H o o k e r F u r n i t u r e Co r p o r at i o n
Lever aging Our Strengths
1 9 2 4
1 9 2 4
2009
2009
2 0 0 9 A n n u A l R e p oR t
I n n ovat Io n
c I t Iz e n s H I p
c a r I n g
r e s p o n s Ib Il I t y
In t e g r I t y
s e r vI c e
l I s t e n I n g
H o n e s t y
Cor por ate Profile
incorporated in 1924 and ranked among the top ten largest publicly traded furniture sources based on 2007
shipments to u.S. retailers, Hooker Furniture is an importer of wood and metal home furnishings and a manufacturer
and importer of upholstered home furnishings based in Martinsville, Virginia. Major wood furniture categories
include home entertainment, home office, accent, dining, bedroom and bath furniture sold under the Hooker
Furniture brand, and youth furniture sold under the opus Designs brand. Hooker’s residential upholstered seating
companies include Cherryville, north Carolina-based Bradington-Young, a specialist in upscale motion and stationary
leather furniture, and Bedford, Virginia-based Sam Moore Furniture, specializing in upscale occasional chairs with
an emphasis on cover-to-frame customization. extensive style selections within each of our product niches make
the Company an important resource in the medium to upper-medium price range for a broad distribution network
of retailers that includes independent furniture stores, department stores, specialty retailers, national and regional
chains and catalog merchants. the Company’s stock is listed on the nasdaq Global Select Market under the symbol
HoFt. please visit us online at www.hookerfurniture.com, www.bradington-young.com, www.sammoore.com and
www.opusdesigns.com.
Our Mission is to enrich the lives of the people we touch through innovative
home furnishings of exceptional value.
Our Four Areas of Strength
Business Model
Financial
Hooker Furniture’s business model was severely tested in the
profitable in every annual reporting period since 1930,
past year. During this time of economic adversity, our flexible
Hooker Furniture continued that track record in fiscal 2009
business model as a design, marketing, logistics and global
as one of the few companies among the top ten publicly
sourcing company proved itself by keeping us competitive,
traded furniture resources reporting profits. our balance
well-positioned and profitable. the ability to bring many
sheet is the strongest and most liquid it has been in many
varied product styles and price points to market, sourced in
years with a strong cash and credit availability position
best-of-kind factories throughout the world, allows us to be
and little debt. this year, our financial strength became a
more customer-driven as we tailor product to retailers’
compelling competitive edge with retailers who want to be
needs. this flexibility and broad capacity also allows us to
aligned with partners who can add value during challenging
diversify product offerings to capture a larger portion of the
times and help them emerge successfully. We were well-
market. in october 2008, the Company successfully
positioned for the recession through the reduction of fixed
expanded product offerings up and down in price points
costs and overhead, the elimination of unutilized assets and
and in several different style directions. We gained strong
the creation of a leaner organization. Beyond cost cutting,
retail placements on a european traditional collection at
our financial strength has allowed us to invest in the business,
higher than our average price points and also successfully
pursue strategic initiatives, strengthen delivery performance
introduced a bedroom group in transitional styling at lower
and expand product lines, maximizing our long-term
than our average price points. in addition, our flexible
growth potential.
business model allows us to explore new distribution
channels, and fiscal 2009 marked solid progress in expanding
floor space with targeted national accounts.
Product
Relationships
this year we made strides toward our goal of being a
over the years, what we have always valued the most are
complete home furnishings resource in all vital product
the relationships we enjoy with the people we touch—
niches and the premier marketing venue for better to
employees, suppliers, customers and other stakeholders.
best furniture brands. We expanded beyond our strength
Without the character and talent of our employees, we
in traditionally-styled, upper-medium priced product to
would not have been able to transform an 80-year-old
offer retailers a broader spectrum of designs and price
wood furniture manufacturing business model to our new
points, presenting opportunities for incremental sales and
world sourcing model that served us so well this year. We
increased share of market. the launch of a moderately
strengthened executive management by adding highly
priced, casual lifestyle brand for young consumers called
respected upholstery merchant Mike Delgatti as executive
envision rounds out a better-to-best line up in our stable
Vice president of Merchandising at Bradington-Young,
of companies including opus Designs youth bedroom
positioning the company to address the trend toward more
furniture, Sam Moore, Bradington-Young and the flagship
casual lifestyle seating. Sam Moore made significant
Hooker brand. We expanded retail distribution of the opus
improvements in customer service, inventory turns and
Designs youth bedroom line, placing it with approximately
logistics through the addition of Steve Shelor, Vice president—
600 new dealers this year. under the leadership of Hooker’s
Supply Chain. our highly professional sales force is taking
upholstery Division president alan Cole, Sam Moore and
teamwork to a new level through weekly conference calls in
Bradington-Young significantly lowered their break even
which they share best practices and strategies.
points through cost management. Bradington-Young is
improving quality and service and lowering costs through
Lean manufacturing.
Our Str ategy is
• to be a world leader in design, function, value and selection in our product categories
as the premier marketing company for better-to-best furniture brands in the industry.
• to achieve best-in-class operational performance in global sourcing, logistics,
warehousing, manufacturing and product delivery.
• to be an industry leader in financial performance, providing an outstanding investment
for our shareholders and contributing to the well-being of all stakeholders.
• to maintain the relationship-driven, integrity-minded corporate culture that
has distinguished our Company for over 85 years.
about the Cover:
the Westwind wall, which can accommodate either a television console or
computer desk as the middle unit, is an example of Hooker broadening its
style selection beyond its traditional core to include casual transitional.
Fina nci a l Highlights *:
Fifty-Two
Weeks Ended
February 1,
2009
Fifty-Three
Weeks Ended
February 3,
2008
Two Months
Ended
January 28,
2007
Hook er Fur nitur e
1
Twelve Months Ended
November 30, November 30, November 30,
2005
2004
2006
For the:
Income Statement Data
Net sales
Operating income (loss)
Net income (loss)
Special (credits) charges after tax:
Restructuring
Impairment of intangible assets
ESOP termination
Donation of two showrooms
Net income excluding special
$261,162
10,341
6,910
(592)
3,061
$316,801
29,697
19,655
$ 49,061
(17,244)
(18,415)
$350,026
22,784
14,138
$341,775
21,155
12,485
$345,944
31,166
18,204
190
674
1,843
18,428
4,266
3,255
994
charges
$ 9,379
$ 20,519
$ 1,856
$ 18,404
$ 15,740
$ 19,198
Per Share Data
Basic and diluted earnings (loss)
per share
Restructuring
Impairment of intangible assets
ESOP termination
Donation of two showrooms
Earnings per share excluding
special charges
Weighted average shares
outstanding
$ 0.62
(0.05)
0.28
$ 1.58
0.02
$ (1.52)
0.15
$ 1.18
0.36
$ 1.06
0.28
$ 1.56
0.09
1.52
0.05
$ 0.85
$ 1.65
$ 0.15
$ 1.54
$ 1.34
$ 1.65
11,060
12,442
12,113
11,951
11,795
11,669
Cash dividends per share
$ 0.40
$ 0.40
$ 0.31
$ 0.28
$ 0.24
* These financial highlights should be read in conjunction with the Selected Financial Data, Consolidated Financial Statements, including the related notes, and Management’s
Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s annual report on Form 10-K included in this report.
N S
($ in millions)
O I
($ in millions)
N I E
S C
($ in millions)
E P S
E S
C
$345.9 $341.8
$350.0
$31.2
$29.7
$316.8
$261.2
$22.8
$21.2
$20.5
$19.2
$18.4
$15.7
$1.65
$1.65
$1.54
$1.34
$9.4
$0.85
$10.3
’04
’05
’06
’08* ’09
’04
’05
’06
’08* ’09
’04
’05
’06
’08* ’09
’04
’05
’06
’08* ’09
*The Company changed its fiscal year end after 11/30/06.
The above graphs exclude the transition period from 12/1/06 through 1/28/07.
400000
350000
300000
250000
200000
150000
100000
50000
0
35000
30000
25000
20000
15000
10000
5000
0
23.0
18.4
13.8
9.2
4.6
0.0
1.900
1.425
0.950
0.475
0.000
2
Hook er Fur nitur e
L E v E R A G I N G O u R S T R E N G T H S
2 0 09 M essage to Our Sh a r eholder s
As we contemplated what we wanted to convey to you about our 2009 fiscal year
performance and forecast for the coming months, it became clear to us what we would not
say. If you expected to hear lamentations from us about the difficult economic environment,
you may be surprised. Rather, we want to share with you the reasons that we are still bullish
on the opportunities ahead for Hooker Furniture Corporation.
In the 84-year history of Hooker we, and those who have
team approach. Our suppliers are well-run businesses with the
gone before us, have endured many difficult situations.
financial prowess to weather trying times. Our retailers are the
Fortunately, most years have been good, but we have seen
best, brightest and most successful in the industry. We have
our share of trials. As a young company, we endured the
long track records with most of them, and we approach
Great Depression and emerged having learned the lessons of
challenges looking for win-win outcomes. Our sales team is, in
sacrifice and humility. Learning from that experience has helped
our opinion, the strongest in the industry…skilled, knowledgeable
us navigate subsequent recessions. Following each of these
and professional. Our Board of Directors brings a wide variety of
downturns, we have emerged a stronger company. We have
backgrounds and experience from many areas of the business
endured numerous small fires and one disastrous flood. We
world, and is dedicated to the success of our company.
have been through a major war and several smaller ones.
Hooker has been a survivor in all these situations, and in many
cases learned lessons that have proved invaluable for the
future. We have no doubt that the same qualities that served
us well in the past will again help us navigate the financial
crisis that the world is currently facing. We can broadly place
the core strengths of our company under four headings:
relationships, financial stability, business model and product.
Relationships
In the interest of building relationships with the people we
Financial Stability
A second strength that we have leveraged historically and
continue to leverage is financial stability. Since 1924 we have
posted net income in every annual reporting period except
one—during the Great Depression. That trend was not broken
in 2009, and we were one of the few furniture companies
among the top ten publicly traded furniture resources reporting
annual profits. Our balance sheet is strong and liquid with
little debt. We have $15 million in credit lines that do not
expire until March 2011. This strong cash position and credit
touch, we have sincerely tried to run our business by doing the
availability allows us to continue to invest in the business,
right thing. Far from being a platitude, doing the right thing
preparing us for maximum growth when the economy
is an integral part of our culture at Hooker. We treat our
rebounds. As we have restructured our business in the past
business partners with respect, dignity, and integrity, and at
few years, we have disposed of assets no longer used in the
times forego short-term gain for long-term relationships. That
business to provide a lean yet strong financial platform. This
philosophy has paid enormous dividends over the years and
financial stability becomes of paramount importance to our
will be invaluable in the coming months. Our employees have
employees, suppliers, and retailers who want to be associated
been loyal and hard working and have always exhibited a
with partners who will emerge successfully.
Hook er Fur nitur e
3
“ We have navigated troubled waters before, and we
have the product, business model, relationships
and financial strength necessary to succeed…We
are bullish on the future of Hooker Furniture.”
Larry Ryder, Executive vice President and Chief Financial Officer; Paul Toms,
President, Chief Executive Officer and Chairman of Hooker Furniture; and Alan
Cole, President and Chief Executive Officer of Hooker Furniture upholstery.
Business Model
Our third core strength is our business model. Our flexible
by partnership and collaboration with our retailers and our
business model of being a design, marketing, logistics, and
sales team. As we have in most years, we expect to replace
global sourcing company allows us to bring many varied
approximately one-third of our product offering in the coming
products to market in terms of styles, materials, and price
year. Continually bringing fresh product inspired by those who
points. It allows us to explore distribution channels that
will sell it is critically important in slow markets. When
we had limited or no access to when we were strictly a
competition is toughest, having the right product at the right
manufacturing company. This flexibility to move product
price is crucial. Service after the sale is also critically important.
to the most efficient and best suppliers has been invaluable
Retailers want to know that we will stand behind our product
to us. We have over 30 suppliers around the world. Some
offerings and service the product after the sale. During 2009,
are large and can provide a variety of product; some fill
we invested in improved systems for parts ordering and
specific niches for a product line, finish or material. This broad
tracking, along with an extensive inventory of replaceable
capacity allows us to tailor product specifically to the retailer’s
parts. Through these efforts, we expect to improve both the
need. We are leveraging this sourcing flexibility as we launch
accuracy and shipment times of delivery for these parts.
our new Envision brand. With Envision, we are targeting a
younger, slightly less affluent customer with a smaller scale,
casual lifestyle look as compared to our more traditional
Hooker brand.
Product
A fourth core strength of Hooker Furniture is our product
line. Our product development process is intense and driven
2009 was not one of our better years…2010 poses difficult
challenges. However, we have navigated troubled waters
before, and we have the product, business model, relationships
and financial strength necessary to succeed. We will be a
survivor, and we will be a better and more competitive
company for the challenge. We are bullish on the future of
Hooker Furniture.
Sincerely,
Paul B. Toms Jr.
Chairman, CEO and President
E. Larry Ryder
Executive vice President,
Finance and Administration and CFO
Alan D. Cole
President and CEO of
Hooker Furniture upholstery
4
Hook er Fur nitur e
Board of Directors
Hooker Furniture Corporation Board of Directors, left to right:
David Sweet, John Gregory, Henry Williamson, Paul Toms, Mark Schreiber, Christopher Beeler
Officers of Hooker Furniture, Br adington-Young, and Sam Moore
Executive Committee
Paul Toms Jr.
Larry Ryder
Alan Cole
Hooker Furniture Wood Furniture Division
Michael Spece
Sekar Sundararajan
Henry Long Jr.
Raymond T. Harm
Bruce Cohenour
Gary Armbrister
Charlene Bowling
Anne Jacobson
James Millner
Barney Peach
Kimberly Shaver
Robert Sherwood
Hooker Furniture Upholstery Divisions
Bradington-Young
Sam Moore
Craig Young
Michael Delgatti
Benjamin Causey
Gary Brumfield
Susie Fulton
Roger Gossler
Conrad Kerley
Dale Smith
Frank Richardson III
Steve Shelor
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended February 1, 2009
Commission file number 000-25349
HOOKER FURNITURE CORPORATION
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
Virginia
54-0251350
440 East Commonwealth Boulevard, Martinsville, VA 24112
(Address of principal executive offices, Zip Code)
(276) 632-0459
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange
on Which Registered
Common Stock, no par value
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ( ) No (X)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ( ) No (X)
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 (§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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated Filer ( )
Non-accelerated Filer ( )
(Do not check if a smaller reporting company)
Accelerated Filer (X)
Smaller reporting company ( )
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ( ) No (X)
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter: $147.1 million.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of April 16, 2009:
Common stock, no par value
(Class of common stock)
10,771,912
(Number of shares)
Documents incorporated by reference: Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Shareholders scheduled to be
held June 9, 2009 are incorporated by reference into Part III.
F - 1
Hooker Furniture Corporation
TABLE OF CONTENTS
Part I
Item 1.
Business ......................................................................................................................................................
Item 1A. Risk Factors ................................................................................................................................................
Item 1B. Unresolved Staff Comments ......................................................................................................................
Properties ....................................................................................................................................................
Item 2.
Legal Proceedings ......................................................................................................................................
Item 3.
Submission of Matters to a Vote of Security Holders ...............................................................................
Item 4.
Executive Officers of Hooker Furniture Corporation ...............................................................................
Part II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters
and Issuer Purchases of Equity Securities .................................................................................................
Selected Financial Data ..............................................................................................................................
Item 6.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..................
Item 7A. Quantitative and Qualitative Disclosures about Market Risk ...................................................................
Financial Statements and Supplementary Data .........................................................................................
Item 8.
Changes in and Disagreements with Accountants on Accounting and
Item 9.
Financial Disclosure ...................................................................................................................................
Item 9A. Controls and Procedures.............................................................................................................................
Item 9B. Other Information .......................................................................................................................................
Part III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance .......................................................................
Executive Compensation ............................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Certain Relationships and Related Transactions, and Director Independence .........................................
Principal Accountant Fees and Services ....................................................................................................
Part IV
Item 15.
Exhibits and Financial Statement Schedules .............................................................................................
Signatures .................................................................................................................................................................................
Index to Consolidated Financial Statements ............................................................................................................................
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F-1
2
Hooker Furniture Corporation
Part I
ITEM 1.
BUSINESS
General
Incorporated in Virginia in 1924 and celebrating our 85th anniversary in 2009, Hooker Furniture Corporation (“Company”, “we”,
“our”) is ranked among the nation’s top 10 largest publicly traded furniture sources, based on 2007 shipments to U.S. retailers,
according to Furniture/Today, a leading trade publication. We are a key resource for residential wood, metal and upholstered
furniture. Our major wood furniture product categories include home entertainment, home office, accent, dining, bedroom and bath
furniture under the Hooker Furniture brand, and youth furniture sold under the Opus Designs by Hooker brand. Our residential
upholstered seating companies include Cherryville, N.C.-based Bradington-Young, LLC, a specialist in upscale motion and stationary
leather furniture, and Bedford, Va.-based Sam Moore Furniture LLC, a specialist in upscale occasional chairs with an emphasis on
cover-to-frame customization. An extensive selection of designs and formats along with finish and cover options in each of these
product categories makes us a comprehensive resource for retailers primarily targeting the upper-medium price range. Our principal
customers are retailers of residential home furnishings who are broadly dispersed throughout North America. Customers include
independent furniture stores, specialty retailers, department stores, catalog merchants, interior designers and national and regional
chains.
We market wood and metal furniture under the Hooker Furniture and Opus Designs by Hooker brand names, and upholstered furniture
under the Bradington-Young and Sam Moore brand names. Furniture is designed and marketed as stand-alone products or products
within small multi-piece groups or broader collections offering a unifying style, design theme and finish. Examples of Hooker
Furniture collections include Beladora, North Hampton and Kensington. Products also are marketed by product category, such as The
Great Entertainers, SmartWorks Home Office and Opus Designs Youth Furniture by Hooker. Our wood and metal furniture is
typically designed for and marketed in the upper-medium price range. Under the Bradington-Young upholstery brand, we offer a
broad variety of residential leather and fabric upholstered furniture and specialize in leather reclining and motion chairs, sofas, club
chairs and executive desk chairs. Under the Sam Moore upholstery brand, we offer upscale occasional chairs with an emphasis on
fabric-to-frame customization in the upper-medium to high-end price niches. Domestically produced upholstered furniture is targeted
at the upper-medium and upper price ranges, while imported upholstered furniture is targeted at the medium and upper-medium price
ranges. Hooker is a full-line resource for retailers, offering furniture collections and products for virtually every room of the home.
Since 2003, we have transformed our company from a predominantly wood furniture manufacturer to a product design, global
sourcing, logistics and marketing company for residential wood and upholstered furniture. Prior to 2003 nearly seventy percent of our
net sales were derived from the sale of domestically produced wood furniture; subsequently, sales of our better valued imported wood
furniture rapidly overtook, and have now replaced sales of our domestically made furniture. We systematically closed our domestic
wood furniture plants as our product mix increasingly shifted toward imported wood and metal furniture. In March 2007, we closed
our Martinsville, Va. wood furniture production facility, the last of our domestic wood furniture plants, marking our exit from
domestic wood furniture manufacturing. This completed our transformation from a wood furniture manufacturer to a company that
both markets high-value wood, metal and upholstered furniture sourced globally and manufactures upholstered furniture.
Our goal to expand our offerings to furniture retailers led to the acquisition of Bradington-Young in January 2003 and Sam Moore
Furniture in April 2007. These acquisitions provided Hooker’s customers with a broad array of upholstered seating options to
complement our wood and metal furniture offerings. Additionally, in December 2007, we acquired certain assets of Opus Designs
Furniture a specialist in moderately-priced youth furniture. The Opus Designs acquisition provides us with expanded product
offerings in a previously under-developed niche.
In 2007, we terminated our Employee Stock Ownership Plan (“ESOP”). The ESOP was discontinued primarily because of the
fundamental change in our business model as a rising stock price and our diminishing employee base caused the ESOP to become too
costly in this competitive industry. As a result of the ESOP termination, we believe that we have better positioned our company to
compete going forward by bringing future employee benefit costs more in line with the industry, our new operating model and our
current workforce.
With our exit from domestic wood furniture manufacturing and the addition of upholstery and expanded bedroom offerings and the
termination of the ESOP, Hooker Furniture’s transition to a design, marketing, logistics and global sourcing business model focused
on imported wood and metal and domestically produced and imported upholstered home furnishings is complete.
3
Strategy and Mission
Our mission is to “enrich the lives of the people we touch through innovative home furnishings of exceptional value,” using the
following strategy:
(cid:120)
(cid:120)
(cid:120)
To offer world-class style, quality and product value as a complete residential wood, metal and upholstered furniture resource
through excellence in product design, manufacturing, global sourcing, marketing, logistics, sales, and customer service.
To be an industry leader in sales growth and profitability performance, providing an outstanding investment for our
shareholders and contributing to the well-being of our employees, customers, suppliers and community neighbors.
To nurture the relationship-focused, team-oriented and honor-driven corporate culture that has distinguished our company for
85 years.
Home furnishings account for all of Hooker’s net sales. The percentages of net sales provided by each of our major product sub-
categories for the 52-week fiscal year that ended February 1, 2009, the 53-week fiscal year that ended February 3, 2008, the 2007
two-month transition period that ended January 28, 2007, and the 12-month fiscal year ended November 30, 2006 were as follows:
Wood and metal furniture products .........................................................
Upholstered furniture products ................................................................
Total .................................................................................................
Product Design, Product Collections and Styles
(2 mos.)
2009
2008
72%
75%
28%
25%
100% 100%
2007
80%
20%
100%
2006
82%
18%
100%
Our product lines cover most major style categories, including European and American traditional, transitional, urban, country, casual
and cottage designs. We offer furniture in a variety of materials, such as various types of wood, metal, leather and fabric, as well as
veneer and rattan, often accented with marble, stone, slate, ceramic, glass, brass and/or hand-painted finishes. Products are designed
to be attractive to consumers both as individual furniture pieces and as pieces within whole-home collections. We believe our wide
variety of product categories, styles and finishes enables us to anticipate and respond quickly to changing consumer preferences.
Hooker offers retailers a comprehensive furniture resource principally in the upper-medium price range and additional products within
both the upscale and medium price ranges. Based on sales and market acceptance, we believe our products represent good value, and
the style and quality of our furniture compares favorably with more premium-priced products.
The product life cycle for furniture continues to shorten as consumers demand innovative new features, functionality, style, finishes and
fabrics that will enhance their lifestyle while providing value and durability. We believe our distinctive product design, development and
market-launch process provides us with a competitive advantage. Hooker designs and develops new styles in each of our product
categories semi-annually to replace discontinued products and collections, and in some cases, to enter new product categories. Our
collaborative product design process begins with the marketing team identifying customer needs and trends and conceptualizing product
ideas and features. A variety of sketches are produced, usually by independent designers, from which prototype furniture pieces are built.
We invite some of our independent sales representatives and a representative group of dealers to view and critique the prototypes. Based
on this input, we may modify the designs and then prepare samples for full-scale production. We generally introduce new product styles
at the International Home Furnishings Market (“the Market”) held each fall and spring in High Point, North Carolina, and support new
product launches with promotions, public relations, product brochures, websites and point-of-purchase consumer materials.
The flexibility of our global sourcing business model gives us the ability to offer a wide range of styles, materials and price points to a
variety of retailers serving a range of consumer markets. The flexibility to target production of various styles to the most efficient and
best suppliers in the world enabled us to broaden our product line without abandoning our core strengths in fiscal 2009. At the fall 2008
Market, we successfully expanded both upward and downward in price points as we gained strong retail placements on a comprehensive
new product collection at higher than average price points in European traditional styling and also successfully introduced a new bedroom
collection with more transitional styling at lower than average price points. We will draw upon this sourcing flexibility again this spring
when launching our Envision brand, targeting a less affluent, younger consumer aged 25 to 44, with a smaller-scaled, casual lifestyle
look. We expect the Envision collection will expand Hooker’s market beyond our core product line, which is more traditionally styled in
upper-medium price points, with a strong base of purchasers aged 40 and up with household incomes above $75,000.
4
Hooker continues to strive for innovation in the Home Office and Entertainment categories where we believe we are perceived as an
industry leader.
Consumers are replacing large armoires that were a mainstay of our entertainment business in the 1990s with smaller scale consoles for
flat panel televisions (“TV” or “TVs”). Our approach to this category is to offer presentation formats for TV sizes from 32” up to 73” in a
variety of sizes and styles. One merchandising concept that continues to grow is the stacking of three consoles that take 32” to 42” TVs,
50” to 55” TVs and 60” and up TVs. This gives the consumer selection, and helps the retailer maximize sales per square foot. Hooker
makes the stacked console concept available in several styles from contemporary to traditional. Other entertainment formats we offer
include consoles with hutches in which a TV can be mounted on the back panel with room for speakers, and electric lift consoles that hide
the TV within the case, with remote control activation to raise the TV to the surface of the console for viewing.
In the Home Theater and Wall Unit category, large units for 10- and 12- foot ceilings continue to sell well at the upper end of our price
spectrum. They can accommodate up to 73” TV’s, and we offer several styles that fit into the large atrium family rooms in suburban
homes. We also offer smaller wall units that work well in smaller homes and urban condominiums. This business is trending to a more
transitional/contemporary styling.
