HAVERTY FURNITURE COMPANIES INC

Note 1 -Description of Business and Summary of Significant Accounting Policies:

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 129 showrooms in 17 states at December 31, 2025. All of our stores are operated using the Havertys name and we do not franchise our stores. We have an online presence through which our customers can make purchases and offer financing through third-party finance companies.

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.

Cash and Cash Equivalents:

Cash and cash equivalents include 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. Our cash is held in Federal Deposit Insurance Corporation (“FDIC”) insured accounts at various banks which at times may exceed federally insured amounts.

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.

Other Current Assets:

Other current assets include receivables from third-party finance companies used by customers to finance purchases and receivables from landlords for tenant incentives.

Property and Equipment:

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is provided over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. See Leases below.

Estimated useful lives for financial reporting purposes are as follows:

Customer Deposits:

Customer deposits consist of cash collections on sales of undelivered merchandise, customer advance payments, and deposits on credit sales for undelivered merchandise.

Contingencies:

We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. We review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated. Generally, in view of the inherent difficulty of predicting the outcome of these matters, it may not be possible to determine whether any loss is probable or to reasonably estimate the amount of the loss until the matter is close to resolution, in which case no reserve is established until that time. Claims against us could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. We expense any litigation-related amounts as incurred. The results of these lawsuits, claims and proceedings cannot be predicted with certainty. However, we believe that the ultimate resolution of these current matters will not have a material adverse effect on our Consolidated Financial Statements taken as a whole.

Revenue Recognition:

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 include 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 have a loyalty program.

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.

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, administrative costs, and certain warehouse 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 $75,724,000, $78,323,000 and $92,363,000 in 2025, 2024 and 2023, respectively.

Leases:

We determine if an arrangement contains a lease in whole or in part at the inception of the contract. Right‑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 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,” for additional information.

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 $59,000 and $1,307,000 at December 31, 2025 and 2024, respectively. We incurred approximately $43,546,000, $40,470,000 and $43,448,000 in advertising expense during 2025, 2024 and 2023, respectively.

Interest 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 charges incurred related to our credit facility. The total amount of interest expense was approximately $162,000, $163,000 and $162,000 during 2025, 2024 and 2023, respectively.

Other Income, net:

Other income, net includes any gains or losses on sales of property and equipment and other income or expense items outside of core operations.

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 $6,866,000 and $7,390,000 at December 31, 2025 and 2024, 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.

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 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. No store impairment losses were recorded in 2025, 2024, and 2023.

In 2025, we recorded a $469,000 impairment charge related to construction-in-progress ("CIP") costs associated with the expansion of one of our distribution centers. After evaluating the project’s status and expected future economic benefits, management determined that the asset was no longer recoverable.

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 14, "Earnings Per Share" 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 $1,111,000 and $869,000 at December 31, 2025 and 2024, respectively. See Note 12, "Accumulated Other Comprehensive Loss" for the amounts reclassified out of AOCI to SG&A expense related to our supplemental executive retirement plan.

Recently Issued Accounting Pronouncements:

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". This update enhances annual disclosure requirements for public entities, including expended disclosures in the effective tax rate reconciliation and income taxes paid, disaggregated by jurisdiction. We adopted ASU 2023-09 for the year ended December 31, 2025. See Note 8, "Income Taxes" in the accompanying notes to the consolidated financial statements for further detail.

Note 2 -Revenues:

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):

(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 $528,000 and $494,000 at December 31, 2025 and 2024, respectively, is included in the line item “Other current assets” and the estimated refund liability of $1,757,000 and $1,578,000 at December 31, 2025 and 2024, 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 $35,504,000 and $40,733,000 at December 31, 2025 and December 31, 2024, respectively. Changes in the customer deposit balance from period to period are driven by the timing of merchandise deliveries. Of the customer deposit liabilities at December 31, 2024, approximately $220,000 has not been recognized through net sales in the twelve months ended December 31, 2025.

We typically offer our customers an opportunity for us to deliver their purchases and most choose this service. Delivery fees of approximately $30,247,000, $29,279,000 and $36,187,000 were charged to customers in 2025, 2024 and 2023, respectively, and are included in net sales. The costs associated with deliveries are included in selling, general and administrative expenses and were approximately $36,780,000, $37,085,000, and $42,361,000 in 2025, 2024 and 2023, respectively.

Note 3 -Segment Reporting:

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. The accounting policies of our single reportable segment are described in Note 1 - Description of Business and Summary of Significant Accounting Policies.

Our chief operating decision maker (CODM) is our President and Chief Executive Officer. Segment information is prepared on the same basis that our CODM manages our operating segments and evaluates results. The measure used by our CODM to assess performance and make operating decisions is income before income taxes as reported on our consolidated statements of comprehensive income. Our CODM uses income before income taxes to evaluate performance and make key operating decisions, such as determining new store openings to expand our retail footprint. Asset information is provided to the CODM on a consolidated basis.

The following table presents significant segment expenses and other segment items regularly reviewed by our CODM:

(a)Depreciation and amortization expense included in selling, general and administrative expense was $23.8 million, $21.6 million, and $18.6 million for December 31, 2025, 2024, and 2023, respectively.

(b)Other segment items include gains (losses) on asset disposals and miscellaneous income (expense).

Note 4 -Inventories:

Inventories are measured using the last-in, first-out (LIFO) method of valuation. The excess of current costs over our carrying value of inventories was approxim ately $39,975,000 and $35,326,000 at December 31, 2025 and 2024, 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 $4,649,000 in 2025 and a positive impact of approximately $807,000 in 2024.

