UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2005 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 or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 780 Johnson Ferry Road, Suite 800 Atlanta, Georgia 30342 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (404) 443-2900 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The numbers of shares outstanding of the registrant's two classes of $1 par value common stock as of October 31, 2005 were: Common Stock - 18,121,350; Class A Common Stock - 4,305,521.
HAVERTY FURNITURE COMPANIES, INC. INDEX Page No. -------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements Condensed Consolidated Balance Sheets - September 30, 2005 and December 31, 2004 1 Condensed Consolidated Statements of Income Nine Months ended September 30, 2005 and 2004 2 Condensed Consolidated Statements of Cash Flows - Nine Months ended September 30, 2005 and 2004 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risk 17 Item 4. Controls and Procedures 17 PART II OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18 Item 5. Other Information 18 Item 6. Exhibits 19
PART I. FINANCIAL INFORMATION Item 1. Financial Statements HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) September 30 December 31 2005 2004 ------------ ------------ (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 764 $ 10,122 Auction rate securities -- 5,000 Accounts receivable, net 84,806 81,132 Inventories 108,928 110,812 Prepaid expenses 12,036 6,654 Deferred income taxes 2,044 2,249 Other current assets 8,821 14,453 ------------ ------------ Total current assets 217,399 230,422 Accounts receivable, net 7,724 9,396 Property and equipment 215,371 205,037 Other assets 7,854 12,711 ------------ ------------ $ 448,348 $ 457,566 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Notes payable to banks $ - $ - Accounts payable 28,965 31,202 Customer deposits 32,092 24,040 Accrued liabilities 44,488 45,460 Current portion of long-term debt and capital lease obligations 13,253 20,270 ------------ ------------ Total current liabilities 118,798 120,972 Long-term debt and capital lease obligations, less current portion 35,407 44,228 Other liabilities 19,659 20,108 ------------ ------------ Total liabilities 173,864 185,308 ============ ============ Stockholders' Equity Capital stock, par value $1 per share: Preferred Stock, Authorized: 1,000 shares; Issued: None Common Stock, Authorized: 50,000 shares; Issued: 2005 - 24,375; 2004 - 24,293 shares 24,375 24,293 Convertible Class A Common Stock, Authorized: 15,000 shares; Issued: 2005 - 4,828; 2004 - 4,840 shares 4,828 4,840 Additional paid-in capital 55,624 55,108 Long-term incentive plan deferred compensation (2,116) (2,971) Retained earnings 254,625 250,511 Accumulated other comprehensive loss (859) (1,295) Less treasury stock at cost - Common Stock (2005 - 6,232; 2004 - 5,937 shares) and Convertible Class A Common Stock (2005 and 2004 - 522 shares) (61,993) (58,228) ------------ ------------ Total stockholders' equity 274,484 272,258 ------------ ------------ $ 448,348 $ 457,566 ============ ============ See notes to condensed consolidated financial statements.
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data - Unaudited) Quarter Ended Nine Months Ended September 30 September ---------------------- ------------------ 2005 2004 2005 2004 ---------- ----------- -------- -------- (Restated (Restated See Note B) See Note B) Net sales $ 202,044 $ 197,445 $ 602,071 $ 567,360 Cost of goods sold 105,947 102,865 315,746 292,473 ---------- ---------- ---------- ---------- Gross profit 96,097 94,580 286,325 274,887 Credit service charge 837 992 2,702 3,459 ---------- ---------- ---------- ---------- Gross profit and other revenue 96,934 95,572 289,027 278,346 Expenses: Selling, general and administrative 93,154 88,964 276,827 254,806 Interest 165 741 1,464 2,830 Provision for doubtful accounts 152 116 668 445 Other (income) expense, net (2,645) (987) (3,084) (1,840) ---------- ---------- ---------- ---------- 90,827 88,834 275,875 256,241 Income before income taxes 6,107 6,738 13,152 22,105 Income taxes 2,291 2,501 4,852 8,175 ---------- ---------- ---------- ---------- Net income $ 3,816 $ 4,237 $ 8,300 $ 13,930 ========== ========== ========== ========== Basic earnings per share: Common Stock $0.17 $0.19 $0.37 $0.63 Class A Common Stock $0.16 $0.18 $0.35 $0.59 Diluted earnings per share: Common Stock $0.17 $0.18 $0.36 $0.60 Class A Common Stock $0.16 $0.18 $0.35 $0.58 Weighted average shares - basic: Common Stock 18,278 18,252 18,361 18,187 Class A Common Stock 4,306 4,338 4,311 4,348 Weighted average shares - assuming dilution: Common Stock 22,652 22,965 22,860 23,066 Class A Common Stock 4,306 4,338 4,311 4,348 Cash dividends per share: Common Stock $0.0625 $0.0625 $0.1875 $0.1875 Class A Common Stock $0.0575 $0.0575 $0.1725 $0.1725 See notes to condensed consolidated financial statements.
