,500 | ) | | | 18.14 | |
Forfeited | | | (18,736 | ) | | | 21.25 | | | | (11,150 | ) | | | 21.43 | | | | 0 | | | | — | |
Units forfeited due to performance
| | | 0 | | | | — | | | | (39,966 | ) | | | 22.95 | | | | 0 | | | | — | |
Outstanding at December 31, 2019 | | | 234,810 | | | | 20.93 | | | | 214,809 | | | | 21.38 | | | | 7,500 | | | | 18.14 | |
Granted | | | 145,375 | | | | 20.42 | | | | 120,727 | | | | 20.42 | | | | 0 | | | | — | |
Awards vested or rights exercised | | | (130,434 | ) | | | 20.69 | | | | (44,875 | ) | | | 22.12 | | | | (7,500 | ) | | | 18.14 | |
Forfeited | | | (10,470 | ) | | | 20.41 | | | | (273 | ) | | | 20.37 | | | | 0 | | | | — | |
Units forfeited due to performance
| | | 0 | | | | — | | | | (76,493 | ) | | | 20.29 | | | | 0 | | | | — | |
Outstanding at December 31, 2020 | | | 239,281 | | | | 20.77 | | | | 213,895 | | | | 21.08 | | | | 0 | | | | — | |
Granted | | | 120,221 | | | | 33.29 | | | | 93,685 | | | | 32.83 | | | | 0 | | | | — | |
Awards vested or rights exercised | | | (130,323 | ) | | | 21.28 | | | | (56,578 | ) | | | 22.95 | | | | 0 | | | | — | |
Forfeited | | | (10,097 | ) | | | 25.85 | | | | 0 | | | | — | | | | 0 | | | | — | |
Additional units earned due to performance | | | 0 | | | | — | | | | 77,265 | | | | 20.42 | | | | 0 | | | | — | |
Outstanding at December 31, 2021 | | | 219,082 | | | | 27.10 | | | | 328,267 | | | | 23.96 | | | | 0 | | | | — | |
Restricted units expected to vest | | | 219,082 | | | | 27.10 | | | | 387,516 | | | | 25.36 | | | | — | | | | — | |
Exercisable at December 31, 2019 | | | — | | | | — | | | | — | | | | — | | | | 7,500 | | | | 18.14 | |
The total fair value of service-based restricted stock awards that vested in 2019, 20182021, 2020 and 20172019 was approximately $2,491,000, $2,594,000$6,069,000, $1,798,000 and $3,294,000,$2,491,000, respectively. The aggregate intrinsic value of outstanding restricted stock awards was $4,734,000$6,697,000 at December 31, 2019.2021. The restrictions on the service-based awards generally lapse or vest annually, primarily over three-year or four-year periods.
The total fair value of performance-based restricted stock awards that vested in 2019, 20182021, 2020 and 20172019 was approximately $1,389,000, $988,000$2,046,000, $755,000 and $678,000,$1,389,000, respectively. The aggregate intrinsic value of outstanding performance awards at December 31, 20192021 expected to vest was $2,755,000.$11,846,000. The performance awards are based on one-year performance periods but cliff vest in approximately three years from grant date.
The fair value for stock-settled appreciation rights were estimated at the date of grant using a Black‑Scholes pricing model. The aggregate intrinsic value of vested and outstandingThere were no stock-settled appreciation rights outstanding at December 31, 2019 was approximately $15,000.2021 and 2020. The total intrinsic value of stock-settled appreciation rights exercised was approximately $18,000 in 2020 and $107,000 in 2019 and $284,000 in 2017.2019.
The compensation for all awards is being charged to selling, general and administrative expense over the respective grants’ vesting periods, primarily on a straight-line basis, and was approximately $8,213,000, $4,375,000 and $3,435,000 $4,358,000in 2021, 2020 and $3,818,000 in 2019, 2018 and 2017, respectively. Forfeitures are recognized as they occur. The tax (benefit) expense (benefit) recognized related to all awards was approximately $(1,011,000), $293,000 and $98,000 $143,000in 2021, 2020 and $(192,000) in 2019, 2018, and 2017, respectively. As of December 31, 2019,2021, the total compensation cost related to unvested equity awards was approximately $3,747,000$6,769,000 and is expected to be recognized over a weighted-average period of two years.
