UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 (Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from            to
Commission file number:     1-14445
HAVERTY FURNITURE COMPANIES, INC.
(Exact name of registrant as specified in its charter)

Maryland
 
58-0281900
(State of incorporation)
 
(I.R.S. Employer Identification No.)
     
780 Johnson Ferry Road, Suite 800
Atlanta, Georgia
 
 
30342
(Address of principal executive office)
 
(Zip Code)
(404) 443-2900
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer
 
Accelerated filer
Non-accelerated filer
 
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes       No

The numbers of shares outstanding of the registrant's two classes of $1 par value common stock as of July 30, 2015, were: Common Stock – 20,612,185; Class A Common Stock – 2,064,289.


HAVERTY FURNITURE COMPANIES, INC.
INDEX




   
Page No.
     
PART I.
FINANCIAL INFORMATION
 
     
 
Item 1.   Financial Statements
 
     
 
Condensed Consolidated Balance Sheets –
June 30, 2015 (unaudited) and December 31, 2014
 
1
     
 
Condensed Consolidated Statements of Comprehensive Income –
Six Months ended June 30, 2015 and 2014 (unaudited)
 
2
     
 
Condensed Consolidated Statements of Cash Flows –
Six Months ended June 30, 2015 and 2014 (unaudited)
 
3
     
 
 Notes to Condensed Consolidated Financial Statements (unaudited)
4
     
 
Item 2.    Management's Discussion and Analysis of
    Financial Condition and Results of Operations
 
9
     
 
Item 3.    Quantitative and Qualitative Disclosures
                  about Market Risk
 
12
     
 
Item 4.   Controls and Procedures
12
     
     
PART II.
OTHER INFORMATION
 
     
 
Item 1A. Risk Factors
13
     
 
Item 6.    Exhibits
14
     
     
     




PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

   
June 30,
2015
   
December 31,
2014
 
   
(Unaudited)
     
Assets
       
Current assets
       
Cash and cash equivalents
 
$
66,701
   
$
65,481
 
Investments
   
6,500
     
7,250
 
Restricted cash and cash equivalents
   
8,002
     
8,017
 
Accounts receivable
   
6,107
     
7,146
 
Inventories
   
112,345
     
107,139
 
Prepaid expenses
   
9,434
     
6,418
 
Other current assets
   
6,761
     
8,010
 
Total current assets
   
215,850
     
209,461
 
Accounts receivable, long-term
   
678
     
731
 
Property and equipment
   
231,486
     
225,162
 
Deferred income taxes
   
17,897
     
17,610
 
Other assets
   
7,082
     
8,023
 
Total assets
 
$
472,993
   
$
460,987
 
Liabilities and Stockholders' Equity
               
Current liabilities
               
Accounts payable
 
$
23,769
   
$
24,152
 
Customer deposits
   
30,038
     
23,687
 
Accrued liabilities
   
34,504
     
39,960
 
Deferred income taxes
   
5,689
     
5,689
 
Current portion of lease obligations
   
2,928
     
2,387
 
Total current liabilities
   
96,928
     
95,875
 
                 
Lease obligations, less current portion
   
50,712
     
46,678
 
Other liabilities
   
26,129
     
26,351
 
Commitments
   
     
 
Total liabilities
   
173,769
     
168,904
 
Stockholders' equity
               
Capital Stock, par value $1 per share
               
Preferred Stock, Authorized – 1,000 shares; Issued:  None
               
Common Stock, Authorized – 50,000 shares; Issued: 2015 – 28,439; 2014 – 28,327;
   
28,439
     
28,327
 
Convertible Class A Common Stock, Authorized – 15,000 shares; Issued: 2015 –  2,597; 2014 – 2,603
   
2,597
     
2,603
 
Additional paid-in capital
   
81,107
     
79,726
 
Retained earnings
   
267,374
     
260,031
 
Accumulated other comprehensive loss
   
(2,052
)
   
