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F U R N I T U R E
Message To Our Shareholders
We’re happy to report Hooker Furniture moved forward on multiple fronts this year, launching two new start-up
operations while maintaining a successful and sustainable core business.
We were gratified to mark our 90th year of operation, as our primary business in upscale residential wood and
upholstered furniture, distributed through independent furniture retailers, continued to grow and reach a higher
level of professionalism and discipline. While we honor the past and celebrate the present, we also are preparing
for the future by taking a distinct leadership position in navigating the up-and-coming ecommerce space. We’re
addressing the consumer’s growing embrace of digital commerce and marketing on two fronts: through our
own direct-to-consumer ecommerce venture and by helping our retailer partners understand and navigate the
ecommerce space through our P3 (Preferred Partnership Program) featuring local ecommerce istores.
Planning for the future and adapting have been company values throughout our 90 years, and values to which we have remained faithful through
the recent recession and ensuing recovery. We are pleased to report progress on these initiatives, many of which have short-term financial and/or
operational costs that are necessary to help us adapt to the evolving furniture industry and global economy.
Progress comes in many forms but one of the best definitions we’ve seen is - “Positive development, usually of a gradual kind, toward achieving a goal
or reaching a higher standard.” With that in mind, we would like to take this opportunity to update you on the progress we’ve made this year and why
we believe we are “Achieving the Vision.”
Fiscal 2014 saw improved sales volume with consolidated sales up nearly 5% thanks to
increases at all of our operating units and modest incremental sales from our startup
initiatives, Homeware and H Contract. We were encouraged by upholstery sales growth,
with Sam Moore reporting 18% growth on top of an over 9% sales increase the prior
year. Sales also increased at Bradington-Young by 3% which suggests a recovery in the
luxury leather business. Casegoods sales were stronger in fiscal year 2014 as well after a
disappointing year in fiscal 2013, but we believe the casegoods segment of our industry still
lags upholstery’s recovery.
From a profitability standpoint, we have seen significant improvement at Bradington-
Young, which reported operating income for 16 consecutive months, after several
unprofitable years. This turnaround is a testimony to the persistence and focus of
Bradington-Young’s management team and employees, who worked diligently to reduce
costs and increase profitability. Results at Sam Moore have been more mixed and will
require continued diligence. With robust sales increases the past two years that outpaced
industry growth, we expected Sam Moore to be more profitable at this point. The positive
impact of a refreshed and broadened product line and a
focus on containing expenses were undermined by the costs
of increasing production capacity at Sam Moore. Significant
volume increases, as well as the addition of new products
and production support Sam Moore provided our new
Homeware and H Contract divisions, challenged our labor
efficiency and training requirements. The strong demand
suggests fabric upholstery will be a key element to future
growth. We are committed to returning Sam Moore to
operating profitability this year.
Excluding the impact of our new lines of business, our
casegoods unit reported essentially flat operating income
on 2% higher net sales. We incurred higher discounting to
dispose of slow moving inventory and essentially complete
our exit from the Opus Designs youth furniture and Envision
product lines. Now that we have moved through much
of this discontinued inventory and completed our exit
from these product lines, we believe we can redeploy our
human and financial resources to product lines with greater
potential.
During the last several years, our premium or “best” products
such as the Sanctuary, Rhapsody and Mélange collections
have been the source of our greatest sales success in the
Above, a modern club chair from Sam Moore and a Hooker Furniture wall unit and
a luxurious leather sofa from Bradington-Young accented by a nailhead-trimmed
octagonal ottoman from Sam Moore.
casegoods unit. Late in this fiscal year, a merchandising executive with a proven track
record in developing wood furniture in the “good” and “better” price points joined Hooker.
Under his leadership and through the development of a Vietnam warehouse program
to enable retailers to order direct containers with a mixture of good and better-priced
products, we see considerable upside potential to grow sales in more moderate price points
in the near and long term.
Two new business initiatives, H Contract and Homeware, were successfully launched
in fiscal year 2014. Because we believe both these concepts are somewhat unique, we
are building each business from the ‘ground-up’ rather than seeking to purchase existing
businesses. This more entrepreneurial approach will require considerable time and nurturing
to bring these new business units to profitability. As expected, both were unprofitable in
the first year, but we consider those short-term operating losses investments in the future
growth of our company.
We’ve undertaken many initiatives, large and small, over the past few years, intended
to shape our company for the future. Some we have spoken about in previous
communications. Others are more inward facing, but all are important to our future.
H Contract- To address the needs of the burgeoning senior living market, this division
was launched, as planned, in April 2013 at a national trade show. Throughout the year, we
developed print and online sales and marketing communications, built an internal staff and
a sales force and spent a great deal of time getting to know the industry and our potential
customers. Several months after launch, we began shipping market-specific upholstery
products, as well as accent and occasional wood furniture from our core casegoods line,
An upscale upholstered seating group from
H Contract.
into this new distribution channel that serves upscale senior living facilities. Our sales network now reaches 75% of the US, and H Contract is steadily
becoming a factor in its segment. While not profitable in its partial first year of operations we expect H Contract to begin hitting its stride in fiscal
year 2015.
Homeware – Building this brand,
with a unique product in a distribution
channel new to us and to much of the
furniture industry, has been challenging,
but we remain enthusiastic about
the brand and the future of on-line
furniture retailing. Following a late
summer introduction with national
online retailers, we launched our own
ecommerce website, homeware.
com, in time for the holiday shopping
season. The chairs and ottomans
offered during the site launch feature
a patented connector system enabling
them to be assembled in minutes by
the consumer with no tools required.
Our ability to ship Homeware products
in forty-eight hours, directly to the
consumers’ residence, is another key
differentiator. To expand our initial product line, we introduced other home accessories on
the site, helping us build brand recognition and traffic to homeware.com across other home
products channels. In the coming year, we plan at least four major rollouts of new product
lines including living room tables and home entertainment furniture, major upholstery
including sofas and sectionals, additional categories of home décor such as rugs, lighting,
mirrors and tabletop, and casual dining furniture. Expanding the product line will be an
important source of growth. In most recent months, we have seen steady improvement in
month-over-month website traffic and other key performance indicators as well as double-
digit month-over-month sales gains. This important initiative, which helps us address the
migration of retail business to online outlets, will take longer than H Contract to reach
critical mass and profitability, but we view this investment as a necessary step toward the
future of consumer-centric home furnishings retailing.
To support Homeware, we have built an organization with expertise in ecommerce, furniture
Above is a screen shot of the homeware.com
homepage and a photo of a best-selling
Homeware chair.
engineering and design and web marketing while leveraging other functions such
as distribution, manufacturing and administration from our existing business.
