HAVERTY FURNITURE COMPANIES INC - Quarter Report: 2013 June (Form 10-Q)

hvt10q6302013.htm

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 June 30, 2013

¨ 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x 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	x
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 x

The numbers of shares outstanding of the registrant’s two classes of $1 par value common stock as of July 31, 2013, were: Common Stock – 20,032,264; Class A Common Stock – 2,464,755.

HAVERTY FURNITURE COMPANIES, INC.

INDEX

		Page No.

PART I.	FINANCIAL INFORMATION

	Item 1. Financial Statements

	Condensed Consolidated Balance Sheets – June 30, 2013 (unaudited) and December 31, 2012	1

	Condensed Consolidated Statements of Income – Three and Six Months ended June 30, 2013 and 2012 (unaudited)	2

	Condensed Consolidated Statements of Comprehensive Income – Three and Six Months ended June 30, 2013 and 2012 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows – Six Months ended June 30, 2013 and 2012 (unaudited)	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	10

	Item 3. Quantitative and Qualitative Disclosures about Market Risk	13

	Item 4. Controls and Procedures	13

PART II.	OTHER INFORMATION

	Item 1A. Risk Factors	14

	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, 2013			December 31, 2012
Assets
Current assets
Cash and cash equivalents	$	52,260		$	53,550
Restricted cash and cash equivalents		7,015			7,013
Accounts receivable		8,290			9,710
Inventories		97,738			96,902
Prepaid expenses		7,711			9,532
Other current assets		5,263			3,187
Total current assets		178,277			179,894
Accounts receivable, long-term		825			814
Property and equipment		191,917			193,085
Deferred income taxes		24,002			24,366
Other assets		4,116			3,937
Total assets	$	399,137		$	402,096
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	20,370		$	28,178
Customer deposits		22,643			20,963
Accrued liabilities		30,009			33,272
Deferred income taxes		6,595			6,595
Current portion of lease obligations		929			881
Total current liabilities		80,546			89,889
Lease obligations, less current portion		16,988			18,473
Other liabilities		29,511			34,306
Commitments		—			—
Total liabilities		127,045			142,668
Stockholders’ equity
Capital Stock, par value $1 per share
Preferred Stock, Authorized – 1,000 shares; Issued: None
Common Stock, Authorized – 50,000 shares; Issued: 2013 – 27,724; 2012 – 27,212		27,724			27,212
Convertible Class A Common Stock, Authorized – 15,000 shares; Issued: 2013 – 3,026; 2012 – 3,297		3,026			3,297
Additional paid-in capital		74,220			73,803
Retained earnings		265,624			254,310
Accumulated other comprehensive loss		(22,782	)		(23,378	)
Less treasury stock at cost – Common Stock (2013 – 7,731; 2012 – 7,741) andConvertible Class A Common Stock (2013 and 2012 – 522 shares)		(75,720	)		(75,816	)
Total stockholders’ equity		272,092			259,428
Total liabilities and stockholders’ equity	$	399,137		$	402,096

See notes to these condensed consolidated financial statements.

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data – Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2013		2012			2013		2012

Net sales	$	171,114	$	151,519		$	357,204	$	315,088
Cost of goods sold		79,803		71,770			165,585		149,997
Gross profit		91,311		79,749			191,619		165,091
Credit service charges		76		71			162		147
Gross profit and other revenue		91,387		79,820			191,781		165,238

Expenses:
Selling, general and administrative		83,197		76,409			169,859		157,646
Interest, net		277		158			555		319
Provision for doubtful accounts		32		5			45		71
Other (income) expense, net		15		(518	)		6		(585	)
		83,521		76,054			170,465		157,451

Income before income taxes		7,866		3,766			21,316		7,787
Income tax expense		3,036		1,405			8,226		2,969
Net income	$	4,830	$	2,361		$	13,090	$	4,818

Basic earnings per share:
Common Stock	$	0.22	$	0.11		$	0.59	$	0.22
Class A Common Stock	$	0.20	$	0.10		$	0.56	$	0.21