In Home Office, Hooker continues to develop large scale home office furniture for our executive office category with two highly
successful introductions this past year. We are also increasing our focus on smaller office solutions for younger consumers. We
introduced several new formats in smaller office this past year that include a desk/hutch with TV storage in the hutch, and a new
“SmartWorks Home Center” that is taller at a 36” working height. This unit is designed for entrance halls, family rooms, and kitchens –
areas of the home where the family gathers - and can be used as a central point to keep in touch. It is loaded with power bars that also
include USB ports to charge cameras, phones, and i-Phones. Modular home office is also an area of growth that allows consumers to
customize their office format for large or small spaces.
Bradington-Young continues to expand its distribution channels with global sourcing of leather seating in more moderate price points
than the upper-end niche occupied by its domestically produced seating. In fiscal 2009, Bradington-Young broadened its product line to
include more transitional styling and leather colors along with its core business in traditional styling. Bradington-Young will seek to be
more fashion-forward in its future introductions by including a number of leathers, fabrics and silhouettes in cleaner, more transitional to
contemporary styling. While fiscal 2009 was a difficult year for Bradington-Young’s domestic product offerings, its sectional Seating by
Design Program and Designer Direct Program, both introduced in recent Markets, were bright spots in an otherwise challenging year.
Sam Moore’s product offerings fill several niches in the occasional chair category, offering exposed wood as well as fully upholstered
seating. Sam Moore’s occasional seating covers multiple styles that include upholstered swivel rockers, club chairs, wings, chaises,
benches, ottomans, office chairs, settees, dining chairs and barstools in 18th Century, French, traditional, transitional, and contemporary
styles. Most chair styles are available in a choice of either fabric or leather.
Sam Moore has a modern finishing facility that offers a choice of 26 different finishes for any exposed wood chair selection. Over one-
half of the styles shipped are custom ordered with the customer’s choice of leather, fabric and finish. Along with the choice of fabrics,
leathers and finishes, customers can choose from different colors and sizes of nail trim, bullion, fringe or contrasting pillows. Since most
orders are custom made, Sam Moore customers may provide their own fabric (customer’s own material “COM”) to be applied to a chair.
In fact, COM is the most popular fabric application choice of customers.
Sam Moore imports thirteen seating styles from the Far East (principally China) in leather for immediate shipment in a single color
selection. In addition, Sam Moore has brought its customization expertise to our line of imported decorative dining and occasional
seating. Presently, Hooker offers over three dozen decorative seating products, each in a single fabric and finish. Sam Moore has
customized and expanded this line by offering the best selling Hooker frames in its wide range of fabrics and leathers, as well as its
multiple finishes. At the April 2008 High Point Market, Sam Moore entered a new product category of upholstered headboards. The
headboards are available in all of the Sam Moore fabrics, and customers can apply options such as tufting, channeling, shirring and nail
trim. The company expanded its offering of reclining chairs at the October 2008 High Point Market by focusing on upscale designs,
leveraging its strengths of multiple finishes, fabric and leather options. Sam Moore intends to continue to expand the reclining chair
category in the future as we believe there is a void in the reclining chair marketplace for upscale, stylish recliners.
It is Sam Moore’s goal to live up to its reputation as “America’s Premier Chair Specialist” by offering a quality product from a complete
selection of chairs in fresh leathers and fabrics with exceptional wood finishes.
December 2008 marked the one year anniversary of Hooker’s acquisition of Opus Designs, a specialist in moderately priced youth
furniture. During the year, the sales, marketing, merchandising and operations of Opus Designs were successfully integrated into our
company, and the line positioned itself for growth by gaining floor placements with approximately 600 new retail customers. Despite
a double-digit sales downturn in the furniture industry, sales of Opus Designs products increased in the low single digits during fiscal
2009. Opus Designs by Hooker is poised to introduce five new groups at the spring 2009 High Point Market to expand its appeal.
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Focusing on upscale finishes, cleaner lines, superior quality and more transitional styling, the groups will reflect the changing tastes of
the youth furniture consumer.
Sourcing
Hooker Furniture has the capability, resources, longstanding business relationships and experience to efficiently and cost effectively
source our wood, metal and upholstered furniture.
Imported Products
We have sourced products from foreign manufacturers since 1988. We have imported finished furniture in a variety of styles,
materials and product lines. We believe the best way to leverage our financial strength and differentiate our import business from the
industry is through innovative and collaborative design, outstanding products, great value, consistent quality, easy ordering, and
world-class global logistics and distribution systems. Imported wood, metal and upholstered furniture accounted for approximately
77% of net sales in fiscal 2009, 76% of net sales in fiscal 2008 and the 2007 two-month transition period and 73% of net sales in fiscal
2006.
Hooker imports products primarily from China, the Philippines, Indonesia, Vietnam, Thailand and Honduras through direct
relationships with factories and with agents representing other factories. Because of the large number and diverse nature of the
foreign factories from which we source our imported products, we have significant flexibility in the placement of products in any
particular factory or country. Factories located in China are our primary resource for imported furniture. In fiscal 2009, imported
products sourced from China accounted for approximately 90% of import purchases; and the factory in China from which we directly
source the most product accounted for approximately 46% of our worldwide purchases of imported product. A sudden disruption in
our supply chain from this factory, or from China in general, could significantly compromise our ability to fill customer orders for
products manufactured at that factory or in that country. If such a disruption were to occur, we believe that we would have sufficient
inventory to adequately meet demand for approximately four months. Also, with the broad spectrum of product we offer, we believe
that, in some cases, buyers could be offered similar product available from alternative sources. We believe that we could, most likely
at higher cost, source most of the products currently sourced in China from factories in other countries and could produce certain
upholstered products domestically at our own factories. However, supply disruptions and delays on selected items could occur for up
to six months. If we were to be unsuccessful in obtaining those products from other sources or at a comparable cost, then a sudden
disruption in our supply chain from our largest import furniture supplier, or from China in general, could have a short-term material
adverse effect on our results of operations. Given the capacity available in China and other low-cost producing countries, we believe
the risks from these potential supply disruptions are manageable.
Our imported furniture business is subject to the usual risks inherent in importing products manufactured abroad, including, but not
limited to, supply disruptions and delays, currency exchange rate fluctuations, economic and political developments and instability, as
well as the laws, policies, and actions of foreign governments and the United States affecting trade, including tariffs.
For imported products, Hooker generally negotiates firm pricing with its foreign suppliers in U.S. Dollars, typically for a term of at
least one year. We accept the exposure to exchange rate movements beyond these negotiated periods. We do not use derivative
financial instruments to manage this risk. Since we transact our imported product purchases in U.S. Dollars, a relative decline in the
value of the U.S. Dollar could increase the price we pay for imported products beyond the negotiated periods. We generally expect to
reflect substantially all of the effects of any price increases from suppliers in the prices we charge for imported products. These price
changes could adversely impact sales volume and profit margin during affected periods. Conversely, a relative increase in the value of
the U.S. Dollar could decrease the cost of imported products and favorably impact net sales and profit margins during affected
periods. See also “Item 7A. Quantitative and Qualitative Disclosures about Market Risk.”
Manufacturing and Raw Materials
At February 1, 2009, Hooker Furniture operated approximately 639,000 square feet of manufacturing and supply plant capacity in
North Carolina and Virginia for its domestic upholstered furniture production. We consider the machinery and equipment at these
locations generally to be modern and well-maintained.
We believe that there is a viable future for domestically produced upholstery, which, as an industry, has been less affected by import
competition over the last five years than wood furniture production. Domestic seating companies with strong positions in the upper-
medium to high-end price point have been the domestic furniture manufacturers least impacted by lower cost imports. In addition,
domestic upholstery manufacturers have two key competitive advantages compared to imported upholstery manufacturers:
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offering customized cover-to-frame and fabric-to-frame combinations to the upscale consumer and interior design trade;
and,
offering quick four- to six-week product delivery of custom products.
Due to these competitive advantages, we remain committed to maintaining domestic production of upholstered furniture.
Bradington-Young’s strategy for its two upholstered furniture production facilities and two upholstered furniture supply plants is to be
a comprehensive leather resource for retailers positioned in the upper and upper-medium price ranges. Bradington-Young offers a
broad selection of approximately 230 leather covers for domestically produced upholstered furniture. The motion category comprises
approximately 55% of Bradington-Young’s domestic production. The upholstery manufacturing process begins with the cutting of
leather or fabric and the cutting and precision machining of frames. Precision frames are important for motion furniture to operate
properly and to provide durable service over the life of the products. Finally, the cut leather or fabric upholstery, frames, foam and
other materials are assembled to build reclining chairs, executive seating, stationary seating and multiple-seat reclining furniture.
Sam Moore’s strategy for its upholstery production facility is to be a complete source of fashionable upholstered chairs for all rooms
of the home and other upholstered accent pieces, such as decorative upholstered headboards. Sam Moore offers a diverse range of
approximately 200 different styles of upholstered products in over 550 fabric choices and over 100 leather choices. Sam Moore
produces 95% of its products domestically at its single, large manufacturing facility in Bedford, Va.
Significant materials used in manufacturing upholstered furniture products include leather or fabric, foam, wooden frames and metal
mechanisms. Most of the leather is imported from Italy, South America and China. Leather is purchased as full hides, which Bradington-
Young and Sam Moore then cut and sew, and as pre-cut and sewn hides processed by the vendor to pattern specifications.
Costs for leather and leather products from Asia increased significantly during fiscal 2009 due to higher labor and freight costs,
changes in foreign tax incentives and increased costs for premium leather hides sourced from Europe. The costs for these products
have also been affected by the weaker U.S. Dollar. As a result, Bradington-Young dealer prices were increased at the fall Market.
This increase could affect demand, although we believe the impact will be less significant for Bradington-Young, with its upper-
medium price position, compared to the more promotional end of the leather market. Late in the year, this upward price pressure
lessened as the U.S. Dollar became stronger and there was an excess supply of leather due to stress in the auto and furniture industries.
We believe that our sources for raw materials are adequate and that we are not dependent on any one supplier. Hooker’s five largest
suppliers accounted for approximately 31% of our raw materials supply purchases for domestic upholstered furniture manufacturing
operations in fiscal 2009. No single supplier accounted for more than 10 % of our raw material purchases.
Distribution
Hooker utilizes 105,000 square feet of showroom space in High Point, N.C. to introduce new products and collections and increase sales
of existing products during the industry’s spring and fall Markets. We also utilize this showroom throughout the year to host meetings
with dealers and sales representatives in the product design development process. We also work directly with several large customers to
develop proprietary products exclusively for those customers.
We sell our furniture through over 90 independent sales representatives to retailers of residential home furnishings, who are broadly
dispersed throughout North America, including:
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independent furniture retailers such as Furnitureland South of Jamestown/High Point, N.C., Louis Shanks of Texas, Baer’s
Furniture of South Florida, and Berkshire Hathaway-owned companies Star Furniture, Jordan’s Furniture, Nebraska Furniture
Mart and R.C. Willey;
department stores such as Macy’s and Dillard’s;
regional chain stores such as Raymour & Flanigan, Robb & Stucky and Haverty’s;
national chain stores such as Z Gallerie and Crate & Barrel; and
catalog merchandisers such as Frontgate and the Horchow Collection, a unit of Neiman Marcus.
Hooker sold to more than 4600 customers during fiscal 2009. No single customer accounted for more than 3% of our net sales in 2009.
No significant part of our business is dependent upon a single customer, the loss of which would have a material effect on our business.
However, the loss of several of our major customers could have a material impact on our business. In addition to our broad domestic
customer base, approximately 4% of our net sales in 2009 were to international customers.
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We believe this broad network of retailers and independent sales representatives reduces our exposure to regional recessions and allows
us to capitalize on emerging trends in channels of distribution.
Hooker offers tailored merchandising programs, such as our SmartLiving ShowPlace in-store galleries, Seven Seas Treasures boutiques
and Home Entertainment and SmartWorks Home Office galleries, to address each channel of distribution. These galleries are currently
dedicated principally to furniture groups and whole-home collections under the Hooker and Bradington-Young brands, with plans to
increase the number of galleries that carry our Sam Moore and Opus Designs by Hooker brands. These galleries typically comprise 3,500
to 8,000 square feet of retail space. The mission of the SmartLiving program is to develop progressive partnerships with retailers by
providing a merchandising and marketing plan to drive increased sales and profitability and positively influence consumers’ purchase
decisions, satisfaction and loyalty through an enhanced shopping experience.
Currently, we have about 50 SmartLiving Showplace Galleries established throughout the country. There are 367 dealers who dedicate
space in their stores to display our Seven Seas Treasures line of imported upscale and casual dining room furniture, metal beds,
occasional tables and functional accents, including hand-painted furniture, carved writing desks, tables and chests. In the home
entertainment and home office categories, in which we are recognized as an industry leader, we have well-developed product specialty
gallery programs supported by semi-annual national sales promotions, a special website dealer locator and point-of-purchase collateral
materials. Over 300 dealers have Home Entertainment by Hooker galleries and more than 220 dealers have SmartWorks Home Office
galleries in their retail stores There are more than 130 Opus Designs by Hooker Furniture youth furniture galleries around the country. In
addition, over 1,500 retailers offer Bradington-Young leather upholstery products and over 1,500 retailers offer Sam Moore Furniture
occasional seating products.
In fiscal 2008, we expanded our distribution channels by hiring a senior executive charged with developing a private label and limited
distribution programs targeting large national retailers. This program has increased sales to large national accounts.
Warehousing, Inventory and Supply Chain Management
During fiscal year 2009, we continued to refine our supply chain and sourcing operations via systems enhancements and personnel
additions in both the U.S. and China. Investments made in a new Global Purchasing System and a web-based Global Sourcing
Management System, coupled with planned upgrades to current demand and inventory planning platforms, have helped improve order
fulfillment rates.
We distribute furniture to retailers from our distribution centers and warehouses in Virginia, North Carolina and California, as well as
directly from Asia and Latin America via our Container Direct Program. In 2004, we entered into a warehousing and distribution
arrangement in China with our largest supplier of imported products. In 2008, we entered into similar arrangements with two more
suppliers. The warehouse and distribution facilities are owned by the supplier and operated by that supplier and a third party utilizing
a global warehouse management system that updates daily our central inventory management and order processing systems. Under
the Container Direct Program, we offer directly to retailers in the U.S. a focused mix of over 1,100 of our best selling items sourced
from these three suppliers. By doing so, we achieved an approximately 80% in-stock percentage at these facilities during fiscal 2009.
The program features an internet-based product ordering system and a delivery notification system that is easy to use and available to
our pre-registered dealers. In addition, we also ship containers directly from a variety of other suppliers in Asia and Honduras. We
are committed to exploring ways to continually improve our distinctive, value-added Container Direct Program through additional
warehouses at key vendors, product consolidation and routing strategies aimed at shortening delivery times and providing significant
cost savings for retailers.
In January 2008, we opened a West Coast distribution center in Carson, California. The 80,000-square-foot warehouse, which became
fully operational in February 2008, stocks many of our best-selling products for quick shipment to customers in California, Arizona,
New Mexico, Nevada, Oregon, Colorado, Idaho, Montana, Wyoming, Utah and Washington. While delivery times and costs will vary
from customer to customer, we expect that, on average, we can remove approximately ten days of delivery time and reduce inland
freight costs by 6-10% for the products processed through this facility.
Seven Seas Seating, Bradington-Young’s line of imported upholstered furniture, has experienced rapid growth since its introduction in
the 2003 fourth quarter. However, Seven Seas Seating experienced a decline in net sales in fiscal 2009, decreasing by $1.3 million, or
9.2% to $12.9 million compared to $14.2 million in fiscal 2008. Unlike domestic upholstered production, Seven Seas Seating
products are purchased based on a forecast of product demand and shipped out of inventory from 109,000 square feet of leased
warehouse space in Cherryville, N.C. Seven Seas Seating may also be purchased under the Container Direct Program, and a container
order can include any of the product produced at a given supply plant.
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Sam Moore imports and warehouses thirteen styles of leather club and desk chairs for immediate order fulfillment. Ten styles come
from two factories in China. Three styles come from one factory in the Philippines. For inventory, Supply Chain personnel order
mixed containers from each country based on rate of sale. Orders are shipped from Sam Moore's facility in Bedford, Va. All styles
can be ordered and shipped in container quantities to any Sam Moore account. Sam Moore also imports one style chair from a third
factory in China which is direct shipped in container quantity to a single Sam Moore account.
In 2006, Hooker Furniture’s import distribution operations were certified as a full participant in the U.S. Department of Homeland
Security, Customs Trade Partnership Against Terrorism (C-TPAT) program. C-TPAT is a joint government-business initiative
designed to ensure proper security procedures are in place to protect the flow of global trade. Through C-TPAT, U.S. Customs and
Border Protection has joined with importers, carriers, brokers, warehousemen and manufacturers to provide the highest level of
security while facilitating the movement of goods entering the United States. To qualify for membership in C-TPAT, participating
companies must conduct a detailed self-assessment of supply chain security using the C-TPAT security guidelines created by Customs
and the trade community. Companies must also complete and submit a supply chain security profile questionnaire to Customs and
implement a program to enhance security throughout the supply chain in accordance with the C-TPAT guidelines. Upon C-TPAT
certification, members receive expedited handling and processing of their goods into the United States.
Hooker Furniture schedules purchases of imported furniture and production of domestically manufactured upholstered furniture based
upon actual and anticipated orders and product acceptance at the spring and fall Markets. We strive to provide imported and
domestically produced furniture on-demand for our dealers. During fiscal year 2009, we shipped 73% of all wood and metal furniture
orders and 59% of all upholstery orders within 30 days of order receipt. It is our policy and industry practice to allow order
cancellation for wood and metal furniture up to the time of shipment; therefore, customer orders for wood and metal furniture are not
firm. However, domestically produced upholstered product orders are predominantly custom-built and shipped within six weeks after
the order is received and consequently, cannot be cancelled once the leather or fabric is cut.
Our backlog of unshipped orders for all of our products amounted to $19 million or approximately 4 weeks of sales as of February 1,
2009. For the last three years, over 95% of all orders booked were ultimately shipped. Management considers orders and backlogs to
be one helpful indicator of sales for the upcoming 30-day period, but because of our quick delivery and our cancellation policy,
management does not consider order backlogs to be a reliable indicator of expected long-term business.
Competition
The furniture industry is highly competitive and includes a large number of foreign and domestic manufacturers and importers, none of
which dominates the market. While the markets in which Hooker competes include a large number of relatively small and medium-sized
manufacturers, certain competitors have substantially greater sales volumes and financial resources than we do. U.S. imports of furniture
produced overseas, such as from China, have stabilized in recent years, and some overseas companies have increased both their presence
through wholesale distributors based in the United States and their shipments directly to U.S. retailers during that period.
The primary competitive factors for home furnishings in our price points include price, style, availability, service, quality and durability.
We believe that our design capabilities, ability to import and/or manufacture upholstered furniture, product value, longstanding customer
and supplier relationships, significant distribution and inventory capabilities, ease of ordering, financial strength, experienced
management and customer support are significant competitive advantages.
In November 2004 and January 2005, the U.S. Department of Commerce found that certain Chinese furniture manufacturers were
dumping bedroom products into the U.S. market and imposed tariffs on Chinese companies for wood bedroom products exported to the
U.S. The tariff rates were approved in a subsequent action by the International Trade Commission, based on measured damage to the
U.S. furniture manufacturing industry caused by illegal dumping. Tariffs on imported bedroom furniture have not and are not expected to
have a material adverse effect on our results of operations.
Employees
As of February 1, 2009, Hooker Furniture had approximately 814 permanent employees. None of our employees are represented by a
labor union. We consider our relations with our employees to be good.
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Patents and Trademarks
The Hooker Furniture, Bradington-Young, Sam Moore and Opus Designs by Hooker Furniture trade names represent many years of
continued business. We believe these trade names are well-recognized and associated with quality and service in the furniture industry.
We also own a number of patents and trademarks, none of which is considered to be material.
Hooker, the “H” logo, Bradington-Young, the “B-Y” logo, Sam Moore, Sam Moore Furniture Industries, Sam Moore Furniture, LLC,
America’s Premier Chair Specialist, Opus Designs by Hooker Furniture, Forever Young, Envision Lifestyle Collections by Hooker
Furniture, Albany Park, Beladora, Belle Vista, Casablanca, North Hampton, Summerglen, Vineyard, Chatham, Brookhaven, Belle Grove,
Villa Grande, Villa Florence, Fairview, Mirabel, Danforth, Small Office Solutions, Preston Ridge, Sectional Sofas by Design, Seven
Seas, Seven Seas Seating, SmartLiving ShowPlace, SmartWorks Home Office, SmartWorks Home Center, The Great Entertainers,
Wexford Square and Waverly Place are registered trademarks of Hooker Furniture Corporation.
Governmental Regulations
Our company is subject to federal, state, and local laws and regulations in the areas of safety, health, environmental pollution controls and
importing. Compliance with these laws and regulations has not in the past had any material effect on our earnings, capital expenditures,
or competitive position; however, the effect of compliance in the future cannot be predicted. We believe that we are in material
compliance with applicable federal, state and local safety, health, environmental and importing regulations.
Additional Information
You may visit us online at www.hookerfurniture.com, www.bradington-young.com, www.sammoore.com and www.opusdesigns.net.
Hooker makes 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 other documents as soon as practical after filing or furnishing the material to the Securities and Exchange
Commission. A free copy of our Form 10-K may also be obtained by contacting Robert W. Sherwood, Vice President - Credit,
Secretary and Treasurer at our corporate offices.
Forward-Looking Statements
Certain statements made in this report, including under “Item 1 - Business” and “Item 7 - Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” are not based on historical facts, but are forward-looking statements. These
statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking
terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could” or “anticipates,”
or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy. Forward-looking
statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking
statements. Those risks and uncertainties include but are not limited to:
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current economic conditions and instability in the financial and credit markets including their potential impact on our (i) sales
and operating costs and access to financing, (ii) customers and suppliers and their ability to obtain financing or generate the
cash necessary to conduct their business;
general economic or business conditions, both domestically and internationally;
price competition in the furniture industry;
changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the
price of our imported products and raw materials;
the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of
consumers’ income available for discretionary purchases, and the availability and terms of consumer credit;
risks associated with the cost of imported goods, including fluctuation in the prices of purchased finished goods and
transportation and warehousing costs;
supply, transportation and distribution disruptions, particularly those affecting imported products;
adverse political acts or developments in, or affecting, the international markets from which we import products, including
duties or tariffs imposed on those products;
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risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices of key
raw materials, transportation and warehousing costs, domestic labor costs and environmental compliance and remediation
costs;
our ability to successfully implement our business plan to increase sales and improve financial performance;
achieving and managing growth and change, and the risks associated with acquisitions, restructurings, strategic alliances and
international operations;
risks associated with distribution through retailers, such as non-binding dealership arrangements;
capital requirements and costs;
competition from non-traditional outlets, such as catalogs, internet and home improvement centers;
changes in consumer preferences, including increased demand for lower quality, lower priced furniture due to declines in
consumer confidence and/or discretionary income available for furniture purchases and the availability of consumer credit;
and
higher than expected costs associated with product quality and safety, including regulatory compliance costs related to the
sale of consumer products and costs related to defective products.
Any forward looking statement that we make speaks only as of the date of that statement, and we undertake no obligation to update
any forward-looking statements whether as a result of new information, future events, or otherwise.
ITEM 1A. RISK FACTORS
Our business is subject to a variety of risks. The risk factors detailed below should be considered in conjunction with the other
information contained in this annual report on Form 10-K. If any of these risks actually materialize, our business, financial condition
and future prospects could be negatively impacted. These risks are not the only ones we face. There may be additional risks that are
presently unknown to us or that we currently believe to be immaterial that could affect our business.
We may lose market share due to competition, which would decrease future sales and earnings.
The furniture industry is very competitive and fragmented. Hooker competes with many domestic and foreign manufacturers. Some
competitors have greater financial resources than we have and often offer extensively advertised, well-recognized, branded products.
Competition from foreign producers has increased dramatically in the past few years. We may not be able to meet price competition
or otherwise respond to competitive pressures, including increases in supplier and production costs. Also, due to the large number of
competitors and their wide range of product offerings, we may not be able to continue to differentiate our products (through styling,
finish and other construction techniques) from those of our competitors. In addition, large retail furniture dealers have the ability and
could at any time begin to obtain offshore sourcing on their own. As a result, we are continually subject to the risk of losing market
share, which may lower sales and earnings.
An economic downturn could result in a decrease in sales and earnings.
The furniture industry is subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects.
Home furnishings are generally considered a postponeable purchase by most consumers. Economic downturns could affect consumer
spending habits by decreasing the overall demand for home furnishings. These events could also impact retailers, Hooker’s primary
customers, possibly resulting in a decrease in our sales and earnings. Changes in interest rates, consumer confidence, new housing
starts, existing home sales, and geopolitical factors are particularly significant economic indicators for our Company.
Failure to anticipate or timely respond to changes in fashion and consumer tastes could adversely impact our business and
decrease sales and earnings.
Furniture is a styled product and is subject to rapidly changing fashion trends and consumer tastes. If we fail to anticipate or promptly
respond to these changes we may lose market share or be faced with the decision of whether to sell excess inventory at reduced prices.
This could result in lower sales and earnings.
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A loss of several large customers through business consolidations, failures or other reasons could result in a decrease in future
sales and earnings.
The loss of several of our major customers through business consolidations, failures or otherwise, could materially adversely affect
our sales and earnings. Lost sales may be difficult to replace. Amounts owed to Hooker by a customer whose business fails may
become uncollectible.