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands - Unaudited) Nine Months Ended September 30 ----------------------- 2005 2004 ---------- ---------- (Restated - See Note B) Cash Flows from Operating Activities: Net income $ 8,300 $ 13,930 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,781 14,145 Provision for doubtful accounts 669 445 Gain on sale of property and equipment (2,570) (703) Other 1,103 (27) Changes in operating assets and liabilities: Accounts receivable (2,670) 10,118 Inventories 1,884 (8,658) Customer deposits 8,052 5,152 Other assets and liabilities 146 (718) Accounts payable and accrued liabilities (3,209) (10,699) ----------- ------------ Net cash provided by operating activities 27,486 22,985 ----------- ------------ Cash Flows from Investing Activities: Capital expenditures (27,290) (28,216) Purchases of auction rate securities -- (15,000) Proceeds from sale of property and equipment 7,185 2,501 Sales of auction rate securities 5,000 -- Other investing activities 1,490 2,246 ----------- ------------ Net cash used in investing activities (13,615) (38,469) ----------- ------------ Cash Flows from Financing Activities: Proceeds from borrowings under revolving credit facilities 367,850 -- Payments of borrowings under revolving credit facilities (367,850) -- ----------- ------------ Net increase in borrowings under revolving credit facilities -- -- Payments on long-term debt and capital lease obligations (15,838) (8,503) Treasury stock acquired (3,811) -- Proceeds from exercise of stock options 605 2,165 Dividends paid (4,185) (4,157) ----------- ------------ Net cash used in financing activities (23,229) (10,495) ----------- ------------ Decrease in cash and cash equivalents (9,358) (25,979) Cash and cash equivalents at beginning of the year 10,122 31,591 ----------- ------------ Cash and cash equivalents at end of period $ 764 $ 5,612 =========== ============ See notes to condensed consolidated financial statements. HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE A - Basis of Presentation --------------------- Haverty Furniture Companies, Inc. ("Havertys" or the "Company") is a full-service home furnishings retailer. The Company operates all of its stores using the Havertys brand and does not franchise its concept. 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 generally accepted accounting principles in the United States for complete financial statements. The financial statements include the accounts of the Company and its wholly-owned subsidiaries and one variable interest entity under FIN 46. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation have been included. The preparation of condensed consolidated financial statements in conformity with accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. For further information, refer to the consolidated financial statements and footnotes thereto included in Havertys Annual Report on Form 10-K for the fiscal year ended December 31, 2004. As a result of the lease adjustments discussed in Note B below, certain information included in that Form 10-K was restated in Form 10-K/A, which was filed with the Securities and Exchange Commission ("SEC") on June 27, 2005. Certain prior-year amounts have been reclassified to conform to the 2004 financial statement presentation. NOTE B - Restatement and Reclassification Adjustments -------------------------------------------- The Company reviewed its lease accounting during the second quarter of 2005 and determined that it was appropriate to restate its consolidated financial statements for the fiscal years ended December 31, 2002 through 2004. These adjustments related to lease accounting matters, including those discussed by the SEC in its February 7, 2005 letter ("SEC Letter") to the American Institute of Certified Public Accountants ("AICPA"). In the SEC Letter, the SEC expressed its views on the amortization of leasehold improvements, rent holidays and landlord/tenant incentives. In its earnings release for the year and quarter ended December 31, 2004, the Company first reported recording adjustments totaling $0.4 million to adjust straight-line rent expense and to correct its accounting for leases. As then discussed, it had been our policy to depreciate our property and equipment, including assets on leased properties, over the estimated useful lives of those assets. In some cases, these assets on leased properties were depreciated over a period of time that included both the initial term of the lease and one or more option periods. However, in certain instances, when calculating straight-line rent expense, the Company excluded option periods which had been included for depreciation purposes. In December 2004, the Company revised its computation of straight-line rent to include certain option periods where failure to exercise such options would result in an economic penalty. As a result, the Company concluded that rent expense was cumulatively understated by $0.4 million as of December 31, 2004, and as the amount was immaterial, recorded the adjustment in the quarter then ended.
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Subsequent to the issuance of the SEC Letter and the additional clarification from the SEC concerning the acceptable accounting methods, we undertook an additional review of our accounting policies relative to rent holidays. The adjustment described below changes our accounting practices to expense straight-line rent from the point at which the Company takes control and possession of a leased site (generally at the beginning of construction). Previously, the Company began straight-lining of rent at the earlier of the dates actual rent payments commenced or the opening of the store. The cumulative pre- tax adjustment of $2.8 million reflects the correct treatment for rent holidays and the adjustment for option periods noted above. The Company corrected these errors through restatement of its consolidated financial statements reported on Form 10-K for the fiscal year ended December 31, 2004. The Company filed a Form 10-K/A for the fiscal year ended December 31, 2004 on June 27, 2005. The condensed consolidated balance sheet as of December 31, 2004 contained herein reflects all adjustments included in that Form 10-K/A. The Company capitalizes certain expenses related to handling and transportation into inventory which flows through its distribution centers. All warehouse, transportation and distribution costs are included in the line item Selling, General and Administrative (SG&A). In prior periods, expenditures capitalized into inventory were recognized through SG&A rather than cost of goods sold. The Company has completed its transition to a distribution model that has increased the level of inventory flowing through the distribution centers. Accordingly, the Company now includes those costs capitalized into inventory for handling and transportation in cost of goods sold and has reclassified the prior periods for comparability. The impact of these changes is outlined below for the periods noted (in thousands, except per share data): Quarter Ended September 30, 2004 ---------------------------------------------------- as as restated previously restatement and Income statement data reported adjustment reclassification reclassified - ---------------------- ---------- ----------- ---------------- ------------ Cost of goods sold $ 98,326 $ - $ 4,539 $ 102,865 Selling, general and administrative 93,406 97 (4,539) 88,964 Income before income taxes 6,835 (97) -- 6,738 Income taxes 2,551 (50) -- 2,501 Net income 4,284 (47) -- 4,237 Diluted earnings per share - Common Stock $ 0.19 ($0.01) -- $0.18
