HAVERTY FURNITURE COMPANIES, INC.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


(Mark One)
[X]		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 2003


[ ]		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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 jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


780 Johnson Ferry Road, Suite 800, Atlanta, Georgia		30342
(Address of principal executive officers)		(Zip Code)

Registrant’s telephone number, including area code:(404) 443-2900

Securities registered pursuant to Section 12(b) of the Act:


Title of each Class		Name of each exchange on which registered

Common Stock ($1.00 Par Value)		New York Stock Exchange, Inc.
Class A Common Stock ($1.00 Par Value)

Securities registered pursuant to Section 12(g) of the Act: None

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Paragraph 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The approximate aggregate market value of voting stock held by non-affiliates of the registrant was $316,605,000 as of June 30, 2003 (based on the last transaction prices of the registrant’s two classes of common stock on such date). As of February 16, 2004, the number of shares outstanding of the registrant’s two classes of $1.00 par value common stock were: Common Stock – 18,067,499; Class A Common Stock – 4,353,406.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s annual report to stockholders for the year ended December 31, 2003, are incorporated by reference in response to Part II of this report. Portions of the registrant’s proxy statement relating to its 2004 Annual Meeting of Stockholders, to be held on May 4, 2004, are incorporated by reference in response to Part III of this report, where indicated.

TABLE OF CONTENTS


PART I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
	ITEM 9A. CONTROLS AND PROCEDURES
PART III
	ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
SIGNATURES
EX-3.2 BY-LAWS OF HAVERTY FURNITURE COMPANIES, INC
EX-10.3.2 GUST COMPLIANCE AMEND. TO THRIFT PLAN
EX-10.8.1 AMENDMENT # 1 TO DIRECTORS COMP. PLAN
EX-13.1 ANNUAL REPORT TO STOCKHOLDERS 12/31/03
EX-21.1 SUBSIDIARIES OF THE REGISTRANT
EX-23.1 CONSENT OF ERNST & YOUNG, LLP
EX-31.1 SECTION 302 CERTIFICATION OF CEO
EX-31.2 SECTION 302 CERTIFICATION OF CFO
EX-32.1 SECTION 906 CERTIFICATION OF CEO & CFO
EX-99.1 CAUTIONARY STATEMENT/FORWARD-LOOKING STATE

PART I

ITEM 1. BUSINESS

General

Haverty Furniture Companies, Inc. is a full-service home furnishings retailer. Unless the context indicates otherwise, the terms “company,” “Havertys” and “we” refer to the Haverty Furniture Companies, Inc. and its subsidiaries. We operate 113 showrooms in 15 contiguous southern and central states. We provide our customers with a wide selection of furniture and accessories primarily in the middle to upper-middle price ranges. As an added convenience to our customers, we offer financing through an internal revolving charge credit plan as well as a third party finance company. Havertys originated as a family business in 1885 in Atlanta, Georgia. Havertys has been a publicly held company since 1929, incorporated under the laws of the State of Maryland. Our corporate headquarters are located at 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia 30342. Our website address is www.havertys.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

Business Strategy

We serve a target customer in the middle to upper-middle income ranges. We have attracted this discriminating and demanding consumer by focusing on what we believe are the key elements of furniture retailing: convenient and appealing stores, merchandise value and selection, product and image oriented advertising, and customer service. We have made investments in technology to improve operating efficiencies and investments in new retail stores. We plan to continue to expand into new markets and strengthen our position in our current market areas utilizing existing and planned distribution infrastructure.

Stores

As of December 31, 2003, we operated 113 stores serving 74 cities in 15 states. We have executed a program of remodeling and expanding showrooms and replacing older smaller stores in growth markets with new larger stores, closing certain locations and moving into new markets. Accordingly, the number of retail locations has increased by only 24 since the year ended 1993, but total square footage has increased approximately 74%.

We entered two new markets and a new state during 2003. A new store in San Antonio, Texas and a remodeled “big-box” store in West Palm Beach, Florida, opened during the second quarter. We also opened our first store in Maryland in the fourth quarter as part of our expansion in the Metro-DC market. We also relocated our Jackson, Mississippi store in January 2003. Net selling space in 2003 increased by 3.3% or approximately 126,000 square feet.

We plan to enter one new state and continue expansion in existing markets in 2004. We expect to add a store in the Metro-DC market and one in San Antonio, Texas, and expand existing stores in the Metro-DC market and Savannah, Georgia during the second and third quarters of 2004. We plan to open our first store in Ohio as part of the leveraging of our new distribution infrastructure. The store in Ohio is a remodel of existing big-box retail space and is scheduled to open in the fourth quarter of 2004. Net selling space in 2004 should increase by 3.3% or approximately 128,000 square feet assuming the new stores open as planned.

Revenues

The following table sets forth the approximate percentage contributions by product or service to our gross revenues for the past three years:


	Year ended December 31,
	2003			2002			2001
Merchandise:
Living Room Furniture		48.3	%		48.0	%		48.5
Bedroom Furniture		22.2			23.0			22.3
Dining Room Furniture		13.5			13.1			14.6
Bedding		9.0			8.0			6.8
Accessories and Other (1)		6.2			6.6			6.2
Credit Service Charges		0.8			1.3			1.6

		100.0	%		100.0	%		100.0	%

(1) Including delivery charges and product protection.

Merchandising

Havertys offers many nationally well-known brand names of merchandise, such as Broyhill, Lane, Bernhardt, La-Z-Boy, Sealy and Serta. We also carry merchandise that bears the Havertys brand. These items were developed primarily with manufacturers whose names do not carry the same level of customer awareness as Havertys. We prefer to carry multiple lines of furniture in order to offer the consumer broad product choices at good values. We have avoided utilizing lower cost, promotional price-driven merchandise favored by many national chains, which we believe gives Havertys a unique position for a large retailer.

During 2000, we began selling merchandise that bears the Havertys brand. These products are sold exclusively by the Company in our markets and generally carry a modestly higher gross margin. This better return is useful in offsetting the somewhat lower gross margins typically associated with higher-end merchandise sold under well-known manufacturer brands. This merchandise assisted us in protecting our profitability during the slower economic cycle. We advertise our private label lines as Havertys Collections. Sales in 2003 of Havertys Collections were $153.0 million or 20.5% of total sales, with steady increases to 30% in the months in late 2003 and in early 2004. A Havertys branded bedding line will be added in 2004. We expect that sales of Havertys private-label products could be as much as 50% of our total sales during the last months of 2004.

We tailor our merchandise presentation to the needs and tastes of the local markets. All five regional managers are included in our buying team, and their input allows each store to present a product mix that is roughly 20 to 25 percent regionalized. Each local market manager can select from region specific items that are attractive to consumers in their particular metropolitan area. These managers are also responsible for pricing in their respective markets, with the exception of specific items that are advertised chain-wide and our private-label products. We therefore can be competitively priced in each market while maintaining attractive gross margins.

In February 1998, the Company and Furniture Brands International (“Furniture Brands”) announced a strategic alliance whereby we would allocate up to 50% of our retail square footage, excluding bedding display, to products supplied by Furniture Brands. Furniture Brands’ lines include widely recognized brands such as Broyhill, Lane, and Thomasville. The Company and Furniture Brands agreed to end the alliance in December 2003. We will cease carrying the Thomasville brand and will be replacing it with

other premium lines including Havertys’ private label products during the first half of 2004. Furniture Brands’ Broyhill and Lane brand names will continue to be important parts of our retail mix but will no longer be allocated a certain amount of showroom display.

Although we have only an estimated 1% national market share of the highly fragmented furniture retail market, we are becoming an important customer to the largest furniture manufacturers due to our consistent track record of profitable, controlled growth and reputable customer service. Our regional warehousing and informational capabilities provide opportunities to enhance our purchasing power with our vendors. We purchase approximately 60% of our merchandise from 10 vendors. There are, however, numerous additional merchandise sources available to Havertys.

The level of imported merchandise that we offer has increased during the past two years as the quality and consistency of the products have improved. Our current merchandise line selection is approximately 60% imported, with wood products or case goods representing 65% of these items and upholstered goods comprising the remaining 35% of the total imports. Case goods are generally manufactured in Asia and imported upholstery products are generally leather sofas imported primarily from Mexico and Asia. The Havertys brand import mix is approximately 80% of the case goods and 15% of the upholstered items. During 2003, we purchased our entire imported product mix through domestic manufacturers or agents and required these vendors to maintain a certain level of inventory domestically. Our new Eastern Distribution Center (EDC) has the capacity to receive and store shipments directly from overseas in containers at greater levels than the replaced facilities.

Distribution

We are more than halfway through the implementation of our new distribution system. Previously, we had warehouses (or smaller cross-docks) in every market served, where sold merchandise was received from our regional warehouses, unboxed, prepped and loaded for home delivery. In mid 2002 we began a transition to a new, more centralized distribution methodology requiring fewer facilities. The new method relies on shuttling trailers of already prepped merchandise, loaded in sequence for the day’s deliveries, to the various markets during the night for morning pick up and delivery by local driver teams. The advantages of the new system include lower inventory levels, less warehouse space and the ability to enter new markets without adding local market warehouses. We also believe that fewer, better-supervised warehouse workers will be needed overall to operate under the new system when it is completed. Along with these changes, customer service is being consolidated from the local markets to two call centers, where new phone and computer systems allow for easier access to delivery scheduling and follow up information.

The new system, scheduled for completion by the second quarter of 2005 will use a combination of three distribution centers, three home delivery centers and approximately 15 local market cross-docks. This is in sharp contrast to the facilities in use at the beginning of 2002 of five regional warehouses and 46 local market cross-docks. The distribution centers (DCs) are designed to make direct home deliveries within 100 miles, and serve cross-docks and home delivery centers within a 500-mile radius. The home delivery centers in turn provide service within an additional 250 miles. Local market cross-docks process inventory in the same manner as a home delivery center and serve a single outlying market.

The first phase of the transition included the consolidation of two regional warehouses into the Eastern DC in Braselton, Georgia during the third quarter of 2002 and the opening of a satellite home delivery center in northern Virginia. During 2003, the Company transitioned additional markets to the new system and accordingly, closed the related local market warehouses and reduced inventory. The Eastern DC serviced 27 of our markets at December 31, 2003. We plan to replace our Florida regional warehouse in Orlando with a

new Florida DC in Lakeland during 2004, and in early 2005 begin converting the Dallas, Texas regional warehouse into a Western DC and the Jackson, Mississippi regional warehouse into a smaller home delivery center.

We use technology to assist in maintaining an efficient supply chain. A forecasting system provides guidance on the efficient ordering of merchandise, identifies products that have sales volumes that differ from expectations and provides recommended purchase order changes. We use EDI and just-in-time delivery systems with our major vendors. A warehousing management system using radio frequency scanners tracks each piece of inventory in real time and allows for efficient scheduling and changing of the workflow. These systems and the close coordination with vendors enable us to closely control our inventory and meet the delivery expectations of our customers.

Credit Operations

As a service to our customers, we offer a revolving charge credit plan with credit limits determined through our on-line credit approval system and an additional credit program outsourced to a third party finance company. The combined amount financed under our credit programs and the third party finance company, as a percent of net sales, has remained relatively flat at 46% as customers continued their usage of third party national credit cards and cash. We believe that our credit offers are a reasonable response to similar or more aggressive promotions advertised by competitors.

Havertys Credit Services, Inc. (“Havertys Credit”), a wholly-owned subsidiary of the Company, was formed in 1996 to consolidate the credit approval, collections and credit customer relationship functions. Havertys Credit currently maintains a receivables portfolio of approximately $102.1 million, before deducting reserves. Our credit programs typically require a 15% to 20% down payment and offer financing over 12 to 48 months, with an average term of 15 months. The standard (non-promotional) credit service charge rate currently ranges from 18% to 21% per annum (except for 6.25% in Arkansas). We routinely offer various interest-free periods (typically six to 18 months) as part of promotional campaigns but do not offer payment deferrals beyond six months. The financing program chosen most frequently by our customers is a 12 month, no interest and 12 equal payments promotion. Amounts financed under our programs represented approximately 25% of 2003 sales.

We make available to our customers additional programs provided by a third party finance company, which offers longer payment deferrals than we choose to provide. The programs offered during 2003 were a one year, no payment, no interest credit promotion featuring deferred payment and an interest accrual for 12 months with accrued interest waived if the balance is paid in full at the end of the deferral period. A similar program of 15 to 18 months duration was offered in the second half of 2003 for larger purchase amounts. During 2003, amounts financed under these outsourced programs represented approximately 21% of sales.

Over the last four years, credit service charge revenue has declined as we have offered longer free interest periods in our financing promotions and begun offering the most appealing programs on a continuous basis. As a result, fewer customers have had to pay credit service charges and “free interest” receivables have risen. These combined factors resulted in an average interest yield of approximately 5.6% for 2003.

Competition

The retail sale of home furnishings is a highly fragmented and competitive business. We believe that the primary elements of competition in our industry are merchandise (quality, style, selection, price and display), consumer credit offers, customer service, image and product oriented advertising and store location and design. The degree and source of competition vary by geographic area. We compete with numerous individual retail furniture stores as well as chains and the better department stores. Department stores benefit competitively from more established name recognition in specific markets, a larger customer base due to their non-furnishings product lines and proprietary credit cards. Furniture manufacturers have also accelerated the opening of their own dedicated retail stores in an effort to control and protect the distribution prospects of their merchandise.

We believe Havertys is uniquely positioned in the marketplace with a targeted mix of merchandise that appeals to customers who are somewhat more affluent than those of most other competitive furniture store chains. We believe that this customer segment responds more cautiously to typical discount promotions and focuses on the real value and customer service offered by a retailer. We consider our experienced sales personnel and customer service as important factors in Havertys’ competitive success. Lastly, we believe Havertys’ abilities to make prompt delivery of orders through maintenance of inventory and to tailor the inventory to a store’s local market conditions provide additional competitive advantages. The Company currently ranks among the top 10 in sales for full-service retail home furnishings store chains in the United States based on available industry data for 2003.

Employees

As of December 31, 2003, we had approximately 4,180 employees: 2,565 in individual retail store operations, 165 in our corporate offices, 50 in our credit operations and 1,400 in our warehouses and delivery points. No employee of Havertys is a party to any union contract and we consider our employee relations to be good.

Executive Officers

The following table sets forth certain information with respect to the executive officers of the Company:


	Age as of		Position with the Company
Name	3-01-04		and Other Information
Clarence H. Smith		53	Chief Executive Officer since January 2003 and President since May 2002. Chief Operating Officer from May 2000 - 2002; Senior Vice President and General Manager, Stores, from 1996 - 2000. He has served in other capacities at both the operational and corporate levels since joining the Company in 1973. Director since 1989.

Dennis Fink		52	Executive Vice President since 1996 and Chief Financial Officer since 1993. Senior Vice President from 1993 - 1996. Senior Vice President, Treasurer and Chief Financial Officer and a director of Horizon Industries, Inc., a publicly held carpet manufacturer, from 1985 - 1992.

M. Tony Wilkerson		58	Senior Vice President, Marketing, since 1994. He has focused primarily on merchandising since joining the Company in 1976. Director 1999 - May 2003.

Rawson Haverty, Jr.		47	Senior Vice President, Real Estate and Development, since 1998. Vice President, Real Estate and Insurance Divisions, from 1992 - 1998; Assistant Vice President from 1987 - 1992; joined the Company in 1984. Director since 1992.

Steven G. Burdette		42	Senior Vice President, Operations, since October 2003. Vice President, Operations, from May 2002 – October 2003; Vice President, Merchandising, from 1994 - May 2002; Assistant Vice President, Merchandising, from 1993 - 1994. His experience includes store operations after joining the Company in 1983.

J. Edward Clary		43	Chief Information Officer since 2000. Vice President, Management Information Services, from 1994 - 2000; joined the Company in 1990.

Thomas P. Curran		51	Vice President, Advertising and Internet Strategies, since 2000. Vice President, Advertising, from 1987 – 2000. His focus has been almost exclusively on advertising since joining the Company in 1982.

Gerald M. Hohman		59	Vice President, Human Resources, since 1998; Vice President, Operations and Training, from 1996 – 1998. Prior to his corporate duties, he served in store operations and joined the Company in 1988.

Ben M. Haverty (a director of the Company) and Rawson Haverty, Jr. are brothers and are first cousins to Clarence H. Ridley and Clarence H. Smith. Clarence H. Ridley and Clarence H. Smith are first cousins.

ITEM 2. PROPERTIES

The Company’s executive and administrative offices are located at 780 Johnson Ferry Road, Suite 800, Atlanta, Georgia. These leased facilities contain approximately 45,000 square feet of office space on two floors of a mid-rise office building. Havertys Credit leases 11,000 square feet of office space in Chattanooga, Tennessee.