Our ability to grow sales and earnings depends on the successful execution of our business strategies.
Since 2003, we have transitioned from manufacturing most of our products to sourcing most of them from offshore suppliers. As a
result, we are now primarily a design, sourcing, marketing and logistics company with domestic upholstery manufacturing
capabilities. Our ability to maintain and grow sales and earnings depends on the continued correct selection and successful execution
and refinement of our overall business strategies and business systems for designing, marketing, sourcing, distributing and servicing
our products. We must also make good decisions about product mix and inventory availability targets. Since we have exited domestic
manufacturing of wood furniture and are now completely dependent on offshore suppliers for wood and metal furniture products, we
must continue to enhance relationships and business systems that allow us to continue to work more efficiently and effectively with
our global sourcing suppliers. Hooker also must continue to evaluate the appropriate mix between domestic manufacturing and
foreign sourcing for upholstered products. All of these factors affect our ability to grow sales and earnings.
We depend on suppliers in China for a very high proportion of our imported furniture products, and a disruption in supply
from China or from our most significant Chinese supplier could undermine our ability to timely fill customer orders for these
products and our sourcing costs.
In fiscal 2009, imported products sourced from China accounted for approximately 90% of our import purchases and the factory in China
from which we directly source the largest portion of our import products accounted for approximately 46% of our worldwide purchases of
imported products. A sudden disruption in our supply chain from this factory, or from China in general, could significantly impact our
ability to fill customer orders for products manufactured at that factory or in that country. If such a disruption were to occur, we believe
that we would have sufficient inventory to adequately meet demand for approximately four months. We believe that we could, most likely
at higher cost, source most of the products currently sourced in China from factories in other countries and could produce certain
upholstered products domestically at our own factories. However, supply disruptions and delays on selected items could occur for up to six
months before remedial measures could be implemented. If we were to be unsuccessful in obtaining those products from other sources or
at comparable cost, then a sudden disruption in our supply chain from our largest import furniture supplier, or from China in general, could
have a short-term material adverse effect on our results of operations.
Changes in the value of the U.S. Dollar compared to the currencies for the countries from which we obtain our products could
adversely affect net sales and profit margins.
For imported products, we generally negotiate firm pricing with our foreign suppliers in U.S. Dollars for periods typically of at least one
year. We accept the exposure to exchange rate movements beyond these negotiated periods. We do not use derivative financial instruments
to manage this risk. Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar
could increase the price we must pay for imported products beyond the negotiated periods. These price changes could adversely impact net
sales and profit margins during affected periods.
Our dependence on offshore suppliers could, over time, adversely affect our ability to service customers, which could lower
future sales and earnings.
In March 2007, we exited domestic wood furniture manufacturing. We now rely exclusively on offshore suppliers for our wood and
metal furniture products. Our offshore suppliers may not provide goods that meet our quality, design or other specifications in a
timely manner and at a competitive price. If our suppliers do not meet our specifications, we may need to find alternative vendors,
potentially at a higher cost, or may be forced to discontinue products. Also, delivery of goods from offshore vendors may be delayed
for reasons not typically encountered for domestically manufactured wood and metal furniture, such as shipment delays caused by
customs or labor issues. Our failure to fill customer orders during an extended business interruption by a major offshore supplier
could negatively impact existing customer relationships resulting in decreased sales and earnings.
We rely on offshore sourcing for all of our wood and metal products, and for some of our upholstered products. We are
subject to changes in local government regulations, which could result in a decrease in earnings.
Changes in political, economic, and social conditions, as well as laws and regulations in the foreign countries where we source our
products could have an adverse impact on our performance. These changes could make it more difficult to provide products and
12
service to customers. International trade policies of the United States and the countries from which we source finished products could
adversely affect us. Imposition of trade sanctions relating to imports, taxes, import duties and other charges on imports could increase
our costs and decrease our earnings. For example in 2004, the U.S. Department of Commerce imposed tariffs on wooden bedroom
furniture coming into the United States from China. In this case, none of the rates imposed were of sufficient magnitude to alter our
import strategy in any meaningful way; however, these tariffs are subject to review and could be increased in the future.
We may engage in acquisitions and investments in companies, which could disrupt our business, dilute our earnings per share
and decrease the value of our common stock.
We may acquire or invest in businesses that offer complementary products and that we believe offer competitive advantages.
However, we may fail to identify significant liabilities or risks that negatively affect us or result in our paying more for the acquired
company or assets than they are worth. We may also have difficulty assimilating the operations and personnel of an acquired business
into our current operations. Acquisitions may disrupt or distract management from our ongoing business. We may pay for future
acquisitions using cash, stock, the assumption of debt, or a combination of these. Future acquisitions could result in dilution to
existing shareholders and to earnings per share.
If demand for our domestically manufactured upholstered furniture declines and we respond by realigning manufacturing,
our near-term earnings could decrease.
Since March 2007, our domestic manufacturing operations consist solely of upholstered furniture. A decline in demand for our
domestically produced upholstered furniture could result in the realignment of domestic manufacturing operations and capabilities and
the implementation of cost savings programs. These programs could include the consolidation and integration of facilities, functions,
systems and procedures. We may decide to source certain products from offshore suppliers, instead of continuing to manufacture
them domestically. These realignments and cost savings programs typically involve initial upfront costs and could result in decreases
in our near-term earnings before the expected cost reductions from realignment are realized. We may not always accomplish these
actions as quickly as anticipated and may not fully achieve the expected cost reductions.
Fluctuations in the price, availability and quality of raw materials for our domestically manufactured upholstered furniture
could cause manufacturing delays, adversely affect our ability to provide goods to our customers and increase costs, any of
which could decrease our sales and earnings.
We use various types of wood, leather, fabric, foam and other filling material, high carbon spring steel, bar and wire stock and other
raw materials in manufacturing upholstered furniture. We depend on outside suppliers for raw materials and must obtain sufficient
quantities of quality raw materials from these suppliers at acceptable prices and in a timely manner. We do not have long-term supply
contracts with our suppliers. Unfavorable fluctuations in the price, quality and availability of required raw materials could negatively
affect our ability to meet the demands of our customers. The inability to meet customers’ demands could result in the loss of future
sales. We may not always be able to pass along price increases in raw materials to our customers due to competition and market
pressures.
We may experience impairment of our long-lived assets, which would decrease earnings and net worth.
Accounting rules require that long-lived assets be tested for impairment at least annually. We have substantial long-lived assets,
consisting primarily of property, plant and equipment, trademarks and trade names, which based upon the outcome of the annual test,
could result in the write-down of all or a portion of these assets. A write-down of our assets would, in turn, reduce our earnings and
net worth.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
13
ITEM 2. PROPERTIES(cid:3)
Set forth below is information with respect to our principal properties. We believe all of these properties are well-maintained and in
good condition. We believe our manufacturing facilities are efficiently utilized. During fiscal 2009, we estimate our upholstery
plants operated at approximately 50% of capacity on a one-shift basis. All our production facilities are equipped with automatic
sprinkler systems, except for the Woodleaf, N.C. facility. All facilities maintain modern fire and spark detection systems, which we
believe are adequate. We have leased certain warehouse facilities for our distribution and imports operation on a short and medium-
term basis. We expect that we will be able to renew or extend these leases or find alternative facilities to meet our warehousing and
distribution needs at a reasonable cost. All facilities set forth below are active and operational and represent approximately 2.2 million
square feet of owned or leased space. (cid:3)
Location
Martinsville, Va.
Martinsville, Va.
Martinsville, Va.
Martinsville, Va.
Martinsville, Va.
High Point, N.C.
Cherryville, N.C.
Cherryville, N.C.
Cherryville, N.C.
Cherryville, N.C.
Hickory, N.C.
Woodleaf, N.C.
Bedford, Va.
Primary Use Approximate Size in Square Feet
Corporate Headquarters
Distribution and Imports
Distribution
Customer Support Center
Distribution
Showroom
Manufacturing and Offices
Manufacturing Supply Plant
Distribution and Imports
Distribution and Imports
Manufacturing
Manufacturing Supply Plant
Manufacturing and Offices
43,000
580,000
189,000
146,000
400,000
105,000
144,000
53,000
74,000
35,000
91,000
34,000
327,000
Owned or Leased
Owned
Owned
Owned
Owned
Leased (1)
Leased (2)
Owned (3)
Owned (3)
Leased (3) (4)
Leased (3) (5)
Owned (3)
Leased (3) (6)
Owned (7)
(1) Lease expires December 31, 2009
(2) Lease expires April 30, 2014
(3) Comprise the principal properties of Bradington-Young
(4) Lease expires June 30, 2009
(5) Lease expires June 30, 2009 and provides for a one year extension.
(6) Lease provides for five consecutive one year extensions through December 31, 2010
(7) Comprise the principal properties of Sam Moore Furniture LLC
Set forth below is information regarding principal properties we utilize that are owned and operated by third parties.
Location
Carson, Ca.
Guangdong, China
Guangdong, China
Guangdong, China
Primary Use Approximate Size in Square Feet
Distribution
Distribution
Distribution
Distribution
80,000 (1)
210,000 (2)
35,000 (3)
9,000 (4)
(1) This property is subject to a distribution services agreement that expires on January 1, 2010.
(2) This property is subject to an operating agreement that expires on July 31, 2009 and automatically renews for one year on its
anniversary date unless notification of termination is provided 120 days prior to such anniversary.
(3) This property is subject to an operating agreement that expires on May 31, 2010 and automatically renews for one year on its
anniversary date.
(4) This property is subject to an operating agreement that expires on September 30, 2010 and automatically renews for one year
on its anniversary date.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
Hooker Furniture’s executive officers and their ages as of April 17, 2009 and the year each joined the company are as follows:
EXECUTIVE OFFICERS OF
HOOKER FURNITURE CORPORATION
Name
Paul B. Toms, Jr.
E. Larry Ryder
Alan D. Cole
Michael P. Spece
Sekar Sundararajan
Raymond T. Harm
Age
54
61
59
56
44
59
Position
Chairman, President and Chief Executive Officer
Executive Vice President - Finance and Administration,
Assistant Secretary and Assistant Treasurer
President and Chief Executive Officer - Upholstery
Executive Vice President - Merchandising and Design
Executive Vice President - Operations
Senior Vice President - Sales
2007
1997
2008
1999
Year Joined Company
1983
1977
Paul B. Toms, Jr. has been Chairman and Chief Executive Officer since December 2000 and President since November 2006. Mr.
Toms was President and Chief Operating Officer from December 1999 to December 2000, Executive Vice President - Marketing from
1994 to December 1999, Senior Vice President - Sales and Marketing from 1993 to 1994, and Vice President - Sales from 1987 to
1993. Mr. Toms joined the Company in 1983 and has been a Director since 1993.
E. Larry Ryder has been Executive Vice President - Finance and Administration since December 2000, Assistant Treasurer since
1998, and Assistant Secretary since 1990. Mr. Ryder was Senior Vice President - Finance and Administration from December 1987 to
December 2000, Treasurer from 1989 to 1998, and Vice President - Finance and Administration from 1983 to 1987. Prior to 1983,
Mr. Ryder served in various financial management positions. Mr. Ryder joined the Company in 1977 and was a Director from 1987
until 2003.
Alan D. Cole has been President and Chief Executive Officer - Upholstery since August 2008. Mr. Cole joined the Company in April
2007 as Executive Vice President – Upholstery Operations. Prior to joining the Company, Mr. Cole was President and Chief
Executive Officer of Schnadig Corporation, a manufacturer and marketer of a full line of medium-priced home furnishings from 2004
to 2006. Mr. Cole has been President of Parkwest LLC, a real estate development firm from 2002 to the present. Mr. Cole also served
as a member of the Company’s Board of Directors in 2003.
Michael P. Spece has been Executive Vice President - Merchandising and Design since September 2004. Mr. Spece was Senior Vice
President - Import Division from December 2001 to September 2004. Mr. Spece was Vice President - Import Division from the time
he joined the Company in 1997 until December 2001.
Sekar Sundararajan has been Executive Vice President - Operations since February 2008. Prior to joining the Company, Mr.
Sundararajan was President of Libra Consulting, an operations and supply chain management consulting firm focusing on the home
furnishings and consumer goods industries from 1996 to 2008. In this capacity, he provided consulting services to the Company
beginning in April 2007.
Raymond T. Harm has been Senior Vice President - Sales since joining the Company in 1999. Prior to joining the Company, Mr.
Harm served as Vice President - Sales for The Barcalounger Company, a manufacturer of upholstered motion furniture from 1992 to
1999.
15
Hooker Furniture Corporation
Part II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our stock is traded on the NASDAQ Global Select Market under the symbol “HOFT”. The table below sets forth the high and low
sales prices per share for our common stock and the dividends per share paid by Hooker with respect to our common stock for the
periods indicated.
Sales Price Per Share
High
Low
$19.20
$24.00
February 4, 2008 – May 4, 2008 .............................................
May 5, - August 3, 2008 ........................................................... 21.94 15.80
August 4 – November 2, 2008 ................................................. 20.59 8.35
November 3 – February 1, 2009 ............................................. 10.09 5.64
Dividends
Per Share
$0.10
0.10
0.10
0.10
October 29, 2007 – February 3, 2008
July 30 – October 28, 2007 ........................................................
April 30 – July 29, 2007 ............................................................
January 29 – April 29, 2007 ......................................................
22.37
22.36
25.10
22.29
16.55
15.52
19.39
14.70
0.10
0.10
0.10
0.10
December 1, 2006 – January 28, 2007 .......................................
15.86
14.39
As of February 28, 2009, our company had approximately 2,450 beneficial shareholders. We pay dividends on our common stock on
or about the last day of February, May, August and November, when declared by the Board of Directors, to shareholders of record
approximately two weeks earlier. Although we presently intend to continue to declare cash dividends on a quarterly basis for the
foreseeable future, the determination as to the payment and the amount of any future dividends will be made by the Board of Directors
from time to time and will depend on our then-current financial condition, capital requirements, results of operations and any other
factors then deemed relevant by the Board of Directors.
16
Performance Graph
The following graph compares cumulative total shareholder return for the Company with a broad performance indicator, the
Russell 2000® Index, and an industry index, the Household Furniture Index, for the period from November 30, 2003 to February 1,
2009. The Household Furniture Index combines all home furnishings companies whose securities are registered with the SEC under
the Securities Exchange Act.
Comparison of Cumulative Total Return (1)
$160
$140
$120
$100
$80
$60
$40
$20
$0
11/30/2003
11/30/2004
11/30/2005
11/30/2006
1/28/2007
2/3/2008
2/1/2009
Hooker Furniture Corporation (2)
Russell 2000 Index (3)
Household Furniture Index (4)
(1) The graph shows the cumulative total return on $100 invested at the beginning of the measurement period in the Company’s
Common Stock or the specified index, including reinvestment of dividends.
(2) On August 29, 2006, the Company approved a change in its fiscal year. After the fiscal year ended November 30, 2006, the
Company’s fiscal year ends on the Sunday nearest to January 31. Information regarding the change in the Company’s fiscal year
is available in the Company’s Form 8-K filed September 1, 2006. In making the transition to a new fiscal year, the Company
completed a two-month transition period that began December 1, 2006 and ended January 28, 2007. The Company’s fiscal years
ended February 1, 2009, February 3, 2008 and the transition period are reflected in the Performance Graph.
(3) The Russell 2000® Index, prepared by Frank Russell Company, measures the performance of the 2,000 smallest companies out of
the 3,000 largest U.S. companies based on total market capitalization.
(4) The Household Furniture Index (SIC Codes 2510 and 2511) as prepared by Zack’s Investment Research. On March 6, 2009,
Zacks Investment Research reported that the Household Furniture Index consisted of: Bassett Furniture Industries, Inc.,
Chromcraft Revington, Inc., Ethan Allen Interiors Inc., Flexsteel Industries, Inc., Furniture Brands International, Inc., Hooker
Furniture Corporation, La-Z-Boy Incorporated, Natuzzi S.p.A, Tempur Pedic International, Inc., Leggett and Platt, Inc., Sealy
Corp., Select Comfort Corp. and Stanley Furniture Company, Inc.
17
ITEM 6. SELECTED FINANCIAL DATA
On August 29, 2006, Hooker Furniture approved a change in our fiscal year. After the fiscal year that ended November 30, 2006, our
fiscal years will end on the Sunday closest to January 31. The following selected financial data for each of our last five fiscal years
and for the two-month transition period ended January 28, 2007 has been derived from our audited, consolidated financial statements.
The selected financial data should be read in conjunction with the Consolidated Financial Statements, including the related Notes, and
Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report.
For The
For The
For The Two
52 Weeks Ended 53 Weeks Ended Months Ended For The Twelve Months Ended
February 1,
2009(1)(2)
February 3,
2008 (1)(2)
January 28, Nov. 30, Nov. 30, Nov. 30,
2007
2006
2005
2004
(In thousands, except per share data)
Income Statement Data (3):
$261,162
Net sales .......................................................................
Cost of sales .................................................................. 200,878
Gross profit ................................................................... 60,284
Selling and administrative expenses ............................. 45,980
ESOP termination compensation charge (4) .................
(951)
Restructuring (credits) charges (5) ................................
Goodwill and intangible asset impairment charges (6) .
4,914
Operating income (loss) ................................................ 10,341
Other income (expense), net ......................................... 323
Income (loss) before income taxes ............................... 10,664
Income taxes ................................................................. 3,754
6,910
Net income (loss) ..........................................................
Per Share Data:
$ 0.62
Basic and diluted earnings per share (7) .......................
0.40
Cash dividends per share ..............................................
12.06
Net book value per share (6) .........................................
Weighted average shares outstanding ........................... 11,060
Balance Sheet Data:
Cash and cash equivalents ............................................
Trade accounts receivable .............................................
Inventories ....................................................................
Assets held for sale (8) .................................................
Working capital ............................................................
Total assets ...................................................................
Long-term debt (including current maturities) ..............
Shareholders’ equity .....................................................
91,261
153,467
5,218
129,710
$11,804
30,261
60,248
$316,801
235,057
81,744
51,738
309
29,697
1,472
31,169
11,514
19,655
$ 49,061
37,876
11,185
7,028
18,428
2,973
(17,244)
129
(17,115)
1,300
(18,415)
$350,026
269,681
80,345
50,680
$341,775 $345,944
262,889
83,055
50,285
265,051
76,724
50,319
6,881
5,250
1,604
22,784
(77)
22,707
8,569
14,138
21,155
(646)
20,509
8,024
12,485
31,166
(1,242)
29,924
11,720
18,204
$ (1.52)
$ 1.58
0.40
12.18
12.23
12,442 12,113
$ 1.18
0.31
13.49
11,951
$ 1.06
0.28
12.50
11,795
$ 1.56
0.24
11.60
11,669
$ 33,076
38,229
50,560
102,307
175,232
7,912
140,826
$ 47,085
37,744
62,803
3,475
127,193
202,463
10,415
162,310
$ 31,864
45,444
68,139
124,028
201,299
11,012
162,536
$ 16,365
43,993
68,718
1,656
110,421
189,576
13,295
148,612
$ 9,230
40,960
69,735
5,376
97,661
188,918
23,166
136,585
(1) On April 28, 2007, Hooker acquired substantially all of the assets of Bedford, Va.-based fabric upholstered seating specialist Sam Moore
Furniture. Shipments of Sam Moore upholstered furniture products accounted for $25.4 million in net sales for fiscal 2009 and for $20.8
million in net sales for fiscal 2008 following the acquisition.
(2) On December 14, 2007, we acquired the assets of Opus Designs Furniture, LLC, a specialist in imported moderately-priced youth bedroom
furniture. Shipments of Opus youth bedroom furniture products accounted for $5.6 million in net sales for fiscal 2009 and for $636,000 in
net sales for fiscal 2008 following the acquisition.
(3) Warehousing, distribution and certain supply chain and operations management expenses for periods prior to 2009 have been reclassified
from selling and administrative expense to cost of sales to conform to the 2009 method of presentation. Amounts reclassified in each
period presented were $16.8 million for fiscal 2009, $15.5 million for the fiscal 2008, $2.4 million for the two month period ended January
28, 2007, $20.9 million for fiscal 2006, $15.2 million for fiscal 2005 and $12.4 million for fiscal 2004.
(4) On January 26, 2007, we terminated our ESOP. The termination resulted in an $18.4 million non-cash, non-tax deductible charge to
earnings in January 2007.
(5) We have closed facilities in order to reduce and ultimately eliminate our domestic wood furniture manufacturing capacity. As a result, we
recorded restructuring charges, principally for severance and asset impairment, as follows:
a)
b)
c)
d)
e)
in fiscal 2009 we recorded after tax credits of $592,000 ($951,000 pretax), or $0.05 per share related to previously accrued
employee benefits and environmental costs not expected to be paid;
in fiscal 2008, we recorded after tax charges of $190,000 ($309,000 pretax), or $0.02 per share, principally related to the March
2007 closing and sale of our Martinsville, Va. manufacturing facility;
in the 2007 two-month transition period, we recorded after tax charges of $1.8 million ($3.0 million pretax), or $0.15 per share,
principally for severance and related benefits for salaried and hourly employees related to the planned closing of our Martinsville,
Va. manufacturing facility;
in fiscal 2006, we recorded after tax charges of $4.3 million ($6.9 million pretax), or $0.36 per share, principally related to the
planned closing of our Martinsville, Va. manufacturing facility and the closing of our Roanoke, Va. facility;
in fiscal 2005, we recorded after tax charges of $3.3 million ($5.3 million pretax), or $0.28 per share, principally related to the
closing of our Pleasant Garden, N.C. facility;
18
f)
in fiscal 2004, we recorded after tax charges of $994,000 ($1.6 million pretax), or $0.09 per share, principally related to the
closing of our Maiden, N.C. facility.
(6)
In the fiscal 2009 fourth quarter we completed our annual impairment assessment of goodwill and other intangible assets. As a
consequence of the assessment, we recorded asset impairment charges of $2.5 million ($3.8 million, pretax), or $0.22 per share, primarily
related to the write-off of goodwill resulting from the acquisition of Opus Designs in 2007 and of Bradington-Young in 2003, and $685,000
($1.1 million pretax) or $0.06 per share to write down the Bradington-Young trade name.
(7) Net book value per share is derived by dividing (a) “shareholders’ equity” by (b) the number of common shares issued and outstanding,
(8)
excluding unearned ESOP and restricted shares, all determined as of the end of each fiscal period.
In connection with the closings of the Martinsville, Va. plant in March 2007, the Roanoke, Va. plant in August 2006, the Pleasant Garden,
N.C. plant in October 2005 and the Maiden, N.C. plant in October 2004, we reclassified substantially all of the related property, plant and
equipment to “assets held for sale.” The carrying value of these assets approximated fair value less anticipated selling expenses. We
completed the sale of the assets located in Martinsville, Va. in December 2007, the assets located in Roanoke, Va. in October 2006, the
assets located in Pleasant Garden, N.C. in May 2006 and the assets located in Maiden, N.C. in January 2005.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements,
including the related Notes, contained elsewhere in this annual report.
On August 29, 2006, Hooker approved a change in our fiscal year. After the fiscal year that ended November 30, 2006, our fiscal year
ends on the Sunday nearest to January 31. In addition, starting with the fiscal year that began January 29, 2007, we adopted quarterly
periods based on thirteen-week “reporting periods” (which will end on a Sunday) rather than quarterly periods consisting of three
calendar months. As a result, each quarterly period generally will be thirteen weeks, or 91 days, long. However, since our fiscal year
will end on the Sunday closest to January 31, in some years (generally once every seven years) the fourth quarter will be fourteen
weeks long and the fiscal year will consist of 53 weeks (e.g., the fiscal year that ended February 3, 2008 was 53 weeks). For more
information about the changes in our fiscal year and quarterly periods, please refer to our Form 8-K filed with the Securities and
Exchange Commission on September 1, 2006.
In connection with the change in our fiscal year, we completed a two-month transition period that began December 1, 2006 and ended
January 28, 2007 and filed a transition report on Form 10-Q for that period on March 16, 2007. The financial statements filed as part
of this annual report on Form 10-K include the:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
fifty-two week period that began February 4, 2008 and ended on February 1, 2009;
fifty-three week period that began January 29, 2007 and ended on February 3, 2008;
two-month transition period that began December 1, 2006 and ended January 28, 2007; and
twelve-month period that ended November 30, 2006. We did not recast the financial statements for the twelve-month period
ended November 30, 2006, principally because the financial reporting processes in place for that period included certain
procedures that were completed only on a quarterly basis. Consequently, to recast that period would have been impractical
and would not have been cost-justified.
For fiscal year 2009 we reclassified warehousing and distribution and operations management expenses from selling and
administrative expenses to cost of sales in our consolidated financial statements and accompanying notes. Accordingly, these costs
have also been reclassified for prior periods to conform to the current year’s method of presentation. We reclassified $16.8 million for
fiscal 2009 and $15.5 million for fiscal 2008.
Overview
We have seen a growing consumer preference for lower-priced, high-quality imported furniture products since 2001. Led by the
change in consumer demand, from 2003 to 2008 we systematically increased our reliance on high-quality imported home furnishings
with a coordinated exit from domestic wood furniture manufacturing. We closed our last domestic wood manufacturing plant during
the 2008 first quarter. Following the sale of all manufacturing assets no longer needed in the business and the reduction in the
workforce of approximately 2,000 wood manufacturing employees, we have replaced a domestic operating model for wood furniture,
which had high overhead and high fixed costs, with a low overhead, variable cost import model.