Note 15,13, Earnings Per Share:
The following is a reconciliation of the income (loss) 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: | | 2019 | | | 2018 | | | 2017 | |
Common: | | | | | | | | | |
Distributed earnings | | $ | 13,913 | | | $ | 32,595 | | | $ | 10,473 | |
Undistributed earnings | | | 6,284 | | | | (4,741 | ) | | | 8,896 | |
Basic | | | 20,197 | | | | 27,854 | | | | 19,369 | |
Class A Common earnings | | | 1,668 | | | | 2,453 | | | | 1,706 | |
Diluted | | $ | 21,865 | | | $ | 30,307 | | | $ | 21,075 | |
Class A Common: | | | | | | | | | | | | |
Distributed earnings | | $ | 1,143 | | | $ | 2,869 | | | $ | 919 | |
Undistributed earnings | | | 525 | | | | (416 | ) | | | 787 | |
| | $ | 1,668 | | | $ | 2,453 | | | $ | 1,706 | |
Numerator: | | 2021 | | | 2020 | | | 2019 | |
Common: | | | | | | | | | |
Distributed earnings | | $ | 48,837 | | | $ | 46,564 | | | $ | 13,913 | |
Undistributed earnings | | | 35,653 | | | | 7,954 | | | | 6,284 |
|
Basic | | | 84,490 | | | | 54,518 | | | | 20,197 | |
Class A Common earnings | | | 6,313 | | | | 4,630 | | | | 1,668 | |
Diluted | | $ | 90,803 | | | $ | 59,148 | | | $ | 21,865 | |
Class A Common: | | | | | | | | | | | | |
Distributed earnings | | $ | 3,609 | | | $ | 3,957 | | | $ | 1,143 | |
Undistributed earnings | | | 2,704 | | | | 673 | | | | 525 |
|
| | $ | 6,313 | | | $ | 4,630 | | | $ | 1,668 | |
Denominator: | | 2021 | | | 2020 | | | 2019 | |
Common: | | | | | | | | | |
Weighted average shares outstanding - basic | | | 16,710 | | | | 17,128 | | | | 18,360 | |
Assumed conversion of Class A Common Stock | | | 1,330 | | | | 1,522 | | | | 1,611 | |
Dilutive awards and common stock equivalents | | | 503 | | | | 282 | | | | 290 | |
Total weighted average diluted Common Stock | | | 18,543 | | | | 18,932 | | | | 20,261 | |
Class A Common: | | | | | | | | | | | | |
Weighted average shares outstanding | | | 1,330 | | | | 1,522 | | | | 1,611 | |
| | | | | | | | | | | | |
Basic net earnings per share | | | | | | | | | | | | |
Common Stock | | $ | 5.06 | | | $ | 3.18 | | | $ | 1.10 | |
Class A Common Stock | | $ | 4.75 | | | $ | 3.04 | | | $ | 1.04 | |
Diluted net earnings per share | | | | | | | | | | | | |
Common Stock | | $ | 4.90 | | | $ | 3.12 | | | $ | 1.08 | |
Class A Common Stock | | $ | 4.69 | | | $ | 3.04 | | | $ | 1.03 | |
Denominator: | | 2019 | | | 2018 | | | 2017 | |
Common: | | | | | | | | | |
Weighted average shares outstanding - basic | | | 18,360 | | | | 19,182 | | | | 19,381 | |
Assumed conversion of Class A Common Stock | | | 1,611 | | | | 1,765 | | | | 1,801 | |
Dilutive options, awards and common stock equivalents | | | 290 | | | | 348 | | | | 417 | |
Total weighted average diluted Common Stock | | | 20,261 | | | | 21,295 | | | | 21,599 | |
Class A Common: | | | | | | | | | | | | |
Weighted average shares outstanding | | | 1,611 | | | | 1,765 | | | | 1,801 | |
| | | | | | | | | | | | |
Basic net earnings per share | | | | | | | | | | | | |
Common Stock | | $ | 1.10 | | | $ | 1.45 | | | $ | 1.00 | |
Class A Common Stock | | $ | 1.04 | | | $ | 1.39 | | | $ | 0.95 | |
Diluted net earnings per share | | | | | | | | | | | | |
Common Stock | | $ | 1.08 | | | $ | 1.42 | | | $ | 0.98 | |
Class A Common Stock | | $ | 1.03 | | | $ | 1.39 | | | $ | 0.94 | |
Note 16, Supplemental Cash Flow Information:
(In thousands) | | 2019 | | | 2018 | | | 2017 | |
Cash paid for income taxes | | $ | 9,068 | | | $ | 8,426 | | | $ | 18,763 | |
Income tax refunds received | | | — | | | | 17 | | | | 9 | |
Cash paid for interest | | | 126 | | | | 2,425 | | | | 2,486 | |
Noncash financing and investing activity: | | | | | | | | | | | | |
Fixed assets acquired (adjusted) related to capital lease and financing obligations | | | — | | | | — | | | | 1,009 | |
Increase in financing obligations | | | — | | | | — | | | | 2,598 | |
Note 17,14, Selected Quarterly Financial Data (Unaudited):
