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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission file number: 1-14445

HAVERTY FURNITURE COMPANIES, INC.

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

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]   No [   ]

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

     The number of shares outstanding of the registrant’s two classes of $1 par value common stock as of April 30, 2003 were: Common Stock – 17,312,069; Class A Common Stock – 4,524,976.

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H A V E R T Y   F U R N I T U R E   C O M P A N I E S,   I N C.

I N D E X

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)

See notes to condensed consolidated financial statements.

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data - Unaudited)

See notes to condensed consolidated financial statements.

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands — Unaudited)

See notes to condensed consolidated financial statements.

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE A – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and all such adjustments are of a normal recurring nature.

NOTE B – Stock-Based Compensation

At March 31, 2003, the Company has two stock-based employee compensation plans. 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):

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HAVERTY FURNITURE COMPANIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE C – Interim LIFO Calculations

An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management’s estimates of expected year-end inventory levels and costs. Since these are affected by factors beyond management’s control, interim results are subject to the final year-end LIFO inventory valuation.

NOTE D – Comprehensive Income

Total comprehensive income for the three months ended March 31, 2003 and 2002 was comprised of the following (in thousands):

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

Forward-Looking Information

Certain statements we make in this report, and other written or oral statements made by or on behalf of the Company, may constitute “forward-looking statements” within the meaning of the federal securities laws. Examples of such statements in this report include descriptions of our plans with respect to new store openings and relocations, our plans to enter new markets and expectations relating to our continuing growth and the roll-out of our distribution system. The forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections about the industry and markets in which we operate and the beliefs and assumptions of our management. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”, variations of such words, and similar expressions are intended to identify such forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statement. We believe that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. Such statements speak only as of the date they are made and we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. The following are some of the factors that could cause Havertys’ actual results to differ materially from the expected results described in our forward-looking statements: the ability to maintain favorable arrangements and relationships with key suppliers (including domestic and international sourcing); any disruptions in the flow of imported merchandise, whether caused by war, strikes, tariff, politics or otherwise; conditions affecting the availability and affordability of retail and distribution real estate sites; the ability to attract, train and retain highly qualified associates to staff existing and new stores 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.

Operating Results

Net Sales

Retail sales of big ticket home goods have been weak for the last three quarters as consumers have been anxious over stock market declines, employment uncertainty, threats of war and war. We believe that continued strong housing sales and low interest rates are a positive factor for the industry but that increased consumer confidence and 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 to increase traffic in our stores and offered longer free interest period financing promotions. During the remainder of the year we expect to continue with this approach.

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

Gross Profit

Overall gross profit has also been improved by the increase in the mix of our Havertys branded merchandise line. This private-label product generally carries a modestly higher gross margin. Sales of Havertys brand products during the first quarter of 2003 as a percentage of sales were nearly double of those during the first quarter of 2002 as the level of product presentation on the showroom floor increased. Approximately 30% of our core furniture merchandise was Havertys brand at the end of 2002 and we expect that its level in our product mix will continue to move somewhat higher during 2003.

Our focus during 2003 will be to continue seeking values with imported product offerings and to explore how we might better source and flow those goods. We will strengthen the Havertys private label and develop our own “collections” for more effective advertising and brand building. Name brand merchandise of well-known U.S. manufacturers will remain a significant part of our product offerings.

Selling, General and Administrative Expenses

SG & A costs were up 9.8% during the first quarter 2003 as compared to the same period in 2002. This is attributable primarily to increases in the following factors: occupancy costs; warehouse and delivery expenses; insurance costs; and increased levels of third-party financings generating greater discounts. We opened seven new stores during the second half of 2002, increasing our weighted average retail square footage in the first quarter of 2003 by 7.5 %. Our warehouse and delivery costs were higher for the quarter ended March 31, 2003 as compared to the year ago period as we transition our distribution systems. We will have the Eastern distribution center roll-out program completed by the end of the second quarter, with 50 stores fully integrated, representing approximately 45% of our business. During the second quarter we will be vacating five additional local market warehouse operations, with an expected net reduction of 50 related distribution personnel. The projected annualized savings in rent and operational costs from this first phase of consolidating distribution and leveraging our Eastern distribution center will be approximately $2 million and will start to be realized at that rate of $500,000 per quarter beginning in the third quarter of 2003.

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

Credit Service Charge Revenue and Allowance for Doubtful Accounts

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 favorable compared to the increased costs associated with a larger receivables portfolio and the collection risk of a more promotional program. Our provision for doubtful accounts as a percentage of the receivables pool increased in 2003 as compared to 2002 as we experienced a slight rise in the rate of bankruptcy filings by our customers as compared to the level for the last two years.

Interest Expense

Other Income (Loss)

Provision for Income Taxes

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

Recent Accounting Pronouncements

In November 2002, the Emerging Issues Task Force reached a consensus on Issue 1 of EITF Issue No. 02-16, “Accounting by a Customer for Cash Consideration Received from a Vendor.” The Issue provides guidance as to the treatment of amounts received by a retailer from a vendor and delineates between amounts that are reductions of the purchase cost of the merchandise or as a reimbursement of costs. We receive consideration for cooperative advertising from our vendors and adopted the EITF on January 1, 2003 without material impact on our earnings or financial position.

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” We have two operating lease facilities whose structure may meet the definition of a variable interest entity. The entities were established to effect the construction and leasing of two distribution facilities and eight retail locations. Since the resulting leases are operating leases, no debt obligation is recorded on our balance sheet. These facilities contain residual guarantee provisions and guarantees under events of default. Although we believe the likelihood of funding to be remote, the maximum guarantee obligation under these facilities is approximately $39.2 million at March 31, 2003. We expect that we will exercise our purchase options at the end of the terms of these leases, which based on the facilities at March 31, 2003 would be approximately $21.4 million in 2004 and $13.0 million in 2009. FIN 46 is effective for statements in the first interim period beginning after June 15, 2003, and will require consolidation of a variable interest entity by its primary beneficiary. We expect to modify these lease agreements prior to the effective date and accordingly, there will be no impact on our earnings and financial position.

Liquidity and Capital Resources

The following sections discuss the effects of the changes in our balance sheets, cash flows, and commitments on our liquidity and capital resources.

Balance Sheet and Cash Flows

We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, credit programs utilized, accounts receivable collections and inventory management.

Accounts Receivable Accounts receivable were $114.7 million at March 31, 2003, a decrease of $11.3 million or 9.0% from $126.1 million at December 31, 2002. The decrease in accounts receivable has continued for the last five quarters and is due to collection of internal credit program receivables and the impact of outsourcing a credit program to a third party.

Inventories Inventories were $120.4 million at March 31, 2003, an increase of $7.1 million or 6.3% from $113.3 million at December 31, 2002. This increase is due to sales being slower than originally anticipated. These levels will be reduced as we complete this phase of the distribution changes and close local market warehouses. Inventory management remains an area of focus as we balance the need to maintain proper inventory levels to e