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Nine Months Ended September 30, 2004 ----------------------------------------------------- as as restated previously restatement and Income statement data reported adjustment reclassification reclassified - ---------------------- ---------- ----------- ---------------- ------------ Cost of goods sold $ 279,625 $ -- $ 12,848 $ 292,473 Selling, general and administrative 267,143 511 (12,848) 254,806 Income before income taxes 22,616 (511) -- 22,105 Income taxes 8,437 (262) -- 8,175 Net income 14,179 (249) -- 13,930 Diluted earnings per share - Common Stock $0.61 ($0.01) -- $0.60 As of September 30, 2004 ------------------------ as previously As Balance Sheet Data reported restated - ------------------- ------------ ---------- Accounts payable and accrued expenses, including customer deposits $ 82,223 $ 88,535 Other liabilities (long term) 13,780 20,808 Stockholders' equity 265,484 263,655 The liability for accrued straight-line rent has been reclassified from current to long-term in connection with the restatement in recognition of the portion which will be realized in periods beyond one year. These changes did not affect total cash flows provided by or used in operating, investing or financing activities for the three or nine months ended September 30, 2004. NOTE C - Earnings Per Share ------------------ The Company reports its earnings per share using the two-class method as required by the Emerging Issues Task Force (EITF). The EITF reached final consensus on Issue No. 03-6, "Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings Per Share (SFAS 128)," at their March 17, 2004 meeting. EITF 03-6 requires the income per share for each class of common stock to be calculated assuming 100% of the Company's 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. The effective result of EITF 03-6 is that the basic earnings per share for the Common Stock is 105% of the basic earnings per share of the Class A Common Stock. Additionally, given the Company's current capital structure, diluted earnings per share for Common Stock under EITF 03-6 will be the same as was previously reported using the if- converted method. The amount of earnings used in calculating diluted earnings per share of Common Stock is equal to net income since the Class A shares are assumed to be converted. Diluted earnings per share of Class A Common
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) Stock includes the effect of dilutive common stock options which reduces the amount of undistributed earnings allocated to the Class A Common Stock. The following is a reconciliation of the number of shares used in calculating the diluted earnings per share for Common Stock under SFAS 128 and EITF 03-6 (shares in thousands): Quarter Ended Nine Months Ended September 30 September 30 --------------- ---------------- 2005 2004 2005 2004 ----- ----- ------ ------ Common: Weighted average shares outstanding 18,278 18,252 18,361 18,187 Assumed conversion of Class A Common shares 4,306 4,338 4,311 4,348 Diluted options 68 375 188 531 ------- ------- -------- -------- Total weighted-average diluted common shares 22,652 22,965 22,860 23,066 ======= ======= ======== ======== NOTE D - Stock-Based Compensation ------------------------ At September 30, 2005, the Company had three stock-based employee compensation plans under which awards have been made: a non- compensatory employee stock purchase plan, a stock option plan and a long-term incentive plan. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. No stock-based employee compensation cost for any options is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Restricted stock compensation is charged to expense over the vesting periods of the grants. On August 18, 2005, the Board of Directors of Haverty Furniture Companies, Inc. upon the recommendation of the Board's Executive Compensation Committee, approved the acceleration of vesting of all "out-of-the-money", unvested stock options held by current employees, including executive officers and certain employee directors. An option was considered out-of-the-money if the stated option exercise price was greater than $12.57, the closing price of the Company's common stock on August 18, 2005. Options to purchase approximately 482,650 shares of common stock, which otherwise would have vested on a yearly basis through 2008 became immediately exercisable. The weighted average exercise price of the accelerated options is $17.49. The decision to initiate the acceleration was made primarily to reduce compensation expense that would be expected to be recorded in future periods following the Company's adoption on January 1, 2006 of Statement of Financial Accounting Standards No. 123R, "Share-Based Payment (revised 2004)". As a result of the acceleration, the Company reduced this expected compensation expense, net of tax, by a total of approximately $3.7 million (approximately $2.0 million in 2006, $1.1 million in 2007, and $0.6 million in 2008). These amounts are based on fair value calculations using the Black-Scholes methodology.
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation and includes the impact of the accelerated vesting in the third quarter of the 482,650 "out-of-the-money" options (in thousands, except per share amounts): Quarter Ended Nine Months Ended September 30 September 30 ----------------- ------------------- 2005 2004 2005 2004 ------- ------ ------ ------- (Restated (Restated See Note B) See Note B) Net income, as reported $ 3,816 $ 4,237 $ 8,300 $ 13,930 Add: Reported stock-based compensation expense, net of tax 154 -- 540 -- Less: Pro forma stock-based employee compensation expense, net of tax (5,042) (722) (6,761) (2,123) --------- -------- -------- --------- Pro forma net (loss) income $ (1,072) $ 3,515 $ 2,079 $ 11,807 ========= ======== ======== ========= Earnings (loss) per share: As reported Basic: Common $0.17 $0.19 $0.37 $0.63 Class A $0.16 $0.18 $0.35 $0.59 Diluted: Common $0.17 $0.18 $0.36 $0.60 Class A $0.16 $0.18 $0.35 $0.58 Pro Forma: Basic: Common $(0.05) $0.16 $0.09 $0.53 Class A $(0.05) $0.15 $0.08 $0.50 Diluted: Common $(0.05) $0.15 $0.09 $0.50 Class A $(0.05) $0.14 $0.08 $0.49 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 the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Since these are affected by factors beyond management's control, interim results are subject to the final year- end LIFO inventory valuation.