In 2024, LIFO inventory layers were liquidated. The effect of the liquidations, which are included in the preceding LIFO impact amount, decreased cost of goods sold by approximately $1,100,000 or $0.07 per diluted share in 2024. 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 -Property and Equipment:

Property and equipment are summarized as follows:

Note 6 -Credit Arrangement:

We have an $80.0 million revolving credit facility (the "Credit Agreement") secured by our inventory, accounts receivable, cash, and certain other personal property and maturing on October 24, 2027, and replace the LIBOR rate with the SOFR rate as the interest rate benchmark. 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 $80.0 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.

The borrowing base was $137.1 million at December 31, 2025 and there wereno outstanding letters of credit, accordingly, the net availability was $80.0 million.

Note 7 -Accrued Liabilities and Other Liabilities:

Accrued liabilities and other liabilities consist of the following:

The Company records asset recovery obligations ("ARO") related to costs associated with the removal of leasehold improvements upon exiting a leased property. The ARO is included in other liabilities and totaled $760,000 and $740,000 as of December 31, 2025 and December 31, 2024, respectively.

Note 8 -Income Taxes:

The provision for income taxes for the years ended December 31 consist of the following:

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:

Our effective tax rate differs from the federal statutory rate primarily due to state incomes taxes.

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.

We review our deferred tax assets to determine the need for a valuation allowance. Based on evidence, we concluded 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 2021.

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.

One Big Beautiful Bill Act

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the United States, which made permanent or extended many of the provisions from the Tax Cuts and Jobs Act of 2017. The Company has accounted for the provisions of the OBBBA in its consolidated financial statements.

Note 9 - Leases:

We have operating leases for retail stores, offices, warehouses, and certain equipment. Our leases have remaining lease terms of between 1 year and 15 years, some of which include options to extend the leases for up to 20 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.

As of December 31, 2025, there were three leases for retail locations which had not yet commenced.

The table below presents the operating lease assets and liabilities recognized on the consolidated balance sheets as of December 31:

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.

The weighted-average remaining lease term and weighted-average discount rate for operating leases as of December 31 are:

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, 2025:

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 which are included in selling, general, and administrative expenses within our consolidated statements of comprehensive income were as follows:

Supplemental cash flow information related to leases is as follows:

Note 10 -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 hasten 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.

Total dividends paid on Common Stock were $19,346,000, $18,963,000 and $32,612,000 in 2025, 2024 and 2023, respectively. Total dividends paid on Class A Common Stock were $1,491,000, $1,505,000 and $2,628,000 in 2025, 2024 and 2023, respectively. A special cash dividend of $1.00 for Common Stock and $0.95 for Class A Common Stock was paid in the fourth quarter of 2023.

Note 11 -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 following table summarizes information about our SERP.

Amounts recognized in the consolidated balance sheets consist of:

The net actuarial loss recognized in accumulated other comprehensive income (loss) before the effect of income taxes was $622,000 in 2025 and $299,000 in 2024.

Net pension cost included the following components:

There are no actuarial loss amounts expected to be amortized from accumulated other comprehensive loss into net periodic cost in 2026.

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:

Assumptions used to determine benefit obligations at December 31 for the SERP are as follows:

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, 2025.

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 per participant of $14,000 in 2025 and $13,800 in 2024 and $13,200 in 2023. We expensed employer contributions of approximately $5,630,000, $5,345,000 and $6,050,000 in 2025, 2024 and 2023, 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 $43,000, $66,000 and $72,000 in 2025, 2024, and 2023, 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 $10,242,000 and $11,451,000 at December 31, 2025 and 2024, respectively, and are included in other assets. The related liability under the plans of approximately $12,277,000 and $11,464,000 at December 31, 2025 and 2024, 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 12 -Accumulated Other Comprehensive Loss:

The following summarizes the changes in the balance and the reclassifications out of accumulated other comprehensive loss on our Consolidated Balance Sheets to the Consolidated Statements of Comprehensive Income:

(1)These amounts are included in the computation of net periodic pension costs and were reclassified to selling, general and administrative costs.

Note 13 -Stock-Based Compensation Plans:

We have issued and outstanding awards underone employee compensation plan, the 2021 Long-Term Incentive Plan (“2021 LTIP Plan”). Grants of 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, 2025, approximately 470,000 shares were available for awards under the 2021 LTIP Plan.

The following table summarizes our equity award activity during the years ended December 31, 2025, 2024, and 2023:

The total fair value of service-based restricted stock awards that vested in 2025, 2024 and 2023 was approximately $2,954,000, $4,236,000 and $3,789,000, respectively. The aggregate intrinsic value of outstanding restricted stock awards was $7,029,000 at December 31, 2025. The restrictions on the service-based awards generally lapse or vest annually, primarily overone-year orthree-year periods.

The total fair value of performance-based restricted stock awards that vested in 2025, 2024 and 2023 was approximately $2,112,000, $4,917,000 and $7,182,000, respectively. The aggregate intrinsic value of outstanding performance awards at December 31, 2025 expected to vest was $7,049,000. The performance awards are based onone-year performance periods but cliff vest in approximately three years from grant date.

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 $7,311,000, $6,742,000 and $8,010,000 in 2025, 2024 and 2023, respectively. Forfeitures are recognized as they occur. The tax expense (benefit) recognized related to all awards was approximately $657,000, $108,000 and $(766,000) in 2025, 2024 and 2023, respectively. As of December 31, 2025, the total compensation cost related to unvested equity awards was approximately $6,978,000 and is expected to be recognized over a weighted-average period of 1.9 years.

Note 14 -Earnings Per Share:

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

At December 31, 2024, we did not include approximately 16,000 restricted share units in the computation of diluted earnings per common share because the expense of those shares were greater than the average market price and their inclusion would have been antidilutive.