UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2004

OR

For the transition period from              to             

Commission file number: 1-14445

HAVERTY FURNITURE COMPANIES, INC.

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 Act). Yes [X] No [   ]

     The number of shares outstanding of the registrant’s two classes of $1 par value common stock as of November 1, 2004 were: Common Stock – 18,280,030; Class A Common Stock – 4,331,336.

HAVERTY FURNITURE COMPANIES, INC.

I N D E X

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)

See notes to condensed consolidated financial statements

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

See notes to condensed consolidated financial statements

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

NOTE A – Basis of Presentation

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 for complete financial statements. The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company made an adjustment to cost of sales of $1.2 million, or $0.03 per diluted earnings per common share, in the third quarter of 2004. This adjustment resulted from an accumulated undercosting of warranty sales because of changes to the Company’s information systems during 2001, when it converted to the billed-upon-delivery revenue recognition method. The amounts of the individual prior periods related to this adjustment are not material. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments with the exception of the adjustment to cost of sales, are of a normal recurring nature.

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.

Certain prior-year amounts have been reclassified to conform to the 2004 financial statement presentation.

NOTE B – Earnings Per Share

Effective for the quarter ended June 30, 2004, the Company must report 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 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):

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

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 Stock includes the effect of dilutive common stock options which reduces the amount of undistributed earnings allocated to the Class A Common Stock.

NOTE C – Stock-Based Compensation

At September 30, 2004, the Company had two stock-based employee compensation plans under which awards have been made: a non-compensatory employee stock purchase plan and a stock option 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 is reflected in net income, as all options granted under the stock option plan had an exercise price equal to the market value of the underlying common stock on the date of grant. 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 (in thousands):

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

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 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.

NOTE E – 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.” 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 gains to repair these facilities generally offset the deductible expense. During the third quarter of 2003, the Company had gains of approximately $0.9 million from the early termination of a lease by its landlord.

NOTE F – Comprehensive Income

Total comprehensive income for the nine months ended September 30, 2004 and 2003 was comprised of the following (in thousands):

NOTE G – Pension Plans

In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to improve financial statement disclosures for defined benefit plans. This standard requires that companies provide more details about their plan assets, benefit obligations, cash flows, benefit costs and other relevant information. In addition to expanded annual disclosures, the Company is required to report the various elements of its pension costs on a quarterly basis. SFAS No. 132 (revised 2003) is effective for fiscal years ending after December 15, 2003, and for quarters beginning after December 15, 2003.

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

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

The Company disclosed in its financial statements for the year ended December 31, 2003, a planned $2,000,000 contribution to the pension plan in 2004. No contributions were made to the plan in the first nine months of 2004, but the $2,000,000 is expected to be contributed prior to December 31, 2004.

NOTE H – Accounting and Disclosure Changes

Accounts receivable balances resulting from certain credit promotions have scheduled payment amounts which extend beyond one year. Prior to June 30, 2004, the Company classified its accounts receivable portfolio as a current asset in accordance with trade practice. In the aggregate, and based on historical experience, the receivables are collected in seven to eight months. Effective June 30, 2004, for those credit promotions which extend beyond one year, 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 at September 30, 2004. However, based on experience, management does not believe the collection rate will differ significantly. In addition, the December 31, 2003 balance sheet has been reclassified in a similar manner. At September 30, 2004 and December 31, 2003, the accounts receivable contractually due beyond one year from the respective balance sheet dates totaled approximately $26.2 million and $27.8 million, respectively.

In November 2002, the Emerging Issues Task Force issued EITF 02-16, “Accounting by a Customer for Cash Consideration Received from a Vendor.” This EITF places certain restrictions on the treatment of advertising allowances and requires vendor rebates to be treated as a reduction of inventory costs for agreements entered into or significantly modified after November 30, 2002, unless they represent a reimbursement of specific, incremental, identifiable costs incurred by the customer to sell the vendor’s product. The adoption of EITF 02-16 did not have a material impact on the Company’s 2003 financial statements as most contracts were in place prior to the effective date or allowances were tracked and identified with specific incremental advertising costs.