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE F - Other (income) expense, net --------------------------- The Company includes in this line item any gains or losses on sales of land, property and equipment, impairment losses and changes in previously estimated losses and other miscellaneous income or expense items which are non-recurring in nature. The following are the significant gains or losses that have been included in "other (income) expense, net." During the third quarter of 2005, the Company had gains of approximately $2.6 million from the sale of two retail locations and a local market warehouse. Gains from the sales of land, property and equipment were approximately $0.8 million and $0.7 million for the quarter and nine months ended September 30, 2004, respectively. During the third quarter of 2004, the Company had facilities and inventory damaged by hurricanes and the insurance proceeds to repair these facilities generally offset the deductible expense. NOTE G - Comprehensive Income - ----------------------------- Total comprehensive income was comprised of the following (in thousands): Quarter Ended Nine Months Ended September 30 September 30 ----------------- ------------------ 2005 2004 2005 2004 --------- ------- ------- ------- Net income $ 3,816 $ 4,237 $ 8,300 $ 13,930 Changes in derivatives, net of applicable income tax 145 145 435 435 -------- -------- -------- --------- Total comprehensive income $ 3,961 $ 4,382 $ 8,735 $ 14,365 ======== ======== ======== ========= NOTE H - Pension Plans - ---------------------- Net pension cost included the following components (in thousands): Quarter Ended Nine Months Ended September 30 September 30 ---------------- ----------------- 2005 2004 2005 2004 -------- ------- ------- ------- Service cost-benefits earned during the period $ 705 $ 639 $ 2,115 $ 1,917 Interest cost on projected benefit obligations 814 782 2,442 2,346 Expected return on plan assets (1,015) (980) (3,045) (2,940) Amortization of prior service costs 33 33 99 99 -------- ------- -------- -------- Net pension cost $ 537 $ 474 $ 1,611 $ 1,422 ======== ======= ======== ========
HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company disclosed in its financial statements for the year ended December 31, 2004, a planned $3.5 million contribution to the pension plan in 2005. No contributions were made to the plan in the first nine months of 2005, but $3.5 million is expected to be contributed prior to December 31, 2005. NOTE I - Accounts Receivable - ---------------------------- Accounts receivable balances resulting from certain credit promotions have scheduled payment amounts which extend beyond one year. In the aggregate, and based on historical experience, the receivables are collected in seven to eight months. The Company classifies a portion of the receivables as long-term based on the specific programs' historical collection rate, which is generally faster than the scheduled rate. The portions of receivables contractually due beyond one year classified as current and long-term are estimates. The timing of actual collections that are contractually due beyond one year may be different from the amounts estimated to be collected within one year. However, based on experience, management does not believe the collection rate will differ significantly. At September 30, 2005 and 2004, the accounts receivable contractually due beyond one year from the respective balance sheet dates totaled approximately $23.7 million and $26.2 million, respectively. Note J - Recently Issued Accounting Pronouncements - -------------------------------------------------- SFAS 123R, "Share-Based Payment" (Revised 2004): Statement of Financial Accounting Standard No. 123 (SFAS No. 123R) was revised in December 2004. We adopted the disclosure provisions of SFAS 123 when it became effective in 1996 but, as discussed in Note D above, continue to account for stock options under APB No. 25. Beginning in the first quarter of 2006, we will be required to record stock-based compensation costs in our income statement expect to choose the modified prospective method of adoption of SFAS No. 123R. We currently use the Black-Scholes method to calculate pro forma compensation expense, and we expect to continue using this method for future expense fair value calculations to the extent that we make stock option grants in the future. SFAS No. 151 "Inventory Costs": SFAS No. 151 is an amendment to ARB No. 43, Chapter 4 that will be effective in fiscal 2006. The standard clarifies the accounting for abnormal amounts of idle facility expense, freight and handling costs to require that those costs be expensed currently, as opposed to being included in overhead costs. We do not expect a material impact, if any, from the implementation of SFAS No. 151 on our financial statements. SFAS No. 154 "Accounting for Changes and Error Corrections - a Replacement of APB Opinion 20 and FASB Statement No. 3": SFAS No. 154 was issued in June 2005 and requires retrospective application of voluntary changes in accounting principles, unless impracticable. SFAS No. 154 supersedes the guidance in APB Opinion No. 20 and SFAS No. 3; but does not change any transition provisions of existing pronouncements. Generally, elective accounting changes will no longer result in cumulative effect of a change in accounting in the income statement, because the effects of any elective changes will be reflected as prior period adjustments to all periods presented. SFAS No. 154 will be effective beginning with our 2006 fiscal year and could affect any accounting changes that we elect to make thereafter.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Information Certain statements we make in this report, and other written or oral statements made by or on behalf of the Company, may constitute "forward-looking statements" within the meaning of the Securities Act of 1933, and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995, 15 U.S.C.A. Sections 77Z-2 and 78U-5 (Supp. 1996). Examples of such statements in this report include descriptions of our plans with respect to new store openings and relocations, our plans to enter new markets and expectations relating to our continuing growth. The forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and the beliefs and assumptions of our management. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statement. Such statements speak only as of the date they are made and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. The following are some of the factors that could cause Havertys' actual results to differ materially from the expected results described in our forward-looking statements: the ability to maintain favorable arrangements and relationships with key suppliers (including domestic and international sourcing); any disruptions in the flow of imported merchandise; conditions affecting the availability and affordability of retail and distribution real estate sites; the ability to attract, train and retain highly qualified associates to staff existing and new stores, distribution facilities and corporate positions; general economic and financial market conditions, which affect consumer confidence and the spending environment for big ticket items; competition in the retail furniture industry; and changes in laws and regulations, including changes in accounting standards, tax statutes or regulations. Operating Results and Financial Condition The following discussion of Havertys' financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes thereto included herein. Net Sales Our sales are generated by customer purchases of home furnishings in our retail stores and revenue is recognized upon delivery to the customer. The following outlines our sales and comp-store sales increases for the periods indicated: <TABLE> <CAPTION 2005 2004 2003 ---------------------------- ----------------------------- ----------------------------- Comp-Store Comp-Store Comp-Store Net Sales Sales Net Sales Sales Net Sales Sales ----------------- ---------- ------------------ ---------- ----------------- ----------- % % % % % % Increase Increase Increase Increase Increase Increase (decrease) (decrease) (decrease) (decrease) (decrease) (decrease) over over over over over over Period Dollars prior prior Dollars prior prior Dollars prior prior Ended (000)s period period (000)s period period (000)s period period - ------ ------- -------- --------- ------- --------- ---------- ------- ---------- ---------- <s> <c> <c> <c> <c> <c> <c> <c> <c> <c> Q1 207.6 9.1 4.7 190.3 8.5 4.0 175.4 0.2 (6.6) Q2 192.4 7.1 2.3 179.6 6.5 2.6 168.6 2.3 (2.2) Q3 202.0 2.3 (1.0) 197.4 1.1 (1.0) 195.4 11.2 6.1 Q4 - - - 216.8 5.6 3.0 205.3 8.9 5.7 -------------------------- ------------------------- --------------------------- Year 602.1 6.1 2.0 784.2 5.3 2.1 744.6 5.8 1.0 ========================== ========================= =========================== </TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Total sales increased $4.6 million or 2.3% and $34.7 million or 6.1% in the third quarter and the first nine months of 2005, respectively. Comparable store sales declined 1.0% or $1.9 million in the third quarter and rose 2.0% or $11.0 million during the first nine months of 2005. The remaining $6.5 million and $23.7 million of the increases in the third quarter and first nine months of 2005, respectively, were from new and otherwise non-comparable stores. Stores are non- comparable if open for less than one year or if the selling square footage has been changed significantly during the past 12 full months. Large clearance sales events from warehouses or temporary locations are excluded from comparable store sales, as are periods when stores are closed for remodeling. Retail sales of big-ticket home goods were weak from mid 2002 to mid 2003, which was widely reported to be due to consumer anxiety about employment uncertainty, threats of war, war and geopolitical unrest. There was also a lingering negative effect from lower stock market values. Beginning in June 2003 we had positive comp-store monthly sales results that continued throughout the remainder of 2003 and through April 2004 (excluding November 2003 which was 0.4% negative). Sales in our Florida and Southeast markets during August and September of 2004 were negatively impacted by record-breaking severe weather from four hurricanes within a six-week period. These lost sales were particularly significant because our Florida stores normally produce approximately 23% of our total sales. Sales during the fourth quarter of 2004 and the first half of 2005 improved but still reflected some continued reluctance by consumers to make big-ticket purchases. Results during the third quarter of 2005 were not as strong as expected relative to last year's quarter given the significant impact on the 2004 results from the hurricane activity. We believe that although the overall economy has improved, higher energy costs and rising interest rates have contributed to consumers reluctance to increase spending for big-ticket furniture items. During the third quarter of 2005 there was increased discounting activity in many of our markets related to the bankruptcy of a regional competitor. Many other retailers have been advertising aggressive sales promotions to stimulate business and increase their sales volume. We believe that this approach would negatively impact our "everyday low pricing" integrity with our customers over the longer term. Instead, we have used some promotional pricing during traditional holiday sales events. Supplementing the pricing promotions, we also offer free-interest and deferred payment financing promotions. During the remainder of the year we expect to continue with this approach of providing a selection of specially priced merchandise and competitive financing promotions to increase traffic in our stores. We will also be using additional advertising methods to reach our target customers such as an 80 page catalogue mailed to select customers in mid-October.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Our sales during the first nine months of 2005 increased across most of our major categories of furnishings, with casual dining and recliners and sleeper sofas performing better than the average. Our average price per item was slightly down and our average sales transaction was modestly higher in the third quarter over the prior year period. Net sales for each period by category were as follows (in millions): <TABLE> <CAPTION> Three Months Ended Nine Months Ended September 30 September 30 -------------------------------- ------------------------------- % of Net % of Net % of Net % of Net 2005 Sales 2004 Sales 2005 Sales 2004 Sales ------- -------- ------ -------- ------- ------ ------ ------- <s> <c> <c> <c> <c> <c> <c> <c> <c> Upholstery $49.6 24.6% $48.1 24.3% $148.9 24.7% $140.2 24.7% Bedroom 43.9 21.7 45.2 22.9 130.7 21.7 128.0 22.6 Formal Dining 14.1 7.1 15.4 7.8 42.8 7.1 43.9 7.7 Casual Dining 12.0 5.9 9.2 4.7 35.1 5.9 27.4 4.8 Recliners and Sleeper Sofas 14.3 7.0 13.2 6.7 44.4 7.4 40.4 7.1 Occasional 33.0 16.3 32.3 16.4 100.6 16.7 95.2 16.8 ------ ------ ------- ------ ------- ----- ------ ----- Total Furniture Sales 166.9 82.6 163.4 82.8 502.5 83.5 475.1 83.7 ------ ------ ------- ------ ------- ----- ------ ----- Bedding 20.9 10.3 21.2 10.7 