(2,168
)
      Less treasury stock at cost – Common Stock (2015 – 7,837;
 2014 – 7,759) and Convertible Class A Common  Stock
(2015 and 2014 – 522)
   
(78,241
)
   
(76,436
)
Total stockholders' equity
   
299,224
     
292,083
 
Total liabilities and stockholders' equity
 
$
472,993
   
$
460,987
 

See notes to these condensed consolidated financial statements.
1

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except per share data – Unaudited)


   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
                 
Net sales
 
$
187,732
   
$
175,132
   
$
379,063
   
$
356,869
 
Cost of goods sold
   
87,550
     
80,988
     
176,234
     
164,863
 
Gross profit
   
100,182
     
94,144
     
202,829
     
192,006
 
Credit service charges
   
69
     
71
     
142
     
151
 
Gross profit and other revenue
   
100,251
     
94,215
     
202,971
     
192,157
 
                                 
Expenses:
                               
Selling, general and administrative
   
92,744
     
86,266
     
185,048
     
173,940
 
Provision for doubtful accounts
   
61
     
85
     
84
     
133
 
Other income, net
   
(921
)
   
(166
)
   
(947
)
   
(174
)
Total expenses
   
91,884
     
86,185
     
184,185
     
173,899
 
                                 
Income before interest and income taxes
   
8,367
     
8,030
     
18,786
     
18,258
 
Interest expense, net
   
528
     
218
     
1,019
     
490
 
                                 
Income before income taxes
   
7,839
     
7,812
     
17,767
     
17,768
 
Income tax  expense
   
3,006
     
2,983
     
6,815
     
6,810
 
Net income
 
$
4,833
   
$
4,829
   
$
10,952
   
$
10,958
 
                                 
Other comprehensive income
                               
Adjustments related to retirement plans; net of tax expense of $42 and $73 in 2015 and $51 and $100 in 2014.
 
$
66
   
$
80
   
$
116
   
$
162
 
                                 
Comprehensive income
 
$
4,899
   
$
4,909
   
$
11,068
   
$
11,120
 
                                 
Basic earnings per share:
                               
Common Stock
 
$
0.21
   
$
0.21
   
$
0.49
   
$
0.49
 
Class A Common Stock
 
$
0.20
   
$
0.20
   
$
0.46
   
$
0.46
 
                                 
Diluted earnings per share:
                               
Common Stock
 
$
0.21
   
$
0.21
   
$
0.48
   
$
0.48
 
Class A Common Stock
 
$
0.20
   
$
0.20
   
$
0.46
   
$
0.46
 
                                 
Cash dividends per share:
                               
Common Stock
 
$
0.080
   
$
0.080
   
$
0.160
   
$
0.160
 
Class A Common Stock
 
$
0.075
   
$
0.075
   
$
0.150
   
$
0.150
 
                                 

See notes to these condensed consolidated financial statements.
2

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands – Unaudited)

   
Six Months Ended
June 30,
 
   
2015
   
2014
 
Cash Flows from Operating Activities:
       
Net income
 
$
10,952
   
$
10,958
 
Adjustments to reconcile net income to net cash
provided by operating activities:
               
Depreciation and amortization
   
12,503
     
10,960
 
Share-based compensation expense
   
2,160
     
1,767
 
Provision for doubtful accounts
   
84
     
133
 
Other
   
621
     
553
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
1,008
     
1,432
 
Inventories
   
(5,206
)
   
(3,316
)
Customer deposits
   
6,351
     
8,269
 
Other assets and liabilities
   
(3,022
)
   
328
 
Accounts payable and accrued liabilities
   
(7,350
)
   
(8,017
)
Net cash provided by operating activities
   
18,101
     
23,067
 
Cash Flows from Investing Activities:
               
Capital expenditures
   
(14,521
)
   
(11,699
)
Maturities of certificates of deposit
   
2,250
     
 
Restricted cash and cash equivalents
   
15
     
(1,001
)
Other
   
18
     
406
 
Net cash used in investing activities
   
(12,238
)
   