Beginning in 2004, the Company elected to treat all cooperative advertising funds received from vendors as a reduction in the cost of inventory and given that the Company values its inventory using the LIFO method, these funds generally will flow through the income statement in cost of goods sold unless there is a current year increment. During the quarter and nine months ended September 30, 2004, the Company recorded vendor allowances of approximately $3.8 and $10.6 million, respectively, as a reduction of cost of goods sold. The amount of vendor allowances during the same periods of 2003, recorded as a reduction of selling, general and administrative expenses, was approximately $3.4 and $9.9 million, respectively.

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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 federal securities laws. 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 and the roll-out of our distribution system. 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. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, variations of such words and similar expressions are intended to identify such forward-looking statements. 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. We believe that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. 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, whether caused by war, strikes, tariff, politics or otherwise; 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.

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

Operating Results

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:

Total sales increased $2.1 million or 1.1% in the third quarter of 2004 while comparable sales decreased 1.0%. The increase in total sales was generated by a $4.0 million increase from new and otherwise non-comparable stores and a decrease in comparable store sales of $1.9 million. 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 southeastern markets during August and September of 2004 were negatively impacted by record-breaking severe weather of 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. We have experienced a strong order rate in October in the affected markets as consumers have started receiving insurance claim checks and are catching up on postponed shopping. We expect that there will be some incremental sales over the next twelve months as storm damaged furniture is replaced and redecorating activity increases.

We believe that continued strong housing sales and low interest rates are a positive factor for the industry, but consumer confidence and further indications of a strengthening economy are key to increased spending for big- ticket furniture items. Many 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 sales events. Supplementing the pricing promotions, we also offer free-interest and deferred payment

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

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.

Our sales during the first nine months of 2004 increased across most of our major categories of furnishings, with recliners and sleeper sofas, bedding and upholstery performing better than the average. Our average price per item was up slightly 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):

Our delivered sales during October of 2004 were hampered by import flow issues. We experienced some delays for product which enters through the West Coast due to congestion in the ports and delays for groups whose production was shifted to Vietnam from China. We expect that these issues will improve in November.

Gross Profit

Cost of sales consists primarily of the purchase price of the merchandise together with inbound freight costs. Our gross profit is largely dependent upon merchandising capabilities, vendor pricing and the mix of products sold. We have developed strong relationships with our suppliers and believe that we receive excellent pricing and superior service from our key vendors in exchange for distribution of their products. 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 as a percentage of sales for the quarter ended September 30, 2004, improved slightly over the 2003 period on a comparable basis, considering the effect of the change in classification of vendor advertising allowances between periods and a nonrecurring adjustment of $1.2 million. The improvements in gross margins resulting from less promotional pricing this year was mostly offset by an increase in the LIFO provisions of 23 basis points on a comparable basis.

Gross profit has been improved by several factors related to the consolidation of our distribution network and improved supply chain management. We now have fewer pools of inventory, which reduces product handling and damage resulting in fewer markdowns, and a tighter supply chain, which reduces the level of closeouts for discontinued merchandise.

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

The increase in the level of sales of our Havertys branded merchandise line has also improved our gross profit. These private-label products generally carry a modestly higher gross margin, as manufacturers do not have their proprietary advertising costs to recoup. Sales of these private-label lines as a percent of total sales have grown. We expect that this trend will continue and Havertys Collections could be as much as 50% of our total sales during the last month of 2004.

The Company sells warranties provided by a third party to its customers. During the third quarter, it was determined that the warranties sold were being undercosted in the financial statements because of changes made in 2001 to our information systems when we converted to the billed-upon-delivery revenue recognition method. However, amounts charged to our customers and paid to the warranty provider were correct. A nonrecurring adjustment of $1.2 million was made to cost of goods sold related to warranty sales during previous periods. The amounts for the individual prior periods related to this adjustment are not material and the total recorded in the third quarter is approximately 61 basis points as a percentage of sales and $0.03 per diluted earnings per common share.