Digital Marketing - The range of products consumers are willing to purchase
online is expanding rapidly. As consumers of all ages become more comfortable
purchasing larger and more expensive items online and consumers demand the
convenience online shopping offers, it has become critical for furniture retailers-
-even small, local stores--to have an active digital sales and marketing presence.
When we introduced our P3 Program last year, we received a great deal of interest
from key independent retailers, but the unfamiliarity and complexity of the online
space resulted in a modest return on our efforts. However, we learned more about
what is important to our customers and the end consumer as well, and, in late
fiscal year 2014, we re-launched the P3 program by holding two ‘dealer summits’
which brought together retailers, digital marketing experts and several successful
current P3 participants for a day of education, information sharing and exchange
of ideas. Early indications from this new format have been very positive, with over
90% of the participants joining the P3 program. Based on these results, we plan
to hold more summits in other parts of the country in fiscal year 2015 in an effort
to assist more of our independent retailers as they navigate into the omni-channel
marketing arena.
Shown here is a home page of a retailer istore featuring Hooker
Furniture brands.
Corporately, we also are creatively addressing the consumer’s move toward digital
marketing. As nearly 90% of consumers who are in the market for home furnishings
now include the internet in their research, their purchase, or both, we believe our
company needs to ensure we can be easily found in all appropriate online searches
and digital advertising mediums. This includes not only our P3 partners, but also broad branding initiatives across the digital spectrum.
Therefore, we will continue to expand our presence in social media such as Facebook, Twitter, Pinterest and blogs while moving virtually all of our
national advertising campaigns into the online space. Also, we will launch a direct-to-consumer email campaign that will provide direct outreach to
thousands of consumers who have opted in to our campaign. And finally, we seek to continuously improve our web presence and will do so with the
launch of all new, consumer-centric corporate websites in fiscal year 2015.
International – After setbacks in the previous year, our international business began to grow again this year, increasing 13% over the prior year. Strong
order writing at both the Spring and Fall Furniture Markets, extensive travel by our VP – International Sales and the addition of sales representatives in
the key Middle East and China markets have contributed to this rebound. As fiscal year 2015 opens, we are building a new sales organization in China
to help us sell more effectively into this major market, which has demonstrated an appetite for our product in recent years. International sales, excluding
Canada, accounted for 2.1% of our sales last year, so we still have work to do to reach our goal of 10% of total sales volume.
Internal Changes – We’ve made progress on a number of inward facing initiatives this year as well. These changes are part of our mission to adapt
the company for the future, striving to become a more professional and disciplined organization. One of our primary responsibilities is to identify and
prepare the company for changes in customer demand and preferences, economic conditions, fashion and trends, and processes and personnel. We’d
like to review some of the internal changes and developments over the past year.
ERP – We worked to stabilize Phase I of our Microsoft Dynamics AX implementation during fiscal year 2014, but also immediately began the Phase
II project, which adds product customization, manufacturing scheduling and shop floor control to the new corporate information systems platform.
Associates at our domestic upholstery divisions, in collaboration with casegoods associates, worked intently over the last fifteen months to develop
these new modules so we can implement these core systems in the upholstery divisions during the summer and fall of Fiscal Year 2015. In addition to
the core system, we went live with a Product Lifecycle Management system and new sales force automation system in our casegoods division during
Fiscal Year 2014. We will enhance these systems and roll out to the other divisions in the coming year. No mention of these projects is complete
without acknowledging, with great appreciation, the efforts by so many people throughout the company who embraced these projects, on top of their
day to day responsibilities.
Sales Management - To better communicate with our customers, we made several changes in our sales management organization and processes.
Moving toward the goal of presenting a single face to our customers across all of our residential furniture brands, we reorganized our sales management
team, establishing three sales regions, each overseen by an experienced sales vice president. Company-wide sales strategies and promotional activities
are the responsibility of senior-level sales and marketing executives. This reorganization has been well received by customers, sales representatives and
within the company. The regional vice presidents can now spend more time with fewer customers, and can coordinate sales and promotional efforts
more effectively.
Inventory planning –In addition to our organizational change, we implemented a new feedback system with key retailers and our sales force which will
help us better plan inventory. “Planner Link” tracks demand trends and provides a structured format to gather planning data, which is used in inventory
forecasting.
Inventory planning is both an art and a science, but
both sides of the process benefit from increased
communication and discipline. Over the past year,
we also implemented a new sales and operations
planning process for our imported products
(Casegoods and Seven Seas Seating). The
process promotes company-wide collaboration,
with representatives from sales, merchandising,
forecasting, procurement, finance and senior
management engaging in a series of meetings
and detailed data reviews in support of monthly
inventory purchases. Service levels to our customers
have improved significantly while inventory levels
have been unchanged.
Administration – The focus on discipline and
process improvement runs throughout the
company. The work of our accounting, customer
care, logistics and IT staffs, who spent so much time
improving the new processes necessitated by our
ERP conversion, is now yielding greater efficiency
and improved and timelier reporting. As we move
toward the vision of ‘one face to the customer,’
the company-wide Customer Care group has
collaborated on developing operating procedures,
training on product related issues and best practices
for customer service. These changes have provided
advancement opportunities to a number of our
employees in the past year. Seeing our employees
advance their careers is especially gratifying and
speaks volumes to our employees’ drive and
capabilities.
This assortment of best-selling products includes a display cabinet and mirror from the Corsica
Collection, a club chair with hair-on-hide trim from Bradington-Young and a Sam Moore
curved front sofa.
No discussion about our people can be complete
without a tribute to Alan Cole, who retired this past
February as president of Hooker Furniture. Alan is an
inspirational leader, mentor and friend. When Alan
joined the company seven years ago, we knew his
experience and leadership skills would help guide us into the future. But we had no idea how influential he would be. He helped shape and implement
many of our new strategies while also providing day to day leadership and guidance throughout the company but especially in the sales, marketing and
merchandising functions. By helping identify and mentor key people, Alan helped us develop effective succession plans and deal with unexpected
personnel changes. He made difficult decisions and built open and honest communication throughout the company, even during challenging times,
with enthusiasm, compassion and grace. We are a better company thanks to the time he spent here.
For the last few years, we’ve outlined our vision for the future. In fiscal year 2014 we began to see many of those ideas become reality. While strategies
and operations evolve over time, and there is still a long way to go, we are encouraged by the progress we’ve made in the past year. As we move
forward, we will build enthusiastically upon the accomplishments of this year, pressing on to achieve the vision.
Paul B. Toms Jr.
Chairman and Chief Executive Officer, Hooker Furniture Corporation
Michael Delgatti Jr.