57.8 9.6 55.3 9.8 Accessories and Other 14.2 7.1 12.8 6.5 41.8 6.9 37.0 6.5 ------ ------ ------- ------ ------- ----- ------ ----- Net Sales $202.0 100.0% $197.4 100.0% $602.1 100.0% $567.4 100.0% ====== ====== ======= ====== ======= ====== ====== ===== </TABLE> Gross Profit Cost of goods sold consists primarily of the purchase price of the merchandise together with inbound freight costs. Inventory that flows through our distribution centers, and the regional warehouses in prior periods, is capitalized with additional costs for certain expenses related to handling and transportation to local markets. The amounts shown in cost of goods sold previously included only the product costs, certain vendor allowances, in-bound freight and LIFO adjustments. All warehouse, transportation and distribution costs were included in the line item Selling, General and Administrative (SG&A). In prior periods, expenditures capitalized into inventory were recognized through SG&A rather than cost of goods sold. We have completed our transition to a distribution model that has increased the level of inventory flowing through the distribution centers. Accordingly, beginning in the third quarter of 2005 we are including in cost of goods sold the amounts capitalized into inventory for handling and transportation, and reclassified the prior periods for comparability. Our gross profit is largely dependent upon merchandising capabilities, vendor pricing and the mix of products sold. The continued improvements related to the products imported from Asia and pricing pressure on domestic suppliers have also generated good values for us. Many retailers have used the decreased costs to support their heavy promotional pricing. Our approach has been to offer products with greater value at our established middle to upper-middle price points. Gross profit for the third quarter declined 30 basis points compared to the prior year period and was flat on a sequential basis over the second quarter of this year. During the first nine months of 2005 we closed five local warehouses and our Florida regional warehouse facility. This generated higher than normal markdowns which, combined with pricing pressure on certain products and higher handling and transportation costs, has impacted gross profit margins. Gross profit for the nine months ended September 30, 2005 declined approximately 90 basis points as compared to the respective prior year period. We expect the fourth quarter 2005 gross profit margin level to be relatively flat with year to date results. 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. 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; warehouse and delivery; administrative; and advertising. Selling expenses are primarily comprised of compensation of sales associates and sales support staff and bank card charges. Occupancy costs include rents, depreciation charges, insurance and property taxes, repairs and maintenance expenses and utility costs. Warehouse and delivery costs include certain personnel expenses, fuel costs, and depreciation and rental charges for equipment and rolling stock. Administrative expenses are comprised of compensation costs for store management, information systems, executive, finance, merchandising, real estate and human resource departments, as well as retirement costs for all Havertys employees. Advertising expenses are primarily media production and space, direct mail costs and market research expenses. During the third quarter we incurred approximately $0.5 million or 25 basis points of pre-opening expenses for new stores. We expect that these will increase to $0.6 million in the fourth quarter, an amount comparable to the respective prior year period. Our SG&A costs in the third quarter were up 100 basis points as a percent of sales compared to the prior year period and declined 50 basis points on a sequential basis over the second quarter of 2005. Our distribution system is designed to support the expansion of our business efficiently. However, the system is more transportation oriented and rising fuel costs have an immediate impact on profitability. Demurrage costs for the third quarter were $0.4 million or 18 basis points versus negligible amounts in the prior year period. These costs are incurred when imported containers are not unloaded and returned to the port within the required time period. We have made changes to our supply chain that we believe will result in improved efficiency and reduce costs in flowing containers from Asia in 2006. This improvement is expected to result from lower rates, increased reliability and reduced demurrage. Our SG&A costs were up 110 basis points as a percent of sales on a comparable basis during the first nine months of 2005. Our operations were affected by the last major phase of our distribution transition. The overall impact from closing and consolidating six warehouses into our new Florida Distribution Center was costly. Our efficiency and timeliness in delivering to our customers was hampered in part due to challenges with our imported merchandise flow relative to space in our distribution center. Backing up our steady move to imported product as well as quick-turning domestic upholstery and supporting store growth, we will be completing the first phase of the expansion of our Eastern Distribution Center in Braselton, Georgia by late this year. The second phase will be complete in Spring 2006 and will bring the size of this key east coast facility to over 800,000 square feet. We believe that this expansion and a narrowed merchandise line up will allow us to significantly grow our volume and much better support the move to primarily exclusive Havertys Collectionr products. While these changes have been difficult and demonstrably expensive in period costs and human capital, we believe they are necessary. We also experienced increased costs during the first nine months related to ongoing operations for group insurance, utilities and professional service fees. Medical insurance costs were up $0.5 million in the third quarter and $2.2 million for the nine months ended September 30, 2005 compared to the respective periods of 2004. Utilities have increased approximately 37.2% over the prior year for the quarter and 27.0% the nine months ended September 30, 2005. The new regulatory requirements and the cost of compliance with the Sarbanes-Oxley Act contributed to a $0.2 million increase in the third quarter and a $1.0 million increase for the first nine months of 2005 in professional service fees as compared to the 2004 periods.