The following table sets forth information concerning the operating facilities of the Company as of December 31, 2003.


			Local		Regional
	Retail		Market Area		Distribution
	Locations (c)		Warehouses		Facilities
Owned (a)		41		3		2
Leased (b)		72		8		3

Total		113		11		5

(a) Includes capital leases on one distribution facility and three retail stores built on sites under land leases.

(b) The leases have various termination dates through 2022 plus renewal options. Includes properties owned by a special-purpose entity that is consolidated into the Company’s financial statements.

(c) Of the retail locations, 13 utilize attached warehouse space.


	2003			2002			2001
Retail square footage at December 31 (in thousands)		3,919			3,808			3,521
% Change in retail square footage		2.9	%		8.2	%		-1.0	%
Annual net sales per weighted average square foot	$	194		$	193		$	190

For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this report under Item 7 of Part II.

ITEM 3. LEGAL PROCEEDINGS

There are no material pending legal proceedings, other than routine litigation incidental to the business of the Company, to which the Company is a party or of which any of its properties is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter of fiscal 2003.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

We incorporate the information required by this item by reference to the section captioned “Market Prices and Dividend Information” in our 2003 annual report to stockholders.

ITEM 6. SELECTED FINANCIAL DATA

We incorporate the information required by this item by reference to the section captioned “Selected 5-Year Financial Data” in our 2003 annual report to stockholders.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We incorporate the information required by this item by reference to the section captioned “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and to Note 1 – Summary of Significant Accounting Policies – Fair Values of Financial Instruments and Note 7 – Long-Term Debt and Capital Lease Obligations of the notes to the consolidated financial statements of the Company in our 2003 annual report to stockholders.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

We incorporate the information required by this item by reference to the sections captioned “Report of Independent Auditors,” “Consolidated Financial Statements” and “Selected Quarterly Financial Data” in our 2003 annual report to stockholders.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Our management has evaluated, with the participation of our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13(a)-15(e)) under the Securities Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our President and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that we record, process, summarize and report the information we must disclose in reports that we file or submit under the Securities Exchange Act.

During the fourth quarter of 2003, there were no changes in our internal control over financial reporting that have affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

We incorporate the information required by this item by reference to the sections captioned “Nominees for Election By Holders of Common Stock” and “Nominees for Election By Holders of Class A Common Stock” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our 2004 annual proxy statement. Information relating to executive officers of the Company is included in this report under Item 1 of Part I.

The Company has adopted a code of business conduct and ethics applicable to the Company’s Directors, officers (including the Company’s principal executive officer, principal financial officer and controller) and employees, known as the Code of Business Conduct and Ethics (the “Code”). The Code is available on the Company’s website at www. Havertys.com. In the event we amend or waive any provisions of the Code applicable to our principal executive officer, principal financial officer or controller, we intend to disclose the same on the Company’s website. The information contained on or connected to our Internet website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file or furnish to the SEC.

ITEM 11. EXECUTIVE COMPENSATION

We incorporate the information required by this item by reference to the section captioned “Executive Compensation” in our 2004 annual proxy statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

We incorporate the information required by this item by reference to the sections captioned “Information Regarding Beneficial Ownership of Directors and Management” and “Security Ownership of Certain Beneficial Owners” in our 2004 annual proxy statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We incorporate the information required by this item by reference to the section captioned “Certain Relationships and Transactions” in our 2004 annual proxy statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

We incorporate the information required by this item by reference to the section captioned “Principal Accountant Fees and Services” in our 2004 annual proxy statement.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

The following financial statements and notes thereto of Haverty Furniture Companies, Inc., and the related Report of Independent Auditors are incorporated by reference in Item 8 from the Company’s 2003 annual report to stockholders.

Consolidated Balance Sheets – December 31, 2003 and 2002

Consolidated Statements of Income – Years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Stockholders’ Equity – Years ended December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows – Years ended December 31, 2003, 2002 and 2001

Notes to Consolidated Financial Statements

Report of Independent Auditors

(a) 2. Financial Statement Schedules

The following financial statement schedule of Haverty Furniture Companies, Inc. is included in Item 15(d):

Schedule II — Valuation and Qualifying Accounts

All other schedules have been omitted because they are inapplicable or the required information is included in the financial statements or notes thereto.

(a) 3. 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. Exhibits 10.1 through 10.12 represent compensatory plans.


Exhibit
Number		Description of Exhibit
*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. (10-Q for the quarter ended June 30, 1985)

*3.1.1	—	Articles of Incorporation of Haverty Furniture Companies, Inc., as amended on April 25,1986. (10-Q for the quarter ended March 31, 1986)

*3.1.2	—	Amendment to Articles of Incorporation of Haverty Furniture Companies, Inc., as amended on April 28, 1989. (10-Q for the quarter ended June 30, 1989)

*3.1.3	—	Amendment to Articles of Incorporation of Haverty Furniture Companies, Inc., as amended on April 28, 1995. (10-K for the year ended December 31, 1996)

3.2	—	Amended and Restated By-Laws of Haverty Furniture Companies, Inc., as amended on February 26, 2004.

*4.1	—	Note Agreement between Haverty Furniture Companies, Inc., and The Prudential Purchasers (The Prudential Insurance Company of America) c/o Prudential Capital Group, dated December 29, 1993. (10-K for the year ended December 31, 1993)

*4.1.1	—	First Amendment to Note Agreement effective March 31, 1994, between Haverty Furniture Companies, Inc., and The Prudential Insurance Company of America. (10-K for the year ended December 31, 1994)

*4.1.2	—	Second Amendment to Note Agreement dated July 19, 1996, between Haverty Furniture Companies, Inc., and The Prudential Insurance Company of America, as previously amended. (10-K for the year ended December 31, 1996)

*4.2	—	Credit Agreements dated March 27, 2002, among Haverty Furniture Companies, Inc., Havertys Credit Services, Inc., and the Lenders Listed Therein, Agented by SunTrust Bank, Atlanta. (10-Q for the quarter ended March 31, 2002)

		No other instrument authorizes long-term debt securities in an amount in excess of ten percent (10%) of the total assets of the Company. The Company agrees to furnish copies of instruments and agreement authorizing long-term debts of less than ten percent (10%) of its total assets to the Commission upon request.

*10.1	—	Second Amendment and Restatement of Directors’ Deferred Compensation Plan. (10-Q for the quarter ended June 30, 1996, Exhibit 10.1.2)

*10.2	—	Supplemental Executive Retirement Plan, effective January 1, 1983. (10-K for the year ended December 31, 1984, Exhibit 10.3)


Exhibit
Number		Description of Exhibit
*10.3	—	Thrift Plan, as amended and restated, effective January 1, 2001. (10-K for the year ended December 31, 2001, Exhibit 10.3)

*10.3.1	—	EGTRRA Amendment to Thrift Plan, effective January 1, 2002. (10-K for the year ended December 31, 2001, Exhibit 10.3.1)

10.3.2	—	GUST Compliance Amendment to Thrift Plan, adopted January 29, 2003 and effective January 1, 2001.

*10.4	—	Haverty Furniture Companies, Inc., Employee Stock Purchase Plan, as amended and restated as of October 29, 1999. (10-K for the year ended December 31, 2000, Exhibit 10.7)

*10.4.1	—	Amendment Number One to Haverty Furniture Companies, Inc., Employee Stock Purchase Plan. (Registration Statement on Form S-8, File No. 333-66010, Exhibit 10.2)

*10.5	—	Deferred Compensation Agreement between Haverty Furniture Companies, Inc., and Rawson Haverty, Sr., dated December 21, 1992. (10-K for the year ended December 31, 1993, Exhibit 10.9)

*10.6	—	1993 Non-Qualified Stock Option Plan. (Registration Statement on Form S-8, File No. 33-53607, Exhibit 5.1)

*10.7	—	Supplemental Executive Retirement Plan, effective January 1, 1996. (10-K for the year ended December 31, 1995)

*10.8	—	Directors’ Compensation Plan as of April 26, 1996. (10-Q for quarter ended June 30, 1996, Exhibit 10.11)

10.8.1	—	Amendment Number One to Directors’ Compensation Plan.

*10.9	—	Form of Agreement dated January 1, 1997, Regarding change in Control with the following Named Executive Officers: Clarence H. Ridley, John E. Slater, Jr., Dennis L. Fink, Clarence H. Smith and M. Tony Wilkerson. (10-K for the year ended December 31, 1996)

*10.10	—	Form of Agreement dated January 1, 1997, Regarding Change in Control with the following employee directors:
		Rawson Haverty, Jr. (a Named Executive Officer) and Fred J. Bates. (10-K for the year ended December 31, 1996)

*10.11	—	Haverty Furniture Companies, Inc., 1998 Stock Option Plan, effective as of December 18, 1997. (Registration Statement on Form S-8, File No. 333-53215, Exhibit 10.1)

*10.11.1	—	Amendment Number One to Haverty Furniture Companies, Inc., 1998 Stock Option Plan. (Registration Statement on Form S-8, File No. 333-66012, Exhibit 10.2)


Exhibit
Number		Description of Exhibit
*10.12	—	Haverty Furniture Companies, Inc., Top Hat Mutual Fund Option Plan, effective as of January 15, 1999. (10-K for the year ended December 31, 1999)

*10.13	—	Lease Agreement and its First and Second Amendments dated July 26, 2001, November 2001 and July 29, 2002, respectively, between Haverty Furniture Companies, Inc., as Tenant and John W. Rooker, LLC, as Landlord. (10-Q for the quarter ended September 30, 2002, Exhibit 10.1)

*10.14	—	Contract of Sale dated August 6, 2002, between Haverty Furniture Companies, Inc., as Seller and HAVERTACQ11 LLC, as Purchaser. (10-Q for the quarter ended September 30, 2002, Exhibit 10.2)

*10.15	—	Lease Agreement dated August 6, 2002, between Haverty Furniture Companies, Inc., as Tenant and HAVERTACQ11 LLC, as Landlord. (10Q for the quarter ended September 30, 2002, Exhibit 10.3)

13.1	—	Annual Report to Stockholders for the year ended December 31, 2003.

21.1	—	Subsidiaries of the Registrant.

23.1	—	Consent of Ernst & Young LLP.

31.1	—	Rule 13a-14(a)/15d-14(a) Certification, executed by Clarence H. Smith, President and Chief Executive Officer of Haverty Furniture Companies, Inc.

31.2	—	Rule 13a-14(a)/15d-14(a) Certification, executed by Dennis L. Fink, Executive Vice President and Chief Financial Officer of Haverty Furniture Companies, Inc.

32.1	—	Certifications required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350), executed by Clarence H. Smith, President and Chief Executive Officer of Haverty Furniture Companies, Inc. and Dennis L. Fink, Executive Vice President and Chief Financial Officer of Haverty Furniture Companies, Inc.

99.1	—	Cautionary Statement Relative to Forward-Looking Statements

(b) Reports on Form 8-K

We filed on October 31, 2003, with the Securities and Exchange Commission, a Current report on Form 8-K dated October 29, 2003, attaching (i) a press release announcing our third quarter financial results and (ii) a press release announcing the retirement of a director and the naming of two new directors, and an increase in the quarterly cash dividend.

The response to this portion of Item 15 is as submitted in Item 15(a)3.

(d) Financial Statement Schedules

The response to this portion of Item 15 is as submitted in Item 15(a)2.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Date: March 12, 2004	By:	/s/ JENNY HILL PARKER Vice President, Treasurer and Corporate Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.


Signature	Title	Date
/s/ CLARENCE H. RIDLEY	Chairman of the Board	March 12, 2004

Clarence H. Ridley

/s/ CLARENCE H. SMITH	President and Chief Executive	March 12, 2004
	Officer, Director
Clarence H. Smith

/s/ JOHN T. GLOVER	Director	March 12, 2004

John T. Glover

	Georgia Regional Manager,	March 12, 2004
	Director
Ben M. Haverty

/s/ RAWSON HAVERTY, JR.	Senior Vice President,	March 12, 2004
	Director
Rawson Haverty, Jr.

/s/ L. PHILLIP HUMANN	Director	March 12, 2004

L. Phillip Humann


Signature	Title	Date
/s/ MYLLE H. MANGUM	Director	March 12, 2004

Mylle H. Mangum

/s/ FRANK S. McGAUGHEY, III	Director	March 12, 2004

Frank S. McGaughey, III

/s/ TERENCE F. McGUIRK	Director	March 12, 2004

Terence F. McGuirk

/s/ VICKI R. PALMER	Director	March 12, 2004

Vicki R. Palmer

/s/ FRED L. SCHUERMANN	Director	March 12, 2004

Fred L. Schuermann

/s/ AL TRUJILLO	Director	March 12, 2004

Al Trujillo

/s/ DENNIS L. FINK	Executive Vice President	March 12, 2004
	and Chief Financial Officer
Dennis L. Fink	(principal financial officer)

/s/ JUSTIN P. SEAMONDS	Vice President and Controller	March 12, 2004
	(principal accounting officer)
Justin P. Seamonds

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

(in thousands)


Column A	Column B		Column C		Column D		Column E
			Additions
	Balance at		charged				Balance at
	beginning of		to costs and		Deductions-		end of
	period		expenses		describe (1)		period
Year ended December 31, 2003:
Allowance for doubtful accounts	$	5,800	$	1,979	$	3,279	$	4,500

Year ended December 31, 2002:
Allowance for doubtful accounts	$	6,900	$	3,180	$	4,280	$	5,800

Year ended December 31, 2001:
Allowance for doubtful accounts	$	6,750	$	4,061	$	3,911	$	6,900

(1) Uncollectible accounts written off, net of recoveries and the disposal value of repossessions.