In November 2002, the Emerging Issues Task Force issued EITF 02-16, “Accounting by a Customer for Cash Consideration Received from a Vendor.” This EITF places certain restrictions on the treatment of advertising allowances and requires vendor rebates to be treated as a reduction of inventory costs for agreements entered into or significantly modified after November 30, 2002, unless they represent a reimbursement of specific, incremental, identifiable costs incurred by the customer to sell the vendor’s product. The adoption of EITF 02-16 did not have a material impact on our 2003 financial statements as most contracts were in place prior to the effective date or allowances were tracked and identified with specific incremental advertising costs.

We assessed the volume of cooperative advertising reimbursements that met the criteria for direct offset to advertising expense. Based upon our analysis of the impact on net income, and the administrative cost to identify and track reimbursements between those qualifying for expense offset and those requiring inventory cost reduction, we elected to treat all cooperative advertising funds received from vendors as a reduction in the cost of inventory beginning in 2004.

The change in the classification of the cooperative advertising funds and rebates in accordance with GAAP makes the following reconciliation necessary to compare the current year periods to prior-year periods (in millions):

*

The 2003 amounts for the periods presented are for informational purposes only and are non-GAAP as defined by Regulation G.

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

Approximately 60% of our bedroom furniture sales were from merchandise imported from China. The recent anti-dumping petition against Chinese furniture makers for allegedly dumping wooden bedroom furniture continues to work its way through the United States International Trade Commission and the United States Department of Commerce. The final determinations of the duties will be made in early November 2004 but the imposition of preliminary duties were made in mid-June 2004. The preliminary duties on average for our major suppliers are between 4.9% and 12.9%, lower than what was requested by the petitioning group. We do not anticipate a negative impact on our margins related to these duties because of our ability to source products from other countries, and to implement moderate retail price increases, or some combination of these actions.

Our cost of goods sold does not include purchasing and receiving costs, or warehouse and distribution costs. These costs are included in our selling, general and administrative expenses and accordingly our gross profit may not be comparable to those entities that include these costs in cost of goods sold.

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, 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 personnel, 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, market research expenses and employee compensation.

Our SG&A costs were up 189 basis points as a percent of sales on a comparable basis (see table under Gross Profit). The third quarter of 2004 began with strong sales and we began ramping up our operations for the months ahead. The hurricanes in Florida and other southeastern markets affected our operations as the far reaching and prolonged periods of evacuations and disruptions made it difficult to control expenses. We continue to build our Havertys brand image with our target customers. We have increased our television advertising during 2004, particularly in our larger and newer markets, and in the third quarter invested $1.0 million more than the prior year period.

Additional SG&A costs increasing in the third quarter of 2004 compared to 2003 were utilities, fuel and fees resulting from increased bank card usage by our customers.

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 18 to 20 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. We offer to 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 standard program offered through the third party provider is a deferred payment for up to 18 months with an interest accrual that is waived if the entire balance is paid in full at the end of the deferral period. Beginning in the third quarter of 2003, this promotion became the most popular of all the credit programs offered. During the third quarter of 2004, the amounts financed under all credit programs as a percent of sales was 42.5% as compared to 47.7% in 2003. The following highlights the impact these changes

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

has had on our credit service charge revenue and related accounts receivable and allowance for doubtful accounts (in thousands):

Our allowance for doubtful accounts declined in 2004 as lower levels of in-house receivables were generated. 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. Our allowance for doubtful accounts as a percentage of the receivables pool is lower in 2004 as improvements were made in the delinquency percentages and the rate of bankruptcy filings.