(12,294
)
                 
Cash Flows from Financing Activities:
               
Construction allowance receipts
   
3,286
     
 
Payments on lease obligations
   
(1,226
)
   
(462
)
Taxes on vested restricted shares
   
(1,152
)
   
(2,060
)
Dividends paid
   
(3,609
)
   
(3,593
)
Common stock purchased
   
(1,942
)
   
 
Net cash used in financing activities
   
(4,643
)
   
(6,115
)
Increase in cash and cash equivalents during the period
   
1,220
     
4,658
 
Cash and cash equivalents at beginning of period
   
65,481
     
83,185
 
Cash and cash equivalents at end of period
 
$
66,701
   
$
87,843
 



See notes to these condensed consolidated financial statements.
3

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE A – Business and Reporting Policies

Haverty Furniture Companies, Inc. ("Havertys," "the Company," "we," "our," or "us") is a retailer of a broad line of residential furniture in the middle to upper-middle price ranges. We operate all of our stores using the Havertys brand and do not franchise our concept. We operate in one reportable segment, home furnishings retailing. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes required by U.S. generally accepted accounting principles ("U.S. GAAP") for complete financial statements. The financial statements include the accounts of the Company and its wholly-owned subsidiary.  All significant intercompany accounts and transactions have been eliminated in consolidation. We believe all adjustments, normal and recurring in nature, considered necessary for a fair presentation have been included.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities, and reported amounts of revenue and expenses. Actual results could differ from those estimates.

The Company is subject to various claims and legal proceedings covering a wide range of matters that arise in the ordinary course of its business activities.  We believe that any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on our financial condition, results of operations or cash flows.

Changes to U.S. GAAP are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASU's) to the FASB's Accounting Standards Codification. The Company considers the applicability and impact of all ASU's. Newly effective ASU's not noted herein were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position or results of operations.

For further information, refer to the consolidated financial statements and footnotes thereto included in Havertys' Annual Report on Form 10-K for the year ended December 31, 2014.

NOTE B – Restricted Cash and Cash Equivalents

Our insurance carrier requires us to collateralize a portion of our workers' compensation obligations. These escrowed funds are shown as restricted cash and cash equivalents on our consolidated balance sheet and are investments in money market funds held by an agent.  The annual agreement with our carrier governing these funds expires on December 31, 2015.

NOTE C – Investments

We have purchased certificates of deposit held for investment with original maturities greater than three months.  The fair values of the certificates of deposit approximates their carrying amounts.  Certificates of deposit with remaining maturities less than one year totaled $6,500,000 and are classified as current and those with remaining maturities greater than one year totaled $1,250,000 and are included in other assets.
4

HAVERTY FURNITURE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE D – Accounts Receivable

Amounts financed under our in-house credit programs were, as a percent of net sales, approximately 3.0% and 3.4% during the first six months of 2015 and 2014, respectively. The in-house 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: $6.4 million in one year, $0.6 million in two years, and $0.1 million beyond two years for receivables outstanding at June 30, 2015.

Accounts receivable are shown net of the allowance for doubtful accounts of $0.3 million at June 30, 2015 and $0.4 million at December 31, 2014. 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. 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 E – Interim LIFO Calculations

An actual valuation of inventory under the LIFO method can be made only at the end of each year based on actual inventory levels. Accordingly, interim LIFO calculations must necessarily be based on management's estimates. Since these estimates may be affected by factors beyond management's control, interim results are subject to change based upon the final year-end LIFO inventory valuations.

NOTE F – Fair Value 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 values due to their short-term nature. The assets related to our self-directed, non-qualified deferred compensation plans for certain executives and employees are valued using quoted market prices multiplied by the number of shares held, a Level 1 valuation technique. The assets related to our deferred compensation plans totaled approximately $3.3 million at June 30, 2015 and $2.7 million at December 31, 2014 and are included in other assets.  The related liability of the same amount is included in other liabilities.