S-1 EX-3.2 3 g87792exv3w2.txt EX-3.2 BY-LAWS OF HAVERTY FURNITURE COMPANIES, INC EXHIBIT 3.2 HAVERTY FURNITURE COMPANIES, INC. BY-LAWS AS AMENDED AND RESTATED ON FEBRUARY 26, 2004 HAVERTY FURNITURE COMPANIES, INC. BY-LAWS ARTICLE I STOCKHOLDERS SECTION 1. The Corporation shall, after the year 1929, hold annually a regular meeting of its stockholders for the election of directors and for the transaction of general business at any place within the continental United States as may be specified by a notice to stockholders given as required by statute, by the Articles of Incorporation (the "Articles") or by the By-laws. Such annual meetings shall be general meetings, that is to say, open for the transaction of any business within the powers of the Corporation without special notice of such business, except in cases in which special notice is required by statute, by the Articles or by the By- laws. The Board of Directors shall cause the annual meeting of stockholders to be held on such date in any year, as it shall determine to be in the best interest of the Corporation. If, as of March 15 in any year, the Board of Directors has failed to set the date of the annual meeting in that year, then the annual meeting shall be held at 2:00 o'clock P.M. on the second Tuesday in April, if not a legal holiday, and if a legal holiday, then on the first day following which is not a legal holiday. SECTION 2. At any time in the interval between annual meetings, special meetings of the stockholders may be called by the Chairman of the Board, the President or by a majority of the Board of Directors or by a majority of the Executive Committee by vote at a meeting or in writing with or without a meeting. Special meetings of the stockholders shall be held at any place within the continental United States as may be specified by a notice to stockholders given as required by statute, by the Articles or by the By-laws. SECTION 3. Written or printed notice of every annual or special meeting of the stockholders shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than ninety (90) days before such meeting, by leaving the same with him or at his residence or usual place of business, or by mailing it, postage paid, and addressed to him at his address as it appears upon the books of the Corporation. Notice of every meeting shall state the place, day and hour of such meeting and, if such meeting is a special meeting, the business proposed to be transacted at the meeting; and no business shall be transacted at such meeting except that specially named in the notice. Failure to give notice of any annual meeting, or any irregularity in such notice, shall not affect the validity of such annual meeting or of any proceedings at such meeting (other than proceedings of which special notice is required by statute, by the Articles or by the By-laws). No notice of any meeting of stockholders need be given to any stockholder who attends in person or by proxy or to any stockholder who, by a document executed by such person, which has been filed with the records of the meeting either before or after the holding of the meeting, waives such notice. No notice other than by announcement need be given of an adjourned meeting of stockholders. SECTION 4. At all meetings of stockholders the presence in person or by proxy of stockholders entitled to cast a majority in number of votes shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum the stockholders present in person or by proxy at the time and place fixed by Section 1 of this Article I for an annual meeting, or designated in the notice of a special meeting, or at the time and place of any adjournment of any meeting, by majority vote and without notice other than by announcement at the meeting, may adjourn the meeting from time to time until a quorum shall attend. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 5. Any stockholder entitled to vote at any meeting of stockholders may vote either in person or by proxy, but no proxy which is dated more than three (3) months before the meeting at which it is offered shall be accepted, unless such proxy shall, on its face, name a longer period for which it is to remain in force. A -2- stockholder may execute a document authorizing another person to act as proxy. Execution of such a document may be accomplished by the stockholder or the stockholder's authorized agent and may be done by personal signature or by causing the stockholder's signature to be affixed to the document by any reasonable means, including facsimile signature. A stockholder may authorize another person to act as proxy by transmitting, or authorizing the transmission of, an authorization for the person to act as proxy to: (i) the person authorized to act as proxy; or (ii) any other person authorized to receive the proxy authorization on behalf of the person authorized to act as the proxy, including a proxy solicitation firm or proxy support service organization. The authorization may be transmitted by any electronic or telephonic means. A copy, facsimile telecommunication, or other reliable reproduction of the document or transmission authorized under this Section may be substituted for the original document or transmission for any purpose for which the original document or transmission could be used. SECTION 6. At any meeting of stockholders, if demanded by the holders of twenty percent (20%) of the number of shares present in person or by proxy and entitled to vote at the meeting, or if ordered by the Chairman of such meeting, the vote upon any election or question shall be taken by ballot, and the polls shall be opened and closed, the proxies and ballots shall be received, and all questions touching the qualifications of voters and the validity of proxies and the acceptance or rejection of votes shall be decided by one or more inspectors of elections. Unless so demanded or ordered, no vote need be by ballot and voting need not be conducted by inspectors. If inspectors are required, they shall be appointed by the Chairman at the affected annual or special meeting to serve until the close of such meeting or any adjournment of the meeting. In case an inspector shall fail to attend, or refuse or be unable to serve, the Chairman of the meeting may appoint a substitute inspector or inspectors. Except in cases in which it is by statute, by the Articles or by the By-laws otherwise provided, a majority of the votes cast shall be sufficient for any election and for the adoption of any measure. -3- SECTION 7. At all meetings of stockholders, the order of business shall be, as far as applicable and practicable, as follows: (1) Organization. (2) Proof of notice of meeting or of waivers of notice of the meeting (the certificate of the Secretary of the Corporation, or the affidavit of any other person who mailed the notice or caused the same to be mailed, shall serve as proof of service of notice by mail). (3) Submission by Secretary, or by inspectors, if any shall have been elected or appointed, of a list of stockholders entitled to vote, present in person or by proxy. (4) If an annual meeting, or a meeting called for that purpose, reading of minutes of preceding meetings that have not previously been reviewed and approved, and action thereon. (5) Reports. (6) If an annual meeting, or a meeting called for that purpose, the election of directors. (7) Unfinished business. (8) New business. (9) Adjournment. ARTICLE II BOARD OF DIRECTORS SECTION 1. The business and affairs of the Corporation shall be managed under the direction of a Board of Directors, and the Board may exercise all the powers of the Corporation except such powers that are conferred upon or reserved to stockholders by law, by the Articles of Incorporation or by the By-laws. By vote of a majority of the entire Board of Directors, the number of directors may be set from time to time at any number not less than eight nor more than sixteen. -4- The term for which directors elected at the annual meeting of stockholders shall serve is one year. SECTION 2. Each director shall serve until the expiration of the then current term for which the director was elected, except in the event of the director's death, retirement, resignation or removal. Should a vacancy occur otherwise than through the removal of a director by the stockholders, whether arising through death, resignation or through an increase in the number of directors, such vacancy shall be filled by a majority vote of the remaining directors who were elected by the same class of stock which elected the director whose vacancy is being filled, whether or not such number of directors is sufficient to constitute a quorum. A director so elected to fill a vacancy shall serve until the next annual meeting of stockholders. SECTION 3. After each meeting of stockholders at which all of the Board of Directors shall have been elected, the Board of Directors so elected shall meet as soon as practicable for the purpose of organization and the transaction of other business, at such time and place as may be designated by the stockholders at such meeting; and in the event that no time and place is designated by the stockholders, then the Board of Directors shall meet at such time and place as may be agreed upon by a majority of the newly constituted Board, provided that such meeting shall be held within thirty (30) days following such stockholders' meeting. Any such Board meeting may be held at any place within or without the State of Maryland. Other regular meetings of the Board of Directors shall be held on such dates and at such places within or without the State of Maryland as may be designated from time to time by the Board of Directors. -5- SECTION 4. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, by the President, or by the Board of Directors or the Executive Committee by a vote at a meeting, or by a majority of the directors or a majority of the members of the Executive Committee in writing with or without a meeting. Such special meetings shall be held at the place within or without the State of Maryland as may be designated from time to time by the Board of Directors. In the absence of a designation the meeting shall be held at the place as may be designated in the notice of the meeting. SECTION 5. Except for first meetings of the Board where the time and place of the meeting is designated by the stockholders in accordance with Section 3 of this Article II, notice of the place, day and hour of every regular and special meeting shall be given to each director two (2) days (or more) before the meeting, by delivering the notice to the director personally, or by sending the notice to the director by electronic means, or by leaving the same at the residence or usual place of business of the director, or, in the alternative, by mailing such notice three (3) days (or more) before the meeting, postage prepaid, and addressed to the director at the person's last known post office address, according to the records of the Corporation. Unless required by resolution of the Board of Directors, no notice of any meeting of the Board of Directors need state the business to be transacted at any meeting. No notice of any meeting of the Board of Directors need be given to any director who attends, or to any director who, in a document executed and filed with the records of the meeting either before or after the holding thereof, waives such notice. No notice other than by announcement need be given of an adjourned meeting of the Board of Directors. SECTION 6. At all meetings of the Board of Directors, any six (6) of the directors shall constitute a quorum for the transaction of business. Except in cases in which it is by statute, by the Articles or by the By-laws otherwise provided, a majority of such quorum shall decide any questions that may come before the meeting. In the absence of a quorum, the directors present by majority vote may adjourn the meeting from time to time without notice other than by announcement at the meeting until a quorum shall attend. -6- At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally notified. SECTION 7. Directors may receive compensation for their services as may be authorized by resolution of the Board of Directors from time to time. SECTION 8. The title of Director Emeritus or, in an appropriate case, Chairman Emeritus, may be conferred by the Board of Directors upon any former director or, in an appropriate case, a former Chairman of the Board of the Corporation who, in the judgment of the Board, has brought credit and distinction to the Corporation through long and faithful service. The title hereby created is honorary only and does not carry with it the powers, duties, or obligations of a director of this corporation or any other power, duty or obligation. A Director Emeritus or Chairman Emeritus shall not be deemed a director or member of the Board of Directors but may attend meetings of the Board and, upon invitation of the Chairman, may take part in the deliberative proceedings of the Board, but may not vote. A Director Emeritus or Chairman Emeritus shall not participate in meetings of the independent directors nor in meetings of committees of the Board of Directors. ARTICLE III COMMITTEES SECTION 1. The Board of Directors, by resolution adopted by a majority of the whole Board of Directors, may provide for (i) an Executive Committee of four (4) or more directors, for (ii) a Nominating and Corporate Governance Committee, (iii) and Executive Compensation and Employee Benefits Committee, and (iv) an Audit Committee. If provision be made for any such committees, the respective members thereof shall be elected by the Board of Directors to serve at the pleasure of the Board of Directors. No employee of the Corporation shall be a member of any of the following committees: The Nominating and Corporate Governance Committee; the Executive Compensation and Employee Benefits Committee; -7- or the Audit Committee. Unless a chairman of each such committee shall have been selected by the Board of Directors, the members thereof shall elect a chairman from their own number. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all of the powers of the Board of Directors in the management of the current and ordinary business of the Corporation conferred by the By-laws or otherwise, unless otherwise limited by law, or by the resolution providing for the Executive Committee, or expressly reserved to another committee of the Board of Directors by resolution adopted by a majority of the whole Board of Directors, or by any other resolution limiting such authority adopted by a majority of the whole Board of Directors. Each committee shall keep full and fair accounts of its meetings and actions. All actions by each committee shall be reported to the Board of Directors at its meeting next succeeding such actions. The actions so taken shall be subject to revision and alteration by the Board of Directors, so long as no rights of third persons shall be affected by any such revision or alteration. Vacancies in each committee shall be filled by the Board of Directors. -8- SECTION 2. Each committee of the Board of Directors shall fix its own rules of procedure and shall meet as provided by such rules or by resolution of the Board of Directors, and it shall also meet at the call of its chairman or of any two members of the committee. Unless otherwise provided by such rules or by such resolution, the provisions of Section 4 and Section 5 of Article II relating to the place of holding and notice required of meetings of the Board of Directors shall govern such committees. A majority of each committee shall be necessary to constitute a quorum. SECTION 3. The Board of Directors may by resolution provide for such other standing or special committees as it deems desirable and may discontinue such committees at its sole discretion. Each such committee shall have such powers and perform such duties, not inconsistent with law, as may be assigned to it by the Board of Directors. ARTICLE IV OFFICERS SECTION 1. The Board of Directors shall choose from among its members a President who shall be an employee of the corporation and may choose from among its members a Chairman of the Board and a Vice-Chairman of the Board, each of which may be an employee of the Corporation. The Board of Directors may appoint as officers of the Corporation one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Chief Operating Officer, a Chief Financial Officer, a Controller, and shall appoint a Secretary and a Treasurer, none of whom need be directors. The Board of Directors may also appoint one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and one or more Assistant Controllers, none of whom need be directors. -9- SECTION 2. The Chairman of the Board shall preside at all meetings of the stockholders and of the Board of Directors at which such person shall be present and shall have such other duties as may be assigned to the person by the Board of Directors. In the absence of the Chairman of the Board, the President shall preside at all meetings of the stockholders and of the Board of Directors at which the President shall be present. The President shall be the Chief Executive Officer of the Corporation unless the Board of Directors shall have appointed the Chairman of the Board or the Vice Chairman of the Board to such position. The Chief Executive Officer shall have general charge and supervision of the business of the Corporation; such person may execute, in the name of the Corporation, all authorized deeds, mortgages, bonds, notes and other evidence of indebtedness, contracts or other instruments, except in cases in which execution thereof shall have been and delegated to some other officer or agent of the Corporation by the Board of Directors; and, in general, the Chief Executive Officer shall perform all duties incident to the office of the Chief Executive Officer of a corporation, and such other duties as, from time to time, may be assigned to the person by the Board of Directors. If the President of the Corporation is not the Chief Executive Officer, such person shall perform such duties as from time to time may be assigned to such person by the Board of Directors and the Chief Executive Officer. SECTION 3. The Chief Operating Officer, if one is appointed, shall be a general executive officer of the Corporation, with authority as such, and at the request of the Chief Executive Officer or the disability of the Chief Executive Officer, shall perform the duties and exercise the functions of the Chief Executive Officer, unless the Board of Directors shall otherwise determine. When the Chief Operating Officer is acting as the Chief Executive Officer, such person shall have the powers of the Chief Executive Officer as set forth herein. The Chief Operating Officer shall have such other powers and perform such other duties as may be assigned by the Board of Directors or the Chief Executive Officer. SECTION 4. Executive Vice Presidents, the Senior Vice Presidents, the Vice Presidents, Assistant Vice Presidents and other officers authorized in this Article, shall have such powers and perform such duties as may be assigned by the Board of Directors or the Chief Executive Officer, unless otherwise provided herein. -10- SECTION 5. The Secretary shall keep the minutes of the meetings of the stockholders, of the Board of Directors and of each committee of the Board of Directors; such person shall see that all notices are duly given in accordance with the provisions of the By-laws or as required by law. The Secretary shall be custodian of the records of the Corporation; and shall see that the corporate seal is affixed to all documents, the execution of which, on behalf of the Corporation, under its seal, is duly authorized, and when so affixed may attest the same; and, in general, the Secretary shall perform all duties incident to the office of the secretary of a corporation, and such other duties as, from time to time, may be assigned by the Board of Directors, or by the Chairman of the Board or the Chief Executive Officer. SECTION 6. The Treasurer shall have charge of and be responsible for all funds, securities, receipts and disbursements of the Corporation, and shall deposit, or cause to be deposited, in the name of the Corporation, all moneys or other effects in such banks, trust companies or other depositories as shall, from time to time, be selected by the Board of Directors. The Treasurer shall render to the Chief Executive Officer and to the Board of Directors, whenever requested, an account of the financial condition of the Corporation. In general, the Treasurer shall perform all the duties incident to the office of the treasurer of a corporation, and such other duties as may be assigned by the Board of Directors or the Chief Executive Officer. SECTION 7. The Chief Financial Officer shall be the chief financial officer and the Controller shall be the chief accounting officer of the Corporation. Such officers shall see that the books of account and other accounting records of the Corporation are maintained in proper form, and, in general, each shall perform all the duties incident to the respective offices of the Chief Financial Officer and Controller of a corporation, as well as such other duties as may be assigned to such person by the Board of Directors or the Chief Executive Officer. -11- SECTION 8. The Assistant Secretaries shall have such duties as, from time to time, shall be assigned to them by the Board of Directors or the Secretary. The Assistant Treasurers shall have such duties as, from time to time, shall be assigned to them by the Board of Directors or the Treasurer. SECTION 9. The Board of Directors may appoint such subordinate officer, as it may deem desirable. Each such officer shall hold office for such period and perform such duties as the Board of Directors or the Chief Executive Officer may prescribe. The Board of Directors, from time to time, may authorize any officer to appoint and remove subordinate officers and assign the duties to such officers. SECTION 10. The Board of Directors shall have power to fix the compensation of all officers of the Corporation. It may authorize any officer upon whom the power of appointing subordinate officers may have been conferred to fix the compensation of such subordinate officers. SECTION 11. Any officer of the Corporation may be removed with or without cause by a vote of a majority of the entire Board of Directors at a meeting called for that purpose, or (except in case of an officer elected by the Board of Directors) by the Executive Committee or by an officer upon whom such power of removal may have been conferred. -12- ARTICLE V STOCK SECTION 1. Each stockholder shall be entitled to a certificate or certificates, certifying the number and kind of shares owned by the stockholder, signed by the Chairman of the Board, or the President or a Vice President, and countersigned by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and sealed with the seal of the Corporation or a facsimile of such seal. Stock certificates shall be in such form, not inconsistent with law or with the Articles, as shall be approved by the Board of Directors. When certificates for stock of any class are manually countersigned by a Transfer Agent, the signatures thereon of the aforementioned officers, one signing and the other countersigning, may be facsimile. In case any officer or officers of the Corporation who shall have signed any such certificate or certificates shall cease to be such officer or officers, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates had not ceased to be such officer or officers. SECTION 2. The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer and registration of certificates of stock; and may appoint Transfer Agents and Registrars thereof. The duties of Transfer Agent and Registrar may be combined. SECTION 3. Original or duplicate stock ledgers, containing the names and addresses of stockholders of the Corporation and the number of shares of each class held by them respectively, shall be kept at the principal offices of the Corporation in Atlanta, Georgia, or by the Corporation's Transfer Agent/Registrar. -13- SECTION 4. The Board of Directors is hereby authorized to fix the time, not exceeding twenty (20) days preceding the date of any meeting of stockholders, any dividend payment date or any date for the allotment of rights, during which the books of the Corporation shall be closed against transfers of stock. In lieu of providing for the closing of the books against transfers of stock as aforesaid, the Board of Directors is hereby authorized to fix the date, not exceeding ninety (90) days preceding the date of any meeting of stockholders, any dividend payment date or any date for the allotment of rights, as a record date for the determination of the stockholders entitled to notice of and to vote at such meeting, or entitled to receive such dividends or rights, as the case may be. Only stockholders of record on such dates, when fixed as herein provided, shall be entitled to notice of and to vote at such meetings, or to receive such dividends or rights, as the case may be. SECTION 5. In case any certificate of stock is lost, stolen, mutilated or destroyed, the Board of Directors may authorize the issuance of a new certificate in place thereof upon such terms and conditions as it may deem advisable; or the Board of Directors may delegate such power to any officer or officers of the Corporation; but the Board of Directors or such officer or officers, in their discretion, may refuse to issue such new certificate, save upon the order of a court of proper jurisdiction. ARTICLE VI FINANCE SECTION 1. Checks drawn on any bank or banks with which funds of the Corporation are deposited shall, unless otherwise provided by the Board of Directors, be signed by any one of the following officers: the Chairman of the Board, the President, the Chief Executive Officer (if other than the President), the Chief Operating Officer, or the Chief Financial Officer, any Executive Vice President or any Senior Vice President, and shall be countersigned by any of the following officers: the Treasurer, the Secretary, or the Controller, or an officer of the Corporation serving as an Assistant Treasurer, Assistant Secretary or Assistant Controller. -14- SECTION 2. The fiscal year of the Corporation shall be the calendar year, unless otherwise provided by the Board of Directors. ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS SECTION 1. The terms used in this Article shall have the same meaning as such terms are defined in the Maryland General Corporation Law. SECTION 2. The Corporation shall indemnify any director made a party to any proceeding by reason of service in that capacity unless it is established that: (1) The act or omission of the director was material to the matter giving rise to the proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty; or (2) The director actually received an improper personal benefit in money, property, or services; or (3) In the case of any criminal proceeding, the director had reasonable cause to believe that the act or omission was unlawful. Indemnification may be against judgments, penalties, fines, settlements, and reasonable expenses actually incurred by the director in connection with the proceeding. However, if the proceeding was one by or in the right of the Corporation, indemnification may not be made in respect of any proceeding in which the director shall have been adjudged to be liable to the Corporation. -15- The termination of any proceeding by judgment, order, or settlement does not create a presumption that the director did not meet the requisite standard of conduct set forth in this Section. However, the termination of any proceeding by conviction, or plea of nolo contendere or its equivalent, or an entry of an order of probation prior to judgment, creates a rebuttable presumption that the director did not meet that standard of conduct. SECTION 3. The Corporation shall not indemnify a director or advance expenses under Section 2 of this Article for a proceeding brought by that director against the Corporation, except (i) for a proceeding brought to force indemnification under this Article; or (ii) if the Articles or By-laws of the Corporation, a resolution of the Board of Directors of the Corporation, or an agreement approved by the Board of Directors of the Corporation to which the Corporation is a party, expressly provides otherwise. A director may not be indemnified under Section 2 of this Article in respect of any proceeding charging improper personal benefit to the director, whether or not involving action in the director's official capacity, in which the director was adjudged to be liable on the basis that personal benefit was improperly received. SECTION 4. Unless limited by the Articles, a director who has been successful, on the merits or otherwise, in the defense of any proceeding referred to in Section 2 of this Article shall be indemnified against reasonable expenses incurred by the director in connection with the proceeding. SECTION 5. Indemnification under Section 2 of this Article may not be made by the Corporation unless authorized for a specific proceeding after a determination has been made that indemnification of the director is permissible in the circumstances because the director has met the standard of conduct set forth in Section 2. -16- Such determination shall be made: (1) By the Board of Directors by a majority vote of a quorum consisting of directors not, at the time, parties to the proceeding, or, if such a quorum cannot be obtained, then by a majority vote of a committee of the Board consisting solely of two or more directors not, at the time, parties to such proceeding and who were duly designated to act in the matter by a majority vote of the full Board in which the designated directors who are parties may participate; or (2) If neither the requisite quorum of the Board nor a committee of the Board can be obtained, or if a majority of a quorum consisting of disinterested directors or a disinterested committee so directs, then the determination shall be made either (a) by special legal counsel, which shall be counsel specifically appointed for such purpose, or (b) by a majority vote of the stockholders. (3) If the determination is made by special legal counsel, such counsel shall be selected either by the Board of Directors or a disinterested committee as set forth in subparagraph (1) above, or if the requisite quorum of the full Board cannot be obtained and the committee cannot be established, then by a majority vote of the full Board in which directors who are parties may participate. Authorization of indemnification and determination as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible. However, if the determination that indemnification is permissible is made by special legal counsel, authorization of indemnification and determination as to reasonableness of expenses shall be made in the manner specified in this Section for selection of such special counsel. Shares held by directors who are parties to the proceeding may not be voted on the subject matter under this Section. -17- A court of appropriate jurisdiction, upon application of a director and such notice as the court shall require, may order indemnification in the following circumstances: (1) If it determines a director is entitled to reimbursement under Section 4, the court shall order indemnification, in which case the director shall be entitled to recover the expenses of securing such reimbursement; or (2) If it determines that the director is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not the director has met the standards of conduct set forth in Section 2 of this Article or has been adjudged liable under the circumstances described in Section 3, the court may order such indemnification as the court shall deem proper. However, indemnification with respect to any proceeding by or in the right of the Corporation or in which the director was found liable in the circumstances described in Section 3 shall be limited to expenses. A court of appropriate jurisdiction may be the same court in which the proceeding involving the director's liability took place. SECTION 6. Reasonable expenses incurred by a director who is a party to a proceeding may be paid or reimbursed by the Corporation in advance of the final disposition of the proceeding upon receipt by the Corporation of (a) a written affirmation by the director of the director's good faith belief that the standard of conduct necessary for indemnification by the Corporation as authorized in this Article has been met and (b) a written undertaking by or on behalf of the director to repay the amount if it shall ultimately be determined that the standard of conduct has not been met. The undertaking required by the foregoing paragraph shall be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make the repayment. Payments under this Section shall be made as provided by the Articles, By-laws or contract or as specified in Section 5. -18- SECTION 7. The indemnification and advancement of expenses provided or authorized by this Article may not be deemed exclusive of any other rights, by indemnification or otherwise, to which a director may be entitled under the Articles, the By-laws, a resolution of stockholders or directors, an agreement or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. SECTION 8. This Article does not limit the Corporation's power to pay or reimburse expenses incurred by a director in connection with an appearance as a witness in a proceeding at a time when the director has not been made a named defendant or respondent in the proceeding. SECTION 9. The Corporation shall indemnify its directors pursuant to this Article in connection with a director's service to an employee benefit plan at the request of the Corporation. For purposes of indemnification under this Article, action taken or omitted by a director in the performance of his duties with respect to an employee benefit plan, for a purpose reasonably believed by the director to be in the interest of the participants and beneficiaries of the plan, shall be deemed to be for a purpose which is not opposed to the best interests of the Corporation. In addition, excise taxes assessed on a director with respect to an employee benefit plan pursuant to applicable law shall be deemed to be fines for purposes of indemnification under this Article. SECTION 10. Unless limited by the Articles: (1) An officer of the Corporation who has been successful, on the merits or otherwise, in the defense of any proceeding referred to in Section 2 of this Article shall be indemnified against reasonable expenses incurred by the officer in connection with the proceeding; -19- (2) The Corporation, in the discretion of the Board of Directors, may indemnify and advance expenses to an officer, employee, or agent of the Corporation to the same extent that it may indemnify directors under this Article; and (3) The Corporation, in addition, may indemnify and advance expenses to an officer, employee, or agent who is not a director to such further extent, consistent with law, as may be provided by the Articles, By-laws, general or specific action of its Board of Directors or contract. SECTION 11. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Corporation, or who, while a director, officer, employee, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan against any liability asserted against and incurred by such person in any such capacity or arising out of such person's position, whether or not the Corporation would have the power to indemnify against liability under the provisions of this Article. The Corporation may provide similar protection, including a trust fund, letter of credit, or surety bond, not inconsistent with this Article. Insurance or similar protection may be provided by a subsidiary or an affiliate of the Corporation. SECTION 12. Any indemnification of, or advance of expenses to, a director in accordance with this Article, if arising out of a proceeding by or in the right of the Corporation, shall be reported in writing to the stockholders with the notice of the next stockholders' meeting or prior to the meeting. -20- ARTICLE VIII MISCELLANEOUS PROVISIONS SECTION 1. The Board of Directors shall provide (with one or more duplicates) a suitable seal, bearing the name of the Corporation, which shall be in charge of the Secretary. SECTION 2. The Board of Directors may require any officer, agent or employee of the Corporation to give a bond to the Corporation, conditioned upon the faithful discharge of his duties, with one or more sureties and in such amount as may be satisfactory to the Board of Directors. SECTION 3. Any shares in other corporations or associations, which may from time to time be held by the Corporation, may be represented and voted at any meeting of the shareholders thereof by the Chairman of the Board, the President or any other officer of the Corporation so designated by the Chairman of the Board or the President of the Corporation or by proxy executed in the name of the Corporation by the Chairman of the Board, the President or such designated officer with the corporate seal affixed and attested by the Secretary or an Assistant Secretary. SECTION 4. The By-laws of the Corporation may be altered or amended and new By-laws may be adopted by the stockholders or the Board of Directors at any regular or special meeting of the stockholders or the Board of Directors; provided, however, that if such action is to be taken at a meeting of the stockholders, notice of the general nature of the proposed change in the By-laws shall have been given in the notice of such meeting. Action by the stockholders with respect to the By-laws shall be taken by an affirmative vote of two-thirds (2/3) of all the votes entitled to be cast on the matter, and action by the Board of Directors shall be taken by an affirmative vote of two-thirds (2/3) of all directors then holding office. -21- EX-10.3.2 4 g87792exv10w3w2.txt EX-10.3.2 GUST COMPLIANCE AMEND. TO THRIFT PLAN EXHIBIT 10.3.2 GUST COMPLIANCE AMENDMENT GENERALLY EFFECTIVE JANUARY 1, 2001 TO THE HAVERTY FURNITURE COMPANIES, INC. THRIFT PLAN (AS RESTATED EFFECTIVE JANUARY 1, 2001) This GUST COMPLIANCE AMENDMENT GENERALLY EFFECTIVE JANUARY 1, 2001 (the "Amendment") to the HAVERTY FURNITURE COMPANIES, INC. THRIFT PLAN (restated effective January 1, 2001) (the "Plan") is adopted this 29th day of January, 2003, by HAVERTY FURNITURE COMPANIES, INC., as Plan sponsor (the "Employer"). R E C I T A L S: WHEREAS, the Employer established the Plan effective January 1, 1985. The Plan was last restated effective as of January 1, 2001, for which a timely application for a favorable determination letter was submitted to the Internal Revenue Service (the "Service") on behalf of the Plan; WHEREAS, pursuant to its review of the Plan's application for a favorable determination letter, the Service requires that the Plan be amended to incorporate the model amendments to the Qualified Transportation Fringes pursuant to Notice 2001-37 and Section 132(f) of the Internal Revenue Code of 1986, as amended (the "Code") and other provisions applicable to GUST; WHEREAS, the Plan reserves to the Employer the authority to amend the Plan; WHEREAS, the Employer has authorized the amendment of the Plan to comply with applicable provisions of the law; NOW THEREFORE, in consideration of these recitals, the Employer hereby amends the Plan generally effective January 1, 2001, as follows: 1. Section 1.8 "Compensation" is hereby amended by replacing Subsection (b) thereof with the following: (b) including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 2. Section 1.25 "415 Compensation" is hereby amended by adding to the end of the 2nd paragraph thereof the following: For Plan Years beginning after December 31, 2000, for purposes of this Section, the determination of "415 Compensation" shall include any amounts which are not includible in the gross income of a Participant under Code Section 132(f)(4). 3. Section 1.26 "414(s) Compensation" is hereby amended by replacing the 2nd paragraph thereof with the following: For purposes of this Section, the determination of "414(s) Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 4. Section 1.27 "Highly Compensated Employee" is hereby amended by replacing the 1st sentence of the 6th paragraph thereof with the following: For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 5. Section 1.33 "Key Employee" is hereby amended by replacing the last paragraph thereof with the following: For purposes of this Section, the determination of "415 Compensation" shall be made by including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. 2 6. Section 1.32(a)(1) is hereby amended by replacing the language thereof with the following: (1) a non-integrated employer contribution rate of at least 10% of compensation, as defined in Code Section 415(c)(3), but including amounts which are contributed by the Employer pursuant to a salary reduction agreement and which are not includible in the gross income of the Participant under Code Sections 125, 132(f)(4), 402(e)(3), 402(h)(1)(B), 403(b) or 457(b), and Employee contributions described in Code Section 414(h)(2) that are treated as Employer contributions. Except as changed by this Amendment, the provisions of the Plan remain in full force and effect. The Plan may be restated to incorporate the provisions of this Amendment. IN WITNESS WHEREOF, the Employer has caused this Amendment to be executed on its behalf by its duly authorized officers as of the date first above written. "Employer" Attested: /s/ Jenny Hill Parker By: /s/ Clarence H. Smith ------------------------------ ---------------------------- Title: Vice President, Secretary & Title: President and Chief Treasurer Executive Officer EX-10.8.1 5 g87792exv10w8w1.txt EX-10.8.1 AMENDMENT # 1 TO DIRECTORS COMP. PLAN EXHIBIT 10.8.1 AMENDMENT NUMBER ONE TO DIRECTORS COMPENSATION PLAN In order to comply with New York Stock Exchange regulations respecting equity compensation plans, the Haverty Furniture Companies, Inc. Directors' Compensation Plan is hereby amended to add a new Section as follows: 11. Term of Plan. This Plan shall have a term of ten years, commencing on April 26, 1996, when the Plan was approved by stockholders, and expiring on April 26, 2006. EX-13.1 6 g87792exv13w1.htm EX-13.1 ANNUAL REPORT TO STOCKHOLDERS 12/31/03 EX-13.1 ANNUAL REPORT TO STOCKHOLDERS 12/31/03