President, Hooker Furniture Corporation
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CORPORATE OFFICES
Hooker Furniture Corporation
440 East Commonwealth Boulevard
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 Co., LLC
6201 15th Avenue
Brooklyn, NY 11219
Toll free: 800-937-5449
Website: amstock.com
Email: info@amstock.com
LEGAL COUNSEL
McGuireWoods LLP
One James Center
901 East Cary Street
Richmond, VA 23219
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM KPMG LLP
Suite 3200
550 South Tryon Street
Charlotte, NC 28202
ANNUAL MEETING
The Annual Meeting of Shareholders of Hooker Furniture
Corporation will be held on Thursday, June 5, 2014
at the Hooker Furniture Corporate Offices, 440 East
Commonwealth Blvd. Martinsville, VA 24112.
ANNUAL REPORT ON FORM 10-K
Hooker Furniture Corporation’s Annual Report on Form
10-K, included herein, is also available on our website at
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 hookerfurniture.com in the “Investor
Relations” section. The Company’s quarterly reports on
Form 10-Q are also available at hookerfurniture.com.
This 2014 Annual Report contains forward-looking statements,
including discussions about our strategy and expectations
regarding our future performance, which are subject to various risks
and uncertainties. Factors that could cause actual results to differ
materially from management’s projections, forecasts, estimates and
expectations include, but are not limited to, the factors described
in our annual report on Form 10-K, which is included as part of
this report, including under “Item 1- Business—Forward-Looking
Statements” and “Item 1A. Risk Factors.” Any forward-looking
statement we make speaks only as of the date of that statement,
and we undertake no obligation, except as required by law, to
update any forward-looking statements whether as a result of new
information, future events or otherwise.
Hooker Furniture
Bradington-Young
Financial Highlights*:
(in thousands, except per share data)
For the:
INCOME STATEMENT DATA
Net sales
Operating income
Net income
Special charges after tax:
Restructuring
Impairment of intangible assets
Net income excluding special charges
PER SHARE DATA
Basic and diluted earnings per share
Special charges after tax:
Restructuring
Impairment of intangible assets
Earnings per share excluding special charges
Weighted average shares outstanding
Cash dividends per share
Fifty-two
Weeks
Ended
February 2,
2014
$ 228,293
12,503
7,929
Fifty-three
Weeks
Ended
Fifty-two
Weeks
Ended
Fifty-two
Weeks
Ended
Fifty-two
Weeks
Ended
February 3, January 29, January 30, January 31,
2013
2012
2011
2010
$ 218,359 $ 222,505 $ 215,429 $ 203,347
5,186
3,008
12,940
8,626
6,673
5,057
4,061
3,240
-
-
-
-
7,929 $
8,626 $
-
1,131
6,188 $
874
247
4,361 $
-
794
3,802
0.74 $
0.80 $
0.47 $
0.30 $
0.28
0.74 $
0.80 $
0.10
0.57 $
0.08
0.02
0.40 $
0.07
0.35
10,722
10,745
10,762
10,757
10,753
0.40 $
0.40 $
0.40 $
0.40 $
0.40
$
$
$
$
* 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.
NET SALES
($ in millions)
OPERATING INCOME
($ in millions)
NET INCOME EXCLUDING
SPECIAL CHARGES
($ in millions)
EARNINGS PER SHARE
EXCLUDING SPECIAL
CHARGES
$228.3
$12.9
$12.5
$222.5
$218.4
$215.4
$203.3
$6.7
$5.2
$4.1
$8.6
$7.9
$0.80
$0.74
$6.2
$0.57
$4.4
$3.8
$0.40
$0.35
'10 '11 '12 '13 '14
'10 '11 '12 '13 '14
'10 '11 '12 '13 '14
'10 '11 '12 '13 '14
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 2, 2014
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
Common Stock, no par value
Name of Each Exchange
on Which Registered
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes (X) No ( )
Indicate by check mark 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. (X)
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: $178.6 million.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of April 14, 2014:
Common stock, no par value
(Class of common stock)
10,752,982
(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 5, 2014 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.
Mine Safety Disclosures .............................................................................................................
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 ........................................................................................................................
Page
2
9
14
15
15
15
16
17
19
20
38
39
39
39
40
Part III
Item 10. Directors, Executive Officers and Corporate Governance .......................................................
Item 11. Executive Compensation ............................................................................................................
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
.....................................................................................................................................................
Item 13. Certain Relationships and Related Transactions, and Director Independence .......................
Item 14. Principal Accounting Fees and Services ...................................................................................
41
41
41
41
41
Part IV
Item 15. Exhibits and Financial Statement Schedules ............................................................................
Signatures ..............................................................................................................................................................
Index to Consolidated Financial Statements ........................................................................................................
42
44
F-1
1
ITEM 1.
BUSINESS
Hooker Furniture Corporation
Part I
Hooker Furniture Corporation (the “Company”, “we,” “us” and “our”) is a home furnishings marketing, design and logistics
company offering worldwide sourcing of residential casegoods and upholstery, as well as domestically-produced custom
leather and fabric-upholstered furniture. We were incorporated in Virginia in 1924 and are ranked among the nation’s top
10 largest publicly traded furniture sources, based on 2012 shipments to U.S. retailers, according to a 2013 survey
published by Furniture Today, a leading trade publication. We are a key resource for residential wood and metal furniture
(commonly referred to as “casegoods”) and upholstered furniture. Our major casegoods product categories include
accents, home office, dining, bedroom and home entertainment furniture under the Hooker Furniture brand. Our
residential upholstered seating companies include Bradington-Young (acquired in 2003), a specialist in upscale motion
and stationary leather furniture and Sam Moore Furniture (acquired in 2007), a specialist in upscale occasional chairs,
settees, sofas and sectional seating 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. For our core product line, our principal customers
are retailers of residential home furnishings that are broadly dispersed throughout the United States. Our customers also
include home furniture retailers in Canada and in more than 10 other countries internationally. Other customers include
independent furniture stores, specialty retailers, department stores, catalog and internet merchants, interior designers and
national and regional chains.
To expand and grow beyond our core business, we launched two start-up brands during the just-completed fiscal year
focused on serving the needs of emerging consumer groups on the opposite ends of the age and life stage spectrum.
One, H Contract, focuses on the burgeoning senior living market of retirees. The other, Homeware, focuses on younger
and more mobile consumers in the early stages of their careers.
H Contract supplies upholstered seating and casegoods to upscale senior living facilities throughout the country, working
with designers specializing in the contract industry to provide functional furniture for senior living facilities that meets the
style and comfort expectations of today’s retirees.
To address the needs of younger furniture shoppers, as well as those living in urban or smaller spaces, we launched
Homeware during August of our 2014 fiscal year, an online-only brand that is sold through leading international e-
commerce retailers as well as our own e-commerce website, homeware.com. In addition to unique chairs and ottomans
designed to be assembled in minutes by the consumer with no tools or hardware required, Homeware also offers home
accessories and will expand into living room tables, multi-seat upholstery, entertainment centers and dining room furniture
in the coming fiscal year.