Diluted earnings per share:
Common Stock	$	0.21	$	0.11		$	0.58	$	0.22
Class A Common Stock	$	0.20	$	0.10		$	0.55	$	0.21

Basic weighted average shares outstanding:
Common Stock		19,807		19,023			19,654		18,944
Class A Common Stock		2,614		2,989			2,682		3,037

Diluted weighted average shares outstanding:
Common Stock		22,791		22,313			22,754		22,292
Class A Common Stock		2,614		2,989			2,682		3,037

Cash dividends per share:
Common Stock	$	0.0400	$	0.0400		$	0.0800	$	0.0400
Class A Common Stock	$	0.0375	$	0.0375		$	0.0750	$	0.0375

See notes to these condensed consolidated financial statements.

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands – Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2013		2012		2013		2012

Net income	$	4,830	$	2,361	$	13,090	$	4,818
Other comprehensive income
Defined benefit pension plans:
Amortization of prior service cost		32		52		64		104
Amortization of net loss		266		490		532		980
Other		—		50		—		100
Total other comprehensive income		298		592		596		1,184
Comprehensive income	$	5,128	$	2,953	$	13,686	$	6,002

See notes to these condensed consolidated financial statements.

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands – Unaudited)

	Six Months Ended June 30,
	2013			2012
Cash Flows from Operating Activities:
Net income	$	13,090		$	4,818
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,486			9,418
Share-based compensation expense		2,038			1,321
Provision for doubtful accounts		45			71
Other		448			545
Changes in operating assets and liabilities:
Accounts receivable		1,364			1,815
Inventories		(836	)		101
Customer deposits		1,680			2,190
Other assets and liabilities		(4,267	)		(954	)
Accounts payable and accrued liabilities		(11,071	)		1,203
Net cash provided by operating activities		12,977			20,528

Cash Flows from Investing Activities:
Capital expenditures		(10,225	)		(12,821	)
Other		4			236
Net cash used in investing activities		(10,221	)		(12,585	)

Cash Flows from Financing Activities:
Payments on lease obligations		(437	)		(373	)
Dividends paid		(1,776	)		(875	)
Proceeds from exercise of stock options		623		─
Taxes on vested restricted shares		(2,456	)		(515	)
Other financing activities		—			(47	)
Net cash used in financing activities		(4,046	)		(1,810	)

(Decrease) increase in cash and cash equivalents during the period		(1,290	)		6,133
Cash and cash equivalents at beginning of period		53,550			49,585
Cash and cash equivalents at end of period	$	52,260		$	55,718

See notes to these condensed consolidated financial statements.

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.

Effective January 1, 2013, the Company adopted ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.” The adoption of ASU 2013-02 concerns presentation and disclosure only and did not have an impact on the Company’s consolidated financial position or results of operations.

In the first quarter of 2013, we recorded an out-of-period adjustment related to our historical accrual process for certain vendors' pricing allowances. The non-cash adjustment increased gross profit by $0.8 million or $0.02 per diluted share after tax for the six months ended June 30, 2013. After evaluating the quantitative and qualitative aspects of this correction, management has determined that our previously issued quarterly and annual consolidated financial statements were not materially misstated and that the out-of-period adjustment is immaterial to our estimated full year 2013 results and to our earnings’ trends.

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, 2012.

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, 2013.

HAVERTY FURNITURE COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE C – Accounts Receivable

Amounts financed under our in-house credit programs were, as a percent of net sales, approximately 4.0% and 5.1% during the first six months of 2013 and 2012, respectively. The credit program selected most often by our customers is “12 months no interest with equal monthly payments.” The terms of the other programs vary as to payment terms (30 days to three years) and interest rates (0% to 21%). The receivables are collateralized by the merchandise sold.

Accounts receivable balances resulting from certain credit promotions have scheduled payment amounts which extend beyond one year. These receivable balances have been historically collected earlier than the scheduled dates. The amounts due per the scheduled payment dates approximate as follows: $8.5 million in one year, $0.7 million in two years, $0.3 million beyond two years for receivables outstanding at June 30, 2013.