NOTE G - Other income, net:

Other income, net includes gains or losses on sales of property and equipment and miscellaneous income or expense items outside of core operations.  We settled credit card antitrust litigation in the second quarter of 2015 and received a payment of $0.8 million.





5

HAVERTY FURNITURE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE H – Income Taxes

Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter we update our estimate of the annual effective tax rate, and if our estimated tax rate changes, we make a year to date adjustment.

Our effective tax rate for the six months ended June 30, 2015 and 2014 was 38.4% and 38.3%, respectively.  The primary difference in the effective rate and the statutory rate is due to state income taxes.

NOTE I – Pension Plans

On May 13, 2014, our defined benefit plan (the "Pension Plan") was terminated effective July 20, 2014.  During the fourth quarter of 2014 Pension Plan participants received their earned benefits through the payment of lump-sum cash distributions, roll-over payments to other retirement accounts, and the purchase of annuity contracts from a third-party insurance company.  The Pension Plan was fully funded so no company contributions were required in 2014 to completely settle our obligations.  Additional information regarding the settlement of the Pension Plan can be found in our Annual Report on Form 10‑K for the year ended December 31, 2014.

We also have a non-qualified, non-contributory supplemental executive retirement plan (SERP) for employees whose retirement benefits are reduced due to their annual compensation levels.  The SERP limits the total amount of annual retirement benefits that may be paid to a participant in the SERP from all sources (Retirement Plan, Social Security and the SERP) to $125,000.  The SERP is not funded so we pay benefits directly to participants.

Net pension costs included the following components (in thousands):

   
SERP
   
Pension Plan
 
   
Three Months Ended
June 30,
   
Three Months Ended
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
Service cost-benefits earned during period
 
$
28
   
$
31
   
$
N/
A
 
$
 
Interest cost on projected benefit obligations
   
85
     
73
             
881
 
Expected return on plan assets
   
     
             
(1,214
)
Amortization of prior service costs
   
52
     
52
             
 
Amortization of actuarial (gain) loss
   
55
     
             
79
 
Net pension costs
 
$
220
   
$
156
   
$
N/
A
 
$
(254
)

   
SERP
   
Pension Plan
 
   
Six Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
Service cost-benefits earned during period
 
$
64
   
$
62
   
$
N/
A
 
$
 
Interest cost on projected benefit obligations
   
157
     
145
             
1,763
 
Expected return on plan assets
   
     
             
(2,428
)
Amortization of prior service costs
   
105
     
104
             
 
Amortization of actuarial (gain) loss
   
85
     
             
158
 
Net pension costs
 
$
411
   
$
311
   
$
N/
A
 
$
(507
)

6

HAVERTY FURNITURE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


NOTE JStock Based Compensation Plan
As more fully discussed in Note 12 of the notes to the consolidated financial statements in our 2014 Annual Report on Form 10-K, we have awards outstanding for Common Stock under stock-based employee compensation plans.
The following table summarizes our award activity during the six months ended June 30, 2015:
   
Restricted Stock Awards
   
Stock-Settled
Appreciation Rights
 
 
 
Shares or Units
   
Weighted-Average
Award Price
   
Rights
   
Weighted-Average
Award Price
 
Outstanding at December 31, 2014
   
321,322
   
$
20.49
     
129,975
   
$
16.04
 
Granted
   
171,735
     
24.00
     
     
 
Restrictions lapsed or exercised
   
(147,595
)
   
18.94
     
(19,100
)
   
8.74
 
Forfeited
   
(4,202
)
   
25.08
     
     
 
Outstanding at June 30, 2015
   
341,260
   
$
22.87
     
110,875
   
$
17.29
 
Exercisable at June 30, 2015
   
     
     