Strategy and Mission
Our mission is to “enrich the lives of the people we touch,” using the following strategy:
To offer world-class style, quality and product value as a complete residential and contract 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 customers, employees, suppliers and community.
To nurture the relationship-focused, team-oriented and honor-driven corporate culture that has distinguished our
company for nearly 90 years.
Segments
For financial reporting purposes, we are organized into two operating segments – casegoods furniture and upholstered
furniture. Results from our new H Contract and Homeware business initiatives, and the elimination of intercompany sales
and profits related to these businesses, are aggregated with the results from our casegoods operating segment.
2
Home furnishings sales account for all of our net sales. The percentages of net sales provided by each of our segments
for the fifty-two week fiscal year that ended February 2, 2014 (fiscal 2014), the fifty-three week fiscal year ended February
3, 2013 (fiscal 2013), and the fifty-two week fiscal year that ended January 29, 2012 (fiscal 2012) were as follows:
Segment Sales as a Percentage of Consolidated Net Sales
Casegoods segment
Upholstery segment
Total
Fiscal Year
2014
64%
36%
100%
2013
65%
35%
100%
2012
66%
34%
100%
Products
Our product lines cover most major style categories, including European and American traditional, contemporary,
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 other natural woven products, often accented with marble, stone,
slate, glass, ceramic, brass and/or hand-painted finishes.
Major casegoods product categories include accents, home office, dining, bedroom and home entertainment furniture
which are marketed under the Hooker Furniture brand name, as well as “private label” products marketed under a
retailer’s brand name. Our casegoods are typically designed for and marketed in the medium to upper-medium price
range.
Bradington-Young markets its products under the Bradington-Young, Hooker Upholstery and Seven Seas by Bradington-
Young brand names and offers a broad variety of residential leather and fabric upholstered furniture and specializes in
leather reclining and motion chairs, sofas, club chairs and executive desk chairs. Bradington-Young offers approximately
200 leather selections and over 200 fabric selections for domestically produced upholstered furniture. Generally,
Bradington-Young-branded products are domestically produced, while Hooker Upholstery and Seven Seas by Bradington-
Young branded products are imported. Both are targeted at the medium and upper-medium price ranges.
Sam Moore Furniture’s products are marketed under the Sam Moore brand name and offer upscale occasional chairs,
sofas and other seating with an emphasis on fabric-to-frame customization. Sam Moore offers approximately 300
different styles of upholstered products in over 550 fabric selections and over 30 leather selections, including customer
supplied upholstery coverings commonly referred to as “COM” or customer-owned material. Domestically produced
upholstered furniture is targeted at the upper-medium and upper price ranges.
In an effort to broaden the appeal of our line to both consumers and retailers, we offer a “good-better-best”
merchandising assortment. Broadening our merchandising price range has made us a more complete resource for our
established dealers and has provided new opportunities with retailers who are positioned above or below our historical
price niche. Many of our most successful collections have been in the upper and upper-medium price points in recent
years. To better address the starting price points, during the 2014 fiscal year we hired a merchandising executive with
extensive experience developing product for these price points. We began introducing these products at the Spring 2014
International Home Furnishings Market.
We launched two new initiatives during fiscal 2014, which are intended to help us reach a broader consumer base:
H Contract- which supplies upholstered seating and casegoods to upscale senior living facilities throughout the
country. This division works with designers specializing in the contract industry to provide functional furniture for
senior living facilities that meets the style and comfort expectations of today’s retirees; and
Homeware- which features customer-assembled, modular upholstered and casegoods products, as well as home
accessories, designed for younger and more mobile furniture customers, marketed direct-to-consumer via the
internet. Using patented connectors designed by an experienced furniture engineer and designer, we expect
consumers will be able to assemble and disassemble these products in minutes, with no tools or hardware, and
move them easily from residence to residence, room to room, or up staircases and elevators in high-rise
apartment and condominium complexes. In addition, alternative design elements, arm and leg styles and covers
will allow consumers to transform the furnishings as their tastes and life stages evolve.
3
Product Life Cycle
The product life cycle for home furnishings continues to shorten as consumers demand innovative new features,
functionality, style, finishes, and fabrics that will enhance their lifestyle while providing value and durability. New styles in
each of our product categories are designed and developed semi-annually to replace discontinued products and
collections, and in some cases, to enter new product or style categories. Our collaborative product design process begins
with the marketing team identifying customer needs and trends and then 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 retailers to view and critique these
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 held each Fall and Spring in High
Point, N.C., and support new product launches with promotions, public relations, product brochures, point-of-purchase
consumer catalogs and materials and online marketing through our websites, as well as social media marketing through
venues such as Facebook®, Twitter®, Pinterest ® and YouTube®. The flexibility of both our global sourcing business model
and the quick delivery times provided by our domestic upholstery manufacturing presence gives us the ability to offer a
wide range of styles, items and price points to a variety of retailers serving a range of consumer markets. Based on sales
and market acceptance, we believe our products represent good value, and that the style and quality of our furniture
compares favorably with more premium-priced products.
Sourcing
Imported Products
We have sourced products from foreign manufacturers since 1988. Imported casegoods and upholstered furniture
together accounted for approximately 72% of net sales in fiscal 2014, 73% of net sales in fiscal 2013 and 76% of net sales
in fiscal 2012. We import 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, extensive product lines, compelling products, value, consistent quality, excellent customer service,
easy ordering and quick delivery through significant finished goods inventories, world-class global logistics and distribution
systems.
We import products primarily from China, Vietnam, Indonesia and Mexico. 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 and Vietnam are our primary resource for
imported furniture. In fiscal 2014, imported products sourced from China and Vietnam accounted for approximately 74%
and 16%, respectively, of import purchases. The factory in China from which we directly source the most product,
accounted for approximately 57% of our worldwide purchases of imported product. A disruption in our supply chain from
this factory, or from China or Vietnam 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 currently on hand and in transit to our U.S. warehouses in Martinsville, Virginia to adequately meet
demand for approximately five months, with up to an additional three months available for immediate shipment from our
primary Asian warehouse. 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 we could, most likely at higher cost, source most
of the products currently sourced in China or Vietnam 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 five to six months. If we were to be unsuccessful in obtaining those products from other sources or at a
comparable cost, then a disruption in our supply chain from our largest import furniture supplier, or from China or Vietnam
in general, could decrease our sales, earnings and liquidity. Given the capacity available in China, Vietnam and other
low-cost producing countries, we believe the risks from these potential supply disruptions are manageable.
Our imported furniture business is subject to inherent risks in importing products manufactured abroad, including, but not
limited to, supply disruptions and delays, currency exchange rate fluctuations, transportation related issues, 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.
4
Manufacturing and Raw Materials
At February 2, 2014, we operated approximately 465,000 square feet of manufacturing and supply plant capacity in North
Carolina and Virginia for our domestic upholstered furniture production. We consider the machinery and equipment at
these locations to be generally modern and well-maintained.