EXHIBIT 13.1

Selected 5-Year Financial Data


(In thousands, except per share data)			2003			2002			2001			2000			1999

Net sales			$	744,635		$	703,959		$	678,112		$	680,917		$	618,796
Gross profit				365,650			339,432			323,624			323,419			293,004
Income before income taxes and cumulative effect of accounting change				38,725			38,903			36,340			43,861			42,870
Income taxes				14,444			14,588			13,630			16,010			15,470
Income before cumulative effect of accounting change				24,281			24,315			22,710			27,851			27,400
Cumulative effect of accounting change, net of $1,929 tax benefit ⁽¹⁾				1,050			—			—			(3,356	)		—
Net income				25,331			24,315			22,710			24,495			27,400

Earnings per Common Share⁽³⁾			$	1.10		$	1.12		$	1.08		$	1.34		$	1.23
Diluted earnings per Common Share⁽³⁾			$	1.08		$	1.10		$	1.06		$	1.31		$	1.19

Cash dividends:
	Amount		$	5,076		$	4,684		$	4,365		$	4,149		$	4,179
	Per share:
		Common Stock		0.2350			0.2200			0.2100			0.2025			0.1900
		Class A Common Stock		0.2150			0.2050			0.2000			0.1925			0.1800

Accounts receivable, net			$	97,654		$	126,074		$	185,785		$	175,716		$	179,090
Credit service charges				6,392			9,051			11,066			12,658			14,925
Provision for doubtful accounts				1,979			3,180			4,061			3,396			4,125

Inventories			$	106,264		$	113,328		$	103,662		$	109,068		$	84,447

Capital expenditures			$	21,203		$	45,455		$	19,034		$	36,105		$	30,768
Depreciation/amortization expense				17,199			15,903			16,239			15,738			14,844
Property and equipment, net				171,546			134,203			146,399			144,525			126,997

Total assets			$	433,202		$	406,974		$	460,905		$	448,163		$	404,648

Long-term debt, including current portion			$	78,930		$	82,498		$	142,969		$	181,498		$	146,778
Total debt				78,930			82,498			167,969			185,098			155,578
Interest expense				3,872			6,561			10,581			11,707			11,402

Accounts Receivable, Net to Debt				123.7	%		152.8	%		110.6	%		94.9	%		115.1	%
Debt to Total Capital				23.8	%		26.8	%		45.5	%		50.8	%		48.0	%

Stockholders’ equity			$	252,736		$	224,881		$	201,398		$	179,375		$	168,793
Book value per share				11.28			10.30			9.45			8.64			7.81

Retail Sq. ft				3,919			3,808			3,521			3,557			3,419
Number of Retail Locations				113			111			103			106			103
Employees				4,141			4,037			3,720			3,869			3,636

⁽¹⁾ Effective December 31, 2003, the Company adopted FASB interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The consolidation of the required entity increased property and equipment by $22.1 million and long-term debt by $19.5 million. The cumulative effect of the change was an addition to income of $1.0 million, net of tax expense of $0.6 million. The impact of this change had it been adopted as of January 1, 1999 would not have been material to income for the years presented.

(2) Effective January 1, 2000, the Company changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” The cumulative effect of the change was a reduction in income of $3.4 million, net of tax benefit of $1.9 million. The following proforma information is related to that change:

Proforma amounts assuming that the change in revenue recognition had occurred prior to January 1, 1998:


	2000		1999

Net sales	$	680,917	$	618,526
Net income		27,851		27,524
Earnings per Common share		1.34		1.24
Diluted earnings per Common share		1.31		1.20

(3) Earnings per Common share and diluted earnings per Common share for 2003 and 2000 are before the impact of the cumulative effect of a change in accounting principle in that year.


	Haverty Furniture Companies, Inc. Annual Report 2003		17

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding future events and our future results that 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,” “goals”, “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 and 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.

Overview

We focus on several key metrics in managing and evaluating our operating performance and financial condition including the following: comparable-store sales, sales by merchandise categories, gross profit, operating costs as a percentage of sales, cash flow, total debt to total capital, and earnings per share.