Since 2006, our business has been impacted by low levels of consumer confidence and a weak housing market. By late 2008, the
economic malaise, exacerbated by weak credit markets, had spread to the broader U.S. economy. As a result, the residential home
furnishings industry has seen an unprecedented decline in demand for its products.
19
Results of operations for the 52 weeks ended February 1, 2009 and the fifty-three weeks ended February 3, 2008 reflect our
transformation into a home furnishings design, marketing and logistics company with world-wide sourcing capabilities. We are now
focused on imported wood and metal furniture, as well as both domestically produced and imported upholstered home furnishings.
In early 2007, we completed the acquisition of substantially all of the assets of Sam Moore Furniture Industries, Inc., a Bedford,
Virginia manufacturer of upscale occasional chairs with an emphasis on fabric-to-frame customization in the upper-medium to high-
end price niches. We began operating the business as Sam Moore Furniture LLC during the fiscal 2008 second quarter. On December
14, 2007, we completed our acquisition of certain assets of Opus Designs Furniture, LLC, a specialist in moderately-priced imported
youth furniture. We have integrated this business with our existing imported wood and metal furniture business and now offer this
brand to customers as Opus Designs by Hooker.
Because fiscal 2009 included four fewer shipping days than fiscal 2008, management’s discussion of results of operations includes
information regarding profitability performance as a percentage of net sales and daily average sales rates.
Following are the principal factors that impacted our results of operations during the 52-week period ended February 1, 2009:
(cid:120)
Based on operating days in each period and excluding discontinued, domestically produced wood furniture, average daily net
sales declined 15.1% during the 251-day 2009 fiscal year compared to the 255-day 2008 fiscal year. The decline in average
daily net sales mirrors the year-over-year decline in incoming order rates we have experienced since the fiscal 2006 third
quarter resulting from an industry-wide slow down in business at retail.
(cid:120) Operating margin during the 2009 fiscal year compared with the 2008 fiscal year was negatively impacted by a decrease in
gross profit margin, an increase in selling and administrative expenses as a percentage of sales, and impairment charges
incurred in fiscal 2009.
We experienced an erosion of gross profit margin to 23.1% of net sales compared with 25.8% in the prior fiscal year, largely due to an
increase in direct costs as a percentage of net sales, resulting from:
(cid:120)
(cid:120)
(cid:120)
higher prices from virtually all suppliers of imported products,
higher ocean freight costs, including fuel surcharges, higher upholstery material costs, and
increased warehousing expense from the addition of two facilities in Asia, and the West Coast Service Center in California.
Selling and administrative expenses increased as a percentage of net sales, due to lower net sales. However, these expenses actually
declined by $5.8 million, or 11.1%, driven primarily by:
(cid:120)
(cid:120)
lower selling and compensation expenses, and
lower professional fees and lower contributions expense, due to the donation of the High Point showrooms in fiscal 2008.
These cost reductions were partially offset by higher allowance for bad debts and costs incurred to introduce the Opus Designs by
Hooker product line to our customer base.
Finally, we recorded $4.9 million in asset impairment charges during the 2009 fourth quarter, including
(cid:120)
(cid:120)
the elimination of all goodwill related to Bradington-Young and Opus Designs by Hooker Youth Furniture lines and
a partial write down the carrying value of the Bradington-Young trade name.
20
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items for the annual periods included in the
consolidated statements of income:
Fifty-Two
Fifty-Three
Weeks Ended Weeks Ended Months Ended
February 3,
November 30,
2008
February 1,
Twelve
2006
2009
Net sales.....................................................................................
Cost of sales ...............................................................................
Gross profit ................................................................................
Selling and administrative expenses ..........................................
Restructuring (credits) charges ..................................................
Goodwill and intangible asset impairment charges ...................
Operating income .....................................................................
Other income (expense), net ......................................................
Income before income taxes ......................................................
Income taxes ..............................................................................
Net income .................................................................................
100.0%
76.9
23.1
17.6
(0.4)
1.9
4.0
0.1
4.1
1.5
2.6
100.0%
74.2
25.8
16.3
0.1
9.4
0.5
9.8
3.6
6.2
100.0%
77.0
23.0
14.5
2.0
6.5
6.5
2.5
4.0
Fiscal 2009 Compared to Fiscal 2008
For fiscal 2009, Hooker Furniture reported net sales of $261.2 million, a decrease of $55.6 million, or 17.6%, compared to $316.8
million in fiscal 2008. Net sales of our wood and metal furniture decreased $48.7 million, or 20.6%, to $188.2 million during fiscal
2009 compared to net sales of $236.9 million in fiscal 2008, principally due to lower unit volume. The decline in wood and metal
furniture unit volume was attributed to a sharp decline in sales as a result of the industry-wide slow down in business at retail and
lower shipments of discontinued domestically produced wood furniture.
Based on operating days in each period, and excluding the impact of discontinued, domestically produced wood furniture, average
daily net sales declined 15.1% to $1.0 million per day during the 251-day 2009 fiscal year, compared to $1.2 million per day during
the 255-day 2008 fiscal year. We experienced lower average daily unit volume shipments overall and in every product category,
except youth bedroom and upholstered seating, which increased due to the acquisition of Opus Designs in December 2007 and the
inclusion of a full year of sales for Sam Moore, which was acquired in April 2007.
Overall, average selling prices declined significantly. The primary contributors to the overall decline were;
(cid:120)
(cid:120)
the sharp drop in the average selling price of upholstered furniture. This drop was due to the increased proportion of
upholstery sales of less expensive, predominantly fabric-covered products manufactured by Sam Moore, which was in its
first full year as a Hooker subsidiary, and
the impact of our exit from the domestic wood and metal furniture business.
The unit volume of higher priced domestically produced wood products was partially replaced by lower priced imports. The
remaining domestic wood products were heavily discounted during fiscal 2009. The average selling price for imported wood and
metal furniture decreased due to heavier discounting in a challenging market and the mix of products shipped. Bradington-Young’s
imported and domestically produced leather upholstered furniture showed higher average selling prices while Sam Moore’s average
prices declined in both categories.
Gross profit margin for fiscal 2009 decreased to 23.1% of net sales compared to 25.8% in fiscal 2008, primarily due to:
(cid:120)
(cid:120)
(cid:120)
increased product and shipping and warehousing costs,
lower fixed cost absorption due to lower sales of domestically produced upholstered furniture, and
higher warehousing and distribution expenses due to the addition of two facilities in China and one in California.
These costs were partially offset by lower salary and benefit expenses resulting from staff reductions at our Bradington-Young and
domestic wood and metal furniture operations.
21
For fiscal 2009, selling and administrative expenses decreased $5.8 million, or 11.1%, to $46.0 million, compared with $51.7 million
in 2008, due to:
(cid:120)
(cid:120)
last year’s donation of two former Bradington-Young’s showrooms to a local university, and
lower selling expenses, professional fees and administrative payroll costs.
These costs were partially offset by higher bad debt expenses.
As a percentage of net sales, selling and administrative expenses increased to 17.6% in fiscal 2009 from 16.3% in fiscal 2008, due to
lower net sales in the current year.
During fiscal 2009, we recorded $4.9 million ($3.1million after tax, or $0.28 per share) in goodwill and intangible asset impairment
charges, principally related to:
(cid:120)
(cid:120)
(cid:120)
a write-off of $1.4 million in goodwill resulting from the 2007 acquisition of Opus Designs
a write-off of $2.4 million in goodwill remaining from the Company’s purchase of Bradington-Young in 2003;
an impairment charge of $1.1 million in the value of the Bradington-Young trade name.
We also recorded restructuring credits of $951,000 ($592,000 after tax or $0.05 per share) in fiscal 2009 for previously accrued employee
benefits and environmental costs not expected to be paid.
During fiscal 2008, we recorded $309,000 ($190,000 after tax, or $0.02 per share) in restructuring and asset impairment charges (net
of restructuring credits).
Our operating income margin for fiscal 2009 decreased to 4.0% of net sales, compared to operating income margin of 9.4% of net sales for
fiscal 2008, principally due to:
(cid:120)
(cid:120)
(cid:120)
the $3.7 million increase in restructuring and goodwill and intangible asset impairment costs;
the decrease in gross profit margin to 23.1% from 25.8%; and
the increase in selling and administrative expenses as a percentage of net sales to 17.6% in 2009 compared to 16.3% in fiscal
2008, due to the decline in sales (although these costs decreased $5.8 million or 11.1%).
Excluding the effect of restructuring and goodwill and intangible asset impairment charges, operating profitability in fiscal 2009 still
declined year over year compared to fiscal 2008, primarily as a result of lower gross profit margins on our imported wood and metal
furniture and domestic and imported upholstered furniture. The following table reconciles operating income as a percentage of net
sales ("operating margin") to operating margin excluding these charges (“restructuring and special charges”) as a percentage of net
sales for each period:
Fifty-Two
Weeks Ended
February 1,
2009
Fifty-Three
Weeks Ended
February 3,
2008
Operating margin, including restructuring and special
charges ....................................................................................
Goodwill and intangible asset impairment charges ...................
Donation of two showrooms ......................................................
Restructuring (credits) charges ..................................................
Operating margin, excluding restructuring and special charges
4.0%
1.9
(0.4)
5.5%
9.4%
0.3
0.1
9.8%
The operating margin excluding the impact of restructuring charges and special charges is a “non-GAAP” financial measure. We provide
this information because we believe it is useful to investors in evaluating our ongoing operations. Non-GAAP financial measures are
intended to provide insight into selected financial information and should be evaluated in the context in which they are presented. These
measures are not intended to reflect our overall financial results.
Other income, net was $323,000, or 0.1% of net sales, for fiscal 2009, compared to other income, net of $1.5 million for fiscal 2008,
primarily the consequence of a decrease in interest income from lower interest rates and lower cash balances.
Our effective tax rate decreased to 35.2% for fiscal 2009, compared to 36.9% for fiscal 2008. The decrease was principally a result of
an increase in non-cash charitable contributions of finished furniture as a percentage of pretax income and lower net cost related to our
captive insurance program.
22
Net income for fiscal 2009 declined by 64.8%, or $12.8 million, to $6.9 million, or $0.62 per share, from $19.7 million, or $1.58 per
share, for fiscal 2008. As a percent of net sales, net income decreased to 2.6% in fiscal 2009 compared to 6.2% for fiscal 2008.
Fiscal 2008 Compared to Fiscal 2006
For fiscal 2008, we reported net sales of $316.8 million, a decrease of $33.2 million, or 9.5%, compared to $350.0 million in fiscal
2006. Net sales of our wood and metal furniture decreased $50.2 million, or 17.5%, to $236.9 million during fiscal 2008 compared to
net sales of $287.1 million in fiscal 2006, principally due to lower unit volume. The decline in wood and metal furniture unit volume
was attributed to a sharp decline in discontinued domestically produced wood furniture sales and an industry-wide slow down in
business at retail. We experienced lower average daily unit volume on shipments overall and in every product category except
Bradington-Young imported leather upholstery, which experienced a slight increase in fiscal 2008, compared to fiscal 2006. Sam
Moore fabric upholstery sales amounted to $20.8 million for the three quarters since it was acquired at the beginning of the fiscal 2008
second quarter.
Based on actual shipping days in each period, average daily net sales declined 10.6% to $1.2 million per day during the 255-day 2008
fiscal year compared to $1.4 million per day during the 252-day 2006 fiscal year.
Overall, average selling prices declined slightly. The primary contributor to the overall decline was the sharp decline in domestically
produced wood furniture average selling prices, principally due to sharp discounting offered on these discontinued products. We
experienced slight increases in average selling prices for imported wood and metal and Bradington-Young imported and domestically
produced leather upholstered furniture. Average selling prices for imported wood and metal furniture during fiscal year 2008
increased in part due to the mix of products shipped and lower discounting, compared to fiscal year 2006. While average selling
prices per unit for both Bradington-Young domestically produced and imported leather upholstered furniture increased, Bradington
Young’s overall per unit average selling price declined slightly, due to the higher proportion of imported products shipped.
Gross profit margin for fiscal 2008 increased to 25.8% of net sales compared to 23.0% in fiscal 2006, principally due to the larger
proportion of sales of higher margin imported products and the lower delivered cost of those products as a percentage of net sales, as
well as to reductions in temporary warehousing and storage costs for imported wood furniture products.
For fiscal 2008, selling and administrative expenses increased $1.1 million, or 2.1%, to $51.7 million compared with $50.7 million in
2006. The increase is principally due to the selling and administrative expenses incurred by Sam Moore and a $1.1 million charitable
contribution for the donation of two former Bradington-Young showrooms to a local university. These cost increases were offset by
lower early retirement and non-cash ESOP costs, lower selling expenses and a gain on the settlement of a corporate-owned life
insurance policy in connection with the death of a former Hooker executive. As a percentage of net sales, selling and administrative
expenses increased to 16.3% in fiscal 2008 from 14.5% in fiscal 2006, due to lower net sales in the current year.
During fiscal 2008, we recorded $309,000 ($190,000 after tax, or $0.02 per share) in restructuring and asset impairment charges (net
of restructuring credits), including:
(cid:120)
(cid:120)
$553,000 for additional asset impairment, disassembly and exit costs associated with the closing of the Martinsville, Va. domestic
wood manufacturing facility in March 2007; net of
a restructuring credit of $244,000, principally for previously accrued health care benefits for terminated employees at the former
Pleasant Garden, N.C., Martinsville, Va. and Roanoke, Va. facilities that are not expected to be paid.
During fiscal 2006, we recorded $6.9 million ($4.3 million after tax, or $0.36 per share) in restructuring and asset impairment charges
(net of restructuring credits).
Our operating income margin for fiscal 2008 increased to 9.4% of net sales, compared to operating income margin of 6.5% of net sales for
fiscal 2006, principally due to:
(cid:120)
(cid:120)
(cid:120)
the $6.6 million, or 95.5%, decrease in restructuring and asset impairment costs;
the increase in gross profit margin to 25.8% from 23.0%; partially offset by
the increase in selling and administrative expenses as a percentage of net sales to 16.3% in 2008 compared to 14.5% in fiscal
2006, due to the decline in sales, but also to the addition of Sam Moore and the large donation of property to a local
university.
23
Excluding the effect of restructuring and asset impairment charges and the December 2007 donation of the two former Bradington-
Young showrooms, operating profitability in fiscal 2008 improved year over year compared to fiscal 2006, principally as a result of
higher gross profit margins on our imported wood and metal furniture. The following table reconciles operating income as a
percentage of net sales ("operating margin") to operating margin excluding these charges (“restructuring and special charges”) as a
percentage of net sales for each period:
Fifty-Three
Weeks Ended
February 3,
2008
Twelve Months
Ended
November 30,
2006
Operating margin, including restructuring and special
charges ....................................................................................
Donation of two showrooms ......................................................
Restructuring charges ................................................................
Operating margin, excluding restructuring and special
charges ....................................................................................
9.4%
0.3
0.1
9.8%
6.5%
2.0
8.5%
The operating margin excluding the impact of restructuring charges and the showrooms donation is a “non-GAAP” financial measure. We
provide this information because we believe it is useful to investors in evaluating our ongoing operations. Non-GAAP financial measures
are intended to provide insight into selected financial information and should be evaluated in the context in which they are presented. These
measures are not intended to reflect our overall financial results
Other income, net was $1.5 million, or 0.5% of net sales, for fiscal 2008 compared to other expense, net of $77,000 for fiscal 2006. This
improvement was the result of an increase in interest income earned on higher cash and cash equivalent balances and a decrease in interest
expense on lower debt levels.
Our effective tax rate decreased to 36.9% for fiscal 2008 compared to 37.7% for fiscal 2006. The effective rate declined in fiscal 2008
principally due to the tax effect of the ESOP. In fiscal 2008, we reversed previously recorded income tax expense related to our ESOP
in connection with the settlement of an IRS audit. In addition, we recorded no ESOP compensation cost during the current year period
after the termination of that plan in January 2007. The effective rate also declined during the current year period due to the non-
taxable gain recorded on the settlement of a corporate owned life insurance policy discussed previously, and lower assessments under
our captive insurance arrangement compared to fiscal 2006. These declines were partially offset by an increase in our effective state
income tax rate, principally attributed to California state income taxes incurred as a result of opening the new West Coast distribution
center.
Net income for fiscal 2008 rose by 39.0%, or $5.5 million, to $19.7 million, or $1.58 per share, from $14.1 million, or $1.18 per share,
for fiscal 2006. As a percent of net sales, net income increased to 6.2% in fiscal 2008 compared to 4.0% for fiscal 2006.
24
Fiscal 2007 Two-Month Transition Period Compared to Fiscal 2006 First Quarter
The following table sets forth the percentage relationship to net sales of certain items included in the consolidated statements of
operations.
Two Months
Ended
January 28,
2007
Three Months
Ended
February 28,
2006
Net sales...................................................................................................
Cost of sales .............................................................................................
Gross profit ..............................................................................................
Selling and administrative expenses ........................................................
ESOP termination compensation charge .................................................
Restructuring and related asset impairment charges ................................
Operating (loss) income ...........................................................................
Other income, net ....................................................................................
(Loss) income before income taxes .........................................................
Income taxes ............................................................................................
Net (loss) income .....................................................................................
100.0%
77.2
22.8
14.2
37.6
6.1
(35.1)
0.3
(34.9)
2.7
(37.5)
100.0%
78.8
21.2
14.2
0.2
6.8
6.8
2.6
4.2
Net sales for the 2007 two-month transition period ended January 28, 2007 were $49.1 million and were $85.3 million for the fiscal
2006 three-month period. Based on actual shipping days in each period, average daily net sales declined 5.8% to $1,258,000 per day
during the 39-day fiscal 2007 transition period compared to $1,335,400 per day during the 42-day operating period from December 1,
2005 through January 31, 2006 and 8.6% from $1,376,400 per day during the 62-day fiscal 2006 first quarter.
Average daily net sales increased for imported wood, metal and upholstered furniture for the 2007 transition period compared to the fiscal
2006 first quarter, principally due to slightly higher unit volume. This increase was offset by a continued decline in average daily net
sales rates for domestically manufactured wood furniture and a moderate decline in average daily net sales rates for domestically
produced upholstered furniture.
Overall average selling prices decreased slightly for wood, metal and upholstered furniture during the 2007 two-month transition
period compared with the fiscal 2006 first quarter, principally due to higher sales discounting offered on overstocked and discontinued
domestically produced wood furniture products, as well as a small decline in domestic upholstered furniture selling prices, partially
offset by increases in imported wood and upholstered furniture average selling prices. Average number of units sold per day declined
during the 2007 two-month transition period compared to the fiscal 2006 first quarter. Average per-day unit sales for imported wood
and metal and upholstered furniture increased slightly, while average daily per unit sales for domestic upholstered furniture declined
moderately and domestic wood and metal furniture average per-day unit sales declined sharply.
Gross profit margin increased to 22.8% of net sales in the 2007 two-month transition period compared to 21.2% in the fiscal 2006 first
quarter. This improvement was the result of an increase in the gross profit margin for wood and metal furniture, partially offset by a
decline in the gross profit margin for upholstered furniture. The increase in gross profit margin on wood and metal furniture was
principally due to an increased proportion of sales of imported wood, metal and upholstered furniture and was partially offset by a
significantly lower gross profit margin on domestically produced wood furniture. Gross profit margin on domestically produced wood
furniture declined as production costs as a percentage of net sales increased in the 2007 two-month transition period compared, to the
fiscal 2006 first quarter, principally due to lower production levels.
Bradington-Young’s gross profit margin decline for the 2007 two-month transition period versus the fiscal 2006 first quarter was
principally due to lower production levels.
Selling and administrative expenses, as a percentage of net sales, were 14.2% in the 2007 two-month transition period and the fiscal
2006 first quarter.
On January 29, 2007, we announced that we had terminated our ESOP, effective January 26, 2007. The termination resulted in an
$18.4 million, non-cash, non-tax deductible charge to earnings in January 2007 with an offsetting increase in shareholders’ equity. As
a result of the ESOP termination, approximately 1.2 million shares of previously unallocated shares of Company common stock held
by the ESOP were allocated to eligible employees, resulting in the $18.4 million charge to operating income. To effect the
termination of the ESOP, we redeemed and retired approximately 1.2 million of the shares of Company common stock held by the
ESOP, with proceeds to the ESOP of $17.2 million (or $15.01 per share). The ESOP used the proceeds to repay the outstanding
balance on the ESOP loan.
25
Through November 30, 2006, we recorded non-cash ESOP cost for the number of shares that we committed to release to eligible
employees at the average closing market price of our common stock during the period. During the 2007 two-month transition period,
except for the effect of the ESOP termination discussed above, no shares were committed to be released. As a result, no non-cash
ESOP cost was recorded during the 2007 two-month transition period. We recorded $636,000 in non-cash ESOP cost during the 2006
first quarter. The cost of the plan was allocated to cost of sales and selling and administrative expenses based on employee
compensation.
During the 2007 two-month transition period, we recorded aggregate restructuring and asset impairment charges of $3.0 million ($1.8
million after tax, or $0.15 per share), principally for severance and related benefits for approximately 280 hourly and salaried employees
that were terminated ($2.3 million) and additional asset impairment charges for the expected costs to sell the real and personal property of
the Martinsville, Va. manufacturing facility ($655,000).
In the 2006 first quarter, we recorded restructuring charges of $188,000 ($117,000 after tax, or $0.01 per share) to prepare the Pleasant
Garden, N.C. manufacturing facility for sale and for additional asset impairment related to the closing of this facility.
Principally due to the ESOP termination and restructuring and asset impairment charges, we incurred an operating loss for the 2007 two-
month transition period of $17.2 million, or 35.1% of net sales, compared to operating income of $5.8 million, or 6.8% of net sales in the
2006 first quarter.
Excluding the effect of the ESOP termination and restructuring and asset impairment charges, operating profitability as a percentage
of net sales during the transition period improved when compared to the three month first quarter of fiscal 2006. The following table
reconciles operating results as a percentage of net sales (“operating margin”) to operating margin excluding ESOP termination charges
and restructuring and asset impairment charges (“restructuring charges”) as a percentage of net sales for each period:
Two Months
Ended January 28,
2007
Three Months
Ended February 28,
2006
Operating (loss) income margin, including ESOP termination
and restructuring charges ...................................................................
ESOP termination charges .......................................................................
Restructuring charges ..............................................................................
Operating margin, excluding ESOP termination and
(35.1)%
37.5
6.1
restructuring charges ..........................................................................
8.5%
6.8%
0.2
7.0%
Operating margin excluding the impact of the ESOP termination and restructuring charges is a “non-GAAP” financial measure. We
provide this information because we believe it is useful to investors in evaluating our operations. Non-GAAP financial measures are
intended to provide insight into selected financial information and should be evaluated in the context in which they are presented. These
measures are not intended to reflect our overall financial results
Other income, net increased to $129,000 in the 2007 two-month transition period from $13,000 in the 2006 first quarter. This improvement
was the result of an increase in interest income earned on higher cash and cash equivalent balances and a decrease in interest expense, due
to one less month of interest expense in the 2007 two-month transition period compared, to the three-month 2006 first quarter.
We recorded income tax expense of $1.3 million for the 2007 two-month transition period and $2.2 million for the 2006 first quarter.
Despite the net loss for the 2007 transition period, we incurred income tax expense in the transition period because the $18.4 million non-
cash ESOP termination charge was not tax deductible. In connection with the ESOP termination, we wrote-off the related deferred tax
asset in the amount of $855,000.
We incurred a net loss of $18.4 million, or $1.52 per share, for the 2007 two-month transition period and net income of $3.6 million, or
$0.30 per share, in the 2006 first quarter.
Financial Condition, Liquidity and Capital Resources
Balance Sheet and Working Capital
Total assets decreased $21.8 million to $153.5 million at February 1, 2009 from $175.2 million at February 3, 2008, principally as a
result of a $21.3 million decrease in cash and cash equivalents. A $9.7 million increase in inventories, a $1.3 million increase in the
26
cash surrender value of life insurance policies, and a $1.2 million increase in prepaid expenses and other current assets were offset by
an $8.0 million decrease in net receivables and the write- off of $4.9 million of goodwill and intangible assets from prior acquisitions.
Working capital decreased by $11.0 million to $91.3 million as of February 1, 2009, from $102.3 million at February 3, 2008,
principally as a result of decreases in cash and cash equivalents and receivables, offset by an increase in inventories, and prepaid
expenses and other current assets, and a decrease in current liabilities. Current liabilities decreased to $15.8 million at February 1,
2009, from $23.1 million at February 3, 2008 as a result of lower accounts payable, accrued salaries and accrued taxes. Our long-term
debt, including current maturities, decreased $2.7 million to $5.2 million on February 1, 2009, compared to $7.9 million on February
3, 2008 as a result of scheduled debt payments. Shareholders’ equity at February 1, 2009 decreased $11.1 million to $129.7 million
compared to $140.8 million on February 3, 2008, principally as a result of share repurchases during fiscal 2009.
Summary Cash Flow Information – Operating, Investing and Financing Activities
2009
Net cash provided by operating activities ............................................. $ 3,730
(3,752)
Net cash used in investing activities .....................................................
(21,250)
Net cash used in financing activities ....................................................