We believe there are continued strong market opportunities for domestically produced upholstery, particularly in the upper
and upper-medium price points, which provide two key competitive advantages compared to imported upholstery:
the ability to offer customized upholstery combinations to the upscale consumer and interior design trade; and
the ability to offer quick four to six-week product delivery of custom products.
Significant materials used in manufacturing upholstered furniture products include leather, fabric, foam, wooden frames
and metal mechanisms. Most of the leather is imported from Italy, South America and China, and is purchased as full
hides and cut and sewn in our facilities or is purchased as pre-cut and sewn kits processed by our vendors to our pattern
specifications.
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 37% of our raw materials supply purchases for domestic upholstered
furniture manufacturing operations in fiscal 2014. One supplier accounted for approximately 12% of our raw material
purchases. Should disruptions with this supplier occur, we believe we could successfully source these products from other
suppliers without significant disruptions to our operations.
Marketing
We utilize approximately 80,000 square feet of showroom space at the International Home Furnishings Market in High
Point, North Carolina to introduce new products and collections and increase sales of existing products during the
furniture industry’s Spring and Fall international furniture pre-markets and markets. We support new product launches with
promotions, public relations, product brochures, point-of-purchase consumer catalogs and materials and online marketing
through our websites, as well as social media marketing through venues such as Facebook®, Twitter®, Pinterest® and
YouTube®. We schedule purchases of imported furniture and the production of domestically manufactured upholstered
furniture based upon actual and anticipated orders and product acceptance at the Spring and Fall markets.
Realizing that the emerging young “millennial” consumer’s shopping preferences are vastly different from our core “baby
boomer” customers, and in response to a shift of volume and shopping activity to the Internet, we launched a new retailer
partnership program in late fiscal 2013 to help our retailers realign their business models to these new retail realities. “P3”
is an integrated, strategic and web-centric retail partnership program. Through P3, we are assisting retailers in setting up
local e-marketing and e-commerce through an online “iStore.” In addition to the build-out of the iStore, the P3 program
also offers ongoing training and service, as well as selected discounts and allowances and marketing support.
Warehousing and Distribution
We sell our branded products to retailers of residential home furnishings throughout the world through over 65
independent North American sales representatives and 6 foreign sales representatives servicing the international market.
These retailers are broadly dispersed throughout North America as well as over ten countries around the world. We sell
our products through a large number of channels of distribution which include independent furniture retailers, department
stores, national membership clubs, regional chain stores, catalog merchandisers, designers and E-retailers. We also work
directly with several large customers to develop private-label unbranded products exclusively for those customers.
We sold to approximately 3,700 customers during fiscal 2014. No single customer accounted for more than 4.0% of our
sales in 2014. 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 sales in fiscal 2014 were to
international customers. We believe our 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.
5
We distribute furniture to retailers from our distribution centers and warehouses in Virginia and North Carolina and directly
from Asia via our Container Direct from factory program. We have a warehousing and distribution arrangement in China
with our largest supplier of imported products. Our warehouse and distribution facility in China is owned by the supplier
and operated by the supplier and a third party utilizing a global warehouse management system that updates daily our
central inventory management and order processing systems. Under our container direct program, we offer directly to
retailers in the U.S. a focused and in-stock mix of over 300 of our best selling items sourced from our largest supplier.
The program features an internet-based product ordering system and a delivery notification system that is easy to use and
available to pre-registered dealers. In addition, we also ship containers directly from a variety of other suppliers in Asia.
We strive to provide imported and domestically produced furniture on-demand for our dealers. During fiscal year 2014,
we shipped 90% of all casegoods orders and approximately 51% of all upholstery orders within 30 days of order receipt.
It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment; therefore,
customer orders for casegoods are not firm. However, domestically produced upholstered products are predominantly
custom-built and shipped within six to eight weeks after an order is received and consequently, cannot be cancelled once
the leather or fabric has been cut.
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 but could choose to do so in the future. 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. However, 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.”
Working Capital Practices
The following describes our working capital practices:
Inventory: We generally import casegoods inventory and certain upholstery items in amounts that enable us to meet the
delivery requirements of our customers, our internal in-stock goals and minimum purchase requirements from our
sourcing partners. We do not carry significant amounts of domestically produced upholstery inventory, as most of these
products are built to order and are shipped shortly after their manufacture.
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 geographic dispersion. We regularly
perform credit evaluations of our customers and generally do not require collateral. For qualified customers, we offer
payment terms, generally requiring payment 30 days from shipment. However, we may offer extended payment terms in
certain circumstances, including to promote sales of our products. Our upholstery segment factors substantially all of its
receivables, in most cases on a non-recourse basis.
Accounts payable: Payment for our imported products warehoused first in Asia is due fourteen days after our quality audit
inspections are complete, and vendor invoice is presented. Beyond that, payment for goods which are generally shipped
to Hooker FOB Origin is due upon invoice presentation, which typically occurs at time of shipment. Payment terms for
domestic raw materials and non-inventory related charges vary, but are generally 30 days from invoice date.
Order Backlog
At February 2, 2014, our backlog of unshipped orders for our casegoods and upholstery segments was $14.1 million or
approximately 5.0 weeks of casegoods sales and $10.9 million or approximately 7.0 weeks of upholstery sales,
respectively. We consider unshipped order backlogs to be one helpful indicator of sales for the upcoming 30-day period,
but because of our relatively quick delivery and our cancellation policies (discussed under Warehousing and Distribution),
we do not consider order backlogs to be a reliable indicator of expected long-term business.
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Seasonality
In general, the summer months are the slowest for both of our operating segments, especially for leather upholstery sales
in our upholstery segment. We believe that consumer home furnishings purchases are driven by an array of factors,
including general economic conditions such as:
consumer confidence;
availability of consumer credit;
energy and other commodity prices; and
housing and mortgage markets;
as well as lifestyle-driven factors such as changes in:
fashion trends;
disposable income; and
household formation and turnover.
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 in our price points. While the markets in which we compete 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 and other
Asian countries, have stabilized in recent years; however, some overseas companies have increased their presence in
the U.S. during that period, both through wholesale distributors based in the U.S. and direct shipments to U.S. retailers.
The primary competitive factors for home furnishings in our price points include price, style, availability, service, quality
and durability. We believe 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.
Employees
As of February 2, 2014, we had approximately 670 full-time employees. None of our employees are represented by a labor
union. We consider our relations with our employees to be good.
Patents and Trademarks
The Hooker Furniture, Bradington-Young and Sam Moore 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, both domestically and internationally, none of which is considered to be material.