58,875
   
$
16.54
 

Grants of equity awards are made to certain officers and key employees under stockholder approved long-term incentive plans. The restrictions on most of the awards generally lapse annually, primarily over four year periods. During 2015, the Company granted 52,377 awards for which the shares ultimately issued will be based upon the achievement of various performance measures. The restricted units earned under most of these awards vest after three years. The compensation is being charged to selling, general and administrative expense over the respective grants' vesting periods, primarily on a straight-line basis.  Stock based compensation expense for the six months ended June 30, 2015 and June 30 2014, was approximately $2.2 million and $1.8 million, respectively. The aggregate intrinsic value of outstanding restricted common stock grants was $7.4 million at June 30, 2015. The aggregate intrinsic value of vested and outstanding stock-settled appreciation rights at June 30, 2015 was approximately $0.3 million and $0.5 million, respectively.

As of June 30, 2015, the remaining unamortized compensation cost related to unvested equity awards was approximately $6.5 million and scheduled to be recognized over a weighted-average period of 2.4 years.

NOTE K – 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.

The Common Stock of the Company has a preferential dividend rate of at least 105% of the dividend paid on the Class A Common Stock. The Class A Common Stock, which has ten votes per share as opposed to one vote per share for the Common Stock (on all matters other than the election of directors), may be converted at any time on a one-for-one basis into Common Stock at the option of the holder of the Class A Common Stock.

7


HAVERTY FURNITURE COMPANIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

The following is a reconciliation of the earnings and number of shares used in calculating the diluted earnings per share for Common Stock and Class A Common Stock (in thousands):

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2015
   
2014
   
2015
   
2014
 
Numerator:
               
Common:
               
Distributed earnings
 
$
1,651
   
$
1,642
   
$
3,297
   
$
3,253
 
Undistributed earnings
   
2,761
     
2,748
     
6,698
     
6,659
 
Basic
   
4,412
     
4,390
     
9,995
     
9,912
 
Class A Common earnings
   
421
     
439
     
957
     
1,046
 
Diluted
 
$
4,833
   
$
4,829
   
$
10,952
   
$
10,958
 
                                 
Class A Common:
                               
Distributed earnings
 
$
156
   
$
162
   
$
312
   
$
340
 
Undistributed earnings
   
265
     
277
     
645
     
706
 
   
$
421
   
$
439
   
$
957
   
$
1,046
 
Denominator:
                               
Common:
                               
Weighted average shares outstanding - basic
   
20,600
     
20,454
     
20,585
     
20,307
 
Assumed conversion of Class A Common Stock
   
2,079
     
2,162
     
2,080
     
2,259
 
Dilutive options, awards and common stock equivalents
   
276
     
324
     
302
     
368
 
                                 
Total weighted-average diluted Common Stock
   
22,955
     
22,940
     
22,967
     
22,934
 
                                 
Class A Common:
                               
Weighted average shares outstanding
   
2,079
     
2,162
     
2,080
     
2,259
 

8

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Net Sales

Our sales are generated by customer purchases of home furnishings.  Revenue is recognized upon delivery to the customer.

Comparable-store or "comp-store" sales for the periods presented are sales from stores open throughout the period and the corresponding prior year period.  If a store expansion results in a 10% or greater increase in selling square footage, its sales are removed from the comparable store sales base until it has been open a full 12 months. During the three and six months ended June 30, 2015, we included 114 stores in comp-store sales.

The following outlines our sales and comp-store sales increases and decreases for the periods indicated (dollars in millions, amounts and percentages may not always add to totals due to rounding):


   
2015
   
2014
 
   
Net Sales
   
Comp-Store Sales
   
Net Sales
   
Comp-Store Sales
 
Period
   
Total Dollars
   
%
Change
   
$
Change
   
%
Change
   
$
Change
   
Total Dollars
   
%
Change
   
$
Change
   
%
Change
   
$
Change
 
 Q1    
$
191.3
     
5.3
%
 
$
9.6
     
3.8
%
 
$
6.6
   
$
181.7
     
(2.3
)%
 
$
(4.4
)
   