Net (decrease) increase in cash and cash equivalents .................. $(21,272)
2008
$ 43,825
(14,267)
(43,567)
$(14,009)
2007
$16,261
(443)
(597)
$15,221
2006
$23,805
(2,336)
(5,970)
$15,499
Fifty-Two
Fifty-Three Two months
Weeks Ended Weeks Ended Months Ended Months Ended
January 28 November 30,
February 1, February 3,
Twelve
We determined that in the Consolidated Statements of Cash Flows the cash payments related to our life insurance policies should be
reported as investing activities rather than operating activities, therefore we increased “net cash provided by operating activities” by
$167,000 in fiscal 2008, $46,000 in the 2007 two-month transition period, and $1.5 million in fiscal 2006, with a corresponding
increase in “net cash used in investing activities” in each respective period. We reviewed the impact of this error on the prior periods
in accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and determined that the error was not material to the prior
periods.
During fiscal year 2009, cash generated from operations ($3.7 million) and a decrease in cash and cash equivalents ($21.3 million)
funded purchases of our common stock ($14.1 million), cash dividends ($4.5 million), payments on long-term debt ($2.7 million),
capital expenditures ($2.3 million) and life insurance premium payments ($1.3 million).
During fiscal year 2008, cash generated from operations ($43.8 million), a decrease in cash and cash equivalents ($14.0 million),
proceeds from the sale of property, plant and equipment ($3.7 million, principally from the sale of the Martinsville, Va. facility) and
proceeds received from certain life insurance policies ($1.2 million) funded purchases of our common stock ($36.0 million),
acquisitions ($15.8 million), cash dividends ($5.0 million), payments on long-term debt ($2.5 million), capital expenditures ($1.9
million) and life insurance premium payments ($1.4 million).
During the 2007 two-month transition period ended January 28, 2007, cash generated from operations ($16.3 million) funded a net
increase in cash and cash equivalents ($15.2 million), payments on long-term debt ($597,000) and investing activities ($443,000
principally for the purchase of property, plant and equipment, net).
During fiscal year 2006, cash generated from operations ($23.8 million) and proceeds from the sale of property, plant and equipment
($3.4 million principally from the sale of the Roanoke, Va. and Pleasant Garden, N.C. facilities) funded an increase in cash and cash
equivalents ($15.5 million), capital expenditures ($4.3 million), cash dividends ($3.7 million), payments on long-term debt ($2.3
million) and life insurance premium payments ($1.5 million).
In fiscal year 2009, cash generated from operations of $3.7 million decreased $40.1 million compared to $43.8 million in fiscal 2008.
The decrease was due to a $51.7 million decline in cash received from customers due to the decline in sales, partially offset by a $7.1
million decrease in cash payments to suppliers and employees (principally due to a lower purchases of imported products) and a $5.5
million decline in tax payments principally due to lower profitability. Despite lower inventory purchases in fiscal 2009, inventories
increased by $9.7 million in fiscal 2009 due to the natural lag between the decline in customer order rates and our reduction of orders
with our suppliers. We continue to modify our inventory plan in reaction to the steepening decline in demand, and expect to bring
inventory levels down over the next two to three months.
In fiscal year 2008, cash generated from operations of $43.8 million increased $20.0 million from $23.8 million in fiscal 2006. The
increase was due to a $50.6 million decline in payments to suppliers and employees (principally due to a decline in the purchase of
imported products) and a $1.3 million decrease in interest paid, net due to an increase interest income and a decline in interest
expense. The increase was partially offset by a $27.9 million decrease in cash received from customers and a $4.0 million increase in
income taxes paid, principally due to increased taxable income.
27
Investing activities consumed $3.8 million in fiscal year 2009 compared to consuming $14.3 million in fiscal 2008, $443,000 in the
2007 two-month transition period and $2.3 million in fiscal 2006. In fiscal 2009, we invested $2.3 million in property, plant and
equipment, $1.3 million for life insurance premium payments and $181,000 to complete the acquisition of Opus Designs. In fiscal
year 2008, the investments of $10.6 million to acquire Sam Moore, $5.3 million to acquire Opus Designs and the $1.9 million
investments in property, plant and equipment exceeded the $3.7 million in proceeds from the sale of property, plant and equipment
(principally from the sale of the Martinsville, Va. facility). We invested $443,000 in the 2007 transition period for capital
expenditures, net and premiums paid on life insurance policies. In fiscal 2006, the investment of $4.3 million in property, plant and
equipment and $1.5 million for life insurance premium payments exceeded the $3.4 million in proceeds from the sale of property,
plant and equipment (principally from the sale of the Roanoke, Va. and Pleasant Garden, N.C. facilities). Capital expenditures in
each period are to maintain and enhance our business operating systems and facilities and for the purchase of equipment and other
assets.
Financing activities consumed cash of $21.3 million in fiscal year 2009 compared to $43.6 million in fiscal 2008, $597,000 in the
2007 two-month transition period and $6.0 million in fiscal 2006. During fiscal year 2009, we expended cash of $14.1 million to
repurchase approximately 800,000 shares of Hooker common stock, which completes the share repurchase program originally
authorized in fiscal 2007. We also paid dividends of $4.5 million and made scheduled debt payments of $2.7 million. During fiscal
year 2008, we expended cash of $36.0 million for the repurchase of 1.7 million shares of Hooker common stock, cash dividends of
$5.0 million and $2.5 million for scheduled debt payments. During the 2007 transition period, we made a scheduled principal
repayment of $597,000 on our term loan. During fiscal 2006, we expended $2.3 million in cash for scheduled debt payments and cash
dividends of $3.7 million.
Swap Agreements
We are party to an interest rate swap agreement that in effect provides for a fixed interest rate of 4.1% through 2010 on our term loan.
In 2003, we terminated a similar swap agreement, which in effect provided a fixed interest rate of approximately 7.4% on that term
loan. Our $3.0 million payment to terminate the former swap agreement is being amortized over the remaining payment period of the
loan, resulting in an effective fixed interest rate of approximately 7.4% on the term loan. We are accounting for the interest rate swap
agreement as a cash flow hedge.
The aggregate fair market value of our swap agreement decreases when interest rates decline and increases when interest rates rise.
Overall, interest rates have declined since the inception of our swap agreement. The aggregate decrease in the fair market value of the
effective portion of the agreement of $142,000 ($229,000 pretax) as of February 1, 2009, $191,000 ($311,000 pretax) as of February
3, 2008 and $69,000 ($111,000 pretax) as of January 28, 2007 is reflected under the caption “accumulated other comprehensive loss”
in the consolidated balance sheets. See “Note 12 – Other Comprehensive Income (Loss)” to the Consolidated Financial Statements
included in this report. Substantially all of the aggregate pre-tax decrease in fair market value of the agreement is expected to be
reclassified into interest expense during the next twelve months.
Debt Covenant Compliance
The credit agreement for our revolving credit facility and outstanding term loan contains, among other things, financial covenants as
to minimum tangible net worth, debt service coverage, the ratio of funded debt to earnings before interest, taxes, depreciation,
amortization, non-cash charges and maximum capital expenditures. On February 19, 2009, we amended our credit facility with Bank
of America, N.A. The amendment, effective as of January 1, 2009 modified the definition of “Cash Flow” to exclude all non-cash
charges, including intangible asset impairment from the calculation of Cash Flow for purposes of the Company’s Debt Service
Coverage Ratio under the credit agreement; and increased the Commitment Fee and the fee for LIBOR Loans and Letters of Credit
under the credit agreement. All other terms were unchanged. We are in compliance with these covenants as of February 1, 2009.
Liquidity, Financial Resources and Capital Expenditures
As of February 1, 2009, we had an aggregate $12.6 million available under our revolving credit facility to fund working capital needs.
Standby letters of credit in the aggregate amount of $2.4 million, used to collateralize certain insurance arrangements and for imported
product purchases, were outstanding under our revolving credit facility as of February 1, 2009. There were no additional borrowings
outstanding under the revolving credit line on February 1, 2009. Any principal outstanding under the credit line is due March 1, 2011.
We believe that we have the financial resources (including available cash and cash equivalents, expected cash flow from operations,
and lines of credit) needed to meet business requirements for the foreseeable future, including capital expenditures, working capital,
dividends on our common stock, repurchases of common stock and repayments of outstanding debt. Cash flow from operations is
highly dependent on incoming order rates and our operating performance. We expect to spend $4 to $6 million in capital expenditures
during fiscal year 2009 to maintain and enhance our operating systems and facilities.
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Supplier Commitments
During fiscal 2009 we made advance payments to one of our finished goods suppliers against our purchase orders placed with that
supplier. The purpose of the advances was to facilitate the supplier’s purchase of raw materials in order to ensure timely delivery of
furniture shipments to us. The current balance of the advances is approximately $107,000. We also assisted the supplier in obtaining
additional bank financing by issuing a standby letter of credit in the amount of $600,000, which expires in July 2009, as security for
that financing. In conjunction with the issuance of the letter of credit, we entered into a security agreement with the supplier, which
provides us with a security interest in certain assets of the supplier and its shareholders. Our maximum exposure under the advances
and the standby letter of credit as of February 1, 2009 was approximately $707,000, which we believe to be adequately secured under
this arrangement.
Common Stock and Dividends
Since February 7, 2007, our Board of Directors has authorized the repurchase of $50 million of our common stock in a series of
repurchase authorizations, subject to the limitations of a trading plan under Rule 10b-5-1 of the Securities Exchange Act of 1934 and
certain board imposed guidelines. We completed these share repurchases in August 2008.
On January 15, 2009, awards totaling 10,474 shares of restricted common stock were granted to the five non-employee members of
the Board of Directors. Each award is subject to vesting requirements and other limitations in accordance with the Hooker Furniture
2005 Stock Incentive Plan.
On April 14, 2009, our Board of Directors declared a quarterly cash dividend of $0.10 per share, payable on May 29, 2009, to
shareholders of record May 15, 2009.
Commitments and Contractual Obligations
As of February 1, 2009, our commitments and contractual obligations were as follows:
Long-term debt (a) .........................................
Deferred compensation payments ..................
Operating leases .............................................
Other long-term liabilities .............................
Total contractual cash obligations ..............
Less than
1 Year
$3,026
393
1,432
2,179
$7,030
1-3 Years
$2,341
880
1,750
570
$5,541
$1,338
1,440
6
$2,784
$13,662
179
6
$13,847
Total
$ 5,367
16,273
4,801
2,761
$29,202
Payments Due by Period (In thousands)
More than
5 Years
3-5 Years
(a) Represents principal and estimated interest payments under our term loan.
Standby letters of credit in the aggregate amount of $2.4 million, used to collateralize certain insurance arrangements and for imported
product purchases, were outstanding under our revolving credit facility as of February 1, 2009. There were no additional borrowings
outstanding under the revolving credit line on February 1, 2009.
Strategy and Outlook
Our strategy is to offer world-class style, quality and product value as a complete residential wood, metal and upholstered furniture
resource through excellence in product design, global sourcing, manufacturing, logistics, sales, marketing and customer service. We
strive to be an industry leader in sales growth and profitability performance, thereby providing an outstanding investment for our
shareholders and contributing to the well-being of our employees, customers, suppliers and community neighbors. Additionally, we
strive to nurture the relationship-focused, team-oriented and honor-driven corporate culture that has distinguished our company for 85
years.
We have been executing this strategy since 2003 in part through:
(cid:120)
(cid:120)
exiting domestic wood furniture manufacturing to concentrate on imported wood and metal and domestically produced and
imported upholstered home furnishings;
expanding product offerings to become a more complete and important resource to our furniture retailers through the
acquisitions of upholstery manufacturers Bradington-Young LLC (2003) and Sam Moore LLC (2007), and in youth furniture
29
(cid:120)
(cid:120)
(cid:120)
lines through the purchase of Opus Designs LLC (2007) and by organically expanding the styles and price points offered in
existing product lines;
continuing to improve and expand our supply chain capabilities, with improvements in forecasting and demand-planning
software and stock keeping unit (“SKU”) optimization;
filling key leadership positions with people who have the skill sets and experience needed under our new business model; and
expanding regional distribution and service capabilities to our retailers on the U.S. West Coast through a leased facility
located in the port area of Southern California and all our container direct customers by adding warehousing at two important
suppliers’ plants in China.
As the general economy has deteriorated, we have experienced a steepening decline in year over year incoming order rates and expect
challenging conditions at least through our second fiscal quarter. We believe however, that the economy may have bottomed. We are
encouraged by recent small improvements in retail sales and housing and modest gains in the equity markets. We expect to see a
slight increase in consumer confidence by the third or fourth quarter if home values stabilize and the stock market continues to
rebound from its low point earlier this year.
Additionally, we are optimistic that our new product introductions and merchandising programs which we will be introducing at the
April 2009 Market will be seen by our retailers as opportunities to stimulate business and engage consumers. As a result, our
forecasting and inventory planning includes expectations for a marginal improvement in business this fall. We believe our financial
strength has become a key differentiator that is increasingly important to our customers and suppliers, who want to be aligned with
partners who can survive the current downturn, continue to invest for the future and help them emerge successfully. Our balance sheet
is strong, with good liquidity, little debt and no unutilized assets.
Environmental Matters
Hooker Furniture is committed to protecting the environment. As a part of our business operations, our manufacturing sites generate
non-hazardous and hazardous wastes; the treatment, storage, transportation and disposal of which are subject to various local, state
and national laws relating to protecting the environment. We are in various stages of investigation, remediation or monitoring of
alleged or acknowledged contamination at current or former manufacturing sites for soil and groundwater contamination and visible
air emissions, none of which we believe is material to our results of operations or financial position. Our policy is to record
monitoring commitments and environmental liabilities when expenses are probable and can be reasonably estimated. The costs
associated with our environmental responsibilities, compliance with federal, state and local laws regulating the discharge of materials
into the environment, or costs otherwise relating to the protection of the environment, have not had and are not expected to have a
material effect on our financial position, results of operations, capital expenditures or competitive position.
Critical Accounting Policies and Estimates
Hooker Furniture’s significant accounting policies are described in “Note 1 – Summary of Significant Accounting Policies” to the
consolidated financial statements beginning at page F-1 in this report. The preparation of financial statements in conformity with
U.S. generally accepted accounting principles requires us to make estimates and assumptions in certain circumstances that affect
amounts reported in the accompanying financial statements and related notes. In preparing these financial statements, we have made
our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality. We
do not believe that actual results will deviate materially from our estimates related to our accounting policies described below.
However, because application of these accounting policies involves the exercise of judgment and the use of assumptions as to future
uncertainties, actual results could differ materially from these estimates.
Allowance for Doubtful Accounts. We evaluate the adequacy of our allowance for doubtful accounts at the end of each quarter. In
performing this evaluation, we analyze the payment history of our significant past due accounts, subsequent cash collections on these
accounts and comparative accounts receivable aging statistics. Based on this information, along with consideration of the general
condition of the economy, we develop what we consider to be a reasonable estimate of the uncollectible amounts included in accounts
receivable. This estimate involves significant judgment and actual uncollectible amounts may differ materially from our estimate.
Valuation of Inventories. We value all of our inventories at the lower of cost (using the last-in, first-out (“LIFO”) method) or
market. LIFO cost for all of our inventories is determined using the dollar-value, link-chain method. This method allows for the more
current cost of inventories to be reported in cost of sales, while the inventories reported on the balance sheet consist of the costs of
inventories acquired earlier, subject to adjustment to the lower of cost or market. Hence, if prices are rising, the LIFO method will
generally lead to higher cost of sales and lower profitability as compared to the first-in, first-out (“FIFO”) method. We evaluate our
inventory for excess or slow moving items based on recent and projected sales and order patterns. We establish an allowance for
30
those items when the estimated market or net sales value is lower than their recorded cost. This estimate involves significant
judgment and actual values may differ materially from our estimate.
Restructuring and Impairment of Long-Lived Assets
Tangible Assets
Long-lived assets, such as property, plant and equipment, are evaluated for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the
use of those assets. When any such impairment exists, the related assets are written down to fair value. Long-lived assets to be
disposed of by sale are measured at the lower of their carrying amount or fair value less cost to sell, are no longer depreciated, and are
reported separately as “assets held for sale” in the consolidated balance sheets.
The costs to dispose of these assets are recognized when we commit to a plan of disposal. Severance and related benefits paid to
terminated employees affected by the closings are recorded in the period when management commits to a plan of termination. We
recognize liabilities for these exit and disposal activities at fair value in the period in which the liability is incurred. Asset impairment
charges related to the closure of facilities are based on our best estimate of expected sales prices, less related selling expenses for
assets to be sold. The recognition of asset impairment and restructuring charges for exit and disposal activities requires significant
judgment and estimates by management. We reassess our accrual of restructuring and asset impairment charges each reporting period.
Any change in estimated restructuring and related asset impairment charges is recognized in the period during which the change
occurs.
Goodwill and Other Intangible Assets
Goodwill represents the excess of the cost of an acquired business over the fair value of the identifiable tangible and intangible assets
acquired and liabilities assumed. We have also recorded the fair value of trade names and furniture designs assumed in business
combinations as assets on our balance sheet. Intangible assets with an estimable useful life, such as furniture designs are amortized
over their useful lives, while indefinite lived assets such as trade names are reported at the lower of cost or fair value. We test these
assets for impairment annually during our fiscal fourth quarter and at other times as dictated by business conditions or other facts and
circumstances. Adverse business developments, specific either to our company or industry or general economic conditions, could
create conditions under which we would evaluate the fair value of these business units compared to their carrying values, and if
impairment is indicated, write them down to a fair value based on their expected future cash flows or market value. To test goodwill
we apply the two step approach to identify potential impairment and, if impairment exists, to determine the appropriate carrying
values. We use a combination of the income and market approaches in valuing these assets and weight the results as appropriate to
each asset, and select discount rates, royalty rates and other factors which reflect current market conditions, business risk attributable
to each asset or business unit and recent transactions at comparable companies. To test trade names or trademarks we use the relief
from royalty method, which values the trade name based on comparable trade names in this and similar industries.
Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”)
No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” The
objective of this statement is to require enhanced disclosures about an entity’s derivative and hedging activities and to improve the
transparency of financial reporting. This statement changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This
statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial
adoption. We expect to adopt this standard effective with our fiscal year 2010 first quarter, which began February 2, 2009.
In December 2007, the FASB issued a revision to SFAS No. 141R, “Business Combinations”. The objective of this Statement is to
improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. To accomplish that, this statement establishes principles and
requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
31
December 15, 2008. Early adoption of this standard is not permitted. Consequently, we adopted the standard in our fiscal year 2010
first quarter, which began February 2, 2009. The adoption of SFAS 141R is not expected to have a material impact on our financial
position or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including
an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with FASB’s long-
term measurement objectives for accounting for financial instruments. This statement is effective as of the beginning of an entity’s
first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value
Measurements. Consequently, Hooker adopted the standard in our fiscal year 2009 first quarter, which began February 4, 2008. The
adoption of SFAS 159 did not have a material impact on our financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This statement defines fair value, establishes a
framework for measuring fair value under U.S. generally accepted accounting principles, and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this
statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Consequently, Hooker adopted the standard in our fiscal year 2009
first quarter, which began February 4, 2008. The adoption of SFAS 157 did not have a material impact on our financial position or
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Hooker Furniture is exposed to market risk from changes in interest rates and foreign currency exchange rates, which could impact our
results of operations and financial condition. We manage our exposure to these risks through our normal operating and financing
activities and through the use of interest rate swap agreements with respect to interest rates.
Our obligations under our lines of credit and term loan bear interest at variable rates. The outstanding balance under our term loan
amounted to $5.2 million as of February 1, 2009. We have entered into an interest rate swap agreement that, in effect, fixes the rate of
interest on our term loan at 4.1% through 2010. The notional principal value of the swap agreement is substantially equal to the
outstanding principal balance of the term loan. A fluctuation in market interest rates of one percentage point (or 100 basis points)
would not have a material impact on our results of operations or financial condition.
For imported products, we generally negotiate firm pricing denominated in U.S. Dollars with our foreign suppliers, for periods
typically of at least one year. We accept the exposure to exchange rate movements beyond these negotiated periods. We do not use
derivative financial instruments to manage this risk. Most of our imports are purchased from China. The Chinese currency now floats
within a limited range in relation to the U.S. Dollar, resulting in additional exposure to foreign currency exchange rate fluctuations.
Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar could increase the
price we pay for imported products beyond the negotiated periods. We generally expect to reflect substantially all of the effect of any
price increases from suppliers in the prices we charge for imported products. However, these changes could adversely impact sales
volume and profit margin during affected periods.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in Item 15(a), and which begin on page F-1, of this report are incorporated herein by reference and are
filed as a part of this report.
Certain Non-GAAP Financial Measures
In our Annual Report to Shareholders (of which this annual report on Form 10-K is a part), under the heading “Financial Highlights,”
we reported net income and earnings per share both including and excluding the impact of restructuring and asset impairment charges,
the January 2007 ESOP termination charge and the December 2007 charge related to the donation of two former Bradington-Young
showrooms. In this Form 10-K in Management’s Discussion and Analysis of Financial Condition and Results of Operations, under
32
the headings “Results of Operations Fiscal 2009 Compared to Fiscal 2008”, “Results of Operations Fiscal 2008 Compared to Fiscal
2006” and “Results of Operations Fiscal 2007 Two-Month Transition Period Compared to Fiscal 2006 First Quarter” we have reported
operating income margin both including and excluding the impact of restructuring and asset impairment charges, the January 2007
ESOP termination charge and the December 2007 charge related to the donation of two former Bradington-Young showrooms.
The net income, earnings per share and operating income margins figures excluding the impact of the items specified above are “non-
GAAP” financial measures. We provide this information because we believe it is useful to investors in evaluating our ongoing
operations. Non-GAAP financial measures provide insight into selected financial information and should be evaluated in the context
in which they are presented. These measures are of limited usefulness in evaluating our overall financial results presented in
accordance with GAAP and should be considered in conjunction with the consolidated financial statements, including the related
notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on their most recent review, which was made as of the end of our fourth quarter ended February 1, 2009, our principal
executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is accumulated and communicated to the Company’s management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide
reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission (“SEC”) rules and forms.
Management’s Annual Report on Internal Control over Financial Reporting
In accordance with Section 404 of the Sarbanes-Oxley Act and SEC rules thereunder, management has conducted an assessment of
our internal control over financial reporting as of February 1, 2009. Our report regarding that assessment is included with the
financial statements on page F-2 of this report and is incorporated herein by reference.
Report of Registered Public Accounting Firm
Our independent registered public accounting firm, KPMG LLP, audited the consolidated financial statements included in this annual
report on Form 10-K and have issued an audit report on the effectiveness of our internal control over financial reporting. Their report
is included with the financial statements on page F-4 of this report and is incorporated herein by reference.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting for our fourth quarter ended February 1, 2009, that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
33
Hooker Furniture Corporation
Part III
In accordance with General Instruction G (3) of Form 10-K, the information called for by Items 10, 11, 12, 13 and 14 of Part III is
incorporated by reference to the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders scheduled to be held
June 9, 2009 (the “2009 Proxy Statement”), as set forth below:
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information related to Hooker Furniture’s directors will be set forth under the caption “Election of Directors” in the 2009 Proxy
Statement and is incorporated herein by reference.
Information relating to compliance with Section 16(a) of the Exchange Act will be set forth under the caption “Section 16(a)
Beneficial Ownership Reporting Compliance” in the 2009 Proxy Statement and is incorporated herein by reference.
Information regarding material changes, if any, in the procedures by which shareholders may recommend nominees to the Hooker
Board of Directors will be set forth under the caption “Procedures for Shareholder Recommendations of Director Nominees” in the
2009 Proxy Statement and is incorporated herein by reference.
Information relating to the Audit Committee of the Company’s Board of Directors, including the composition of the Audit Committee
and the Board’s determinations concerning whether certain members of the Audit Committee are “financial experts” as that term is
defined under Item 407(d)(5) of Regulation S-K will be set forth under the captions “Board and Board Committee Information” and
“Audit Committee” in the 2009 Proxy Statement and is incorporated herein by reference.
Information concerning the executive officers of the Company is included in Part I of this report under the caption “Executive Officers
of Hooker Furniture Corporation.”
We have adopted a Code of Business Conduct and Ethics, which applies to all of our employees and directors, including the principal
executive officer, principal financial officer and principal accounting officer. A copy of our Code of Business Conduct and Ethics is
available on our website at www.hookerfurniture.com. Amendments of and waivers from our Code of Business Conduct and Ethics
will be posted to our website when permitted by applicable SEC and NASDAQ rules and regulations.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to this item will be set forth under the captions “Report of the Compensation Committee,” “Executive
Compensation” and “Director Compensation” in the 2009 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
SHAREHOLDER MATTERS
Information relating to this item will be set forth under the captions “Equity Compensation Plan Information” and “Security
Ownership of Certain Beneficial Owners and Management” in the 2009 Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information relating to this item will be set forth under the captions “Certain Relationships and Related Transactions” and “Board and
Board Committee Information” in the 2009 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information relating to this item will be set forth under the caption “Independent Registered Public Accounting Firm” in the 2009
Proxy Statement and is incorporated herein by reference.
34
Hooker Furniture Corporation
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
Documents filed as part of this report on Form 10-K:
(1)
The following financial statements are included in this report on Form 10-K:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of February 1, 2009 and February 3, 2008
Consolidated Statements of Operations for the fifty-two weeks ended February 1, 2009, the fifty-three weeks ended
February 3, 2008, the two-month transition period ended January 28, 2007 and the twelve months ended November 30,
2006
Consolidated Statements of Cash Flows for the fifty-two weeks ended February 1, 2009, the fifty-three weeks ended
February 3, 2008, the two-month transition period ended January 28, 2007 and the twelve months ended November 30,
2006
Consolidated Statements of Shareholders’ Equity for the twelve months ended November 30, 2006, the two-month
transition period ended January 28, 2007, the fifty-three weeks ended February 3, 2008 and the fifty-two weeks ended
February 1, 2009
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
(b)
3.1
3.2
4.1
4.2
4.3(a)
4.3(b)
4.3(c)
4.3(d)
Financial Statement Schedules have been omitted because the information required has been separately disclosed in the
consolidated financial statements or related notes.