Hooker, the “H” logo, Bradington-Young, the “B-Y” logo, Sam Moore, H Contract, Homeware, Sam Moore Furniture
Industries, Sam Moore Furniture, LLC, America’s Premier Chair Specialist, America’s Chairmaker for over 70 Years,
Rhapsody, Sanctuary, Mélange, Corsica, Solana, Palisade, Beladora, Classique, Estate, Sheridan, Abbott Place, Lorimer,
Grandover, North Hampton, Small Office Solutions, Preston Ridge, Waverly Place, Sectional Sofas by Design,
Accommodations, Seven Seas, Seven Seas Seating, SmartLiving ShowPlace, SmartWorks Home Office, SmartWorks
Home Center and The Great Entertainers are trade names or trademarks of Hooker Furniture Corporation.
Governmental Regulations
Our company is subject to U.S. federal, state, and local laws and regulations in the areas of safety, health, employment
and environmental pollution controls, as well as U.S. and international trade laws and regulations. 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 we are in material compliance
with applicable U.S. and international laws and regulations.
7
Additional Information
You may visit us online at hookerfurniture.com, bradington-young.com, sammoore.com, homeware.com and
hcontractfurniture.com. We make available, free of charge through our Hooker Furniture website, our annual report on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other
documents as soon as practical after they are filed with or furnished to the Securities and Exchange Commission. A free
copy of our annual report on Form 10-K may also be obtained by contacting Robert W. Sherwood, Vice President - Credit,
Secretary and Treasurer at BSherwood@hookerfurniture.com or by calling 276-632-2133.
Forward-Looking Statements
Certain statements made in this report, including under Part II, Item 2 – “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and in the notes to the consolidated financial statements included in this
report, 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:
general economic or business conditions, both domestically and internationally, and instability in the financial and
credit markets, including their potential impact on our (i) sales and operating costs and access to financing or (ii)
customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their
respective businesses;
our ability to successfully implement our business plan to increase sales and improve financial performance;
the cost and difficulty of marketing and selling our products in foreign markets;
disruptions involving our vendors or the transportation and handling industries, particularly those affecting
imported products from China, including customs issues, labor stoppages, strikes or slowdowns and the
availability of shipping containers and cargo ships;
disruptions affecting our Henry County, Virginia warehouses and corporate headquarters facilities;
when or whether our new business initiatives become profitable;
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;
risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the
prices and availability of key raw materials, as well as changes in transportation, warehousing and domestic labor
costs and environmental compliance and remediation costs;
the interruption, inadequacy, security failure or integration failure of our information systems or information
technology infrastructure, related service providers or the internet;
the direct and indirect costs associated with the implementation of our Enterprise Resource Planning system,
including costs resulting from unanticipated disruptions to our business;
achieving and managing growth and change, and the risks associated with new business lines, acquisitions,
restructurings, strategic alliances and international operations;
adverse political acts or developments in, or affecting, the international markets from which we import products,
including duties or tariffs imposed on those products;
8
risks associated with distribution through third-party retailers, such as non-binding dealership arrangements;
capital requirements and costs;
competition from non-traditional outlets, such as catalog and internet retailers and home improvement centers;
changes in consumer preferences, including increased demand for lower-quality, lower-priced furniture due to,
among other things, levels of declines in consumer confidence, amounts of discretionary income available for
furniture purchases and the availability of consumer credit;
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 or non-compliant products: and
higher than expected employee medical costs.
Any forward-looking statement that we make speaks only as of the date of that statement, and we undertake no
obligation, except as required by law, to update any forward-looking statements whether as a result of new
information, future events or otherwise.
We face a number of significant risks and uncertainties, as more fully discussed in Item 1A, “Risk Factors” below.
ITEM 1A. RISK FACTORS
Our business is subject to a variety of risks. The risk factors discussed 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,
results of operations, financial condition or 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 rely on offshore sourcing, particularly from China, for predominantly all of our casegoods furniture products
and for a significant portion of our upholstered products. Consequently:
A disruption in supply from China or from our most significant Chinese supplier could adversely affect
our ability to timely fill customer orders for these products and decrease our sales, earnings and liquidity.
In fiscal 2014, imported products sourced from China accounted for approximately 74% of our import purchases and
the factory in China from which we directly source the largest portion of our import products accounted for
approximately 57% of our worldwide purchases of imported products. Furniture manufacturing creates large amounts
of highly flammable wood dust and utilizes other highly flammable materials such as varnishes and solvents in our
manufacturing processes and are therefore subject to the risk of losses arising from explosions and fires. A 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 currently on hand and in transit to our U.S. warehouses in Martinsville, VA to
adequately meet demand for approximately five months with up to an additional three months available for
immediate shipment from our warehouses in Asia. 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 five 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, a disruption in our supply chain from our largest import
furniture supplier, or from China in general, could adversely affect our sales, earnings, financial condition and liquidity.
We are subject to changes in foreign government regulations and in the political, social and economic
climates of the countries from which we source our products.
Changes in political, economic, and social conditions, as well as in the laws and regulations in the foreign
countries from which we source our products could adversely affect our sales, earnings, financial condition and
liquidity. These changes could make it more difficult to provide products and service to our customers or could
increase the cost of those products. International trade regulations and 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 affecting our products could increase our costs and
decrease our earnings. For example since 2004, the U.S. Department of Commerce has imposed tariffs on
wooden bedroom furniture coming into the United States from China. In this case, none of the rates imposed have
9
been of sufficient magnitude to alter our import strategy in any meaningful way; however, these and other tariffs
are subject to review and could be implemented or increased in the future.
Our dependence on non-U.S. suppliers could, over time, adversely affect our ability to service customers.
We rely exclusively on non-U.S. suppliers for our casegoods furniture products and for a significant portion of our
upholstered products. Our non-U.S. 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 non-U.S. vendors may be delayed for reasons not typically encountered for domestically
manufactured furniture, such as shipment delays caused by customs issues, labor issues, port-related issues
such as weather, congestion or port equipment, decreased availability of shipping containers and/or the inability
to secure space aboard shipping vessels to transport our products. Our failure to timely fill customer orders due
to an extended business interruption for a major non-U.S. supplier, or due to transportation issues, could
negatively impact existing customer relationships and adversely affect our sales, earnings, financial condition and
liquidity.
Our inability to accurately forecast demand for our imported products could cause us to purchase too much,
too little or the wrong mix of inventory.
Manufacturing and delivery lead times for our imported products necessitate that we make forecasts and assumptions
regarding current and future demand for these products. If our forecasts and assumptions are inaccurate, we may
purchase excess or insufficient amounts of inventory. If we purchase too much or the wrong mix of inventory, we may
be forced to sell it at lower margins, which could adversely affect our sales, earnings, financial condition and liquidity.
If we purchase too little or the wrong mix of inventory, we may not be able to fill customer orders and may lose market
share and weaken or damage customer relationships which also could adversely affect our sales, earnings, financial
condition and liquidity.