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Credit Service Charge Revenue and Allowance for Doubtful Accounts Our credit service charge revenue has continued to decline as customers choose credit promotions with no interest features. The in- house financing program most frequently chosen by our customers during the third quarter was a no interest offer requiring 14 to 16 equal monthly payments. This program and the similar 12-month program generates very minor credit revenue, but helps us reduce our interest expense and bad debts due to the faster payout relative to our deferred payment in-house credit programs. In addition, we offer our customers the opportunity to apply for credit with a third party credit provider. Sales financed by this provider are not Havertys' receivables and accordingly we do not have any credit risk or service responsibility for these accounts, and there is no credit or collection recourse to Havertys. The most popular program offered through the third party provider for the third quarter was a no interest offer requiring 19 to 22 equal monthly payments. The third party also offers our customers a deferred payment for 12 months with an interest accrual that is waived if the entire balance is paid in full at the end of the deferral period. During the third quarter of 2005, the amounts financed under all credit programs as a percent of sales was 39.2% as compared to 42.5% in the third quarter of 2004. The following highlights the impact these changes have had on our credit service charge revenue and related accounts receivable and allowance for doubtful accounts (in thousands): Three Months Nine Months ended Ended September 30 September 30 ----------------- ----------------- 2005 2004 2005 2004 ------ -------- ------- ------- Credit Service Charge Revenue $ 837 $ 992 $ 2,702 $ 3,459 Amount Financed as a % of Sales Havertys 19.2% 21.7% 21.7% 22.8% Third-Party 20.1% 20.8% 17.6% 18.6% -------- -------- --------- -------- 39.2% 42.5% 39.3% 41.4% % Financed by Havertys with No Interest for 12 months 30.4% 33.6% 27.2% 43.9% No Interest for >12 months 42.0% 41.3% 49.1% 30.5% No Interest < 12 months 13.0% 12.9% 11.0% 13.7% Other 14.6% 12.2% 12.7% 11.9% -------- -------- --------- -------- 100.0% 100.0% 100.0% 100.0% September 30 ----------------------- 2005 2004 ---------- ---------- Accounts receivable $ 94,930 $ 100,869 Allowance for doubtful accounts 2,400 3,350 Allowance as a % of accounts receivable 2.5% 3.3% Our allowance for doubtful accounts as a percentage of the receivables pool is lower in 2005 due to improvements in the delinquency and problem category percentages from 2004. We believe that the amounts we pay for the third party credit program are justified compared to the increased costs associated with a larger receivables portfolio and the collection risks of the more promotional credit offers needed to remain competitive. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Balance Sheet Changes for the Nine Months Ended September 30, 2005 Cash balances declined by approximately $9.4 million from December 31, 2004 to September 30, 2005 as we utilized cash balances and cash generated from operations to make capital expenditures. Accounts receivable increased approximately $1.5 million since the end of last year due to the popularity of our in-house no interest credit promotion offered during the first half of this year. Prepaid expenses increased approximately $5.4 million primarily due to payments of estimated income taxes. Other current assets declined by approximately $5.6 million as we utilized cash held in escrow to acquire a property previously financed under a capital lease, collected vendor rebates receivables; and had a lower amount receivable at September 30, 2005 from our third-party customer credit provider. Accounts payable decreased $2.2 million due to lower purchases as overall inventory was reduced during the third quarter and there was a reduction in the level of inventory in transit. Customer deposits increased $8.1 million as written sales orders increased and deliveries were somewhat hampered by product flow and weather. Capital lease obligations declined as we elected to purchase a property under a capital lease. Liquidity and Capital Resources The following discusses the sources of our cash flows and commitments which impact our liquidity and capital resources on both a short-term and long-term basis. Cash flows generated from operations provide us with a significant source of liquidity. Cash provided by operations remained positive at $27.5 million in spite of increases in accounts receivables and reductions in accounts payable and accrued liabilities. Net income was $8.3 million and depreciation and amortization was $15.8 million. Cash flows used in investing activities of $13.6 million in the first nine months of 2005 were primarily for capital expenditures of $27.3 million offset in part by $7.2 million in proceeds from the sales of property and equipment and $5.0 million from the sale of auction rate securities. Cash flows used in financing activities were $23.2 million as we repaid $15.8 million of debt and capital lease obligations, purchased $3.8 million in treasury stock and paid $4.2 million in dividends. Stock Repurchases The Company's Board of Directors approved a stock repurchase program on November 3, 1986 and has at various times subsequent to that date increased the number of shares which may be purchased under the program. Stock repurchases may be made through open market and privately negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The stock repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice. Approximately 1.8 million shares remain authorized for purchase as of September 30, 2005. Financings In addition to term borrowings and capital leases, we have revolving lines of credit available for general corporate purposes and as interim financing for capital expenditures. These credit facilities are syndicated with five commercial banks and are comprised of two revolving lines totaling $80.0 million that terminate in August 2010. These facilities which were entered into in late August replace facilities totaling the same amount that were to terminate in September. Borrowings under the new facilities are unsecured and accrue interest at LIBOR plus a spread that is based on our fixed- charge coverage ratio, as defined. We did not have any amounts outstanding under these facilities at September 30, 2005. Our letters of credit totaling $4.7 million are considered part of the facilities usage. Accordingly, we had unused capacity of $63.9 million at September 30, 2005. Store Expansion and Capital Expenditures We have entered several new markets and made continued improvements and relocations of our store base. Our