Exhibits:
Amended and Restated Articles of Incorporation of the Company, as amended March 28, 2003 (incorporated by reference
to Exhibit 3.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter ended February 28, 2003)
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q
((SEC File No. 000-25349) for the quarter ended August 31, 2006)
Amended and Restated Articles of Incorporation of the Company (See Exhibit 3.1)
Amended and Restated Bylaws of the Company (See Exhibit 3.2)
Credit Agreement, dated April 30, 2003, between Bank of America, N.A., and the Company (incorporated by reference to
Exhibit 4.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter ending May 31, 2003)
First Amendment to Credit Agreement, dated as of February 18, 2005, among the Company, the Lenders party thereto, and
Bank of America, N.A., as agent (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q (SEC File No.
000-25349) for the quarter ending February 28, 2005)
Second Amendment to Credit Agreement dated as of February 27, 2008, among the Company and Bank of America, N.A.
as lender and agent (incorporated by reference to Exhibit 4.3(c) of the Company’s Annual Report on Form 10-K (SEC File
No. 000-25349) filed April 16, 2008)
Third Amendment to Credit Agreement dated as of February 19, 2009, between the Company and Bank of America, N.A.
(incorporated by reference to Exhibit 4.3(d) of the Company’s Annual Report on Form 10-K (SEC File No. 000-25349)
filed on February 20, 2009)
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments evidencing long-term debt not exceeding 10% of the
Company’s total assets have been omitted and will be furnished to the Securities and Exchange Commission upon request.
10.1(a)
Form of Executive Life Insurance Agreement dated December 31, 2003, between the Company and certain of its executive
officers (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter
ended February 29, 2004)*
35
10.1(b)(i) Supplemental Retirement Income Plan effective as of December 1, 2003 (incorporated by reference to Exhibit 10.3 of the
Company’s Form 10-Q (SEC File No. 000-25349) for the quarter ended February 29, 2004)*
10.1(b)(ii) First Amendment to the Supplemental Retirement Income Plan, dated as of May 24, 2007 incorporated by reference to
Exhibit 10.1(b)(ii) of Form 10-K (SEC File No. 000-25349) filed on April 16, 2008
10.1(b)(iii) 2008Amendment and Restatement of the Hooker Furniture Corporation Supplemental Retirement Income Plan, effective as
of December 31, 2008 incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File
No. 000-25349) filed on November 19, 2008*
10.1(c)
Summary of Compensation for Named Executive Officers (filed herewith)*
10.1(d)
Summary of Director Compensation (filed herewith)*
10.1(e) Hooker Furniture Corporation 2005 Stock Incentive Plan (incorporated by reference to Appendix B of the Company’s
Definitive Proxy Statement dated March 1, 2005 (SEC File No. 000-25349))*
10.1(f)
Form of Outside Director Restricted Stock Agreement (incorporated by reference to Exhibit 99.1 of the Company’s
Current Report on Form 8-K (SEC File No. 000-25349) filed January 17, 2006)*
10.1(g) Retirement Agreement, dated October 26, 2006, between Douglas C. Williams and the Company (incorporated by
reference to Exhibit 10.1(g) of the Company’s Annual Report on Form 10-K (SEC File No. 000-25349) filed February 28,
2007)*
10.1(h)
Employment Agreement, dated June 15, 2007, between Alan D. Cole and the Company incorporated by reference to
Exhibit 10.1(h) of the Company’s Annual Report on Form 10-K (SEC File No. 000-25349) filed on April 16, 2008
10.1(i)
Employment Agreement, dated June 3, 2008, between Alan D. Cole and the Company incorporated by reference to Exhibit
10.1(i) of the Company’s Annual Report on Form 10-K (SEC File No. 000-25349) filed on June 5, 2008
10.2(a)
Credit Agreement, dated April 30, 2003, between Bank of America, N.A., and the Company (See Exhibit 4.3(a))
10.2(b)
First Amendment to Credit Agreement, dated as of February 18, 2005, among the Company, the Lenders party thereto, and
Bank of America, N.A., as agent (See Exhibit 4.3(b))
10.2(c)
Second Amendment to Credit Agreement, dated as of February 27, 2008, among the Company and Bank of America, N.A.,
as lender and agent (See Exhibit 4.3(c))
10.2(d)
Third Amendment to Credit Agreement dated as of February 19, 2009, between Company and Bank of America, N.A. (See
Exhibit 4.3(d))
18
21
23
31.1
31.2
32.1
Preferability letter for a change in accounting principle related to the classification of shipping and warehousing costs as
cost of sales (filed herewith)
List of Subsidiaries:
Bradington-Young LLC, a Virginia limited liability company
Sam Moore Furniture LLC, a Virginia limited liability company
Consent of Independent Registered Public Accounting Firm (filed herewith)
Rule 13a-14(a) Certification of the Company’s principal executive officer (filed herewith)
Rule 13a-14(a) Certification of the Company’s principal financial officer (filed herewith)
Rule 13a-14(b) Certification of the Company’s principal executive officer and principal financial officer pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)
*Management contract or compensatory plan
36
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.
SIGNATURES
April 17, 2009
HOOKER FURNITURE CORPORATION
/s/ Paul B. Toms, Jr.
Paul B. Toms, Jr.
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Paul B. Toms, Jr.
Paul B. Toms, Jr.
Chairman, President, Chief Executive Officer and
Director (Principal Executive Officer)
April 17, 2009
/s/ E. Larry Ryder
E. Larry Ryder
Executive Vice President - Finance and
Administration (Principal Financial Officer)
/s/ R. Gary Armbrister
R. Gary Armbrister
Chief Accounting Officer
(Principal Accounting Officer)
/s/ W. Christopher Beeler, Jr.
W. Christopher Beeler, Jr.
/s/ John L. Gregory, III
John L. Gregory, III
/s/ Mark F. Schreiber
Mark F. Schreiber
/s/ David G. Sweet
David G. Sweet
/s/ Henry G. Williamson, Jr.
Henry G. Williamson, Jr.
Director
Director
Director
Director
Director
April 17, 2009
April 17, 2009
April 17, 2009
April 17, 2009
April 17, 2009
April 17, 2009
April 17, 2009
37
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Management’s Report on Internal Control Over Financial Reporting ................................................... F-2
Reports of Independent Registered Public Accounting Firm ................................................................. F-3
Consolidated Balance Sheets as of February 1, 2009 and February 3, 2008 .......................................... F-5
Consolidated Statements of Operations for the fifty-two weeks ended February 1, 2009, the
fifty-three weeks ended February 3, 2008, the two-month transition period ended
January 28, 2007 and the twelve months ended November 30, 2006 ..................................................... F-6
Consolidated Statements of Cash Flows for the fifty-two weeks ended February 1, 2009, the
fifty-three weeks ended February 3, 2008, the two-month transition period ended January 28, 2007
and the twelve months ended November 30, 2006 ................................................................................. F-7
Consolidated Statements of Shareholders’ Equity for the twelve months ended November 30, 2006,
the two-month transition period ended January 28, 2007, the fifty-three weeks ended
February 3, 2008 and the fifty-two weeks ended February 1, 2009 ....................................................... F-8
Notes to Consolidated Financial Statements .......................................................................................... F-9
F-1
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders of
Hooker Furniture Corporation
Martinsville, Virginia
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange
Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and
principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting
based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on the Company’s evaluation under that framework, management concluded that the
Company’s internal control over financial reporting was effective as of February 1, 2009. The effectiveness of the Company’s
internal control over financial reporting as of February 1, 2009 has been audited by KPMG LLP, the Company’s independent
registered public accounting firm, as stated in their report which is included herein.
Paul B. Toms, Jr.
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
April 16, 2009
E. Larry Ryder
Executive Vice President – Finance and Administration
and Chief Financial Officer
(Principal Financial Officer)
April 16, 2009
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Hooker Furniture Corporation:
We have audited the accompanying consolidated balance sheets of Hooker Furniture Corporation and subsidiaries as of February 1,
2009 and February 3, 2008, and the related consolidated statements of operations, cash flows and shareholders’ equity for each of the
years in the two-year period ended February 1, 2009, for the two-month transition period ended January 28, 2007 and the year ended
November 30, 2006. These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Hooker Furniture Corporation and subsidiaries as of February 1, 2009 and February 3, 2008, and the results of their operations and
their cash flows for each of the years in the two-year period ended February 1, 2009, for the two-month transition period ended
January 28, 2007 and the year ended November 30, 2006, in conformity with U.S. generally accepted accounting principles.
As discussed in note 1 and note 8 to the consolidated financial statements, the Company changed its method of reporting shipping and
warehousing costs on the consolidated statements of operations during the year ended February 1, 2009.
As discussed in note 16 to the consolidated financial statements, effective January 29, 2007, the Company adopted the provisions of
Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Hooker
Furniture Corporation’s internal control over financial reporting as of February 1, 2009, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and
our report dated April 16, 2009 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial
reporting.
Charlotte, North Carolina
April 16, 2009
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Hooker Furniture Corporation:
We have audited Hooker Furniture Corporation’s internal control over financial reporting as of February 1, 2009, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Hooker Furniture Corporation’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Hooker Furniture Corporation maintained, in all material respects, effective internal control over financial reporting as
of February 1, 2009, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Hooker Furniture Corporation and subsidiaries as of February 1, 2009 and February 3, 2008, and the
related consolidated statements of operations, cash flows and shareholders’ equity for each of the years in the two-year period ended
February 1, 2009, for the two-month transition period ended January 28, 2007 and the year ended November 30, 2006, and our report
dated April 16, 2009 expressed an unqualified opinion on those consolidated financial statements.
Charlotte, North Carolina
April 16, 2009
F-4
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of February 1, February 3,
2009
2008
Assets
Current assets
Cash and cash equivalents ............................................................................
Trade accounts receivable, less allowance for doubtful accounts
of $2,207 and $1,750 on each date ...........................................................
Inventories ....................................................................................................
Prepaid expenses and other current assets....................................................
Total current assets ..................................................................................
Property, plant and equipment, net ...................................................................
Goodwill ...........................................................................................................
Intangible assets ................................................................................................
Cash surrender value of life insurance policies .................................................
Other assets .......................................................................................................
Total assets ..........................................................................................
30,261
60,248
4,736
107,049
24,596
4,805
13,513
3,504
$153,467
$ 11,804
$ 33,076
Liabilities and Shareholders’ Equity
Current liabilities
Trade accounts payable ................................................................................
Accrued salaries, wages and benefits ...........................................................
Other accrued expenses ................................................................................
Current maturities of long-term debt ............................................................
Total current liabilities ..............................................................................
Long-term debt, excluding current maturities ...................................................
Deferred compensation .....................................................................................
Other long-term liabilities .................................................................................
Total liabilities ........................................................................................
$
8,392
2,218
2,279
2,899
15,788
2,319
5,606
44
23,757
Shareholders’ equity
Common stock, no par value, 20,000 shares authorized,
10,772 and11,561 shares issued and outstanding on each date ................
Retained earnings ........................................................................................
Accumulated other comprehensive income (loss) ......................................
Total shareholders’ equity .......................................................................
Total liabilities and shareholders’ equity .........................................
16,995
112,450
265
129,710
$153,467
See accompanying Notes to Consolidated Financial Statements.
F-5
38,229
50,560
3,552
125,417
25,353
3,774
5,892
12,173
2,623
$175,232
$ 13,025
3,838
3,553
2,694
23,110
5,218
5,369
709
34,406
18,182
122,835
(191)
140,826
$175,232
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
For The
Fifty-Two
Weeks Ended
February 1,
2009
Fifty-Three
Weeks Ended
February 3,
2008
Two Months
Ended
January 28,
2007
Twelve
Months Ended
November 30,
2006
Net sales .....................................................................................
$261,162
$316,801
$49,061
$350,026
Cost of sales ...............................................................................
200,878
235,057
37,876
269,681
Gross profit .........................................................................
60,284
81,744
11,185
Selling and administrative expenses ..........................................
45,980
51,738
7,028
ESOP termination compensation charge ....................................
Restructuring (credits) charges ..................................................
Goodwill and intangible asset impairment charges ....................
(951)
4,914
309
18,428
2,973
80,345
50,680
6,881
Operating income (loss) ......................................................
10,341
29,697
(17,244)
22,784
Other income (expense), net ......................................................
323
1,472
129
(77)
Income (loss) before income taxes .....................................
10,664
31,169
(17,115)
22,707
Income taxes ..............................................................................
3,754
11,514
1,300
8,569
Net income (loss) ................................................................
$ 6,910
$ 19,655
$(18,415)
$ 14,138
Earnings (loss) per share:
Basic and diluted ................................................................. $ 0.62
$ 1.58
$ (1.52) $ 1.18
Weighted average shares outstanding:
Basic ................................................................................... 11,060
Diluted ................................................................................ 11,066
12,442
12,446
12,113
12,113
11,951
11,953
Cash dividends declared per share ............................................. $ 0.40
$ 0.40
$
$ 0.31
See accompanying Notes to Consolidated Financial Statements.
F-6
For The
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fifty-Two
Fifty-Three Two Months
Twelve
Weeks Ended Weeks Ended
February 1,
2009
February 3,
2008
Ended
January 28,
2007
Months Ended
November 30,
2006
Cash flows from operating activities
Cash received from customers ..............................................
Cash paid to suppliers and employees ..................................
Income taxes paid, net ..........................................................
Interest received (paid), net ..................................................
Net cash provided by operating activities .........................
Cash flows from investing activities
Acquisitions, net of cash required ........................................
Purchase of property, plant and equipment ..........................
Proceeds from the sale of property and equipment ...............
Premiums paid on life insurance policies .............................
Proceeds received on life insurance policies ........................
Net cash used in investing activities .................................
Cash flows from financing activities
Purchase and retirement of common stock ...........................
Cash dividends paid ..............................................................
Payments on long-term debt .................................................
Net cash used in financing activities ....................................
Net (decrease) increase in cash and cash equivalents ...........
Cash and cash equivalents at beginning of year ....................
Cash and cash equivalents at end of year ..............................
Reconciliation of net income (loss) to net cash provided
by operating activities
Net income (loss) .......................................................................
Depreciation and amortization ..............................................
Non-cash ESOP cost .............................................................
Restricted stock compensation cost ......................................
Impairment of goodwill and intangibles ...............................
Restructuring and related asset impairment charges .............
Loss (gain) on disposal of property ......................................
Donation of showroom facilities ..........................................
Provision (credit) for doubtful accounts ...............................
Loss (gain) on life insurance policies ...................................
Deferred income tax expense (benefit) .................................
Changes in assets and liabilities, net of effect from acquisitions:
Trade accounts receivable .............................................
Inventories .....................................................................
Prepaid expenses and other assets .................................
Trade accounts payable .................................................
Accrued salaries, wages and benefits ............................
Accrued income taxes ...................................................
Other accrued expenses .................................................
Other long-term liabilities .............................................
Net cash provided by operating activities ..................
$269,483 $321,189
(258,701)
(265,842)
(7,219)
(12,717)
1,195
43,825
167
3,730
$56,869
(40,156)
(480)
28
16,261
(181)
(2,271)
28
(1,328)
______
(3,752)
(14,097)
(4,459)
(2,694)
(21,250)
(21,272)
33,076
$ 11,804
(15,826)
(1,942)
3,668
(1,411)
1,244
(14,267)
(36,028)
(5,036)
(2,503)
(43,567)
(14,009)
47,085
$ 33,076
$ 6,910
2,912
$ 19,655
3,352
74
4,914
(951)
154
2,245
95
(2,005)
5,767
(9,629)
(730)
(4,633)
(669)
(1,274)
79
471
$ 3,730
47
309
(100)
1,082
1,313
(788)
2,624
2,972
18,757
(186)
2,063
(3,256)
(3,826)
(1,198)
1,005
$ 43,825
(419)
22
(46)
____
(443)
(597)
(597)
15,221
31,864
$47,085
$(18,415)
681
18,141
8
2,973
(182)
143
(787)
7,882
5,336
747
(1,180)
(1,589)
1,607
255
641
$ 16,261
See accompanying Notes to Consolidated Financial Statements.
$349,075
(316,418)
(8,741)
(111)
23,805
(4,268)
3,409
(1,477)
____
(2,336)
(3,687)
(2,283)
(5,970)
15,499
16,365
$ 31,864
$ 14,138
4,645
2,646
18
6,881
2
1,920
(102)
(3,273)
(3,371)
579
355
(2,621)
(1,340)
2,489
313
526
$ 23,805
F - 7
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except per share data)
For The Twelve Month Period Ended November 30, 2006; The Two-Month Transition Period Ended January 28, 2007; The Fifty-Three
Week Period Ended February 3, 2008 and The Fifty-Two Week Period Ended February 1, 2009
Common Stock
Shares Amount
Unearned
ESOP
Shares
Accumulated
Other
Comprehensive
Retained
Earnings Income (Loss)
Total
Shareholders’
Equity
Balance at November 30, 2005 .........................................
14,425
$9,516
$(15,861)
$155,183
$ (226)
$148,612
Cumulative effect adjustment as a result of the
implementation of SEC Staff Accounting Bulletin
No. 108 .........................................................................
Balance at December 1, 2005 ...................................
Net income .......................................................................
Unrealized gain on interest rate swap ...............................
Total comprehensive income ............................................
Cash dividends ($0.31 per share) ......................................
Restricted stock grants, net of forfeitures .........................
Restricted stock compensation cost ..................................
ESOP cost .........................................................................
Balance at November 30, 2006 ....................................
Net loss .............................................................................
Unrealized gain on interest rate swap ...............................
Total comprehensive loss .................................................
Restricted stock grants ......................................................
Restricted stock compensation cost ..................................
ESOP termination .............................................................
Balance at January 28, 2007 .....................................
Net income .......................................................................
Unrealized loss on interest rate swap ................................
Total comprehensive income ............................................
Cash dividends ($0.40 per share) ......................................
Restricted stock grants, net of forfeitures .........................
Restricted stock compensation cost ..................................
Purchase and retirement of common stock .......................
Balance at February 3, 2008 .....................................
14,425
9,516
(15,861)
692
155,875
14,138
(3,687)
(226)
117
4
14,429
18
1,620
11,154
1,026
(14,835)
166,326
(109)
5
(1,165)
13,269
8
9,678
20,840
14,835
4
47
(1,712) (2,705)
11,561
18,182
(18,415)
40
(6,372)
141,539
19,655
(5,036)
(33,323)
122,835
( 69)
(122)
(191)
692
149,304
14,138
117
14,255
(3,687)
18
2,646
162,536
(18,415)
40
(18,375)
8
18,141
162,310
19,655
(122)
19,533
(5,036)
47
(36,028)
140,826
6,910
Net income .......................................................................
49
Unrealized gain on interest rate swap ...............................
Unrealized gain on deferred compensation……………… 407 407
Total comprehensive income ............................................
7,366
Cash dividends ($0.40 per share) ......................................
Restricted stock grants, net of forfeitures .........................
Restricted stock compensation cost ..................................
Purchase and retirement of common stock .......................
74
(799) (1,261)
74
(14,097)
(12,836)
(4,459)
6,910
49
10
(4,459)
Balance at February 1, 2009 ..................................
10,772 $ 16,995 $
$112,450
$ 265
$129,710
See accompanying Notes to Consolidated Financial Statements.
F-8
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Hooker Furniture Corporation and subsidiaries (the “Company”, we, our) design, import, manufacture and market residential
household furniture for sale to wholesale and retail merchandisers located principally in North America.
Consolidation
The consolidated financial statements include the accounts of Hooker Furniture Corporation and its wholly owned subsidiaries. All
material intercompany accounts and transactions have been eliminated in consolidation.
Certain items in the consolidated financial statements and the notes to the consolidated financial statements for the periods prior to
fiscal year 2009 have been reclassified to conform to the fiscal year 2009 method of presentation. Beginning with the fiscal 2009
Form 10-K, we have also reclassified shipping and warehousing costs from selling, general and administrative expense to cost of sales
as described in more detail in Note 8.
Cash and Cash Equivalents
We temporarily invest unused cash balances in a high quality, diversified money market fund that provides for daily liquidity and pays
dividends monthly. Cash equivalents are stated at cost plus accrued interest, which approximates market.
Trade Accounts Receivable
Substantially all of our trade accounts receivable are due from retailers and dealers that sell residential home furnishings, which
consist of a large number of entities with a broad geographical dispersion. We continually perform credit evaluations of our
customers and generally do not require collateral. Our upholstered furniture subsidiaries factor substantially all of their receivables on
a non-recourse basis. Accounts receivable are reported net of allowance for doubtful accounts.
Fair Value of Financial Instruments
The carrying value for each of our financial instruments (consisting of cash and cash equivalents, trade accounts receivable and
payable, and accrued liabilities) approximates fair value because of the short-term nature of those instruments. The fair value of our
term loan is estimated based on the quoted market rates for similar debt with a similar remaining maturity. The fair value of our
interest rate swap agreement is based on values provided by the issuer.
Inventories
All inventories are stated at the lower of cost, using the last-in, first-out (LIFO) method, or market.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less allowances for depreciation. Provision for depreciation has been computed
(generally by the declining balance method) at annual rates that will amortize the cost of the depreciable assets over their estimated
useful lives.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment, are evaluated for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the
use of those assets. When any such impairment exists, the related assets are written down to fair value. Long-lived assets to be
disposed of by sale are measured at the lower of their carrying amount or fair value less cost to sell, are no longer depreciated, and are
reported separately as “assets held for sale” in the consolidated balance sheets.
F-9
Goodwill and Intangible Assets
Hooker Furniture Corporation owns certain amortizable and indefinite-lived intangible assets and goodwill related to Bradington-
Young, Sam Moore and Opus Designs by Hooker. The principal amortizable intangible assets are non-compete agreements and
furniture designs, which are amortized over their estimated useful lives. The principal indefinite-lived intangible assets are trademarks
and trade names which are not amortized but are tested for impairment annually or more frequently if events or circumstances indicate
that the asset might be impaired.
The fair value of the indefinite-lived intangible assets is determined based on the estimated earnings and cash flow capacity of those
assets. The impairment test consists of a comparison of the fair value of the indefinite-lived intangible assets with their carrying
amount. If the carrying value of the indefinite-lived intangible assets exceeds their fair value, an impairment loss is recognized in an
amount equal to that excess.
Goodwill is tested for impairment at the reporting unit level and involves two steps. First, we determine the fair value of the reporting
unit and compare it to the reporting unit’s carrying amount including goodwill. Second, if the carrying amount of the reporting unit
exceeds its fair value, an impairment loss is recognized to the extent the carrying amount of the reporting unit’s goodwill exceeds the
implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit
to its assets in a manner similar to a purchase price allocation. The residual fair value resulting from this allocation is the implied fair
value of the reporting unit goodwill.
Cash Surrender Value of Life Insurance Policies
Hooker Furniture Corporation owns life insurance policies on certain executives and other key employees. Proceeds of the policies
are used to fund certain employee benefits and for other general corporate purposes. We account for life insurance as a component of
employee benefits cost. Consequently the cost of the coverage and any resulting gains or losses related to those insurance policies are
recorded as a decrease or increase to operating income.
Derivative Instruments and Hedging Activities
We use interest rate swap agreements to manage variable interest rate exposure on the majority of our long-term debt. Our objective
for holding these derivatives is to decrease the volatility of future cash flows associated with interest payments on its variable rate
debt. We do not issue derivative instruments for trading purposes. We account for our interest rate swap agreements as cash flow
hedges. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially
reported in “accumulated other comprehensive income or loss” on the consolidated balance sheets and subsequently reclassified to
interest expense when the hedged exposure affects income (i.e. as interest expense accrues on the related outstanding debt).
Differences between the amounts paid and amounts received under the swap agreements are recognized in interest expense.
In some cases, such as upon the early repayment of a debt instrument, we may continue to hold an interest rate swap for a period of
time after the related principal has been paid rendering the hedge ineffective. Changes in the ineffective portion of the fair value of
the derivative are accounted for through interest expense.
Revenue Recognition
Sales revenue is recognized when title and the risk of loss pass to the customer, which occurs at the time of shipment. Sales are
recorded net of allowances for trade promotions, estimated product returns, rebate advertising programs and other discounts.
Advertising
We offer advertising programs to qualified dealers under which we may provide signage, catalogs and other marketing support to our
customers and may reimburse advertising and other costs incurred by our customers in connection with promoting our products. The
cost of these programs does not exceed the fair value of the benefit received. We charge the cost of point-of-purchase materials
(including signage and catalogs) to selling and administrative expense as incurred. The cost for other advertising allowance programs
is charged against net sales.
F-10
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred income taxes reflect the expected future tax
consequences of differences between the book and income tax bases of assets and liabilities using enacted tax rates in effect in the
years in which those differences are expected to reverse.
We recognize positions taken or expected to be taken in our tax returns in the financial statements when it is more likely than not (i.e.,
a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax
position is then measured at the largest amount of benefit that is more likely than not of being realized upon ultimate settlement. We
classify interest and penalties related to uncertain tax positions as income tax expense.