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 our sales, earnings and liquidity.
For imported products, we generally negotiate firm pricing with our foreign suppliers in U.S. Dollars, typically for
periods 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 but could choose to do so in the future. 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
decrease our sales, earnings and liquidity during affected periods.
Supplier transitions, including cost or quality issues, could result in longer lead times and shipping delays.
In the past, inflation concerns, and to a lesser extent quality and supplier viability concerns, affecting some of our
imported product suppliers located in China have prompted us to source more of our products from lower cost and/or
higher quality suppliers located in other countries, such as Vietnam and Indonesia. We expect this transition away
from suppliers located in China to continue, but at a slower pace than in prior years. When undertaken, transitions of
this type involve significant planning and coordination by and between us and our new suppliers in these countries.
Despite our best efforts and those of our new sourcing partners, these transition efforts are likely to result in longer
lead times and shipping delays over the short term, which could adversely affect our sales, earnings, financial
condition and liquidity.
Our new business initiatives could fail.
During fiscal 2014, we launched two new business initiatives- H Contract and Homeware. Both businesses require
experience and expertise outside of our traditional skillset. Although we have hired professionals who we believe have the
requisite skills and experience to lead these new initiatives, we may not succeed in growing these new initiatives into
profitable businesses. These businesses may fail outright or fail to produce an adequate return. Both businesses reported
operating losses in fiscal 2014 and we spent $2.1 million pre-tax, ($1.4 million, or $0.13 per share after tax), on related
start-up costs. In the near term, we expect each of these business units to operate at or below breakeven and require
significant additional working capital as we attempt to increase sales in these units. These expenditures will have a
10
negative impact on our short-term earnings and liquidity. If we are unsuccessful in making these businesses profitable,
our earnings and liquidity could be adversely affected.
A disruption affecting our Martinsville, Virginia warehouse, distribution or headquarters facilities could disrupt
our business.
Our Martinsville, Virginia facilities are critical to our success. Our Martinsville, Virginia warehouses housed approximately
55% of our consolidated inventories at February 2, 2014, with approximately 32% of our consolidated inventories at
February 2, 2014 stored at our Central Distribution Center (CDC) in Martinsville. During fiscal 2014, approximately 63% of
our invoiced sales were shipped out of our Martinsville facilities, with 42% of fiscal 2014 invoiced sales shipped out of
CDC. Additionally, our corporate headquarters, which houses all of our corporate administration, sourcing, sales, finance,
product design, customer service and traffic functions for our imported products is located in this area. Any disruption
affecting the CDC facility or a combination of our other facilities in this area, for even a relatively short period of time,
could adversely affect our ability to ship our imported furniture products and disrupt our business, which could adversely
affect our sales, earnings, financial condition and liquidity.
The implementation of our Enterprise Resource Planning system could disrupt our business.
We are in the process of implementing a Company-wide Enterprise Resource Planning (ERP) system. Our ERP system
implementation may not result in improvements that outweigh its costs and may disrupt our operations. Our inability to
mitigate existing and future disruptions could adversely affect our sales, earnings, financial condition and liquidity. The ERP
system implementation subjects us to substantial costs and inherent risks associated with migrating from our legacy
systems. These costs and risks could include, but are not limited to:
inability to fill customer orders accurately and on a timely basis, or at all;
inability to process payments to suppliers, vendors and associates accurately and in a timely manner;
significant capital and operating expenditures;
disruptions to our domestic and international supply chains;
disruption of our internal control structure;
inability to fulfill our SEC or other governmental reporting requirements in a timely or accurate manner;
inability to fulfill federal, state and local tax filing requirements in a timely or accurate manner; and
increased demands on management and staff time to the detriment of other corporate initiatives.
The interruption, inadequacy, security failure or integration failure of our information systems or information
technology infrastructure or the internet could adversely impact our business adversely affect our sales, earnings,
financial condition and liquidity.
Our information systems (software) and information technology (hardware) infrastructure platforms and those of third
parties who provide these services to us, including internet service providers and third-parties who store data for us on
their servers, facilitate and support every facet of our business, including the sourcing of raw materials and finished
goods, planning, manufacturing, warehousing, customer service, shipping, accounting and human resources. Our
systems, and those of third parties who provide services to us, are vulnerable to disruption or damage caused by a variety
of factors including, but not limited to: power disruptions or outages; natural disasters or other so-called “Acts of God”;
computer system or network failures; viruses or malware; physical or electronic break-ins; the theft of computers, tablets
and smart phones utilized by our employees or contractors; unauthorized access and cyber-attacks. If these information
systems or information technology are interrupted or fail, our operations may be adversely affected, which could adversely
affect our sales, earnings, financial condition and liquidity.
If demand for our domestically manufactured upholstered furniture declines and we may respond by realigning
manufacturing.
Our domestic manufacturing operations make only upholstered furniture. A decline in demand for our domestically
produced upholstered furniture could result in the realignment of our domestic manufacturing operations and capabilities
and the implementation of cost savings measures. These programs could include the consolidation and integration of
facilities, functions, systems and procedures. We may decide to source certain products from other suppliers instead of
continuing to manufacture them. These realignments and cost savings measures typically involve initial upfront costs and
could result in decreases in our near-term earnings before the expected cost savings are realized, if they are realized at
11
all. We may not always accomplish these actions as quickly as anticipated and may not achieve the expected cost
savings.
We may not be able to collect amounts owed to us.
We grant payment terms to most customers ranging from 30 to 60 days and do not generally require collateral. However,
in some instances we provide longer payment terms. Some of our customers have experienced, and may in the future
experience, credit-related issues. While we perform ongoing credit evaluations of our customers, those evaluations may
not prevent uncollectible trade accounts receivable. Credit evaluations involve significant management diligence and
judgment. Should more customers than we anticipate experience liquidity issues, or if payment is not received on a timely
basis, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales,
earnings and financial condition and liquidity. Additionally, we factor substantially all of our domestic upholstery accounts
receivable, in most cases without recourse to us. Should we ever elect to end our factoring arrangement and manage our
domestic upholstery trade receivables ourselves, that decision would increase our exposure to bad debt risk and could
adversely affect our sales, earnings, financial condition and liquidity.
We may experience impairment of our long-lived assets, which would decrease our earnings and net worth.