Accounts receivable are shown net of the allowance for doubtful accounts of $0.4 million at June 30, 2013 and December 31, 2012. 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 D – 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 E – Accumulated Other Comprehensive Loss

The following summarizes the change in balance and the reclassification from Accumulated Other Comprehensive Loss to the Condensed Consolidated Statement of Income (amounts in thousands):

	Three Months Ended June 30, 2013			Six Months Ended June 30, 2013
Beginning balance	$	(23,080	)	$	(23,378	)
Amortization of defined benefit pension items:
Prior service costs		52			104
Actuarial loss		428			856
		480			960
Tax		(182	)		(364	)
Total amount reclassified from accumulated other comprehensive loss		298			596
Ending balance	$	(22,782	)	$	(22,782	)

The pension items noted above are included in the components of net periodic cost for pension plans (see Note H).

HAVERTY FURNITURE COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE F – 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 rates for the six months ended June 30, 2013 and 2012 were 38.6% and 38.1%, respectively.

NOTE G – 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 $1.8 million at June 30, 2013 and $1.5 million at December 31, 2012 and are included in other assets. The related liability of the same amount is included in other liabilities.

NOTE H – Pension Plans

We have a defined benefit pension plan covering substantially all employees hired on or before December 31, 2005. The pension plan was closed to any employee hired after that date. The benefits are based on years of service and the employee’s final average compensation. Effective January 1, 2007, no new benefits are earned under this plan for additional years of service after December 31, 2006.

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):

	Three Months Ended June 30,						Six Months Ended June 30,
	2013			2012			2013			2012

Service cost-benefits earned during period	$	27		$	31		$	54		$	62
Interest cost on projected benefit obligations		877			943			1,754			1,886
Expected return on plan assets		(1,243	)		(1,118	)		(2,486	)		(2,236	)
Amortization of prior service costs		52			52			104			104
Amortization of actuarial loss		428			490			856			980

Net pension costs	$	141		$	398		$	282		$	796

HAVERTY FURNITURE COMPANIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE I – Stock Based Compensation Plans:

As more fully discussed in Note 11 of the notes to the consolidated financial statements in our 2012 Annual Report on Form 10-K, we have options and awards outstanding for Common Stock under two stock-based employee compensation plans.

The following table summarizes our share option and award activity during the six months ended June 30, 2013:

	Restricted Stock Awards					Stock-Settled Appreciation Rights					Options
	Shares or Units			Weighted-Average Award Price		Rights			Weighted-Average Award Price		Shares			Weighted-Average Exercise Price
Outstanding at December 31, 2012		555,925		$	12.28		121,749		$	8.85		50,000		$	20.56
Granted		161,150			18.13		112,000			18.14		—			—
Exercised or restrictions lapsed		(277,475	)		12.24		(72,049	)		8.94		(30,000	)	$	20.75
Forfeited or expired (options)		(2,350	)		14.56		—			—		(2,000	)	$	15.90
Outstanding at June 30, 2013		437,250		$	14.45		161,700		$	15.25		18,000		$	20.75
Exercisable at June 30, 2013		—			—		49,700			8.72		18,000		$	20.75

Grants of restricted common stock and stock-settled appreciation rights are made to certain officers and key employees under the 2004 LTIP Plan. The restrictions on the awards generally lapse annually, primarily over four year periods. 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 was approximately $2.0 million in 2013 and $1.3 million in 2012. The aggregate intrinsic value of outstanding restricted common stock grants was $10.1 million at June 30, 2013. The aggregate intrinsic value of vested and outstanding stock-settled appreciation rights at June 30, 2013 was approximately $0.7 million and $1.3 million, respectively.

As of June 30, 2013, the remaining unamortized compensation cost related to unvested equity awards was approximately $5.7 million and scheduled to be recognized over a weighted-average period of 2.9 years.

NOTE J – 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.