(0.9
)%
 
$
(1.6
)
 Q2      
187.7
     
7.2
     
12.6
     
4.8
     
8.2
     
175.1
     
2.4
     
4.0
     
3.2
     
5.3
 
First Half
   
$
379.1
     
6.2
%
 
$
22.2
     
4.3
%
 
$
14.8
   
$
356.9
     
(0.1
)%
 
$
(0.3
)
   
1.1
%
 
$
3.7
 
 Q3      
     
     
     
     
     
198.5
     
3.0
     
5.8
     
3.5
     
6.6
 
 Q4      
     
     
     
     
     
213.0
     
8.6
     
16.8
     
8.3
     
15.9
 
Year
     
     
     
     
     
   
$
768.4
     
3.0
%
 
$
22.3
     
3.6
%
 
$
26.2
 

During the first half of 2015, we experienced some imported product availability issues resulting from the West Coast port slowdown. This hampered both delivery throughput and our ability to predict future delivery dates for potential sales. Lead times did stabilize over the latter months of the second quarter of the year and our stocking position is improved.

Our average written ticket was up 3.3% for the second quarter and 4.1% for the first half compared to the 2014 periods.  The custom order segment of our upholstery sales continued to show strength as written business increased 10.2% in the second quarter of 2015 and 10.7% for the first half.

Beginning in March 2015 new competition entered the Dallas, Texas market, where we have 12 stores in the metropolitan area.  This has pressured sales and gross profit at rates we had expected.

Gross Profit

Gross profit for the second quarter of 2015 was 53.4%, down 40 basis points compared to the prior year period and slightly better than our estimates. Gross profit for the first half of 2015 was 53.5% compared to 53.8% for the same period of 2014. We had a larger than normal number of new merchandise group introductions over the last quarter of 2014 and the first quarter of 2015. The closeout sales of the replaced products contributed to slightly lower margins in the first and second quarters of 2015 and will have additional impact during the third quarter.

We do not expect to modify our promotional strategy in the second half and our expectation for annual gross profit margins for 2015 remains unchanged at approximately 53.3%.

Substantially all of our occupancy and home delivery costs are included in selling, general and administrative expenses as are a portion of our warehousing expenses. Accordingly, our gross profit may not be comparable to those entities that include these costs in cost of goods sold.
9


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses are comprised of five categories: selling; occupancy; delivery and certain warehousing costs; advertising and marketing; and administrative.

Our SG&A costs as a percent of sales for the second quarter rose slightly to 49.4% for 2015 from 49.3% for 2014. Total SG&A dollars for the second quarter of 2015 increased $6.5 million compared to the prior year period.  Our selling costs increased $3.0 million in 2015 over 2014 due mainly to greater sales commissions as sales increased 7.2%, the training and additional staffing in our new stores, and higher third party creditor costs.  Occupancy expense rose $1.1 million primarily due to increases in depreciation.  Our warehouse and delivery expense rose $0.7 million in the current year period due to higher wages and temporary labor.  Advertising and marketing expenses were $0.6 million higher in the second quarter of 2015 as we changed the timing and mix of our media spending.  Administrative costs rose $1.1 million or 5.4% primarily from higher management and administrative salaries and travel expenses.

Our SG&A costs as a percent of sales for the first half of the year rose slightly to 48.8% for 2015 from 48.7% for 2014.  Total SG&A dollars increased $11.1 million for the six months ended June 30, 2015 compared to the prior year period.  Our selling costs increased $5.5 million in 2015 over 2014 due mainly to greater sales commissions, the training and additional staffing in our new stores, and higher third party creditor costs.  Occupancy expense rose $2.2 million primarily due to increases in depreciation for new, relocated, and renovated stores.  Our warehouse and delivery expense rose $1.2 million in the first half of 2015 compared to the prior year period as we incurred additional personnel costs partly due to disruptions in the supply chain.  Administrative costs rose $2.2 million or 5.3% for the first six months of 2015 over the 2014 period.