Our sales are generated by customer purchases of home furnishings in our retail stores and recorded as revenue when delivered to the customer. There is typically a two-week lag between when a customer’s order is placed in one of our stores and when the customer is able to arrange their schedule for delivery. Comparable-store or comp-store sales are comparisons of sales results of stores that have been open at least one year. As a retailer, this performance measure gives a clearer signal as to relative customer spending period over period. Sales of big-ticket items have been negatively impacted during the past few years as the economy has struggled and consumer confidence reached near record lows.

Havertys’ cost of sales includes only the costs associated with the sourcing of our products. Our gross profit is primarily dependent upon merchandising capabilities, vendor pricing and the mix of products sold. The success of our private-label products, Havertys Collections, has continued since their introduction at the end of 2000 and these products have been expanded as a percentage of our overall sales mix. The merchandise for this line is selected to appeal to our target customers and generally carries a modestly higher gross margin. We view the sourcing and mix of our merchandise as important opportunities for improving our performance. The values associated with imported product offerings, the expansion of our Havertys Collections with Premium (higher-end) products and the introduction of a Havertys bedding line during 2004 are part of our short-term strategies to continue improving our gross profit margin. There are certain risks associated with the growing level of non-domestically produced products, such as potential disruptions in merchandise flow, increased tariffs or changes in monetary conditions. We are currently pursuing various plans to mitigate the impact of potential new duties on wooden bedroom furniture manufactured in China.

Our operational focus during the past few years has been on our warehouse and delivery effectiveness as we completely revamped our distribution methodology and consolidated certain customer service functions. This created redundant operations during the transition periods in the affected markets. Now that we have completed the shift for a large portion of our business, our attention has been on refining the process to achieve better operating efficiencies. This has included determining the optimal frequency of deliveries to local markets to meet customer expectations and be economically rational. We are continuing the transformation and consolidation of our distribution systems which is scheduled for completion by the second quarter of 2005.

We entered into a synthetic lease transaction in 1997 covering four retail stores and our distribution center in Dallas, Texas. In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” which is discussed more fully below under the heading “Recent Accounting Pronouncements.” FIN 46 requires us to consolidate the assets and debt of the trust that owns the properties and the related lease revenues and depreciation and interest expense. We recorded FIN 46 as a change in accounting principle and applied it cumu-

18 Haverty Furniture Companies, Inc. Annual Report 2003

latively as if the change occurred at December 31, 2003. This resulted in our recording on our balance sheet the net book value of the properties of approximately $22.1 million, long-term debt of $19.5 million, minority interest of $1.0 million and deferred tax liabilities of $.6 million. The cumulative impact on earnings, net of tax expense, was an increase of approximately $1.0 million or $.05 per diluted earnings per share.

Cash flows continued to be strong during 2003, providing funding for $21.2 million in new property and equipment expenditures and $6.7 million in purchases of assets that were previously leased, the reduction of long-term debt by $30.1 million and the increase in our available cash by $27.8 million. Our cash flow accelerated during 2002 and 2003 in part due to the outsourcing of certain credit promotions to a third party finance company. The increased cash has enabled us to repay all of our fixed rate debt instruments that do not have significant pre-payment penalties. Our total debt to total capital was 23.8% at December 31, 2003 (19.1% exclusive of the impact of the adoption of FIN 46), continuing the improvement from 26.8% in 2002 and 45.5% in 2001.

Diluted earnings per share for 2003, prior to the impact of FIN 46, were $1.08 and we earned $1.10 in 2002 and $1.06 in 2001, all three very challenging years.

Critical Accounting Estimates and Assumptions

Allowance for Doubtful Accounts

We provide an allowance for doubtful accounts using a method that considers the balances in problem and delinquent categories of accounts, historical write-offs and judgment. 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 assess the adequacy of the allowance account at the end of each quarter.

While our customer base is large and geographically dispersed, a general economic downturn affecting our target customers could result in higher than expected defaults, and therefore the need to revise estimates for bad debts. For the years ended December 31, 2003, 2002, and 2001, we recorded provisions for bad debts of $2.0 million, $3.2 million and $4.1 million, respectively. The amount of the provision has dropped as the levels of in-house receivables have decreased.

Store Closing Costs

We periodically evaluate the operations of each of our retail and warehouse locations. This also has been an important part of our transition to our new distribution methods. In the period we close a store or warehouse, the present value of the estimated costs that we will not recover are charged to expense. These costs include any estimated loss on the sale of the land and buildings, the book value of any abandoned leasehold improvements and amounts for future lease payments, less any estimated sublease income. Prior to January 1, 2003, we recorded these estimated costs at the time we committed to a store or warehouse closure.

Consideration Received from Vendors

We have varying agreements with many of our vendors that provide for advertising allowances or rebates. We have historically treated cooperative advertising allowances and vendor rebates as a reduction of advertising expense. We adopted the Emerging Issues Task Force (EITF) Issue No. 02-16 “Accounting by a Customer for Cash Consideration Received from a Vendor” (EITF 02-16), effective January 1, 2003. This new accounting rule provides guidelines for 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 December 31, 2002.

The adoption of EITF 02-16 did not have a material impact on our 2003 financial statements because we had agreements in place prior to the effective date or we identified and tracked specific incremental advertising costs that were vendor specific which qualify for expense offset. We are currently renegotiating many of our agreements for 2004. Based on the administrative costs associated with tracking and matching allowances to vendor specific advertising costs we will classify all vendor consideration as a reduction of inventory costs as agreements are renewed. Our inventories are measured on the Last-in, First-out (LIFO) method of valuation and are not expected to increase during 2004. Accordingly, we do not anticipate there to be an impact on earnings as we apply this guidance to our new agreements. Gross margin and selling, general and administrative expenses will both increase in the future from their historical basis as vendor consideration is recorded as a reduction to cost of sales rather than as an offset to advertising expense.

Pension and Retirement Benefits

Pension and other retirement plans’ costs require the use of assumptions for discount rates, investment returns, projected salary increases, and mortality rates. The actuarial assumptions used in the Company’s pension and retirement benefit reporting are reviewed annually and compared with external benchmarks to ensure that they appropriately account for the Company’s


	Haverty Furniture Companies, Inc. Annual Report 2003			19

Management’s Discussion and Analysis of Financial Condition and Results of Operations

future pension and retirement benefit obligations. While we believe that the assumptions used are appropriate, differences between assumed and actual experience may affect the Company’s operating results. A one percent change in the actuarial assumption for the discount rate would impact 2003 expense for the defined benefit pension plan by approximately $0.2 million, a 9.5% change. A one percent change in the expected return on plan assets would impact 2003 expense for the defined benefit pension plan by approximately $0.4 million, a 19% change. In addition, see note 10 of the notes to consolidated financial statements for a discussion of these assumptions and the effects on the financial statements.

Operating Results

The following table sets forth for the periods indicated (i) selected statement of income data, expressed as a percentage of net sales and (ii) the percentage change in dollar amounts from the prior year in selected statement of income data:


										Percentage Change
	Percentage of Net Sales									From Prior Year
	2003			2002			2001			2003			2002

Net sales		100.0	%		100.0	%		100.0	%		5.8	%		3.8	%
Cost of sales		50.9			51.8			52.3			4.0			2.8
Gross profit⁽¹⁾		49.1			48.2			47.7			7.7			4.9
Credit service charges		0.9			1.3			1.6			(29.4	)		(18.2	)
Selling, general and administrative expenses⁽¹⁾		44.3			43.2			41.9			8.4			7.0
Provision for doubtful accounts		0.3			0.5			0.6			(37.8	)		(21.7	)
Income before income taxes⁽²⁾		5.2			5.5			5.4			(0.5	)		7.1
Net income⁽²⁾		3.3			3.5			3.3			(0.1	)		7.1

1. Reclassified vendor rebates and advertising allowances increased the SG&A and gross profit percentages 20 basis points for 2003.

2. Income before cumulative effect of a change in accounting principle.

Net Sales

The following outlines our sales and comp-store sales increases for the periods indicated (dollars in millions):

2003

2002

2001

Comp-Store

Net Sales

Sales

Total Net Sales

Sales

Total Net Sales

Sales

% Increase

(decrease)

Period

over prior

Ended

Dollars

period

Dollars

period

Dollars

period

175.4

0.2

(6.6

)

175.0

4.4

3.4

167.6

2.4

(3.0

)

168.6

2.3

(2.2

)

164.9

8.4

6.6

152.1

(7.5

)

(12.2

)

195.4

11.2

6.1

175.7

3.0

0.3

170.6

(3.8

)

(8.8

)

205.3

8.9

5.7

188.4

0.4

(6.3

)

187.8

7.0

1.9

Year

744.6

5.8

1.0

704.0

3.8

0.7

678.1

(0.4

)

(5.5

)

20 Haverty Furniture Companies, Inc. Annual Report 2003

Retail sales of big-ticket home goods have been weak 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. 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. We have instead used some promotional pricing during traditional sales events. Supplementing the pricing promotions, we also began to advertise longer free interest and deferred payment period financing promotions during 2003. We expect to continue this approach of providing a selection of specially priced merchandise and financing promotions to increase traffic in our stores.

Our sales during 2003 increased across all major categories of furnishings, with bedding, formal dining rooms and upholstery performing better than the average. Our average sales transaction and price per item both remained modestly higher over the prior year periods. Net sales for each period by category were as follows (in millions):


	Year Ended December 31,
	2003		% of Net Sales			2002		% of Net Sales			2001		% of Net Sales

Upholstery	$	181.6		24.4	%	$	168.9		24.0	%	$	164.2		24.2	%
Bedroom		166.6		22.4			164.4		23.4			159.2		23.5
Formal Dining		63.9		8.6			57.6		8.2			61.4		9.1
Casual Dining		37.5		5.0			36.3		5.1			34.7		5.1
Recliners and Sleeper sofas		50.2		6.8			46.9		6.7			44.4		6.6
Occasional		131.3		17.6			128.4		18.2			121.0		17.8

Total Furniture Sales		631.1		84.8			602.5		85.6			584.9		86.3

Bedding Sales		67.2		9.0			57.2		8.1			53.0		7.8
Accessories and Other		46.3		6.2			44.3		6.3			40.2		5.9

Net Sales	$	744.6		100.0	%	$	704.0		100.0	%	$	678.1		100.0	%

Havertys Collections	$	153.0		20.5	%	$	82.8		11.8	%	$	35.2		5.2	%

The recent anti-dumping petition against Chinese furniture makers for allegedly dumping wooden bedroom furniture is working its way through the United States International Trade Commission and the United States Department of Commerce. The final determinations of the Commission will not be made until 2005 but the imposition of preliminary duties will begin in Spring 2004. Approximately 60% of our bedroom furniture sales were from merchandise imported from China. The suppliers of our goods are preparing to shift production to other facilities should the determinations from the Commission be unfavorable. We are planning our purchases and advertising with care until the duties are determined. We cannot predict what amount, if any, of disruption there might be as manufacturers shift their production to other locales or what level of duties-related price increases we will be able to pass on to our customers. We believe that, given our purchasing strength, we will be able to negotiate arrangements with our vendors which will allow us to continue offering all product categories on a competitive basis.

Gross Profit

Cost of sales consists primarily of the purchase price of the merchandise together with freight costs and the sourcing costs of our products. 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


	Haverty Furniture Companies, Inc. Annual Report 2003			21

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 before the 20 basis point impact of the reclassified vendor rebates and advertising allowances, as a percentage of sales, was 48.9 %, a 70 basis points increase over the 48.2% gross profit in 2002 and a 120 basis points improvement over the 47.7% gross profit in 2001.

Gross profit has been improved by the increase in the level of sales of our Havertys Collections. These private-label products generally carry a modestly higher gross margin, as manufacturers do not have their proprietary advertising costs to recoup. We have gradually increased the number of Havertys Collections items in our merchandise mix since its introduction in 2000. Sales of these private-label lines as a percent of total sales have grown to 20.5% in 2003 from 11.8% in 2002, with steady increases to 30% in the months in late 2003 and in early 2004. We expect that this trend will continue and Havertys Collections could be as much as 50% of our total sales during the last months of 2004.

During much of 2003 our focus was to seek values with imported product offerings and to explore how we might better source and flow those goods. Our core furniture merchandise comprises approximately 85% of the furniture items, excluding bedding and accessories, which we carry in all of our stores. Additional products that are more regionally focused and items needed to merchandise our larger retail stores supplement the core furniture merchandise assortment. Of our core merchandise groups at December 31, 2002, imported products comprised approximately 37% and this increased to approximately 60% by the end of 2003 as new products were received and displayed in our showrooms. Wood products, or “case goods,” are generally imported, and so only 20% of our selected case goods at December 31, 2003 were produced domestically. Upholstered items are not as heavily imported, with the exception of our leather products, of which almost 100% were imported during 2003. The Havertys Collections lines are approximately 80% imported with virtually all case goods and leather items being imported. We believe for the selected imported items we purchase, we achieve substantial savings as compared to domestically produced similar products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses are comprised of five categories: selling; occupancy; warehouse and delivery; administrative; and advertising. Selling expenses primarily are comprised of compensation of sales associates and sales support staff. 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, advertising, 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 negatively impacted by the transition to our new distribution system and the expense related to the increased outsourcing of certain credit programs. We began transitioning to our new distribution system in June 2002 and completed the Eastern distribution center rollout program one year later. Total SG&A costs, before the impact of the reclassified vendor rebates and allowances, as a percentage of net sales were 44.1% for 2003 as compared to 43.2% and 41.9% in 2002 and 2001, respectively.

Total occupancy costs have increased over the three-year period as we have increased our square footage 11.7% and added or replaced 18 stores. As expected, during 2002 these costs increased due to new stores and also as a function of a sale-leaseback transaction of 11 retail stores. The occupancy costs as a percentage of sales remained relatively flat in 2003 as compared to 2002.

Warehouse and delivery costs during 2003 were higher than the 2002 amounts as the new facilities were in operation for a full year. We now have 52 stores fully integrated into our new distribution system, representing approximately 45% of our sales. These expenses in 2002 rose over those of 2001 as we began the rollout of our distribution changes. These changes generated the additional expenses that we anticipated as part of the transition but slower than expected sales growth hindered our ability to leverage these expenses. We are continuing our focus on refinements of our new system and related reductions in costs. These changes include adjusting the service frequency to our local mar-

22 Haverty Furniture Companies, Inc. Annual Report 2003

kets and implementing automated routing of home deliveries. Additional savings should be derived as sales increase and the operational costs of our new facilities are further leveraged. The increasing amount of product manufactured overseas amplifies the need for excellent supply-chain management, given the longer lead times from order placement to arrival, and the need to receive and warehouse the larger order volumes of product associated with importing.

Administrative expenses increased in 2003 over 2002 and 2001 primarily from the charges associated with the credit programs that we began outsourcing to a third party during the fourth quarter of 2001. During 2003, we also incurred significant increases in our group insurance costs and in property and casualty insurance premiums. Administrative expenses exclusive of these changes decreased as a percentage of sales by approximately 20 basis points in 2003 compared to 2002 and 30 basis points versus 2001.

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 is a 12-month, no interest and 12 equal payments promotion which generates very minor credit revenue, but helps us reduce our interest expense and bad debts due to the faster payout relative to our other in-house credit programs. The standard outsourced program offers deferred payment for 360 days 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, another similar outsourced promotion was offered for larger purchases that allows for deferred payments up to 18 months. This promotion has become the most popular of all the credit programs offered.

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):


		For the Year Ended December 31,
			2003			2002			2001

Credit Service Charge Revenue			$	6,392		$	9,051		$	11,066
Amount Financed as a % of Sales:
	Havertys			25.1	%		32.6	%		46.5	%
	Third Party			21.0	%		14.0	%		0.6	%

				46.1	%		46.6	%		47.1	%
% Financed by Havertys:
No Interest for 12 Months				55.7	%		69.4	%		65.7	%
No Interest for >12 Months				17.3	%		0.2	%		5.6	%
No Interest < 12 Months				14.7	%		18.3	%		18.7	%
Other				12.3	%		12.1	%		10.0	%

				100.0	%		100.0	%		100.0	%


	December 31,
	2003			2002			2001

Accounts receivable	$	102,154		$	131,874		$	192,685
Allowance for doubtful accounts		4,500			5,800			6,900
Allowance as a % of accounts receivable		4.4	%		4.4	%		3.6	%

Our allowance for doubtful accounts declined in 2003 as lower levels of in-house receivables were generated. We believe that the amounts we pay for the outsourced 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 the same at the end of 2003 and 2002 as delinquency and problem category percentages are similar. The rate of bankruptcy filings by our customers increased in 2002 contributing to the higher ending allowance as a percentage of the receivables pool as compared to 2001.