Earnings Per Share
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of
common shares outstanding for the period. Diluted earnings per share reflects the potential dilutive effect of securities that could
share in the earnings of the Company. We have issued restricted stock awards to non-employee members of the board of directors
under the Hooker Furniture Corporation 2005 Stock Incentive Plan, and expect to continue to grant these awards to non-employee
board members in the future.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosures regarding contingent
assets and liabilities at the date of the financial statements; and the reported amounts of revenue and expenses during the reported
periods. Significant items subject to such estimates and assumptions include the useful lives of fixed assets; allowance for doubtful
accounts; the valuation of derivatives; deferred tax assets; fixed assets, and stock-based compensation. These estimates and
assumptions are based on Management’s best judgments. Management evaluates its estimates and assumptions on an ongoing basis
using historical experience and other factors, including the current economic environment, which Management believes to be
reasonable under the circumstances. Management adjusts such estimates and assumptions as facts and circumstances dictate. Illiquid
credit markets and volatile equity markets have combined to increase the uncertainty inherent in such estimates and assumptions.
Actual results could differ from those estimates.
Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”)
No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133.” The
objective of this statement is to require enhanced disclosures about an entity’s derivative and hedging activities and to improve the
transparency of financial reporting. This statement changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This
statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with
early application encouraged. This statement encourages, but does not require, comparative disclosures for earlier periods at initial
adoption. We expect to adopt this standard effective with our fiscal year 2010 first quarter, which began February 2, 2009.
In December 2007, the FASB issued a revision to SFAS No. 141R, “Business Combinations”. The objective of this Statement is to
improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. To accomplish that, this statement establishes principles and
requirements for how the acquirer: a) recognizes and measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any non-controlling interest in the acquiree; b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and c) determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business combination. This statement applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after
December 15, 2008. Early adoption of this standard is not permitted. Consequently, we adopted the standard in our fiscal year 2010
first quarter, which began February 2, 2009. The adoption of SFAS 141R is not expected to have a material impact on our financial
position or results of operations.
F-11
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including
an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge
accounting provisions. This statement is expected to expand the use of fair value measurement, which is consistent with FASB’s long-
term measurement objectives for accounting for financial instruments. This statement is effective as of the beginning of an entity’s
first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or
before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value
Measurements. Consequently, Hooker adopted the standard in our fiscal year 2009 first quarter, which began February 4, 2008. The
adoption of SFAS 159 did not have a material impact on our financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. This statement defines fair value, establishes a
framework for measuring fair value under U.S. generally accepted accounting principles, and expands disclosures about fair value
measurements. This statement applies under other accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this statement does not require any new fair value measurements. However, for some entities, the application of this
statement will change current practice. This statement is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. Consequently, Hooker adopted the standard in our fiscal year 2009
first quarter, which began February 4, 2008. The adoption of SFAS 157 did not have a material impact on our financial position or
results of operations.
NOTE 2 – CHANGE IN FISCAL YEAR
On August 29, 2006, we approved a change in our fiscal year. After the fiscal year that ended November 30, 2006, our fiscal years
will end on the Sunday nearest to January 31. In addition, starting with the fiscal year that began January 29, 2007, we adopted
quarterly periods based on thirteen-week “reporting periods” (which will end on a Sunday) rather than quarterly periods consisting of
three calendar months. As a result, each quarterly period generally will be thirteen weeks, or 91 days, long. However, since our fiscal
year will end on the Sunday closest to January 31, in some years (generally once every six years) the fourth quarter will be fourteen
weeks long and the fiscal year will consist of fifty-three weeks (for example, the fiscal year that ended February 3, 2008 was fifty-
three weeks).
We completed a two-month transition period that began December 1, 2006 and ended January 28, 2007 and filed a transition report on
Form 10-Q for that period on March 16, 2007. These financial statements are being filed as part of an annual report on Form 10-K
covering the fifty-two week period that began February 4, 2008 and ended February 1, 2009 and the fifty-three week period that began
January 29, 2007 and ended February 3, 2008. These financial statements also include the two-month transition period that began
December 1, 2006 and ended January 28, 2007 and the twelve-month period that ended November 30, 2006. We did not recast the
financial statements for the twelve-month period ended November 30, 2006 principally because the financial reporting processes in
place for that period included certain procedures that were completed only on a quarterly basis. Consequently, to recast that period
would have been impractical and would not have been cost-justified.
References to the 2009 fiscal year and comparable terminology in the notes to the consolidated financial statements mean the fiscal
year that began February 4, 2008 and ended February 1, 2009. References to the 2008 fiscal year and comparable terminology in the
notes to the consolidated financial statements mean the fiscal year that began January 29, 2007 and ended February 3, 2008.
References to the 2007 two-month transition period and comparable terminology in the notes to the consolidated financial statements
refers to the period that began December 1, 2006 and ended January 28, 2007. References to the 2006 fiscal year and comparable
terminology in the notes to the consolidated financial statements refer to the fiscal year that began December 1, 2005 and ended
November 30, 2006.
F-12
NOTE 3 – ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts was:
Fifty-Two
Fifty-Three Two-Months
Twelve
February 1,
2009
Balance at beginning of year ............................................................ $1,750
2,070
Non-cash charges to cost and expenses .........................................
Allowance for doubtful accounts acquired in acquisitions ...........
Less uncollectible receivables written off, net of recoveries ............
Balance at end of year ...................................................................
Weeks Ended Weeks Ended
February 3,
2008
$1,436
1,313
257
(1,256)
$1,750
(1,613)
$2,207
Ended Months Ended
January 28, November 30,
2007
$1,807
(182)
(189)
$1,436
2006
$1,352
1,920
(1,465)
$1,807
NOTE 4 – INVENTORIES
Finished furniture ...........................................................................
Furniture in process .......................................................................
Materials and supplies ....................................................................
Inventories at FIFO .....................................................................
Reduction to LIFO basis ................................................................
Inventories ...................................................................................
February 1,
2009
February 3,
2008
$64,865
900
8,207
73,972
13,724
$60,248
$52,602
1,217
7,814
61,633
11,073
$50,560
If the first-in, first-out (FIFO) method had been used in valuing all inventories, net income (loss) would have been $8.1 million in
fiscal 2009, $19.5 million in fiscal 2008, $(18.3) million in the 2007 two-month transition period and $13.7 million in fiscal 2006.
As of February 1, 2009, we held $11.1 million in inventory (7.2% of total assets) outside of the United States, in China.
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT
Depreciable Lives
(In years)
February 1,
2009
February 3,
2008
Buildings and land improvements ..............................................
Machinery and equipment ..........................................................
Furniture and fixtures .................................................................
Other ..........................................................................................
Total depreciable property at cost ............................................
Less accumulated depreciation ..................................................
Total depreciable property, net .................................................
Land ...........................................................................................
Construction in progress ............................................................
Property, plant and equipment, net ...........................................
15 – 30
10
3 - 8
5
$23,676
3,665
26,656
3,886
57,883
35,695
22,188
1,357
1,051
$24,596
$23,076
3,425
27,516
3,740
57,757
34,558
23,199
1,387
767
$25,353
F-13
Capitalized Software Costs
Certain costs incurred in connection with developing or obtaining computer software for internal use are capitalized. These costs are
amortized over five years or less, and generally over five years. Capitalized software is reported as a component of furniture and
fixtures on our balance sheet. The activity in capitalized software costs was:
Fifty-Two
Fifty-Three Two-Months
Twelve
Balance beginning of year .....................................................................
Software acquired in the acquisition of Sam Moore .........................
Purchases ..........................................................................................
Amortization expense .......................................................................
Disposals ...........................................................................................
Balance end of year .......................................................................
February 1,
2009
$3,293
Weeks Ended Weeks Ended
February 3,
2008
$1,847
458
2,176
(1,142)
(46)
$3,293
635
(1,065)
$2,863
Ended Months Ended
January 28, November 30,
2007
$1,576
540
(269)
$1,847
2006
$2,961
166
(1,407)
(144)
$1,576
NOTE 6 – GOODWILL AND INTANGIBLE ASSETS
Useful Lives
(In years)
February 1,
2009
February 3,
2008
Goodwill ....................................................................................
Non-amortizable Intangible Assets
Trademarks and trade names – Bradington-Young ....................
Trademarks and trade names – Sam Moore ...............................
Trademarks and trade names – Opus Designs............................
Total trademarks and trade names ..........................................
Amortizable Intangible Assets
Non-compete agreements ...........................................................
Furniture designs ........................................................................
Total amortizable intangible assets ............................................
Less accumulated amortization ..................................................
Net carrying value ....................................................................
Intangible assets ......................................................................
4
3
$3,774
$4,400
396
1,000
5,796
700
100
800
704
96
$5,892
$3,289
396
1,057
4,742
700
100
800
737
63
$4,805
We recorded goodwill and certain intangible assets related to Bradington-Young, Sam Moore and Opus Designs. The goodwill,
trademarks and trade names have indefinite useful lives and consequently are not subject to amortization for financial reporting
purposes but are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be
impaired. See “Note 1 – Summary of Significant Accounting Policies: Goodwill and Intangible Assets.” For tax reporting purposes
the goodwill and intangible assets are being amortized over 15 years on a straight line basis.
Goodwill results from business acquisitions and represents the excess of acquisition costs over the fair value of the net assets acquired.
In those acquisitions, we also purchased trade names and trademarks, which we recorded as indefinite-lived intangible assets.
Goodwill and trade names are tested for impairment annually as of the first day of our fiscal fourth quarter or more frequently if
events or changes in circumstances indicate that the asset might be impaired. Circumstances that could indicate a potential
impairment include a significant adverse change in the economic or business climate either within the furniture industry or the
national or global economy, significant changes in demand for our products, loss of key personnel or the likelihood that a reporting
unit or significant portion of a reporting unit will be sold or otherwise disposed of. These circumstances could lead to our net book
value exceeding our market capitalization which is another indicator of a potential impairment in goodwill. First, the fair value of
each reporting unit is compared to its carrying value to determine whether an indication of impairment exists. Goodwill on our
balance sheet is related to the acquisitions of Bradington-Young and Opus Designs and is unique to each of these business units.
Second, if impairment is indicated, then the fair value of the reporting unit’s goodwill is determined by allocating the unit’s fair value
to its assets and liabilities (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business
combination on the impairment test date. The amount of impairment for goodwill is measured as the excess of the carrying value of
the reporting unit over its fair value.
F-14
When estimating fair values of a reporting unit for our goodwill impairment test, we use a combination of an income approach and a
market approach which incorporates both management’s views and those of the market. The income approach provides an estimated
fair value based on each reporting unit’s anticipated cash flows that are discounted using a weighted average cost of capital rate. The
market approach provides an estimated fair value based on our market capitalization that is computed using the market price of our
common stock and number of shares outstanding on our measurement date. The estimated fair values computed using the income
approach and the market approach are then weighted and combined into a single fair value. The primary assumptions used in the
income approach are estimated cash flows and weighted average cost of capital. Estimated cash flows are primarily based on
projected revenues, operating costs and capital expenditures and are discounted based on comparable industry average rates for
weighted average cost of capital.
The estimated fair values of our reporting units were negatively impacted by significant reductions in estimated cash flows for the
income approach component and a significant reduction in our market capitalization for the market approach component of our fair
value estimation process. Our goodwill was initially recorded in connection with the acquisitions of Bradington-Young and Opus
Designs, which occurred when the US economy was much stronger, estimates of revenue, margin and cash flow growth were much
greater, and our market capitalization was at higher levels. Our goodwill impairment analysis lead us to conclude that there would be
no remaining implied fair value attributable to our goodwill and accordingly, we recorded a non(cid:237)cash impairment charge of $3.8
million for the year ended February 1, 2009.
Trade names and trademarks are related to the acquisitions of Bradington-Young, Sam Moore and Opus Designs. The circumstances
which impact the valuation of goodwill could also be an indicator of impairment of trade names or trademarks, as could changes in
legal circumstances, marketing plans or customer demand. In conjunction with our evaluation of goodwill and the cash flows
generated by the business units, we evaluated the carrying value of trade names and trademarks using the relief from royalty method,
which values the trademark by estimating the savings achieved by ownership of the trade name when compared to licensing the name
from an independent owner. Our trade name analysis led us to conclude that the Bradington-Young trade name was impaired and
accordingly we recorded a non-cash impairment charge of $1.1 million for the year ended February 1, 2009.
NOTE 7 – ACQUISITIONS
On April 28, 2007, Hooker Furniture completed its acquisition of substantially all of the assets of Bedford, Virginia-based Sam Moore
Furniture Industries, Inc., a manufacturer of upscale occasional chairs with an emphasis on fabric-to-frame customization in the upper-
medium to high-end price niches. We operate the business as Sam Moore Furniture LLC. Hooker acquired the Sam Moore operation
for an aggregate purchase price of $12.1 million, consisting of $10.3 million in cash (net of cash acquired), $1.5 million in assumed
liabilities and acquisition-related fees of $333,000.
Based on an appraisal of the assets of Sam Moore, the fair value of those assets exceeded the purchase price. This $3.6 million excess
over purchase price was allocated as a reduction to the fair value of property, plant and equipment and intangible assets in determining
their recorded values.
The recorded values of the assets acquired and liabilities assumed were:
Current assets .......................................................................................................................
Property, plant and equipment .............................................................................................
Intangible assets ...................................................................................................................
Total assets acquired .........................................................................................................
Current liabilities assumed ...................................................................................................
Net assets acquired ..........................................................................................................
April 28, 2007
$ 8,668
3,076
396
12,140
1,487
$10,653
On December 14, 2007, we completed our acquisition of Opus Designs Furniture LLC, a specialist in imported moderately-priced
youth bedroom furniture. We have integrated this business with our existing imported wood and metal furniture business and will
offer this brand to customers as Opus Designs by Hooker. We acquired the accounts receivable, inventory, intangible assets and
goodwill of Opus Designs Furniture LLC for an aggregate purchase price of $5.4 million, consisting of $5.3 million in cash and
acquisition-related fees of $54,000.
F-15
The recorded values of the assets acquired and liabilities assumed were:
Current assets .......................................................................................................................
Goodwill and intangible assets .............................................................................................
Total assets acquired .........................................................................................................
December 14, 2007
$2,876
2,557
$5,433
NOTE 8 – RECLASSIFICATIONS AND REVISIONS
We made a change in accounting principle in fiscal 2009 to classify shipping and warehousing costs associated with the distribution of
finished products to our customers, as well as certain supply chain and operations management expenses, as cost of sales (previously
recorded in selling, general and administrative expense). We believe this accounting principle is preferable because the classification
of these shipping and warehousing costs in cost of sales better reflects the cost of producing, selling and distributing our products.
The reclassification due to this change in accounting principle amounted to $16.8 million in fiscal 2009, $15.5 million in fiscal 2008,
$2.4 million in the 2007 two-month transition period and $20.9 million in fiscal 2006.
We determined that in the Consolidated Statements of Cash Flows the cash payments related to our life insurance policies should be
reported as investing activities rather than operating activities, therefore we increased “net cash provided by operating activities” by
$167,000 in fiscal 2008, $46,000 in the 2007 two-month transition period, and $1.5 million in fiscal 2006, with a corresponding
increase in “net cash used in investing activities” in each respective period. We reviewed the impact of this error on the prior periods
in accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and determined that the error was not material to the prior
periods.
NOTE 9 – SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Fifty-Two
Fifty-Three Two-Months
Twelve
Restricted stock grants, net of forfeitures ...............................
Donation of showroom facilities ...........................................
Liabilities assumed in connection with acquisition
of Sam Moore Furniture .....................................................
Note received in connection with the sale
of the Pleasant Garden, N.C. facility ..................................
NOTE 10 – LONG-TERM DEBT
February 1,
2009
Weeks Ended Weeks Ended
February 3,
2008
$ 85 $ 85
1,082
2007
$ 74
Ended Months Ended
January 28, November 30,
1,487
2006
$ 62
400
Term loan .............................................................................................................................
Less current maturities .........................................................................................................
Long-term debt, less current maturities ............................................................................
February 1,
2009
$5,218
2,899
$2,319
February 3,
2008
$7,912
2,694
$5,218
The term loan bears interest at a variable rate, 1.0% on February 1, 2009 and 5.3% on February 3, 2008 and is unsecured. Principal
and interest payments are due quarterly through September 1, 2010. We have entered into an interest rate swap agreement that in
effect provides for a fixed rate of interest of 4.1% on the term loan. See “Note 11 – Derivatives.” On February 1, 2009 and February
3, 2008, the carrying value of the term loan approximated fair value.
We also have a revolving credit facility that is unsecured and provides for borrowings of up to $15.0 million at variable interest rates,
1.0% on February 1, 2009 and 5.3% on February 3, 2008. Up to $3.0 million of the revolving credit line may be used for the issuance
of letters of credit. Interest is payable monthly. No borrowings were outstanding under the revolving credit line as of February 1,
2009 or February 3, 2008. As of February 1, 2009, we had an aggregate $12.6 million available under this revolving credit facility to
fund working capital needs. Outstanding letters of credit under that line which is used to collateralize certain insurance arrangements
and for imported product purchases amounted to $2.4 million as of February 1, 2009. The revolving credit line expires on March 1,
2011. On February 19, 2009, we amended our credit facility with Bank of America, N.A. The amendment, effective as of January 1,
2009 modified the definition of “Cash Flow” to exclude all non-cash charges, including goodwill and intangible asset impairment
from the calculation of Cash Flow for purposes of the Company’s Debt Service Coverage Ratio under the credit agreement; and
F-16
increased the Commitment Fee and the fee for LIBOR Loans and Letters of Credit under the credit agreement. All other terms were
unchanged.
The credit agreement for the term loan and the revolving credit facility contains customary representations and warranties, covenants
and events of default, including financial covenants as to minimum tangible net worth, debt service coverage, the ratio of funded debt
to earnings before interest, taxes, depreciation and amortization, and maximum capital expenditures. We were in compliance with
these covenants as of February 1, 2009.
As of February 1, 2009, aggregate future maturities for our long-term debt were $2.9 million in fiscal 2010 and $2.3 million in fiscal
2011.
NOTE 11 – DERIVATIVES
We use interest rate swap agreements to manage variable interest rate exposures on the majority of our long-term debt. The notional
principal value of our currently outstanding swap agreement is substantially equal to the outstanding principal balance of the
corresponding debt instrument. We believe that this swap agreement is effective in managing the volatility of future cash flows
associated with interest payments on variable rate debt. We account for interest rate swap agreements as cash flow hedges.
In February 2003, in connection with the refinancing of our bank debt, we terminated an interest rate swap agreement that in effect
provided a fixed interest rate of 7.4% on our term loan and entered into a new interest rate swap agreement. The new swap agreement
is on substantially the same terms as the terminated agreement, except that it provides for a fixed interest rate of 4.1% through 2010 on
the term loan. We made a $3.0 million payment to terminate the former swap agreement, which is being amortized as interest expense
over the remaining repayment period for the related term loan, resulting in an effective fixed interest rate of approximately 7.4% on
the term loan.
The aggregate fair market value of our swap agreement decreases when interest rates decline and increases when interest rates rise.
Overall, interest rates have declined since the inception of our swap agreement. The aggregate decrease in the fair market value of the
effective portion of the agreement of $142,000 ($229,000 pretax) as of February 1, 2009, $191,000 ($311,000 pretax) as of February
3, 2008 and $69,000 ($111,000 pre-tax) as of January 28, 2007 is reflected under the caption “accumulated other comprehensive
income (loss)” in the consolidated balance sheets. See “Note 12 – Other Comprehensive Income (Loss).”
NOTE 12 – OTHER COMPREHENSIVE INCOME (LOSS)
Fifty-Two
Fifty-Three Two-Months
Twelve
Ended Months Ended
January 28, November 30,
Net income (loss) ...................................................................
(Loss) gain on interest rate swaps ..........................................
Less amount of swaps’ fair value reclassified to
Weeks Ended Weeks Ended
February 3,
2008
$19,655
(256)
February 1,
2009
$6,910
(126)
2007
$(18,415)
56
interest expense ...............................................................
Unrealized gain (loss) on interest rate swaps .............
205
79
58
(198)
9
65
Unrealized accumulated actuarial gain on Supplemental
Retirement Income Plan (deferred compensation) ..........
Other comprehensive income (loss) before tax ......................
Income tax expense (benefit) .................................................
Other comprehensive income (loss), net of tax ......................
Comprehensive income (loss) ................................................
653
___
_____
732 (198)
65
276
25
(76)
456 (122) 40
$7,366 $19,533 $(18,375)
2006
$14,138
88
101
189
_____
189
72
117
$14,255
NOTE 13 – EMPLOYEE BENEFIT PLANS
Employee Savings Plans
We sponsor a tax-qualified 401(k) plan covering substantially all employees. This plan assists employees in meeting their savings and
retirement planning goals through employee salary deferrals and discretionary matching contributions made by the company.
Company contributions to the plan amounted to $617,000 in fiscal 2009, $574,000 in fiscal 2008, $112,000 in the 2007 two-month
transition period, and $489,000 in fiscal 2006.
F-17
Executive Benefits
Through fiscal 2008 we provided salary continuation and supplemental executive retirement benefits to certain management
employees, which consisted of individual contracts with participants to pay amounts as specified in each agreement upon retirement,
disability or death. The supplemental executive retirement arrangements also provided for benefit payments to participants upon a
change in control of the Company as defined in the agreements. These agreements were unfunded and all benefits were payable solely
from the general assets of the Company. We accounted for our obligation to each participant individually on the accrual basis in
accordance with the terms of the underlying agreements. The total accrued liabilities relating to these agreements approximated $5.6
million as of February 3, 2008. These amounts are included in “accrued salaries, wages and benefits” and “deferred compensation” in
the consolidated balance sheets. The cost of the program amounted to $2.0 million in fiscal 2008, $342,000 in the 2007 two-month
transition period and $2.7 million in fiscal 2006.
Effective for fiscal 2009, we replaced these agreements with a new supplemental retirement income plan (“SRIP”). The SRIP
provides monthly payments to participants or their designated beneficiaries based on the participant’s “final average monthly
earnings” and “specified percentage” participation level as defined in the plan, subject to a vesting schedule that may vary for each
participant. The benefit is payable for a 15-year period following the participant’s termination of employment due to retirement,
disability or death. In addition, the monthly retirement benefit for each executive, regardless of age, becomes fully vested and the
present value of that benefit is paid to each participant in a lump sum upon a change in control of the Company as defined in the plan.
The SRIP is unfunded and all benefits are payable solely from the general assets of the Company.
Amount recognized in the consolidated balance sheet:
Current liabilities .....................................................................................
Non-current liabilities ..............................................................................
Total .................................................................................................
Net periodic benefit cost
Service cost ..............................................................................................
Interest cost ..............................................................................................
Net periodic benefit cost .......................................................................
Other changes recognized in accumulated other comprehensive income
Net (gain) loss arising during period .......................................................
Total recognized in net periodic benefit cost
and accumulated other comprehensive income ....................................
Fifty-two
Weeks ended
February 1, 2009
$ 175
5,606
$ 5,781
$ 750
350
1,100
(653)
$ 447
F-18
The financial status of the plan at February 1, 2009 is as follows:
Change in benefit obligation:
Beginning benefit obligation ..........................................................................
Service cost ..............................................................................................
Interest cost ..............................................................................................
Benefits paid ............................................................................................
Actuarial loss (gain) .................................................................................
Ending benefit obligation .................................................................
(cid:3)(cid:3)
Change in plan assets:
Beginning fair value of plan assets ..........................................................
Employer contributions ...........................................................................
Benefits paid ............................................................................................
Ending fair value of plan assets ........................................................
Funded status at end of year .........................................................
Fifty-two
Weeks ended
February 1, 2009
$5,601
750
350
(267)
(653)
$5,781
$ 267
(267)
____
$ (5,781)
We also provide a life insurance program for certain executives. The life insurance program provides death benefit protection for
these executives during employment. Coverage under the program automatically terminates when the executive terminates
employment with Hooker Furniture Corporation for any reason, other than death, or when the executive attains age 65, whichever
occurs first. The life insurance policies funding this program are owned by the Company with a specified portion of the death benefits
payable under those policies endorsed to the insured executives’ designated beneficiaries.
Mr. Douglas C. Williams, our former President and Chief Operating Officer retired effective October 31, 2006. Mr. Williams was
offered an early retirement arrangement in late August 2006. Consequently, we recorded $1.4 million in compensation expense for
benefits payable to him under the SRIP and other early retirement benefits payable the 2006 third quarter related to Mr. Williams early
retirement arrangement. Substantially all of Mr. Williams’ retirement benefits were paid during fiscal 2008.
Performance Grants
On April 30, 2008, the Compensation Committee of our board of directors awarded two performance grants to certain senior
executives under the 2005 Stock Incentive Plan. Payments under each fixed dollar grant will be based on our cumulative earnings per
share (“EPS”) and average annual return on equity (“ROE”) for the grant’s designated performance and service period. The respective
performance periods for the two grants are the fiscal two-year period ending January 31, 2010 and the fiscal three-year period ending
January 30, 2011. Payment, if any, under each performance grant will be paid in cash, shares of our common stock or a combination
of both, at the discretion of the Compensation Committee.