The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 20192021 and 20182020 (in thousands, except per share data):
| | 2019 Quarter Ended | |
| | March 31 | | | June 30 | | | September 30 | | | December 31 | |
Net sales | | $ | 187,242 | | | $ | 191,893 | | | $ | 209,320 | | | $ | 213,837 | |
Gross profit | | | 103,083 | | | | 103,557 | | | | 112,019 | | | | 115,830 | |
Income before taxes | | | 4,725 | | | | 8,237 | | | | 8,169 | | | | 7,592 | |
Net income | | | 3,621 | | | | 6,046 | | | | 6,097 | | | | 6,100 | |
Basic net earnings per share: | | | | | | | | | | | | | | | | |
Common | | | 0.18 | | | | 0.30 | | | | 0.31 | | | | 0.32 | |
Class A Common | | | 0.17 | | | | 0.28 | | | | 0.30 | | | | 0.30 | |
Diluted net earnings per share: | | | | | | | | | | | | | | | | |
Common | | | 0.17 | | | | 0.29 | | | | 0.31 | | | | 0.31 | |
Class A Common | | | 0.17 | | | | 0.27 | | | | 0.30 | | | | 0.30 | |
| | 2021 Quarter Ended | |
| | March 31 | | | June 30 | | | September 30 | | | December 31 | |
Net sales | | $ | 236,491 | | | $ | 249,989 | | | $ | 260,378 | | | $ | 265,940 | |
Gross profit | | | 135,034 | | | | 141,501 | | | | 148,003 | | | | 150,087 | |
Income before taxes | | | 25,364 | | | | 29,169 | | | | 31,903 | | | | 32,099 | |
Net income | | | 19,406 | | | | 22,858 | | | | 24,233 | | | | 24,306 | |
Basic net earnings per share: | | | | | | | | | | | | | | | | |
Common | | | 1.07 | | | | 1.25 | | | | 1.35 | | | | 1.39 | |
Class A Common | | | 1.00 | | | | 1.18 | | | | 1.28 | | | | 1.31 | |
Diluted net earnings per share: | | | | | | | | | | | | | | | | |
Common | | | 1.04 | | | | 1.21 | | | | 1.31 | | | | 1.35 | |
Class A Common | | | 0.98 | | | | 1.16 | | | | 1.25 | | | | 1.33 | |
| | 2020 Quarter Ended | |
| | March 31 | | | June 30 | | | September 30 | | | December 31 | |
Net sales | | $ | 179,432 | | | $ | 109,968 | | | $ | 217,513 | | | $ | 241,339 | |
Gross profit | | | 99,553 | | | | 59,646 | | | | 122,177 | | | | 137,619 | |
Income before taxes | | | 2,300 | | | | 18,625 | | | | 24,532 | | | | 31,274 | |
Net income | | | 1,819 | | | | 13,640 | | | | 18,261 | | | | 25,428 | |
Basic net earnings per share: | | | | | | | | | | | | | | | | |
Common | | | 0.10 | | | | 0.73 | | | | 0.98 | | | | 1.40 | |
Class A Common | | | 0.09 | | | | 0.69 | | | | 0.94 | | | | 1.33 | |
Diluted net earnings per share: | | | | | | | | | | | | | | | | |
Common | | | 0.09 | | | | 0.72 | | | | 0.97 | | | | 1.37 | |
Class A Common | | | 0.09 | | | | 0.69 | | | | 0.93 | | | | 1.35 | |
During the quarter ended December 31, 2019, an impairment loss2020, we recognized the benefit of $2.4 million related to a retail store was recorded. We recognized a deferredstate income tax benefit related to leasescredits that reduced income tax expense by $0.4 million in the quarter ended December 31, 2019.$1.2 million.
| | 2018 Quarter Ended | |
| | March 31 | | | June 30 | | | September 30 | | | December 31 | |
Net sales | | $ | 199,442 | | | $ | 198,775 | | | $ | 210,547 | | | $ | 208,968 | |
Gross profit | | | 108,907 | | | | 107,797 | | | | 115,372 | | | | 114,466 | |
Income before taxes | | | 8,457 | | | | 8,410 | | | | 11,204 | | | | 12,338 | |
Net income | | | 6,313 | | | | 6,214 | | | | 8,352 | | | | 9,429 | |
Basic net earnings per share: | | | | | | | | | | | | | | | | |
Common | | | 0.30 | | | | 0.30 | | | | 0.40 | | | | 0.46 | |
Class A Common | | | 0.28 | | | | 0.28 | | | | 0.38 | | | | 0.44 | |
Diluted net earnings per share: | | | | | | | | | | | | | | | | |
Common | | | 0.29 | | | | 0.29 | | | | 0.39 | | | | 0.45 | |
Class A Common | | | 0.28 | | | | 0.28 | | | | 0.38 | | | | 0.45 | |
Because of rounding the amounts will not necessarily add to the totals computed for the year. Also because of rounding and the use of the two-class method in calculating per share data, the quarterly per share data will not necessarily add to the annual totals.