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,
	2013		2012		2013		2012
Numerator:
Common:
Distributed earnings	$	797	$	762	$	1,577	$	762
Undistributed earnings		3,497		1,293		10,013		3,421
Basic		4,294		2,055		11,590		4,183
Class A Common earnings		536		306		1,500		635
Diluted	$	4,830	$	2,361	$	13,090	$	4,818

Class A Common:
Distributed earnings	$	96	$	113	$	199	$	113
Undistributed earnings		440		193		1,301		522
	$	536	$	306	$	1,500	$	635
Denominator:
Common:
Weighted average shares outstanding - basic		19,807		19,023		19,654		18,944
Assumed conversion of Class A Common Stock		2,614		2,989		2,682		3,037
Dilutive options, awards and common stock equivalents		370		301		418		311

Total weighted-average diluted Common Stock		22,791		22,313		22,754		22,292

Class A Common:
Weighted average shares outstanding		2,614		2,989		2,682		3,037
Antidilutive shares excluded from the denominator due to the options’ exercise prices being greater than the average market price		—		292		—		292

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.

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):

	2013												2012
	Net Sales							Comp-Store Sales					Net Sales							Comp-Store Sales
Period	Total Dollars		% Increase			$ Increase		% Increase			$ Increase		Total Dollars		% Increase			$ Increase		% Increase			$ Increase
Q1	$	186.1		13.8	%	$	22.5		11.5	%	$	18.7	$	163.6		6.1	%	$	9.4		5.7	%	$	8.7
Q2		171.1		12.9			19.6		11.2			16.7		151.5		5.9			8.4		5.6			8.0
First Half	$	357.2		13.4	%	$	42.1		11.3	%	$	35.4	$	315.1		6.0	%	$	17.8		5.7	%	$	16.7
Q3		—		—			—		—			—		172.7		11.1			17.3		10.0			15.4
Q4		—		—			—		—			—		182.3		8.4			14.0		6.0			10.1
Year		—		—			—		—			—	$	670.1		7.9	%	$	49.2		6.8	%	$	42.2

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 warehouse or temporary locations are excluded from comparable store sales as are periods when stores are closed.

Our average written ticket is up approximately 7.7% for the second quarter and 10.3% for the first half of the year. Sales in the custom order segment of our upholstery business and casual dining product categories continued to show strength in the second quarter of 2013 increasing 21.7% and 30.4%, respectively, over the prior year corresponding period.

Gross Profit

Gross profit for the second quarter of 2013 was 53.4%, up 80 basis points compared to 52.6% in the prior year period. Gross profit for the six months ended June 30, 2013 was $191.6 million, which included an additional $0.8 million out-of-period adjustment recorded in the first quarter. Excluding the 20 basis point impact of the adjustment, gross profit for the first half was 53.4%, up 100 basis points compared to 52.4% in the prior year period.

The primary factors in generating this gross profit improvement were: our expansion of upper-middle price point products in our assortment, an abnormally high level of accessory close outs in the prior year, our focus on pricing discipline, and reduced inbound ocean freight costs.

We plan to remain competitive, but not overly aggressive with our pricing structure. Gross profit margins for the second half of 2013 are expected to be better than the 52.7% margin recorded for the second half of 2012 but modestly below the first half adjusted rate of 53.4%.

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; delivery and certain warehousing costs; advertising and marketing; and administrative.

Total SG&A expenses as a percent of sales for the three months ended June 30, 2013 decreased 1.8% to 48.6% from 50.4% in the prior year period. Total SG&A dollars for the second quarter of 2013 increased $6.8 million compared to the prior year period. Selling expenses increased $2.1 million as commissions and credit costs rose in line with sales. Advertising expense increased $1.5 million as we increased our television spending. Our administrative expenses increased $1.8 million for employee costs including: wages, increased stock compensation expense, payroll taxes and employee group health benefit costs.

SG&A costs for the first half of 2013 decreased 2.4% to 47.6% as a percent of sales from 50.0%. Total SG&A dollars for the six months ended June 30, 2013 rose $12.2 million compared to the prior year period. This change includes increases of $4.5 million in selling expenses as commissions and credit costs rose in line with sales, additional advertising expense of $1.2 million, and increased compensation and related payroll benefit costs of $3.7 million.