Our normal fixed and discretionary type expenses within SG&A costs are still expected to be approximately $239 million to $240 million for the full year 2015 versus the $233 million, for the same costs in 2014.  The increase is due to new stores, and higher advertising and personnel costs. The fixed and discretionary expenses were $116.5 million for the first half of 2015 and as planned, should increase to an average of approximately $61.5 to $62.0 million per quarter for the rest of the year in connection with store expansion and marketing activity.  The variable type costs within SG&A for the first half of 2015 were 18.1% and are anticipated to be at the high end of the 17.5% to 17.7% percent of sales range in our previous guidance for the full year.

Liquidity and Capital Resources
Our primary cash requirements include working capital needs, contractual obligations, income tax obligations and capital expenditures.  We have funded these requirements primarily through cash generated from operations.  We have no funded debt and our lease obligations are primarily due to arrangements that are not considered capital leases but must be recorded on our balance sheets.  We believe funds generated from our expected results of operations and available cash and cash equivalents will be sufficient to fund our primary obligations, dividends, stock repurchases and complete capital projects that we have underway or currently contemplate.

We also have a $50.0 million revolving credit facility.  Availability fluctuates under a borrowing base calculation and is reduced by outstanding letters of credit.  The borrowing base was $54.6 million and there were no outstanding letters of credit at June 30, 2015.  Amounts available are based on the lesser of the borrowing base of $54.6 million or the $50.0 million line amount and reduced by $6.2 million since a fixed charge coverage ratio test was not met for the immediately preceding twelve months, resulting in a net availability of $43.8 million.  There were no borrowed amounts outstanding under the facility at June 30, 2015.

10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Summary of Cash Activities
Our cash flows provided by operating activities totaled $18.1 million in the first six months of 2015 compared to $23.1 million for the same period of 2014.  Cash from net income, adjusted for depreciation and stock-based compensation was greater in 2015 compared to 2014 but was offset by changes in working capital.  These changes included a larger increase in inventories and prepaid expenses and a smaller increase in customer deposits in 2015 compared to 2014.  For additional information about the changes in our assets and liabilities refer to our Balance Sheet Changes discussion.

Our cash flows used in investing activities totaled $12.2 million in the first six months of 2015 versus $12.3 million for the same period of 2014.  Greater capital expenditures in 2015 of $2.8 million were offset by $2.3 million of maturities of certificates of deposit in 2015 and an increase of $1.0 million in restricted cash.

Financing activities used $4.6 million in the first six months of 2015 compared to a $6.1 million for the same period of 2014.  This difference was primarily the result of the receipt of $3.3 million in construction allowances in 2015 from landlords at stores where Havertys is considered the owner of the property during the construction period, partly offset by $1.9 million in treasury stock purchases.

Balance Sheet Changes for the Six Months Ended June 30, 2015

Our balance sheet as of June 30, 2015, as compared to our balance sheet as of December 31, 2014, changed as follows:

·
increase in inventories of $5.2 million as we opened three new stores and expanded our offerings;
 
·
increase in prepaid expenses of $3.0 million primarily due to timing of tax payments;
 
·
decrease in other current assets of $1.2 million primarily due to the receipt of construction allowances;
 
·
increase in property and equipment of $6.3 million primarily due to capital expenditures and additional leased properties recorded on our balance sheet;
 
·
increase in customer deposits of $6.4 million as undelivered sales increased partly due to growth in special orders;
 
·
decrease in accrued liabilities of $5.5 million due to timing of payments; and
 
·
increase in lease obligations of $4.6 million as additional assets were recorded on our balance sheet.
Store Plans and Capital Expenditures

Our current plans for 2015 include the opening of four stores within our distribution network, and one store closure.  During the first quarter we opened a new store in Coconut Creek, Florida.  We entered two new markets in the second quarter, opening a store in Rogers, Arkansas in April and a Waco, Texas location in May.  The 2015 planned changes will increase net selling square footage by 3.2% with our store count increasing to 122.  Total capital expenditures are estimated to be in the $32 to $33 million range in 2015 depending on the timing of spending for new projects.