	Haverty Furniture Companies, Inc. Annual Report 2003		23

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Interest Expense

Interest expense declined in 2003 from the 2002 level, and 2002 was a decline from 2001. We significantly reduced our average debt level in 2003 in addition to reductions made during 2002. Average debt decreased 42% in 2003 and 28% in 2002. These reductions were partly offset by an increase in our effective interest rate of 71 basis points in 2003 compared to 2002, as most of the debt reduction was in lower cost, floating rate borrowings.

Other Income (Loss)

Other income (loss) is primarily related to real estate. We have had dispositions of warehouses as we transition our distribution methodology to various markets. During 2003, we had gains from the sale of two local market warehouses and also had gains from other retail properties. We sold one market area and two of our larger regional warehouses during 2002 as part of the real estate gains of $4.6 million. We had real estate gains in 2001 of $2.6 million primarily from the sale of a Florida retail store. The gains in 2001 were partially offset by charges of $1.9 million related to impairments on property held for sale and warehouse and store closing costs. These charges were primarily for future lease obligations, net of estimated sublease income.

Provision for Income Taxes

The effective tax rate was 37.3% for 2003 and 37.5% for 2002 and 2001. The effective tax rate differs from the statutory rate primarily due to state income taxes, net of the Federal tax benefit.

Recent Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The Interpretation requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Previously, entities were generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity.

During 2003, we concluded that the we were the primary beneficiary of a variable interest entity (VIE) that is the lessor under an operating lease of our Dallas distribution center and its attached retail space and three retail locations. Effective December 31, 2003, the Company consolidated the VIE and recorded a cumulative effect of an accounting change of $1.0 million (net of income tax expense of $0.6 million).

Consolidation of the VIE increased property and equipment $26.0 million, accumulated depreciation by $3.8 million, long-term borrowings by $19.5 million and created a minority interest of $1.0 million. The effect of consolidating this VIE is not expected to have a significant impact on future periods.

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 increased $27.8 million in 2003 and $3.0 million in 2002, and decreased $2.5 million in 2001.

Cash flow generated from operations provides us with a significant source of liquidity, particularly beginning in 2002 when we began outsourcing certain credit programs. Cash provided by operations remained strong at $82.0 million in 2003 compared to $86.6 million in 2002. The modest decrease was due in part to a lesser impact of the credit outsourcing program begun in 2002. The 5.8% decrease in inventory resulting from our focus on inventory management also contributed to our strong cash flow in 2003.

Cash flows used in investing activities was $25.0 million in 2003 as compared to cash generated from investing activities of $3.5 million in 2002. Investing activities in 2003 were primarily for capital expenditures and purchases of properties previously under leases. Capital expenditures of $45.5 million during 2002 were partly offset by a $41.5 million sale-leaseback transaction in which we sold 11 retail stores with a net book value of $38.0 million that we are leasing under an operating lease agreement. Additionally, we sold other assets, including the vacated regional warehouses, and generated proceeds of $8.3 million (see “Capital Expenditures” for further discussion of past and expected outflows).

Cash flows used in financing activities was $29.2 million in 2003 as compared to $87.1 million in 2002. Cash flows in both years were used to reduce borrowings under our revolving credit facilities and to repay long-term debt. We used our revolving credit facilities partially to fund capital expenditures during 2002 and early 2003. Our additional cash from operations was used to repay all amounts outstanding under these facilities during the second half of 2003.

24 Haverty Furniture Companies, Inc. Annual Report 2003

Financings

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 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 $4.5 million outstanding at December 31, 2003, and these amounts are considered part of the facilities usage. We had an unused capacity of $75.5 million at December 31, 2003.

We have reviewed all of our fixed-rate long-term debt and as of December 31, 2003 repaid those facilities that do not include significant prepayment penalties or other issues that would make accelerating the payments problematic.

We pursue a diversified approach to our financing requirements and generally balance our fixed-rate and capped-rate debt as determined by the interest rate environment. Our overall capital structure at December 31, 2003, was approximately 64% unsecured and 84% with fixed rates of interest. Our debt reduction has caused variable rate debt levels to move below typical levels. The average effective interest rate on all borrowings (excluding capital leases and the VIE debt) was 7.9% at December 31, 2003. Our long-term debt-to-equity ratio was 23.8% at December 31, 2003, including the VIE debt.

The following summarizes our contractual obligations and commercial commitments as of December 31, 2003.


	Payments Due by Period (in thousands)

	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years

Long-Term Debt¹	$	70,557	$	13,174	$	26,462	$	15,353	$	15,568
Capital Lease Obligations²		8,373		7,176		170		200		827
Operating Leases³		274,085		36,564		45,563		41,040		150,918

Total Contractual Obligations⁴	$	353,015	$	56,914	$	72,195	$	56,593	$	167,313

1) Includes $19,455 of debt recorded in connection with the cumulative effect change in accounting principle.

The debt is related to the development of a regional distribution center and four retail locations.

2) Includes $7.1 million in 2004, reflecting the Company’s planned purchase of assets under a capital lease at December 31, 2003.

3) Includes $13.0 million in 2004, reflecting the Company’s planned purchase of assets under operating leases at December 31, 2003.

4) The Company did not have any legally binding outstanding purchase obligations at December 31, 2003.


	Haverty Furniture Companies, Inc. Annual Report 2003			25

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 has increased an average of approximately 6% over the past 10 years. During 2002, we opened the second largest amount of square footage in our history as we opened eight new stores and three larger relocated stores. The following outlines the changes in our selling square footage for the three years ended December 31, 2003 (square footage in thousands):


	2001				2002				2003
			Square				Square				Square
	# of Stores		Footage		# of Stores		Footage		# of Stores		Footage
Stores Opened		3		136		11		388		4		161
Stores Closed		6		172		3		101		2		50

Year End Balances		103		3,521		111		3,808		113		3,919

We are expecting to add approximately 3% retail square footage during 2004 as we open a new store in Ohio and add stores in the Metro- DC and San Antonio, Texas markets.

Our investing activities in stores and operations in 2002 and 2003 and planned outlays for 2004 are categorized in the table below. Capital expenditures for stores in the years noted do not necessarily coincide with the years in which the store opens. We have made or expect to make purchases of properties that were previously recorded as capital leases on our balance sheet or as operating leases and have shown those amounts in this table and in the total contractual obligations table.


(in thousands)	2002		2003		Proposed 2004
Stores:
New Stores	$	25,328	$	8,075	$	15,800
Remodels/Expansions		2,349		2,390		6,000
Maintenance		1,000		1,741		2,300

Total Stores		28,677		12,206		24,100
Distribution:		12,478		3,147		18,800
Information Technology:		—		—		—

Capital expenditures for new property and equipment		45,455		21,203		46,000
Purchases of assets in operations previously under lease		—		6,688		20,100

Total	$	45,455	$	27,891	$	66,100


26		Haverty Furniture Companies, Inc. Annual Report 2003

We will be disposing of warehouses and land during 2004 and proceeds from these sales are estimated to be approximately $10 million. Cash balances, funds from operations, proceeds from sales of properties and bank lines of credit are expected to be adequate to finance our 2004 capital expenditures.

Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the potential loss arising from adverse changes in the value of financial instruments. The risk of loss is assessed based on the likelihood of adverse changes in fair values, cash flows or future earnings.

In the ordinary course of business, we are exposed to various market risks, including fluctuations in interest rates. To manage the exposure related to this risk, we may use various derivative transactions. As a matter of policy, we do not engage in derivatives trading or other speculative activities. Moreover, we enter into financial instrument transactions with either major financial institutions or highly credit rated counter parties, thereby limiting exposure to credit and performance-related risks.

We have exposure to floating interest rates through certain of our borrowings. Therefore, interest expense will fluctuate with changes in LIBOR and other benchmark rates. At December 31, 2003, we had two interest rate swap agreements with notional amounts totaling $20 million at rates between 5.75% and 5.72% and maturing September 30, 2005. We do not believe a 100 basis point change in interest rates would have a significant adverse impact on our operating results or financial position.

Report of Independent Auditors

Board of Directors
Haverty Furniture Companies, Inc.

We have audited the accompanying consolidated balance sheets of Haverty Furniture Companies, Inc. and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Haverty Furniture Companies, Inc. and subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1 to the consolidated financial statements, in 2003 the Company adopted Interpretation No. 46, “Consolidation of Variable Interest Entities.”

(ERNST & YOUNG LLP)

Atlanta, Georgia
February 6, 2004


Haverty Furniture Companies, Inc. Annual Report 2003		27

Consolidated Balance Sheets


	December 31
(In thousands, except per share data)	2003			2002
ASSETS
Current assets
Cash and cash equivalents	$	31,591		$	3,764
Accounts receivable (Note 2)		97,654			126,074
Inventories (Note 3)		106,264			113,328
Deferred income taxes (Note 8)		3,193			3,076
Other current assets		17,783			19,718

Total current assets		256,485			265,960

Property and equipment (Notes 4 and 7)		171,546			134,203
Deferred income taxes (Note 8)		—			1,654
Other assets		5,171			5,157

	$	433,202		$	406,974

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Notes payable to banks (Note 5)	$	—		$	—
Accounts payable and accrued expenses (Note 6)		90,668			89,252
Current portion of long-term debt and capital lease obligations (Notes 7 and 12)		13,528			12,677

Total current liabilities		104,196			101,929

Long-term debt and capital lease obligations, less current portion (Notes 7 and 12)		65,402			69,821
Other liabilities		10,868			10,343

Total liabilities		180,466			182,093

Commitments (Note 12)
Stockholders’ equity (Notes 9 and 11)
Capital Stock, par value $1 per share
Preferred Stock, Authorized – 1,000 shares; Issued: None
Common Stock, Authorized – 50,000 shares; Issued: 2003 – 23,958; 2002 – 23,233 shares		23,958			23,233
Convertible Class A Common Stock, Authorized – 15,000 shares; Issued: 2003 – 4,916; 2002 – 5,048 shares		4,916			5,048
Additional paid-in capital		49,019			42,365
Retained earnings		235,005			214,750
Accumulated other comprehensive loss		(1,881	)		(2,389	)
Less treasury stock at cost – Common Stock (2003 – 5,943 shares; 2002 – 5,927 shares) and Convertible Class A Common Stock (2003 and 2002 – 522 shares)		(58,281	)		(58,126	)

Total stockholders’ equity		252,736			224,881

	$	433,202		$	406,974

See accompanying notes to consolidated financial statements.


28		Haverty Furniture Companies, Inc. Annual Report 2003

Consolidated Statements of Income


	Year Ended December 31
(In thousands, except per share data)	2003			2002			2001
Net sales	$	744,635		$	703,959		$	678,112
Cost of goods sold		378,985			364,527			354,488

Gross profit		365,650			339,432			323,624
Credit service charges		6,392			9,051			11,066

Gross profit and other revenue		372,042			348,483			334,690
Expenses:
Selling, general and administrative		329,621			304,016			284,027
Interest		3,872			6,561			10,581
Provision for doubtful accounts		1,979			3,180			4,061
Other (income) expense, net		(2,155	)		(4,177	)		(319	)

Total expenses		333,317			309,580			298,350

Income before income taxes and cumulative effect of a change in accounting principle		38,725			38,903			36,340
Income taxes (Note 8)		14,444			14,588			13,630

Income before cumulative effect of a change in accounting principle		24,281			24,315			22,710
Cumulative effect of a change in accounting principle (Note 1)		1,050			—			—

Net income	$	25,331		$	24,315		$	22,710

Basic earnings per share:
Income before cumulative effect of a change in accounting principle	$	1.10		$	1.12		$	1.08
Cumulative effect of a change in accounting principle		0.05			—			—

Net income	$	1.15		$	1.12		$	1.08

Diluted earnings per share:
Income before cumulative effect of a change in accounting principle	$	1.08		$	1.10		$	1.06
Cumulative effect of a change in accounting principle		0.05			—			—

Net income	$	1.13		$	1.10		$	1.06

Weighted average common shares - basic		21,992			21,624			21,009
Weighted average diluted common shares		22,437			22,145			21,502

See accompanying notes to consolidated financial statements.


Haverty Furniture Companies, Inc. Annual Report 2003		29

Consolidated Statements of Stockholders’ Equity


			Class A								Accumulated
	Common		Common			Additional					Other
	Stock		Stock			Paid-in		Retained			Comprehensive			Treasury
(In thousands, except per share data)	($1 Par Value)		($1 Par Value)			Capital		Earnings			Income (Loss)			Stock			Total
BALANCE AT DECEMBER 31, 2000	$	21,958	$	5,276		$	33,594	$	176,774		$	—		$	(58,227	)	$	179,375
Net income		—		—			—		22,710			—			—			22,710
Cumulative effect of a change in accounting for derivative financial instruments, net of applicable income tax liability of $30		—		—			—		—			53			—			53
Change in fair value of derivative, net of applicable income tax benefit of $448		—		—			—		—			(750	)		—			(750	)

Total comprehensive income																		22,013
Cash dividends on common stock:
Amount		—		—			—		(4,365	)		—			—			(4,365	)
Per share:
Common - $0.2100
Class A Common - $0.2000
Conversion of Class A Common Stock		29		(29	)		—		—			—			—			—
Tax benefit from employees’ stock options		—		—			1,202		—			—			—			1,202
Stock option transactions, net		522		—			2,600		—			—			—			3,122
Treasury stock transactions, net		—		—			—		—			—			51			51

BALANCE AT DECEMBER 31, 2001		22,509		5,247			37,396		195,119			(697	)		(58,176	)		201,398
Net income		—		—			—		24,315			—			—			24,315
Change in fair value of derivatives, net of applicable income tax benefit of $1,016		—		—			—		—			(1,692	)		—			(1,692	)

Total comprehensive income																		22,623
Cash dividends on common stock:
Amount		—		—			—		(4,684	)		—			—			(4,684	)
Per share:
Common - $0.220
Class A Common - $0.205
Conversion of Class A Common Stock		199		(199	)		—		—			—			—			—
Tax benefit from employees’ stock options		—		—			1,328		—			—			—			1,328
Stock option transactions, net		525		—			3,641		—			—			—			4,166
Treasury stock transactions, net		—		—			—		—			—			50			50

BALANCE AT DECEMBER 31, 2002		23,233		5,048			42,365		214,750			(2,389	)		(58,126	)		224,881
Net income		—		—			—		25,331			—			—			25,331
Change in fair value of derivatives, net of applicable income tax liability of $192		—		—			—		—			508			—			508

Total comprehensive income																		25,839
Cash dividends on common stock:
Amount		—		—			—		(5,076	)		—			—			(5,076	)
Per share:
Common - $0.235
Class A Common - $0.215
Conversion of Class A Common Stock		132		(132	)		—		—			—			—			—
Tax benefit from employees’ stock options		—		—			1,143		—			—			—			1,143
Stock option transactions, net		593		—			5,511		—			—			—			6,104
Treasury stock transactions, net		—		—			—		—			—			(155	)		(155	)

BALANCE AT DECEMBER 31, 2003	$	23,958	$	4,916		$	49,019	$	235,005		$	(1,881	)	$	(58,281	)	$	252,736

See accompanying notes to consolidated financial statements.


30		Haverty Furniture Companies, Inc. Annual Report 2003

Consolidated Statements of Cash Flows


	Year ended December 31
(In thousands)	2003			2002			2001
OPERATING ACTIVITIES
Net income	$	25,331		$	24,315		$	22,710
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of a change in accounting principle		(1,050	)		—			-
Depreciation and amortization		17,199			15,903			16,239
Provision for doubtful accounts		1,979			3,180			4,061
Tax benefit from stock option exercises		1,143			1,328			1,202
Deferred income taxes		851			3,552			(1,229	)
(Gain) loss on sale of property and equipment		(316	)		(4,580	)		(2,558	)

Subtotal		45,137			43,698			40,425

Changes in operating assets and liabilities:
Accounts receivable		26,441			56,531			(14,130	)
Inventories		7,064			(9,666	)		5,406
Other current assets		1,935			(5,290	)		(7,192	)
Accounts payable and accrued expenses		1,416			1,310			6,742

Subtotal		36,856			42,885			(9,174	)

NET CASH PROVIDED BY OPERATING ACTIVITIES		81,993			86,583			31,251

INVESTING ACTIVITIES
Capital expenditures		(21,203	)		(45,455	)		(19,034	)
Purchases of properties previously under leases		(6,688	)		—			—
Proceeds from sale-leaseback transaction		—			41,485			—
Proceeds from sale of property and equipment		2,895			8,280			3,479
Other investing activities		(14	)		(782	)		105

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES		(25,010	)		3,528			(15,450	)

FINANCING ACTIVITIES
Proceeds from borrowings under revolving credit facilities		208,400			372,500			341,992
Payments of borrowings under revolving credit facilities		(224,300	)		(446,600	)		(348,292	)

Net decrease in borrowings under revolving credit facilities		(15,900	)		(74,100	)		(6,300	)
Payments on long-term debt and capital lease obligations		(14,217	)		(11,371	)		(11,070	)
Treasury stock acquired		(155	)		—			—
Proceeds from exercise of stock options		6,104			4,166			3,122
Dividends paid		(5,076	)		(4,684	)		(4,365	)
Other financing activities		88			(1,085	)		283

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(29,156	)		(87,074	)		(18,330	)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		27,827			3,037			(2,529	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		3,764			727			3,256

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	31,591		$	3,764		$	727

See accompanying notes to consolidated financial statements.