compounded annual growth rate for selling square footage over the last fifteen years was approximately 5%. We are expecting to add approximately 1.9% retail square footage net of closures during 2005. We opened an additional store in the Metro DC market during the first quarter. We opened a new store in the new market of Indianapolis, Indiana in October. We also expect to enter the new market of Columbus, Ohio with a new store by the end of the year. Two older stores in Shreveport, Louisiana were replaced by a single, better located showroom which opened in October. Three of our best stores also were physically expanded during 2005. We will also be closing one store in Austin, Texas in the fourth quarter and expect to replace this store by the end of 2006. We plan to open approximately five or six stores in 2006. These include a store in Ft. Lauderdale, Florida; a location near Stonecrest Mall, east of Atlanta; a relocated store in South Dallas, Texas in the Cedar Hill area; and two or three additional stores. We are aggressively evaluating other possible new locations which we believe will become available in existing retail sites in the near term. Our strategy is to pursue opportunities in densely populated markets which we can serve using our existing distribution. Our planned expenditures for 2005 are $40.0 million for stores, distribution and information technology. Capital expenditures for stores do not necessarily coincide with the years in which the store opens. Cash balances, funds from operations, proceeds from sales of properties and bank lines of credit are expected to be adequate to finance our 2005 capital expenditures. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes with respect to the Company's derivative financial instruments and other financial instruments and their related market risk 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 the Company's 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, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the Company's reports 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 the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding disclosure. There have been no changes in the Company's internal control over financial reporting identified in connection with the evaluation described in the immediately preceding paragraph that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
PART II. OTHER INFORMATION Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The following table provides information about the Company's purchases of shares of the Company's common stock during the quarter ended September 30, 2005: <TABLE> <CAPTION> (c) Total Number of Shares (d) Purchased as Maximum (a) (b) Part of Number that Total Average Publicly May Yet Be Number of Price Announced Purchased Shares Paid Per Plans or Under the Plans Purchased Share Programs(1) or Programs - ------------------------------------------------------------------------------------ <s> <c> <c> <c> <c> July 1 - July 30, 2005 47,900 $13.19 47,900 2,104,946 August 1 - August 30, 2005 181,500 12.74 181,500 2,057,046 September 1 - September 30, 2005 70,600 12.28 70,600 1,875,546 ----------- -------- --------- Total 300,000 $12.70 300,000 </TABLE> (1) The Board of Directors has authorized management, at its discretion, to purchase and retire the Company's Common Stock and Class A Common Stock under the Company's stock repurchase program. The stock repurchase program was initially approved by the Board of Directors on November 3, 1986 with subsequent authorizations made as to the number of shares to be purchased. Item 5. Other Information On August 26, 2005, the Company completed the replacement of its $80 million bank revolving credit facilities which were scheduled to terminate September 30, 2005. The new facilities are syndicated with five commercial banks and are comprised of two revolving lines totaling $80 million and terminate in August 2010. Borrowings under these facilities are unsecured and accrue interest at LIBOR plus a spread that is based on our fixed-charge coverage ratio, as defined. The facilities also have provisions for commitment fees. On September 6, 2005, Janet E. Taylor joined the Company as Vice President, Law. Her hiring was announced in a press release dated October 6, 2005. Ms. Taylor, 44, served as a partner in the corporate department at the Atlanta office of King & Spalding from 2000 to 2005. Her experience includes a broad range of transactions and advisory work for several large public companies. 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 document. Exhibit Number Description of Exhibit (Commission File No. 1-14445) 3.1 Articles of Incorporation of Haverty Furniture Companies, Inc. as amended and restated on March 6, 1973, and amended on April 24, 1979, and as amended on April 24, 1985 (Exhibit 3.1 to our 1985 Second Quarter Form 10-Q); Amendment to the Articles of Incorporation dated April 26, 1986 (Exhibit 3.1.1 to our 1986 First Quarter Form 10- Q); Amendment to the Articles of Incorporation dated April 28, 1989 (Exhibit 3.1.2 to our 1989 Form 10-Q); Amendment to the Articles of Incorporation dated April 28, 1995 (Exhibit 3.1.3 to our 1996 Form 10-K). 3.2 Amended and Restated By-laws of Haverty Furniture Companies, Inc. as amended on February 26, 2004 (Exhibit 3.2 to our 2003 Form 10-K). *10.1 Revolving Credit Agreement dated as of August 26, 2005 among Haverty Furniture Companies, Inc., as Borrower, the Lenders from time to time Party hereto, Bank of America, N.A. and Regions Bank, as Co-Documentation Agents, Wachovia Bank, National Association, as Syndication Agent and SunTrust Bank, as Administrative Agent. *10.2 Revolving Credit Agreement dated as of August 26, 2005 among Haverty Credit Services, Inc. as Borrower, the Lenders from time to time Party hereto, Bank of America, N.A. and Regions Bank, as Co-Documentation Agents, Wachovia Bank, National Association, as Syndication Agent and SunTrust Bank, as Administrative Agent. *31.1 Certification of Chief Executive Officer pursuant to sec. 302 of the Sarbanes-Oxley Act of 2002. *31.2 Certification of Chief Financial Officer pursuant to sec. 302 of the Sarbanes-Oxley Act of 2002. *32.1 Certification of Chief Executive Officer and the Chief Financial Officer pursuant to 18 U.S.C. sec 1350, as adopted, pursuant to sec. 906 of the Sarbanes-Oxley Act of 2002. 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 November 9, 2005 By: /s/ Clarence H. Smith ---------------------------------- Clarence H. Smith President and Chief Executive Officer By: /s/ Dennis L. Fink --------------------------------- Dennis L. Fink Executive Vice President and Chief Financial Officer