Our fixed and discretionary type expenses within SG&A costs for the full year 2013 are expected to be at the high end of the $220.0 million to $222.0 million range discussed in our Form 10-K for the year ended December 31, 2012. This range represents an increase of approximately 4.5% over the same costs for 2012. These expenses will generally increase 3% to 5% annually due to inflation, expansion, staffing, and decisions made on the level of advertising spend. The variable costs within SG&A for the full year 2013 are anticipated to be on the lower end of the previously stated range of 17.0% to 17.5% as a percent of sales.

Liquidity and Capital Resources

Our primary cash requirements include working capital needs, contractual obligations, benefit plan contributions, 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 $52.5 million and there were no outstanding letters of credit at June 30, 2013. Amounts available are based on the lesser of the borrowing base 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, 2013.

Summary of Cash Activities

Our cash flows provided by operating activities totaled $13.0 million in the first half of 2013 compared to $20.5 million for the same period of 2012. This decrease was primarily due to a more significant reduction in accounts payable and other liabilities and an increase in other current assets partially offset by increased earnings in 2013. 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 $10.2 million in the first six months of 2013 versus $12.6 million for the same period of 2012. This decrease was primarily due to reduced capital expenditures in 2013.

Financing activities used cash of $4.0 million in the first six months of 2013 compared to $1.8 million for the same period of 2012. The increase was due in part to the withholding taxes for vested restricted shares. The number of shares vesting increased as the acceleration goals of certain grants were met during the second quarter of 2013. We also paid a greater dividend in 2013.

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

Balance Sheet Changes for the Six Months Ended June 30, 2013

Our balance sheet as of June 30, 2013, as compared to our balance sheet as of December 31, 2012, changed as follows:

decrease in prepaid expenses of $1.8 million primarily due to collection of income tax receivables;
increase in other current assets of $2.1 million due in part to timing of payments from third party financing company;
decrease in property and equipment of $1.2 million as depreciation expense outpaced capital expenditures;
decrease in accounts payable of $7.8 million due to timing of payments and receipt of inventory;
decrease in accrued liabilities of $3.3 million due to timing of payments partly offset by additional amounts related to insurance; and
decrease in other liabilities of $4.8 million as we made $3.0 million in contributions reducing our pension plan liability.

Store Plans and Capital Expenditures

Store plans for 2013 include the expansion of five showrooms and 18 of our Bright Inspiration store refreshes. We also closed three stores at the end of their lease term; Clearwater, Florida was closed in the first quarter, and Jackson, Mississippi and Roanoke, Virginia were closed in the second quarter. These changes should decrease net selling square footage by approximately 2.0% in 2013.

Our planned capital expenditures for 2013 are approximately $22.0 million and $25.0 million in 2014.

Off-Balance Sheet Arrangements

As of June 30, 2013 we had no off-balance sheet arrangements or obligations.

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, 2012. 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 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.

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, 2012, 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 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).
*10.1		Haverty Furniture Companies, Inc., Class A Shareholders Agreement, made as of June 5, 2012, by and among, Haverty Furniture Companies, Inc., Villa Clare Partners, L.P., Clarence H. Smith, H5, L.P., Rawson Haverty, Jr., Ridge Partners, L.P. and Frank S. McGaughey; Parties added to the Agreement and Revised Annex I as of November 1, 2012 – Marital Trust FOB Margaret M. Haverty and Marital Trust B FOB Margaret M. Haverty; Parties added to the Agreement as of December 11, 2012 – Margaret Munnerlyn Haverty Revocable Trust; Parties added to the Agreement as of July 5, 2013 – Richard McGaughey.
*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, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at June 30, 2013, and December 31, 2012, (ii) Condensed Consolidated Statements of Income for the three and six months ended June 30, 2013 and 2012, (iii) Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 and 2012, (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012, and (v) the Notes to Condensed Consolidated Financial Statements.

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 2, 2013	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)