Balance Sheet Changes for the Nine Months Ended September 30, 2004

Inventories increased $8.7 million as we expanded the Havertys Premium Collections and reacted to the higher forecasted sales of imported merchandise. Accounts receivable decreased by $11.7 million during the period primarily as a result of the continuing cash flow benefits of increased sales through the third party credit program.

Total current and long-term other assets declined by $0.7 million during the period as the sale of land held for sale was offset by receivables from the sale of a warehouse and insurance claims.

Accounts payable and accrued expenses decreased $5.5 million during the period due to a reduction in trade payables and as year-end accrued compensation and related costs were paid and offset by the increase in the liability for undelivered sales. Our import purchases require payment more quickly after the receipt of

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

merchandise than our domestic purchases which, given our higher level of import purchases, has reduced our trade payables. We also reduced our long-term debt and capital lease obligations by $8.5 million during the period.

Liquidity and Capital Resources

The following sections discuss 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 decreased $11.0 million in the first nine months of 2004.

Cash flows generated from operations provide us with a significant source of liquidity. Cash provided by operations remained positive at $23.0 million in spite of increases in inventories and the reduction in trade payables. Net income was $14.2 million and depreciation and amortization were $14.1 million.

Cash flows used in investing activities were $23.5 million in the first nine months of 2004. Capital expenditures of $28.2 million were partially offset by $2.5 million in proceeds from the sale of property and equipment and $1.8 million from the sale of a parcel of land that had been held for sale.

Cash flows used in financing activities were $10.5 million as we repaid $8.5 million of long-term debt.

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 six commercial banks and are comprised of two revolving lines totaling $80.0 million that terminate in September 2005. Borrowings under these facilities are unsecured and accrue interest at LIBOR plus a spread that is based on a fixed-charge coverage ratio. We had letters of credit in the amount of $4.8 million outstanding at September 30, 2004, and these amounts are considered part of the facilities usage. We had an unused capacity of $75.2 million at September 30, 2004.

Store Expansion and Capital Expenditures

We have entered several new markets and made continued improvements and relocations of our store base. Our total selling square footage increases per year have historically been in the 5% to 6% range.

We are expecting to add approximately 4% retail square footage during 2004. We opened an additional store in the Metro DC market during the second quarter and added a store in the San Antonio, Texas market in the third quarter. We also plan to open new stores in Cincinnati, Ohio and Baton Rouge, Louisiana in the fourth quarter. Our store expansion for the next two years includes new locations in the Florida, Metro DC and Ohio markets.

Our planned expenditures for 2004 are $45.7 million for stores, distribution and information technology and $20.1 million for purchases of assets in operations currently under lease. Our planned expenditures are $48.1 million for 2005 and include amounts for two stores in two new markets, an additional 13 stores in existing markets three replacement 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 2004 and 2005 capital expenditures.

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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

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer of the Company and the Chief Financial Officer of the Company, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(e) as of the end of the period covered by this report. Based upon that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filings.

The Company is currently undergoing a comprehensive effort to comply with Section 404 of the Sarbanes-Oxley At of 2002. Compliance is required for our fiscal year-ending December 31, 2004. This effort includes documenting and testing of internal controls. The Company’s review continues, but to date the Company has not identified any material weaknesses in its internal control over financial reporting as defined by the Public Company Accounting Oversight Board Standard No. 2. The Company is nonetheless making improvements to its internal controls over financial reporting as a result of its review efforts. These planned improvements include additional information technology system controls, further formalization of policies and procedures, improved segregation of duties and additional monitoring controls. During the course of these activities, the Company has identified and corrected certain internal controls over financial reporting including those associated with changes in our information technology systems and the costing of third party warranties. The Company has modified the internal control procedures for third party warranty sales and has added additional related reconciliation processes. The Company is also enhancing the controls and procedures for making program changes and segregation of duties within its information technology systems and further restricting system access.

Not withstanding the items noted, there were no changes in internal control during the period that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 6. Exhibits

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

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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.

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