These performance grants have been classified as liabilities since the (i) settlement amount for each grant will not be known until after
the applicable performance period is completed and (ii) settlement of the grants may be made in common stock, cash or a combination
of both. The estimated cost of each grant will be recorded as compensation expense over the respective performance periods when it
becomes probable that the EPS and ROE performance targets will be achieved. The expected cost of the grants will be revalued each
reporting period. As assumptions change regarding the expected achievement of target performance levels, a cumulative adjustment
will be recorded and future compensation expense will increase or decrease based on the currently projected performance levels. If
we determine that it is not probable that the minimum EPS and ROE performance thresholds for the grants will be met, no further
compensation cost will be recognized and any previously recognized compensation cost will be reversed. A maximum of $3.2 million
could be paid under these grants. As of February 1, 2009 no compensation expense has been recorded for these performance grants.
Employee Stock Ownership Plan
In January 2007, we terminated our leveraged employee stock ownership plan (the “ESOP”) which provided retirement benefits for
substantially all employees. As a result of the ESOP termination, approximately 1.2 million shares of previously unallocated shares of
Hooker Furniture Corporation common stock held by the ESOP were allocated to eligible employees, resulting in an $18.4 million,
F-19
non-cash, non-tax deductible charge to earnings in January 2007 with a corresponding increase in shareholders’ equity. To effect the
termination of the ESOP, we redeemed and retired approximately 1.2 million of the shares of Hooker Furniture Corporation common
stock held by the ESOP, with proceeds to the ESOP of $17.2 million (or $15.01 per share). The ESOP used the proceeds to repay the
outstanding balance on the ESOP loan.
Prior to the termination, we recorded non-cash ESOP cost for the number of shares that it committed to release to eligible employees
at the average closing market price of Hooker Furniture Corporation common stock during each period. Those shares were treated as
outstanding for computing earnings per share. “Unearned ESOP shares” in shareholders’ equity was reduced by the aggregate cost
basis in the shares that were committed to be released. Those shares had a cost basis of $6.25 per share. “Common stock” was
increased by the aggregate average market price in excess of the cost basis of those shares.
Dividends paid on allocated shares held by the ESOP were charged against retained earnings in the consolidated balance sheets.
Dividends paid on unallocated shares were in effect recorded as a reduction of principal and interest on the ESOP Loan. The cost of
the ESOP amounted to:
Fifty-Two
Fifty-Three Two-Months
Twelve
Average fair market value per share ..................................................
Number of shares committed to be released (in whole shares) .........
Non-cash ESOP cost ....................................................................
Administrative cost ...........................................................................
Total ESOP cost .....................................................................
$ 88
$ 88
$49
$49
$11
$11
2006
$ 16.12
164,156
2,646
86
$ 2,732
Weeks Ended Weeks Ended
February 3,
2008
February 1,
2009
Ended
Months Ended
January 28, November 30,
2007
Allocated shares held by the ESOP pending distribution to employees were 1.7 million as of February 3, 2008 and 2.2 million as of
January 28, 2007. All shares were distributed to employees and the trust was terminated in October 2008.
NOTE 14 – SHARE-BASED COMPENSATION
The Hooker Furniture Corporation 2005 Stock Incentive Plan (“Stock Plan”) permits incentive awards of restricted stock, restricted
stock units, stock appreciation rights and performance grants to key employees and non-employee directors. A maximum of 750,000
shares of the Company’s common stock was approved for issuance under the Stock Plan. We expect to issue restricted stock or other
forms of stock-based compensation awards to eligible directors and employees under the plan. We issued restricted stock awards to
each non-employee member of the board of directors in January 2006, 2007, 2008 and 2009. These shares will vest if the director
remains on the board through a 36-month service period or may vest earlier in accordance with terms specified in the Stock Plan.
During fiscal 2006, 784 of 4,851 shares were forfeited and 147 shares vested. During fiscal 2009, the remaining 3,920 of these shares
vested. The grant-date fair value of stock awards issued during the fiscal 2009 fourth quarter was $8.12 per share, $19.61 per share
for stock awards issued during the fiscal 2008 fourth quarter, $15.23 per share for stock awards issued during the 2007 two-month
transition period and $15.31 for stock awards issued during the fiscal 2006 first quarter.
We account for these awards as “non-vested equity shares.” The awards outstanding as of February 1, 2009 had an aggregate grant-
date fair value of $244,000, after taking vested and forfeited shares into account. As of February 1, 2009, we have recognized non-
cash compensation expense of approximately $85,000 related to these non-vested awards and $62,000 for shares that have vested.
The remaining $160,000 of grant-date fair value will be recognized over the remaining months of the vesting periods for these awards.
F-20
For each restricted common stock issuance, the following table summarizes the actual number of shares that have been
issued/vested/forfeited, the weighted average issue price of those shares on the grant date, the fair value of each grant on the grant
date, compensation expense recognized for the non-vested shares of each grant and the remaining fair value of the non-vested shares
of each grant as of February 1, 2009:
Whole
Number of
Shares
Grant-Date
Fair Value
Per Share
Aggregate
Grant-Date
Fair Value
Compensation Grant-Date Fair Value
Expense Unrecognized At
February 1, 2009
Recognized
Shares Issued on January 16, 2006
Issued ..................................................
Forfeited ..............................................
Vested .................................................
Balance ........................................
4,851
(784)
(4,067)
$15.31
15.31
15.31
$74
(12)
(62)
Shares Issued on January 15, 2007
Issued ..................................................
4,875
$15.23
74
Shares Issued on January 15, 2008
Issued ..................................................
4,335
$19.61
85
Shares Issued on January 15, 2009
Issued ..................................................
10,474
$8.12
Awards outstanding at February 1, 2009:
19,684
NOTE 15 – EARNINGS (LOSS) PER SHARE
85
$244
$ 62
62
51
31
2
$146
$ 23
54
83
$160
Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of
common shares outstanding for the period. Unearned ESOP shares are not considered outstanding for purposes of calculating basic or
diluted earnings per share. Diluted earnings per share reflects the potential dilutive effect of securities that could share in our
earnings. In January 2006, 2007, 2008, and 2009 we issued restricted stock awards to non-employee members of the board of
directors under the Stock Plan, and expect to continue to grant these awards to non-employee board members in the future. As of
February 1, 2009, February 3, 2008, January 28, 2007, and November 30, 2006 there were 19,684, 13,130, 8,795 and 3,920 shares,
respectively, of restricted stock outstanding, net of forfeitures and vested shares on each date. Restricted shares awarded that have not
yet vested are considered when computing diluted earnings per share.
Fifty-Two
Fifty-Three Two-Months
Weeks Ended Weeks Ended
February 3,
2008
February 1,
2009
Twelve
Months Ended
January 28, November 30,
Ended
2007
2006
Net income .................................................................................
$ 6,910
$19,655
$(18,415)
$14,138
Weighted average shares outstanding for basic
earnings per share ...............................................................
Dilutive effect of restricted stock awards ..................................
Weighted average shares outstanding for diluted
11,060
6
12,442
4
12,113
11,951
2
earnings per share............................................................
11,066
12,446
12,113
11,953
Basic earnings per share ............................................................
$ 0.62
$ 1.58
$ (1.52)
$ 1.18
Diluted earnings per share .........................................................
$ 0.62
$ 1.58
$ (1.52)
$ 1.18
F-21
NOTE 16 – INCOME TAXES
The provision for income taxes:
Fifty-Two
Fifty-Three Two-Months
Twelve
Weeks Ended Weeks Ended
February 3,
2008
February 1,
2009
Ended
Months Ended
January 28, November 30,
2007
2006
Current expense
Federal ................................................................................
State ....................................................................................
Total current expense ..................................................
$5,660 $ 7,937 $2,000 $10,792
953 362
1,050
8,890 2,362 11,842
99
5,759
Deferred (benefit) expense
Federal ................................................................................
State ....................................................................................
Total deferred (benefit) expense ..................................
Income tax expense ..............................................
(2,237)
232
(2,005)
$3,754
2,609 (519) (2,833)
15 (543) (440)
2,624 (1,062) (3,273)
$11,514 $1,300 $ 8,569
In connection with the termination of the ESOP, we wrote off the related deferred tax asset in the amount of $855,000 in January
2007. The effective income tax rate differed from the federal statutory tax rate as follows:
Fifty-Two
Fifty-Three Two-Months
Twelve
Weeks Ended Weeks Ended
February 3,
2008
February 1,
2009
Ended
Months Ended
January 28, November 30,
2007
2006
Income taxes at statutory rate ....................................................
Increase (decrease) in tax rate resulting from:
State taxes, net of federal benefit ........................................
Non-cash charitable contribution of appreciated inventory
Employee stock ownership plan ........................................
Captive insurance assessments ..........................................
Officer’s life insurance ......................................................
Other ..................................................................................
Effective income tax rate .................................................
35.0%
35.0%
35.0%
35.0%
1.9
(1.1)
(0.9)
0.3
35.2%
2.0
(0.3)
(0.7)
0.3
(0.9)
1.5
36.9%
(0.7)
0.1
(42.0)
(0.2)
0.2
(7.6)%
1.7
(0.3)
0.3
0.7
(0.4)
0.7
37.7%
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities were:
Assets
Deferred compensation ..........................................................
Interest rate swaps ..................................................................
Allowance for bad debts .........................................................
State income taxes ..................................................................
Restructuring ..........................................................................
Property, plant and equipment ...............................................
Intangible assets .....................................................................
Other ......................................................................................
Total deferred tax assets .....................................................
Liabilities
Inventories ..............................................................................
Employee benefits ..................................................................
Intangible assets .....................................................................
Other ......................................................................................
Total deferred tax liabilities ................................................
Net deferred tax asset .....................................................
F-22
February 1,
2009
February 3,
2008
$2,179
79
832
510
17
298
669
172
4,756
$2,156
117
674
780
393
107
89
4,316
70
379
7
456
$4,300
328
359
971
87
1,745
$2,571
As of February 1, 2009, $3.5 million of deferred income taxes was classified as “other long-term assets” and $835,000 was classified
as “other current assets” in the consolidated balance sheets. At February 3, 2008, $2.3 million of deferred income taxes was classified
as “other long-term assets” and $312,000 was classified as “other current assets” in the consolidated balance sheets. We expect to
fully utilize the deferred tax assets in future periods when the amounts become deductible, consequently no valuation allowance was
recorded as of February 1, 2009 or February 3, 2008.
At February 1, 2009 and February 3, 2008, we had net loss carryovers for state income tax purposes, the state tax effect net of federal
taxes of which was $145,000 and $361,000 respectively. At February 1, 2009 and February 3, 2008, we had state income tax credit
carryovers of $340,000 and $320,000, respectively. The state loss and credit carryovers begin to expire in 2021 and 2018,
respectively.
A portion of the change in the net deferred income tax asset (liability) relates to unrealized gains and losses on interest rate swaps and
our supplemental retirement plan (deferred compensation) that are classified in “accumulated other comprehensive income (loss)” in
the consolidated balance sheets. The related income taxes amounted to deferred expense of $276,000 in fiscal 2009, a deferred benefit
of $76,000 in fiscal 2008 and deferred expense of $25,000 in the 2007 two-month transition period, and $72,000 in fiscal 2006.
On January 29, 2007, we adopted Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
or FIN 48. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in
accordance with SFAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures and transition.
A reconciliation of beginning and ending unrecognized tax benefits is as follows:
Fifty-Three
Weeks Ended
February 3,
2008
Balance at January 29, 2007 (net of interest).........................................
$845,000
Increase due to positions taken during prior period ...............................
45,000
(890,000)
Settlements ............................................................................................
Balance at February 3, 2008 ............................................................. $
We had no material unrecognized tax benefits at February 1, 2009, and there were no material increases or decreases in unrecognized
tax benefits during fiscal 2009.
Upon adoption of FIN 48 we elected to classify interest and penalties recognized in accordance with FIN 48 as income tax expense.
Interest and penalties charged to tax expense during fiscal 2008 were $24,000. No interest or penalties were charged to tax expense
during fiscal 2009. Accrued interest and penalties in addition to these unrecognized tax benefits amounted to $87,000 as of January
29, 2007. No interest or penalties were accrued as of February 1, 2009 or February 3, 2008.
Tax years beginning December 1, 2004, through February 3, 2008 remain subject to examination by major jurisdictions.
NOTE 17 –SUPPLIER COMMITMENTS
In fiscal 2009 we advanced payments to one of our finished goods suppliers against our purchase orders placed with that supplier.
The purpose of the advances was to facilitate the supplier’s purchase of raw materials in order to ensure timely delivery of furniture
shipments to us. The current balance of the advances is approximately $107,000. We also assisted the supplier in obtaining additional
bank financing by issuing a standby letter of credit in the amount of $600,000, which expires in July 2009, as security for that
financing. In conjunction with the issuance of the letter of credit, we entered into a security agreement with the supplier, which
provides us with a security interest in certain assets of the supplier and its shareholders. Our maximum exposure under the advances
and the standby letter of credit as of February 1, 2009 is approximately $707,000, which we believe to be adequately secured under
this arrangement.
F-23
NOTE 18 – RESTRUCTURING CHARGES AND ASSETS HELD FOR SALE
We have incurred significant restructuring and asset impairment charges since 2000 in connection with the closing of our domestic
wood furniture manufacturing facilities. These charges included severance and related benefits for terminated employees, asset
impairment charges to write down real and personal property to fair market value (as determined based on market prices for similar
assets in similar condition) less selling costs, and factory disassembly and other related costs to prepare each facility for sale.
Pretax restructuring and asset impairment charges increased operating income by 0.4% of net sales in fiscal 2009 and decreased
operating income by 0.1% of net sales in fiscal 2008, 6.1% of net sales in the 2007 two-month transition period, and 2.0% of net
sales in fiscal 2006.
During fiscal 2009 we recorded aggregate restructuring credits of $951,000 ($592,000 after tax, or $0.05 per share) principally for:
(cid:120)
(cid:120)
previously accrued health care benefits principally for the Martinsville and Roanoke, Va. facilities which are not expected to be
paid ($834,000), and
previously accrued environmental monitoring costs at the Kernersville, N.C. and Martinsville, Va. facilities, which are not
expected to be paid ($117,000).
During fiscal 2008 we recorded aggregate restructuring and asset impairment charges of $309,000 ($190,000 after tax, or $0.02 per
share) principally for:
(cid:120)
(cid:120)
additional asset impairment, disassembly and exit costs associated with the March 2007 closing of the Martinsville, Va. domestic
wood manufacturing facility ($553,000); net of
a restructuring credit of $244,000, principally for previously accrued health care benefits for the Pleasant Garden, N.C.,
Martinsville, Va. and Roanoke, Va. facilities, which are not expected to be paid.
During the 2007 two-month transition period, we recorded aggregate restructuring and asset impairment charges of $3.0 million ($1.8
million after tax, or $0.15 per share) principally related to:
(cid:120)
severance and related benefits for approximately 280 hourly and salaried employees at the Martinsville, Va. manufacturing facility
who were terminated ($2.3 million) and additional asset impairment charges for the estimated costs to sell the Martinsville, Va.
facility ($655,000).
The real and personal property at the Martinsville facility were sold during the fiscal year 2008 third and fourth quarters for an
aggregate $3.5 million in cash, net of selling expenses.
In December 2007, we donated two showrooms formerly operated by Bradington-Young, located in High Point, N.C., which had a
fair market value of $1.1 million to a local university.
During fiscal 2006 we recorded aggregate restructuring and asset impairment charges of $6.9 million ($4.3 million after tax, or $0.36
per share) principally for:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the write down of real and personal property at the Martinsville, Va. plant to estimated fair value in connection with the
planned closing announced January 17, 2007 ($4.2 million);
the August 2006 closing of the Roanoke, Va. manufacturing facility ($2.7 million), which included $1.6 million in severance
and related benefits for approximately 260 terminated hourly and salaried employees and $1.1 million in asset impairment
charges;
the final sale of the Pleasant Garden, N.C. wood furniture plant and the related closing of the Martinsville, Va. plywood plant
($161,000); and
the planned disposition of the two Bradington-Young showrooms located in High Point, N.C. ($140,000); net of
F-24
(cid:120)
a restructuring credit for previously accrued health care benefits for terminated employees at the former Pleasant Garden and
Kernersville, N.C. facilities that are not expected to be paid ($295,000).
In October 2006, we completed the sale of the Roanoke, Va. plant for $2.2 million, net of selling costs.
In May 2006, we completed the sale of the Pleasant Garden facility. Aggregate proceeds from that sale, including proceeds from
equipment auctions at both the Pleasant Garden facility and Martinsville plywood facility held in December 2005, amounted to $1.5
million ($1.1 million in cash and a note receivable for $400,000), net of selling expenses.
The following table sets forth the significant components of and activity related to the accrued restructuring and asset impairment
charges for fiscal year 2006, the 2007 two-month transition period and fiscal years 2008 and 2009:
Severance and
Related Benefits
Asset
Impairment Other
Pretax
Amount Amount
After-Tax
Accrued balance at November 30, 2005 .............................
$ 789
$218
$ 1,007
Restructuring charges accrued during fiscal 2006 ................
Non-cash charges ................................................................
Cash payments ....................................................................
Accrued balance at November 30, 2006..........................
1,257
(1,364)
682
$5,523
(5,523)
101
(116)
203
Restructuring charges accrued during the 2007
two-month transition period ............................................
Non-cash charges ................................................................
Cash payments ....................................................................
Accrued balance at January 28, 2007 ..............................
Restructuring charges accrued during fiscal 2008 ..............
Non-cash charges ................................................................
Cash payments ....................................................................
Accrued balance at February 3, 2008 ..............................
2,318
(17)
2,983
(244)
(1,910)
829
655
(655)
25
(25)
Restructuring credits accrued during fiscal 2009 ................ (834)
Cash payments .................................................................... 5
$
Accrued balance at February 1, 2009 ............................
$
(3)
200
528
(535)
193
(117)
(31)
$ 45
$4,266
$1,843
$190
6,881
(5,523)
(1,480)
885
2,973
(655)
(20)
3,183
309
(25)
(2,445)
1,022
(951) $(592)
(26)
$ 45
Accrued restructuring charges are included in “accrued salaries, wages and benefits,” “other accrued expenses” and “other long-term
liabilities” in the consolidated balance sheets. The expenses are included in “restructuring (credits) charges” in the consolidated
statements of operations.
NOTE 19 – SEGMENT INFORMATION
We are organized and report our results of operations in one operating segment that designs, imports, manufactures and markets
residential furniture products, principally in North America. The nature of the products, production processes, distribution methods,
types of customers and regulatory environment are similar for substantially all of our products.
NOTE 20 – COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET ARRANGEMENTS
We lease warehousing facilities, showroom space, and an upholstery frame plant and certain manufacturing, office and computer
equipment under leases expiring over the next five years. Rent expense was $2.5 million in fiscal 2009, $2.2 million in fiscal 2008,
$406,000 in the fiscal 2007 two-month transition period, and $2.4 million in fiscal 2006. Future minimum annual commitments under
leases and operating agreements amount to $3.6 million in fiscal 2010, $1.5 million in fiscal 2011, $861,000 in fiscal 2012, $729,000
in fiscal 2013, $717,000 in fiscal 2014 and $185,000 thereafter.
F-25
We had letters of credit outstanding totaling $2.4 million on February 1, 2009. We utilize letters of credit to collateralize certain
imported inventory purchases and certain insurance arrangements.
In the ordinary course of its business, we may become involved in legal proceedings involving contractual and employment
relationships, product liability claims, intellectual property rights and a variety of other matters. We do not believe that any pending
legal proceedings will have a material impact on our financial position or results of operations.
NOTE 21 – CONCENTRATIONS OF SOURCING RISK
We source imported products through over 40 different vendors, from 59 separate factories, located in seven countries. Because of the
large number and diverse nature of the foreign factories from which we can source our imported products, we have some flexibility in
the placement of products in any particular factory or country.
Factories located in China have become an important resource for Hooker Furniture. In fiscal year 2009, imported products sourced
from China accounted for approximately 90% of import purchases, and the factory in China from which we directly source the most
product accounted for approximately 46% of our worldwide purchases of imported product. A sudden disruption in our supply chain
from this factory, or from China in general, could significantly impact our ability to fill customer orders for products manufactured at
that factory or in that country. If such a disruption were to occur, we believe that we would have sufficient inventory to adequately
meet demand for approximately four months. Also, with the broad spectrum of product we offer, we believe that, in some cases,
buyers could be offered similar product available from alternative sources. We believe that we could, most likely at higher cost,
source most of the products currently sourced in China from factories in other countries and could produce certain upholstered
products domestically at our own factories. However, supply disruptions and delays on selected items could occur for approximately
six months. If we were to be unsuccessful in obtaining those products from other sources, or at comparable cost, then a sudden
disruption in the supply chain from our largest import furniture supplier, or from China in general, could have a short-term material
adverse effect on our results of operations. Given the capacity available in China and other low-cost producing countries, we believe
the risks from these potential supply disruptions are manageable.
NOTE 22 – QUARTERLY DATA (Unaudited)
2009
Net sales ..........................................................................
Cost of sales ....................................................................
Gross profit .....................................................................
Selling and administrative expenses ...............................
Net income ......................................................................
Basic and diluted earnings per share ...............................
2008
Net sales ..........................................................................
Cost of sales ....................................................................
Gross profit .....................................................................
Selling and administrative expenses ...............................
Net income ......................................................................
Basic and diluted earnings per share ...............................
First
Second
Third
Fourth
Fiscal Quarter
$71,027 $64,628 $68,996 $56,511
54,291
16,736
12,786
2,605
$ 0.23
$77,294
59,179
18,115
12,037
4,286
$ 0.33
50,501
14,127
11,264
2,074
$ 0.18
$73,441
53,953
19,488
11,560
4,858
$ 0.39
53,319
15,677
11,530
2,950
$ 0.27
$83,768
60,779
22,989
13,664
5,911
$ 0.48
42,767
13,744
10,400
(719)
$ (0.07)
$82,298
61,145
21,153
14,478
4,600
$ 0.39
Shipping and warehousing costs for periods prior to the 2009 fourth quarter have been reclassified from selling and administrative
expenses to cost of sales in order to conform to the current method of presentation. The reclassification due to this change in
accounting principle amounted to $16.8 million in fiscal 2009 and $15.5 million in fiscal 2008. For 2009 we reclassified; $4.6
million, $4.2 million, $4.1 million and $3.9 million for quarters one, two, three and four respectively. For fiscal 2008 we reclassified;
$4.0 million, $3.5 million, $3.6 million and $4.4 million for quarters one, two, three and four respectively.
During fiscal 2009, we recorded $4.9 million ($3.1 million after tax, or $0.28 per share) in goodwill and intangible asset impairment
charges.
F-26
Earnings per share for each fiscal quarter is derived using the weighted average number of shares outstanding during that quarter.
Unearned ESOP shares are not considered outstanding for purposes of calculating earnings per share. Earnings per share for the fiscal
year is derived using the weighted average number of shares outstanding on an annual basis. Consequently, the sum of earnings per
share for the quarters may not equal earnings per share for the full fiscal year.
F-27
Corpor ate Data
corporate offices
legal counsel
annual report on Form 10-K
Hooker Furniture Corporation
McGuireWoods LLp
440 east Commonwealth Boulevard
one James Center
Martinsville, Va 24112 or
p.o. Box 4708
Martinsville, Va 24115
(276) 632-0459
stock transfer agent and Dividend
Disbursing agent
american Stock transfer &
trust Company
59 Maiden Lane
plaza Level
new York, nY 10038
(800) 937-5449
www.amstock.com
901 east Cary Street
richmond, Va 23219
Independent registered public
accounting Firm
kpMG LLp
Suite 2300
three Wachovia Center
401 South tryon Street
Charlotte, nC 28202
annual Meeting
the annual Meeting of Shareholders
of Hooker Furniture Corporation will
be held on tuesday, June 9, 2009 at
2:00 p.m. at the Hooker Furniture
Corporation’s Corporate offices,
440 east Commonwealth Boulevard,
Martinsville, Va.
Hooker Furniture Corporation’s annual
report on Form 10-k, included herein,
is also available on our website at
www.hookerfurniture.com. a free copy
of our Form 10-k may also be obtained
by contacting robert W. Sherwood,
Vice president—Credit, Secretary and
treasurer at the corporate offices of
the Company.
Quarterly Financial Information
Quarterly financial results are
announced by press releases that are
available at www.hookerfurniture.com
in the “investor relations” section.
the Company’s quarterly reports
on Form 10-Q are also available at
www.hookerfurniture.com.
Hooker Furniture companies commit to environmental stewardship
in 2008, Hooker Furniture, together with subsidiaries Sam Moore and Bradington-Young,
announced a long-range commitment to environmental stewardship through sustainable
business practices. the Company is seeking eFeC (enhancing Furniture’s environmental Culture)
registration for all of its facilities. eFeC is an environmental management program developed
by the american Home Furnishings alliance (aHFa), the largest association of home furnishings
manufacturers, importers and suppliers in the world.
eFeC stresses better management of resources and raw materials, energy conservation and
reduction of a company’s environmental impact on a facility-by-facility basis through continuous
improvement. in recognition of Hooker’s environmental achievements, the Company received
the environmental excellence award from the aHFa during the year.
environmental Mission statement: on behalf of future generations, Hooker Furniture
commits to be a good steward of the environment through sustainable business practices
that help preserve the earth’s beauty and resources.
Designed by Curran & Connors, Inc. / www.curran-connors.com
www.sammoore.com
www.opusdesigns.com
www.hookerfurniture.com
www.bradington-young.com
Hook er F ur nit ur e Cor por ation
440 East Commonwealth Boulevard
Martinsville, VA 24112 or
P.O. Box 4708
Martinsville, VA 24115
276.632.0459
by Hooker Furniture