Haverty Furniture Companies, Inc. Annual Report 2003		31

Notes to Consolidated
Financial Statements

Note 1, SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:

Organization:

The Company is a full-service home furnishings retailer with 113 showrooms in 15 states. The Company sells a broad line of residential furniture in the middle to upper-middle price ranges selected to appeal to its predominant target market. As an added convenience to its customers, the Company offers financing through an internal revolving charge credit plan as well as a third party finance company.

Basis of Presentation:

The consolidated 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 implications of the Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities” on the Company’s consolidation policy are discussed later in this note.

Certain prior year amounts have been reclassified to conform to the 2003 financial statement presentation.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Cash Equivalents:

The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates fair market value.

Inventories:

Inventories are stated at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method.

Property and Equipment:

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

Estimated useful lives for financial reporting purposes are as follows:


Buildings		25 -33 years
Improvements		5 -15 years
Equipment		3 -15 years
Capital leases		20 -25 years

Revenue Recognition:

The Company recognizes revenue from merchandise sales and related service fees upon delivery to the customer. Appropriate provisions are made for returns.

The Company typically offers its customers an opportunity for Havertys to deliver their purchases. Delivery fees of $12,394,000, $10,605,000 and $9,578,000 were charged to customers in 2003, 2002 and 2001, respectively and are included in net sales. The costs associated with these deliveries are included in selling, general and administrative expenses and were $26,760,000, $22,556,000 and $21,149,000 in 2003, 2002 and 2001, respectively.

Credit service charges are recognized as revenue as assessed to customers according to contract terms.

Advertising Expense:

Advertising costs, which include television, radio, newspaper and other media advertising, are expensed upon first showing. The total amount of advertising costs included in other current assets was approximately $1,300,000 and $1,500,000 at December 31, 2003 and 2002, respectively. The Company incurred approximately $41,300,000, $39,400,000 and $41,500,000 in advertising costs during 2003, 2002 and 2001, respectively.

Fair Values of Financial Instruments:

The Company’s financial instruments consist of cash, accounts receivable, accounts payable, long-term debt and interest-rate swap agreements. The fair values of cash, accounts receivable and accounts payable approximate their carrying values. The fair value of long-term debt, which was $81,950,000 at December 31, 2003, was determined using quoted market prices for debt of the same remaining maturity and other characteristics. The fair value of interest rate swap agreements is based on the estimated amount the Company would pay to terminate the agreements at the reporting date, taking into account current interest rates and the credit worthiness of the swap counterparties.

Derivative Instruments:

In June 1998, the FASB issued Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which was amended by FASB Statement Nos. 137 and 138. The statements require the Company to recognize all derivatives on the balance


32		Haverty Furniture Companies, Inc. Annual Report 2003

sheet at fair value and to establish criteria for designation and effectiveness of hedging relationships. The adoption of Statement Nos. 133 and 138 effective January 1, 2001, resulted in an after-tax adjustment of $53,000 in other comprehensive income.

The Company uses derivative instruments to mitigate its interest risk and does not engage in derivatives trading or other speculative activities. The Company recognizes derivatives as either assets or liabilities on the Consolidated Balance Sheets and measures those instruments at fair value. At December 31, 2003 and 2002, the fair value of the Company’s derivatives were liabilities of $1,331,000 and $1,885,000, respectively.

The derivatives entered into by the Company were designated as cash flow hedges. The effective portion of the derivatives’ gain or loss has been reported as a component of accumulated other comprehensive income (loss) and will be subsequently reclassified into earnings when the hedged exposure affects earnings. During 2003 there were no significant gains or losses recognized in earnings for hedge ineffectiveness.

Impairment of Long-Lived Assets:

The Company periodically reviews long-lived assets for impairment when circumstances indicate the carrying amount of an asset may not be recoverable. Impairment is recognized to the extent the sum of undiscounted estimated future cash flows expected to result from the use of the asset is less than the carrying value. Such costs include any estimated loss on the sale of land and buildings, the book value of abandoned leasehold improvements and a provision for future lease obligations, less estimated sublease income. Prior to January 1, 2003, when the Company committed to relocate or close a store or warehouse within the next twelve months, the estimated unrecoverable costs were charged to expense. The Company adopted FASB No. 146 effective January 1, 2003, and accordingly, expense is now recognized when leased facilities are exited. Impairment losses and changes in previously estimated losses are included in “other (income) expense, net” on the Consolidated Statements of Income. The impact in 2003 and 2002 was not material and $1,900,000 was expensed in 2001.

Stock-Based Compensation:

At December 31, 2003, the Company has two stock-based employee compensation plans, which are described more fully in Note 11. 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 those plans 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, except per share amounts).


	2003			2002			2001
Net income, as reported	$	25,331		$	24,315		$	22,710
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(2,927	)		(3,070	)		(2,281	)

Pro forma net income	$	22,404		$	21,245		$	20,429

Earnings per share:
Basic - as reported	$	1.15		$	1.12		$	1.08
Basic - pro forma	$	1.02		$	0.98		$	0.97
Diluted - as reported	$	1.13		$	1.10		$	1.06
Diluted - pro forma	$	1.02		$	0.98		$	0.96

Earnings Per Share:

Earnings per common share are computed based on the weighted average number of common shares outstanding. The dilutive effect of the Company’s stock options is included in diluted earnings per common share and had the effect of increasing the weighted average shares outstanding assuming dilution by 445,000, 521,000 and 493,000 in 2003, 2002 and 2001, respectively.

Certain options outstanding during each of the following years and their related exercise prices were not included in the computation of diluted earnings per common share because their exercise price was greater than the average market price of the shares and, therefore, the effect would be antidulitive: 2002 – 482,000 shares at prices of $12.50 and $12.90 and 2001 – 1,157,000 shares at prices of $13.88 and $15.94.

Accounting and Disclosure Changes

In November 2002, the Emerging Issues Task Force (EITF) 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


Haverty Furniture Companies, Inc. Annual Report 2003		33

Notes to Consolidated Financial Statements

agreements entered into or significantly modified after November 30, 2002. 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. The Company reclassified approximately $1,150,000 of allowances and rebates out of advertising and into cost of sales during 2003.

In June 2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” FAS No. 146 generally requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The Company adopted SFAS No. 146 on December 31, 2002. There was no material effect upon adoption of this statement.

In January 2003, the FASB issued and subsequently revised Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both (primary beneficiary). Currently, entities are generally consolidated by a company that has a controlling financial interest through ownership of a majority voting interest in the entity. FIN 46 is effective for companies that have interests in structures that are commonly referred to as special purpose entities for periods ending after December 15, 2003. During 2003, the Company concluded that it was the primary beneficiary of a variable interest entity that is the lessor of a distribution center and four retail locations used by the Company. The Company adopted the provisions of FIN 46 as of December 31, 2003, and recorded a cumulative effect of an accounting change of $1,050,000 (net of income tax expense of $600,000). Consolidation of this entity increased property and equipment by $22,100,000, long-term debt by $19,500,000 and created a minority interest of $1,000,000. Previously, this entity was not consolidated and the distribution center and retail locations were accounted for as an operating lease. The effect of consolidation of this entity in prior years would have increased net income before the cumulative effect of an accounting change by $300,000 in both 2003 and 2002 and $200,000 in 2001.

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 will be required to report the various elements of pension and other postretirement benefit 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. The Company’s benefit plans are described in Note 10.

Note 2, ACCOUNTS RECEIVABLE:

Amounts financed under Company credit programs were, as a percent of net sales, approximately 25% in 2003, 33% in 2002 and 46% in 2001. Accounts receivable are shown net of the allowance for doubtful accounts of $4,500,000 and $5,800,000 at December 31, 2003 and 2002, respectively. Accounts receivable terms vary as to payment terms (30 days to five years) and interest rates (0% to 21%) and are generally collateralized by the merchandise sold. Interest assessments are continued on past-due accounts but not “interest on interest”. Accounts receivable balances have scheduled payment amounts which have been historically collected at a rate faster than the scheduled rate. The scheduled approximate collection amounts are due as follows: $74,322,000 in 2004; $17,099,000 in 2005; $8,625,000 in 2006; and $2,108,000 in 2007 for receivables outstanding at December 31, 2003. The total receivables of approximately $102,154,000 are included in current assets in accordance with trade practice.

The Company provides an allowance for doubtful accounts utilizing a methodology which considers the balances in problem and delinquent categories of accounts, historical write-offs and management judgment. 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. The Company assesses the adequacy of the allowance account at the end of each quarter.

The Company believes that the carrying value of existing customer receivables is the best estimate of fair value because of their short average maturity and estimated bad debt losses have been reserved. Concentrations of credit risk with respect to customer receivables are limited due to the large number of customers comprising the Company’s account base and their dispersion across fifteen states.


34		Haverty Furniture Companies, Inc. Annual Report 2003

Note 3, INVENTORIES:

Inventories are measured using the last-in, first-out (LIFO) method of inventory valuation because it results in a better matching of costs and revenues. The excess of current cost over such carrying value of inventories was approximately $16,190,000 and $16,678,000 at December 31, 2003 and 2002, respectively. Use of the LIFO valuation method as compared to the FIFO method had the effect of increasing earnings per common share by $0.01 in 2003 and decreasing earnings per common share by $0.01 in 2002 and $0.02 in 2001, assuming the Company’s effective tax rates were applied to changes in income resulting therefrom, and no other changes in income were made.

Note 4, PROPERTY AND EQUIPMENT:

Property and equipment are summarized as follows (in thousands):


	2003		2002
Land	$	36,990	$	26,481
Buildings and improvements		150,194		120,468
Equipment		97,352		87,418
Buildings and equipment under capital leases		9,633		2,541
Construction in progress		1,209		4,156

		295,378		241,064
Less accumulated depreciation		122,255		105,447
Less accumulated capital lease amortization		1,577		1,414

Property and equipment, net	$	171,546	$	134,203

Note 5, CREDIT ARRANGEMENTS:

At December 31, 2003, the Company had $80,000,000 of bank revolving credit facilities with a group of banks comprised of two $40,000,000 agreements terminating September 30, 2005. The Company did not owe any amounts under these facilities at December 31, 2003. Amounts available are reduced by outstanding letters of credit which were $4,549,000 at December 31, 2003. The facilities also have provisions for commitment fees.

The weighted average stated interest rate for these outstanding borrowings at December 31, 2002 was 2.6%.

Note 6, ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

The components of accounts payable and accrued expenses are as follows (in thousands):


	2003		2002
Accounts payable	$	36,912	$	39,834
Accrued compensation		13,162		12,642
Customer deposits		10,985		9,074
Taxes other than income taxes		9,414		7,484
Other		20,195		20,218

	$	90,668	$	89,252

Note 7, LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:

Long-term debt and capital lease obligations are summarized as follows (in thousands):


	2003		2002
Revolving credit notes (a)	$	—	$	15,900
Unsecured term note (b)		12,000		16,000
7.95% unsecured term note (c)		11,000		12,000
7.44% unsecured term note (d)		12,500		15,000
7.16% unsecured term note (e)		15,000		19,285
7.78% secured debt (f)		19,455		—
Secured debt (g)		602		2,948
6.3% to 10.5% capital lease obligations, due through 2016		8,373		1,365

		78,930		82,498
Less portion classified as current		13,528		12,677

	$	65,402	$	69,821

(a) The Company has revolving credit facilities as described in Note 5. Borrowings under these facilities have a floating rate of interest of LIBOR plus a spread which is based on a fixed charge coverage ratio and mature in 2005.

(b) The term note is payable in quarterly installments of $1,000,000 plus interest and matures in November 2006. The note has a floating rate of interest of LIBOR plus 0.7%.

Haverty Furniture Companies, Inc. Annual Report 2003 35

Notes to Consolidated Financial Statements

(c) The note is payable in semi-annual installments of $500,000, increasing to $2,000,000 commencing in February 2007. The note matures in August 2008 and interest is payable quarterly.

(d) The note is payable in semi-annual installments of $1,250,000 plus interest payable quarterly and matures in October 2008.

(e) The note is payable in semi-annual installments of $2,143,000 plus interest payable quarterly and matures in April 2007.

(f) This debt is recorded in accordance with the consolidation requirements of FIN 46. The debt is a mortgage note with semi-annual payments of interest and principal of $1,332,000 and matures in April 2009 with a balloon payment of $12,000,000. Property with a net book value at December 31, 2003 of $22,137,000 is pledged as collateral on this debt.

(g) Secured debt is comprised of primarily a mortgage note with a floating rate of interest based on LIBOR plus 0.75% (note rate of 1.9% at December 31, 2003) due in 2007. Property and equipment with a net book value at December 31, 2003 of $1,771,000 is pledged as collateral on these secured debt instruments.

The Company’s debt agreements require, among other things, that the Company: (a) meet certain working capital requirements; (b) limit the type and amount of indebtedness incurred; (c) limit operating lease rentals; and (d) grant certain lenders identical security for any liens placed upon the Company’s assets, other than those liens specifically permitted in the loan agreements. Covenants under the revolving credit notes include tests for minimum fixed charge coverage and asset coverage and maximum levels of adjusted debt to total adjusted capital. The Company is in compliance with these covenants at December 31, 2003.

The aggregate maturities of long-term debt and capital lease obligations during the five years subsequent to December 31, 2003 are as follows: 2004 - $13,528,000; 2005 - $13,487,000; 2006 - $13,589,000; 2007 - $7,572,000 and 2008 - $8,425,000.

Cash payments for interest were $4,224,000, $8,507,000 and $10,306,000 in 2003, 2002 and 2001, respectively.

Note 8, INCOME TAXES:

Income tax expense (benefit) (allocated to income before the cumulative effect of a change in accounting principle in 2003) consists of the following:


In thousands	2003		2002		2001
Current
Federal	$	12,886	$	10,272	$	14,232
State		707		764		627

		13,593		11,036		14,859

Deferred
Federal		807		3,002		(1,045	)
State		44		550		(184	)

		851		3,552		(1,229	)

	$	14,444	$	14,588	$	13,630

The differences between income tax expense in the accompanying consolidated financial statements and the amount computed by applying the statutory Federal income tax rate is as follows:


In thousands	2003		2002		2001
Statutory rates applied to income before income taxes	$	13,554	$	13,616	$	12,719
State income taxes, net of Federal tax benefit		488		854		288
Other		402		118		623

	$	14,444	$	14,588	$	13,630

Deferred tax assets and liabilities as of December 31, 2003 and 2002 were as follows:


In thousands	2003		2002
Deferred tax assets:
Accrued liabilities	$	2,045		2,292
Net property and equipment		598		1,577
Leases		1,477		1,168
Derivatives		1,047		1,443

Total deferred tax assets		5,167		6,480

Deferred tax liabilities:
Accounts receivable related		206		267
Inventory related		1,455		924
Other		450		559

Total deferred tax liabilities		2,111		1,750

Net deferred tax assets	$	3,056		4,730

36 Haverty Furniture Companies, Inc. Annual Report 2003

Note 9, STOCKHOLDERS’ EQUITY:

Common Stock has a preferential dividend rate of at least 105% of the dividend paid on Class A Common Stock. Class A Common Stock has greater voting rights which include: voting as a separate class for the election of 75% of the total number of directors of the Company and on all other matters subject to shareholder vote, each share of Class A Common Stock has ten votes and votes with the Common Stock as a single class. Class A Common Stock is convertible at the holder’s option at any time into Common Stock on a 1-for-1 basis; Common Stock is not convertible into Class A Common Stock. There is no present plan for issuance of Preferred Stock.

Note 10, BENEFIT PLANS:

The Company has a defined benefit pension plan covering substantially all employees. The benefits are based on years of service and the employee’s final average compensation. The Company’s funding policy is to contribute annually an amount which is within the range of the minimum required contribution and the maximum amount that can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

The following table sets forth the plan’s funded status and amounts recognized in the Company’s Consolidated Balance Sheets at December 31:


(In thousands)	2003			2002
Change in benefit obligation:
Benefit obligation at beginning of year	$	44,246		$	43,441
Service cost		2,210			2,666
Interest cost		3,029			2,831
Actuarial losses (gains)		3,944			(2,746	)
Benefits paid		(2,242	)		(1,946	)

Benefit obligation at end of year		51,187			44,246

Change in plan assets:
Fair value of plan assets at beginning of year		44,720			38,618
Employer contribution		3,500			10,000
Actual return on plan assets		7,353			(1,952	)
Benefits paid		(2,242	)		(1,946	)

Fair value of plan assets at end of year		53,331			44,720

Funded status of the Plan over (under) funded		2,144			474
Unrecognized actuarial loss (gain)		479			612
Unrecognized prior service cost		606			739
Prepaid (accrued) pension expense included in the Consolidated Balance Sheet	$	3,229		$	1,825

The accumulated benefit obligation for the defined benefit pension plan was $45,010,000 and $36,687,000 at December 31, 2003 and 2002, respectively.