Off-Balance Sheet Arrangements
As of June 30, 2015 we had no off-balance sheet arrangements or obligations.

11

 
Critical Accounting Estimates

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions. Our critical accounting estimates are identified and described in our annual report on Form 10-K for the year ended December 31, 2014. We had no significant changes in those critical accounting estimates since our last annual report.
 
Forward-Looking Information
Certain of the statements in this Form 10-Q, particularly those anticipating future performance, business prospects, growth and operating strategies and similar matters, and those that include the words "believes," "anticipates," "estimates" or similar expressions constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.  For those statements, Havertys claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  There can be no assurance that the forward-looking statements will be accurate because they are based on many assumptions, which involve risks and uncertainties.  The following important factors could cause future results to differ: changes in the economic environment; changes in the housing market; changes in industry conditions; competition; merchandise costs; energy costs; timing and level of capital expenditures; introduction of new products; rationalization of operations; and other risks identified in Havertys' SEC reports and public announcements.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes with respect to our financial instruments and their related market risks since the date of the Company's most recent annual report.

Item 4.   Controls and Procedures

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, our management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding disclosure.

There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
12


PART II.  OTHER INFORMATION


Item 1A.  Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014, which could materially affect our business, financial condition or future results.  The risks described in this report and in our Annual Report on Form 10-K are not the only risks facing the Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The board of directors has authorized management, at its discretion, to purchase and retire our common stock 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 to be purchased. On August 12, 2014, the board authorized management to purchase up to $10 million of common and Class A common stock after the maximum number of shares previously authorized are acquired.

The following table presents information with respect to our repurchase of Havertys' common stock during the second quarter of 2015:

   
(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)
 
Maximum Number that May Yet be Purchased Under the Plans or Programs
 
                 
May 1- May 31
   
77,009
   
$
20.98
     
77,009
     
164,979
 
June 1 - June 30
   
15,548
     
20.99
     
15,548
     
149,431
 
                                 
                           
$
10,000,000
 


13

Item 6.   Exhibits

(a)  Exhibits

The exhibits listed below are filed with or incorporated by reference into this report (those filed with this report are denoted by an asterisk). Unless otherwise indicated, the exhibit number of documents incorporated by reference corresponds to the exhibit number in the referenced documents.

Exhibit
Number
 
 
Description of Exhibit (Commission File No. 1-14445)
 
3.1
 
Articles of Amendment and Restatement of the Charter of Haverty Furniture Companies, Inc. effective May 26, 2006 (Exhibit 3.1 to our Second Quarter 2006 Form 10-Q).
 
3.2
 
By-laws of Haverty Furniture Companies, Inc. as amended effective May 12, 2010 (Exhibit 3.2 to our First Quarter 2010 Form 10-Q).
 
*31.1
 
Certification of Chief Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
 
*31.2
 
Certification of Chief Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended.
 
*32.1
 
Certification pursuant to 18 U.S.C. Section 1350.
 
*101
 
The following financial information from Haverty Furniture Companies, Inc. Quarterly Report on Form 10-Q for the quarter ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2015, and December 31, 2014, (ii) Condensed Consolidated Statements of Comprehensive Income for the six months ended June 30, 2015 and 2014, (iii)  Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014, and (iv) the Notes to Condensed Consolidated Financial Statements.
14




SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.


       
HAVERTY FURNITURE COMPANIES, INC.
(Registrant)
         
         
Date:
August 3, 2015
 
By:
/s/ Clarence H. Smith
       
Clarence H. Smith
       
Chairman of the Board, President
and Chief Executive Officer
       
(principal executive officer)
         
         
     
By:
/s/ Dennis L. Fink
       
Dennis L. Fink
       
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)

15