Schedule II – Valuation and Qualifying Accounts
Haverty Furniture Companies, Inc.
Column A | | Column B | | | Column C | | | Column D | | | Column E | |
(In thousands) | | Balance at beginning of period | | | Additions charged to costs and expenses | | | Deductions Describe (1)(2)(3) | | | Balance at end of period | |
Year ended December 31, 2019: | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 175 | | | $ | 105 | | | $ | 120 | | | $ | 160 | |
Refund on estimated returns and allowances | | $ | 1,950 | | | $ | 18,748 | | | $ | 18,675 | | | $ | 2,023 | |
| | | | | | | | | | | | | | | | |
Year ended December 31, 2018: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 270 | | | $ | 163 | | | $ | 258 | | | $ | 175 | |
Refund on estimated returns and allowances | | $ | 2,072 | | | $ | 19,252 | | | $ | 19,374 | | | $ | 1,950 | |
| | | | | | | | | | | | | | | | |
Year ended December 31, 2017: | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts | | $ | 360 | | | $ | 314 | | | $ | 404 | | | $ | 270 | |
Reserve for cancelled sales and allowances | | $ | 1,772 | | | $ | 11,601 | | | $ | 11,909 | | | $ | 1,464 | |
(1) Allowance for doubtful accounts: uncollectible accounts written off, net
Column A | | Column B | | | Column C | | | Column D | | | Column E | |
(In thousands) | | Balance at beginning of period | | |
Additions charged to costs and expenses | | | Deductions Describe (1)(2) | | | Balance at end of period | |
Year ended December 31, 2021: | | | | | | | | | | | | |
Refund on estimated returns and allowances | | $ | 2,378 | | | $ | 25,563 | | | $ | 25,494 | | | $ | 2,447 | |
| | | | | | | | | | | | | | | | |
Year ended December 31, 2020: | | | | | | | | | | | | | | | | |
Refund on estimated returns and allowances | | $ | 2,023 | | | $ | 17,094 | | | $ | 16,739 | | | $ | 2,378 | |
| | | | | | | | | | | | | | | | |
Year ended December 31, 2019: | | | | | | | | | | | | | | | | |
Reserve for cancelled sales and allowances | | $ | 1,950 | | | $ | 18,748 | | | $ | 18,675 | | | $ | 2,023 | |
(1) | Reserve for cancelled sales and allowances: impact of sales cancelled after delivery plus amount of allowance given to customers. |
(2) | Refund on estimated returns and allowances: impact of sales cancelled after delivery plus amount of allowance given to customers. |
SIGNATURES
Pursuant to the requirements of recoveries.Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 1, 2022.
(2) Reserve for cancelled sales
| HAVERTY FURNITURE COMPANIES, INC. |
| By: | /s/ CLARENCE H. SMITH |
| | Clarence H. Smith |
| | Chairman of the Board 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 allowances: impact of sales cancelled after delivery plus amount of allowance given to customers.in the capacities indicated, on March 1, 2022.
(3) Refund on estimated returns and allowances: impact of sales cancelled after delivery plus amount of allowance given to customers.
F-23
/s/ CLARENCE H. SMITH | | | | /s/ RICHARD B. HARE |
Clarence H. Smith Chairman of the Board and Chief Executive Officer (principal executive officer) | | | | Richard B. Hare Executive Vice President and Chief Financial Officer (principal financial and accounting officer) |
| | | | |
/s/ L. ALLISON DUKES | | | | /s/ VICKI R. PALMER |
L. Allison Dukes Director | | | | Vicki R. Palmer Director |
| | | | |
| | | | |
/s/ RAWSON HAVERTY, JR. | | | | /s/ DEREK G. SCHILLER |
Rawson Haverty, Jr. Director | | | | Derek G. Schiller Director |
| | | | |
| | | | |
/s/ G. THOMAS HOUGH | | | | /s/ AL TRUJILLO |
G. Thomas Hough Lead Director | | | | Al Trujillo Director |
| | | | |
| | | | |
/s/ MYLLE H. MANGUM | | | | |
Mylle H. Mangum Director | | | | |
34