Net pension cost included the following components:


(In thousands)	2003			2002			2001
Service cost-benefits earned during the period	$	2,210		$	2,342		$	2,229
Interest cost on projected benefit obligation		3,029			2,831			2,908
Expected return on plan assets		(3,276	)		(2,895	)		(3,118	)
Amortization of prior service cost		133			140			129
Amortization of actuarial (gain) loss		—			(105	)		—

Net pension cost	$	2,096		$	2,313		$	2,148

Haverty Furniture Companies, Inc. Annual Report 2003 37

Notes to Consolidated Financial Statements

Assumptions:

The Company uses a measurement date of December 31 for its pension and other benefit plans. Weighted-average assumptions used to determine benefit obligations at December 31:


	2003			2002
Discount rate		6.25	%		7.00	%
Rate of compensation increase		3.25	%		4.00	%

Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31:


	2003			2002
Discount rate		7.00	%		7.25	%
Expected long-term return on plan assets		7.50	%		7.50	%
Rate of compensation increase		4.00	%		4.25	%

To develop the expected long-term rate of return on assets assumption, the Company considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. This resulted in the selection of the 7.50% long-term rate of return on assets assumption.

Plan Assets

The pension plan weighted-average asset allocations at December 31, 2003, and 2002, by asset category are as follows:


Asset Category	2003			2002
Equity securities		65	%		57	%
Debt securities		34	%		36	%
Cash		1	%		7	%

Total		100	%		100	%

Investment Objectives and Asset Strategy

The Executive Compensation and Employee Benefits Committee (the “Committee”) of the Board of Directors is responsible for administering the Company’s pension plan. The primary investment objective of the plan is to ensure, over the long term life of the plan, an adequate pool of assets to support the benefit obligations to participants, retirees and beneficiaries. An important secondary objective of the plan is to be able to improve the plan’s funded status therefore reducing employer contributions and, ultimately, allowing for the maintaining or improving of overall benefit levels.

In meeting these objectives, the Committee seeks to achieve a high level of investment return consistent with a prudent level of portfolio risk.

The assets of the plan are being invested according to the following asset allocation guidelines, established to reflect the growth expectations and risk tolerance of the Committee.


	Strategic
Security Class	Target			Tactical Range
Equity:
Domestic Equity - Diversified Portfolio		50.0	%		40.0% - 60.0	%
Haverty Common Stock		10.0	%		5.0% - 15.0	%

Total Equity		60.0	%		50.0% - 70.0	%
U. S. Fixed Income		40.0	%		30.0% - 50.0	%
Cash		0.0	%		0.0% - 10.0	%

Total Fund		100.0	%

Equity securities include 204,000 shares of the Company’s Class A Common Stock with an aggregate fair value of $4,070,000 (7.6% of total plan assets) at December 31, 2003. The plan received $44,000 in dividends from these shares in 2003.

The Company expects to contribute $2,000,000 to its pension plan in 2004.

The following benefits payments, which reflect expected future service, as appropriate, are expected to be paid (in thousands):


Year(s)	Pension Benefits
2004	$	2,100
2005		2,200
2006		2,300
2007		2,500
2008		2,700
2009 - 2013		16,400

Other Plans

The Company has a non-qualified, non-contributory supplemental executive retirement plan (SERP) which covers three retired executive officers. The Plan provides annual supplemental retirement benefits to the executives amounting to 55% of final average earnings less benefits payable from the Company’s defined benefit pension plan and Social Security benefits. The Company also has a non-qualified, non-contributory SERP for employees whose retirement benefits are reduced due to their annual compensation levels. The total amount of annual retirement benefits that may be paid to an eligible participant in the Plan from all sources (Retirement Plan, Social Security and the SERP) may not exceed $125,000. Under the plans, which are not funded, the Company

38 Haverty Furniture Companies, Inc. Annual Report 2003

pays benefits directly to covered participants beginning at their retirement. At December 31, 2003, the projected benefit obligation for these plans totaled $2,811,000 of which $2,700,000 is included in the accompanying Consolidated Balance Sheet. Pension expense recorded under the SERPs amounted to approximately $367,000, $626,000 and $209,000 for 2003, 2002 and 2001, respectively.

The Company has an employee savings/retirement (401k) plan to which substantially all employees may contribute. The Company matches employee contributions to the extent of 50% of the first 2% of eligible pay and 25% of the next 4% contributed by participants. The Company expensed approximately $1,347,000 in 2003, $1,355,000 in 2002 and $1,289,000 in 2001 in matching employer contributions under this plan.

The Company offers no post-retirement benefits other than pensions and no significant post-employment benefits.

Note 11, STOCK OPTION PLANS:

The Executive Compensation and Employee Benefits Committee of the Board of Directors serves as Administrator for the Company’s stock option plans. Options are granted by the Committee to officers and non-officer employees. In accordance with certain provisions, options granted to non-employee directors of the Company are automatic annual grants on a pre-determined date to purchase a specific number of shares at the fair market value of the shares on such date. As of December 31, 2003, the maximum number of options which may be granted under the stock option plan was 68,050.

The table below summarizes options activity for the past three years under the Company’s stock option plans.


				Weighted
	Option			Average
	Shares			Price
Outstanding at December 31, 2000		2,258,000		$	9.71
Granted		1,270,700			14.03
Exercised		(549,800	)		6.65
Canceled or expired		(56,750	)		12.11

Outstanding at December 31, 2001		2,922,150			12.12
Granted		564,300			12.90
Exercised		(566,450	)		9.01
Canceled or expired		(50,300	)		12.50

Outstanding at December 31, 2002		2,869,700			12.88
Granted		511,000			20.22
Exercised		(599,500	)		11.65
Canceled or expired		(89,700	)		13.64

Outstanding at December 31, 2003		2,691,500		$	14.53

Exercisable at December 31, 2003		1,236,200		$	13.02

Exercisable at December 31, 2002		1,307,850		$	11.67

Exercisable at December 31, 2001		1,502,000		$	10.50

All of the options outstanding at December 31, 2003 were for Common Stock. Exercise prices for options outstanding as of December 31, 2003 ranged from $6.94 to $20.75. The Company’s grants during 2001 included 503,000 options designated in October 2000, which were subject to shareholders approving additional shares for the Plan in May 2001.

The following table summarizes information about the stock options outstanding as of December 31, 2003:


Options Outstanding
						Weighted				Options Exercisable
						Average Remaining		Weighted				Weighted
		Range of		Number		Contractual Life		Average		Number		Average
Exercise Prices				Outstanding		(Years)		Exercise Price		Exercisable		Exercise Price
$	6.94	—	10.13		271,100		4.7	$	9.22		271,100	$	9.22
	10.81	—	15.94		1,920,400		7.2		13.76		912,100		13.70
	20.30	—	20.75		500,000		7.2		20.34		53,000		20.71

$	6.94	—	20.75		2,691,500		7.2	$	14.53		1,236,200	$	13.02

Options vest over periods from within one year of grant date increasing to four years as the number of options granted to an individual increases. Options granted before December 1, 2003 have maximum terms of 10 years and grants after that date have maximum terms of 7 years.

Haverty Furniture Companies, Inc. Annual Report 2003 39

Notes to Consolidated Financial Statements

In addition, the Company had shares available for future purchases under the Employee Stock Purchase Plan at December 31, 2003. This Plan promotes broad-based employee ownership and provides employees a convenient way to acquire Company stock. The Plan is a qualified plan under Section 423 of the Internal Revenue Code and meets the requirements of APB 25 as a non-compensatory plan. The Plan enables the Company to grant options to purchase up to 2,000,000 shares of Common Stock, of which 1,510,225 shares have been exercised from inception of the Plan in 1992, at a price equal to the lesser of (a) 85% of the stock’s fair market value at the date of grant, or (b) 85% of the stock’s fair market value at the exercise date.

Shares purchased may not exceed 10% of the employee’s annual compensation, as defined, or $25,000 of Common Stock at its fair market value (determined at the time such option is granted) for any one calendar year. Employees pay for the shares ratably over a period of six months (the purchase period) through payroll deductions, and cannot exercise their option to purchase any of the shares until the conclusion of the purchase period. In the event an employee elects not to exercise such option, the full amount withheld is refundable. During 2003, options for 65,600 shares were exercised at an average price of $9.02 per share. At December 31, 2003, options for 13,400 shares were outstanding at an option price of $17.09 per share.

Pro forma information regarding net income and earnings per share required by FAS 123 is provided in Note 1. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period.

The weighted-average fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted–average assumptions:


	2003			2002			2001
Risk-free interest rate		3.5	%		4.0	%		5.0	%
Expected life in years		5.2			5.9			5.8
Expected volatility		45.3	%		41.9	%		39.3	%
Expected dividend yield		1.04	%		1.35	%		1.30	%
Estimated fair value of options granted per share	$	8.04		$	5.25		$	5.54

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not provide a reliable single measure of the fair value of its employee stock options.

Note 12, COMMITMENTS:

The Company leases certain property and equipment. Initial lease terms range from 5 years to 30 years and certain leases contain renewal options ranging from 1 to 25 years or provide for options to purchase the related property at fair market value or at predetermined purchase prices. The leases generally require the Company to pay all maintenance, property taxes and insurance costs.


	Capital			Operating
(In thousands)	Leases			Leases
2004		195			23,564
2005		187			23,205
2006		180			22,358
2007		188			21,123
2008		180			19,918
Subsequent to 2008		8,230			150,917

Total minimum payments		9,160			261,085
Less total minimum sublease rentals					(6,808	)

Net minimum lease payments				$	254,277

Amounts representing interest		(787	)

Present value of future minimum lease payments	$	8,373

Net rental expense applicable to operating leases consisted of the following (in thousands):


	2003			2002			2001
Property
Minimum	$	27,153		$	25,588		$	19,470
Additional rentals based on sales		603			995			804
Sublease income		(2,200	)		(2,527	)		(2,447	)

		25,556			24,056			17,827
Equipment		3,446			3,087			5,779

	$	29,002		$	27,143		$	23,606

40 Haverty Furniture Companies, Inc. Annual Report 2003

Note 13, SUPPLEMENTAL CASH FLOW INFORMATION:

Income Taxes Paid

The Company paid state and federal income taxes of $9,912,000, $14,144,000, and $17,006,000 for 2003, 2002 and 2001, respectively. The Company also received income tax refunds of $4,851,000 in 2003 and $4,300,000 in 2002.

Non-Cash Transactions

The Company recorded the tax benefit from the exercise of non-qualified stock options and disqualifying dispositions of stock options as a reduction of its income tax liability and as additional paid-in capital in the amount of $1,143,000, $1,328,000 and $1,202,000 for 2003, 2002 and 2001, respectively.

The Company recorded additional fixed assets and a related obligation in the amount of $7,093,000 in 2003 for a capital lease.

Note 14, SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2003 and 2002

(in thousands, except per share data):

2003 Quarter Ended

March 31

June 30

September 30

December 31

Net sales

175,380

168,634

195,352

205,269

Gross profit

85,912

80,646

95,817

103,275

Credit service charges

1,892

1,629

1,491

1,380

Income before cumulative effect of a change in accounting principle

4,898

2,137

7,397

9,849

Cumulative effect of a change in accounting principle

—

1,050

Net income

4,898

2,137

7,397

10,899

Per Common share:

Income before cumulative effect of a change in accounting principle

Basic

0.22

0.10

0.34

0.44

Diluted

0.22

0.10

0.33

0.43

Net income

Basic

0.22

0.10

0.34

0.49

Diluted

0.22

0.10

0.33

0.47


	2002 Quarter Ended
	March 31		June 30		September 30		December 31
Net sales	$	174,953	$	164,892	$	175,680	$	188,434
Gross profit		84,256		78,158		84,636		92,382
Credit service charges		2,383		2,151		2,148		2,369
Net income		6,730		3,742		5,909		7,934
Basic earnings per share		0.31		0.17		0.27		0.36
Diluted earnings per share		0.30		0.17		0.27		0.36

Because of the method used in calculating per share data, the quarterly per share data will not necessarily add to the per share data as computed for the year.

Haverty Furniture Companies, Inc. Annual Report 2003 41

Stockholder Information

Market Prices and Dividend Information

The Company’s two classes of common stock trade on The New York Stock Exchange. The trading symbol for the Common Stock is HVT and for Class A Common Stock is HVT.A. The table below sets forth the high and low sales prices per share as reported on the NYSE and the dividends paid for the last two years:


	2003
	Common Stock						Class A Common Stock
					Dividend						Dividend
Quarter Ended	High		Low		Declared		High		Low		Declared
March 31	$	13.81	$	9.35	$	0.0575	$	13.79	$	9.75	$	0.0525
June 30		17.50		10.39		0.0575		17.30		10.60		0.0525
September 30		21.19		14.85		0.0575		21.00		15.20		0.0525
December 31		24.60		18.80		0.0625		24.30		18.71		0.0575


	2002
	Common Stock						Class A Common Stock
					Dividend						Dividend
Quarter Ended	High		Low		Declared		High		Low		Declared
March 31	$	21.45	$	15.73	$	0.0525	$	21.25	$	16.00	$	0.0500
June 30		19.75		16.35		0.0525		19.55		16.70		0.0500
September 30		19.75		11.34		0.0575		19.50		11.90		0.0525
December 31		14.20		9.40		0.0575		14.12		9.90		0.0525

Based on the number of individual participants represented by security position listings, there are approximately 3,400 holders of the Common Stock and 200 holders of the Class A Common Stock.

Corporate Address

Haverty Furniture Companies, Inc.
780 Johnson Ferry Road
Suite 800
Atlanta, Georgia 30342
(404) 443-2900

Notice of Annual Meeting

Harbor Court Hotel
550 Light Street
Baltimore, Maryland 21202

Tuesday, May 4, 2004
10:00 a.m. Eastern Standard Time

Transfer Agent and Registrar

For shareholder inquiries concerning dividend checks, transferring ownership, address changes or lost certificates, please contact:

SunTrust Bank

Corporate Trust Department
Post Office Box 4625
Atlanta, Georgia 30302-4625
1-800-568-3476

Independent Auditors

Ernst & Young LLP
Atlanta, Georgia 30308-2215

Investor Relations

Additional copies of this report, Form 10-K or other financial information is available without charge and may be obtained by written request to Investor Relations at the corporate address.

We invite you to visit the Investor Relations section on the Company’s website at www.havertys.com

42 Haverty Furniture Companies, Inc. Annual Report 2003

Age as of

Position with the Company

3-01-04

and Other Information

Clarence H. Ridley

Chairman of the Board since January 2001. Vice Chairman from 1996 - 2000; Partner of King & Spalding, Attorneys, from 1977 - 2000. Director since 1979.

(a)		Includes capital leases on one distribution facility and three retail stores built on sites under land leases.

(b)		The leases have various termination dates through 2022 plus renewal options. Includes properties owned by a special-purpose entity that is consolidated into the Company’s financial statements.

(c)		Of the retail locations, 13 utilize attached warehouse space.

⁽¹⁾		Effective December 31, 2003, the Company adopted FASB interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” The consolidation of the required entity increased property and equipment by $22.1 million and long-term debt by $19.5 million. The cumulative effect of the change was an addition to income of $1.0 million, net of tax expense of $0.6 million. The impact of this change had it been adopted as of January 1, 1999 would not have been material to income for the years presented.

(2)		Effective January 1, 2000, the Company changed its method of accounting for revenue recognition in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” The cumulative effect of the change was a reduction in income of $3.4 million, net of tax benefit of $1.9 million. The following proforma information is related to that change:

1.		Reclassified vendor rebates and advertising allowances increased the SG&A and gross profit percentages 20 basis points for 2003.

2.		Income before cumulative effect of a change in accounting principle.

1)		Includes $19,455 of debt recorded in connection with the cumulative effect change in accounting principle.

		The debt is related to the development of a regional distribution center and four retail locations.

2)		Includes $7.1 million in 2004, reflecting the Company’s planned purchase of assets under a capital lease at December 31, 2003.

3)		Includes $13.0 million in 2004, reflecting the Company’s planned purchase of assets under operating leases at December 31, 2003.

4)		The Company did not have any legally binding outstanding purchase obligations at December 31, 2003.