Accounting rules require that long-lived assets be tested for impairment when circumstances indicate, but at least
annually. At February 2, 2014 we had $25.1 million in net long-lived assets, consisting primarily of property, plant and
equipment, trademarks and trade names. The outcome of impairments testing could result in the write-down of all or a
portion of the value of these assets. A write-down of our assets would, in turn, reduce our earnings and net worth. Over
the past three fiscal years, we have written down approximately $1.8 million in long lived assets. This write-down occurred
in fiscal 2012 and was the result of the impairment of our Bradington-Young trade name. It is possible that we will have
additional write-downs in the future, resulting in reductions to our earnings and net worth. Factors which may lead to
additional write-downs of our long lived assets include, but are not limited to:
A significant decrease in the market value of a long-lived asset;
A significant adverse change in the extent or manner in which a long-lived asset group is being used, or in its
physical condition;
A significant adverse change in the legal factors or in the business climate that could affect the value of a long-
lived asset, including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected to acquire or construct a long-
lived asset;
A current period operating or cash flow loss or a projection or forecast that demonstrates continuing losses
associated with a long-lived asset’s use; and
A current expectation that more-likely-than-not, a long-lived asset will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life.
We may not be able to maintain or raise prices in response to inflation and increasing costs.
Competitive and market forces could prohibit future successful price increases for our products in order to offset increased
costs of finished goods, raw materials, freight and other product-related costs, which could decrease our earnings and
liquidity.
Economic downturns could result in decreased sales, earnings and liquidity.
The furniture industry is particularly sensitive to cyclical variations in the general economy and to uncertainty regarding
future economic prospects. Home furnishings are generally considered a postponable 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, our primary customers, possibly adversely affecting our sales, earnings and
liquidity. Changes in interest rates, consumer confidence, new housing starts, existing home sales, the availability of
consumer credit and broader national or geopolitical factors have particularly significant effects on our business. A
recovery in our sales could lag significantly behind a general recovery in the economy after an economic downturn, due
to, among other things, the postponable nature and relatively significant cost of home furnishings purchases.
12
We may lose market share due to competition.
The furniture industry is very competitive and fragmented. We compete with numerous domestic and non-U.S. residential
furniture sources. Some competitors have greater financial resources than we have and often offer extensively
advertised, well-recognized, branded products. Competition from non-U.S. sources has increased dramatically over the
past decade. 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 value and styling, finish and other
construction techniques) from those of our competitors. In addition, some large furniture retailers are sourcing directly
from non-U.S. furniture factories. Over time, this practice may expand to smaller retailers. As a result, we are continually
subject to the risk of losing market share, which could adversely affect our sales, earnings, financial condition and liquidity.
Failure to anticipate or timely respond to changes in fashion and consumer tastes could adversely impact our
business.
Furniture is a styled product and is subject to rapidly changing fashion trends and consumer tastes, as well as to
increasingly shorter product life cycles. 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 adversely affect our
sales, earnings, financial condition and liquidity.
The loss of several large customers through business consolidations, failures or other reasons could adversely
affect our business.
The loss of several of our major customers through business consolidations, failures or otherwise, could adversely affect
our sales, earnings, financial condition and liquidity. Lost sales may be difficult to replace. Amounts owed to us by a
customer whose business fails, or is failing, may become uncollectible, and we could lose future sales, any of which could
adversely affect our sales, earnings, financial condition and liquidity.
Our ability to grow and maintain sales and earnings depends on the successful execution of our business
strategies.
We are primarily a residential furniture design, sourcing, marketing and logistics company with domestic upholstery
manufacturing capabilities. We are completely dependent on non-U.S. suppliers for all of our casegoods furniture
products and a significant portion for our upholstered products. Our ability to grow and maintain 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;
good decisions about product mix and inventory availability targets;
the enhancement of relationships and business systems that allow us to continue to work more efficiently and
effectively with our global sourcing suppliers; and
the right mix between domestic manufacturing and foreign sourcing for upholstered products.
Our traditional customer base, independent furniture stores and regional chains, is getting smaller and the
demographic profile of the typical home furnishings consumer is evolving. Therefore, we must:
identify and adapt to trends in retailing; and
develop strategies to sell in the channels in which our consumers prefer to shop.
All of these factors affect our ability to grow and maintain sales, earnings and liquidity.
13
We may incur higher employee costs in the future.
We maintain a self-insured healthcare plan for our employees. We have insurance coverage in place for aggregate claims
above a specified amount in any year. While our healthcare costs in recent years have generally increased at the same
rate or greater than as the national average, those costs have increased more rapidly than general inflation in the U.S.
economy. Continued inflation in healthcare costs, as well as additional costs we may incur as a result of current or future
federal or state healthcare legislation and regulations, could significantly increase our employee healthcare costs in the
future. Continued increases in our healthcare costs could adversely affect our earnings, financial condition and liquidity.
Our results of operations for any quarter are not necessarily indicative of our results of operations for a full year.
Home furnishings sales fluctuate from quarter to quarter due to factors such as changes in economic and competitive
conditions, weather conditions and changes in consumer order patterns. From time to time, we have experienced, and
may continue to experience, volatility with respect to demand for our home furnishing products. Accordingly, our results of
operations for any quarter are not necessarily indicative of the results of operations to be expected for a full year.
Fluctuations in the price, availability or quality of raw materials for our domestically manufactured upholstered
furniture could cause manufacturing delays, adversely affect our ability to provide goods to our customers or
increase our costs.
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 or availability
of required raw materials could negatively affect our ability to meet the demands of our customers. The inability to meet
customers’ demands could adversely affect our sales, earnings, financial condition and liquidity.. We may not always be
able to pass price increases in raw materials through to our customers due to competition and other market pressures.
We may engage in acquisitions and investments in companies, form strategic alliances and pursue new business
lines. These activities could disrupt our business, dilute our earnings per share, decrease the value of our
common stock and decrease our earnings and liquidity.
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 could 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
and decrease the value of our common stock. We may pursue new business lines in which we have limited or no prior
experience or expertise. These pursuits may require substantial investment of capital and personnel. New business
initiatives may fail outright or fail to produce an adequate return, which could adversely affect our earnings, financial
condition and liquidity.
Future costs of complying with various laws and regulations may adversely impact future operating results.
Our business is subject to various domestic and international laws and regulations that could have a significant impact on
our operations and the cost to comply with such laws and regulations could adversely impact our sales, earnings, financial
condition and liquidity. In addition, failure to comply with such laws and regulations, even inadvertently, could produce
negative consequences which could adversely impact our operations and reputation..
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
14
ITEM 2. PROPERTIES
Set forth below is information with respect to our principal properties at April 18, 2014. We believe all of these properties
are well-maintained and in good condition. During fiscal 2014, we estimate our upholstery plants operated at
approximately 90% of capacity on a one-shift basis. All our production facilities are equipped with automatic sprinkler
systems. All facilities maintain modern fire and spark detection systems, which we believe are adequate. We have
leased certain warehouse facilities for our distribution and import operations, typically 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, representing
approximately 2.0 million square feet of owned space, leased space or properties utilized under third-party operating
agreements.
Location
Segment Use
Primary Use
Martinsville, Va. Both segments Corporate Headquarters
Martinsville, Va. Both segments Distribution and Imports
Martinsville, Va. Casegoods
Martinsville, Va. Both segments Distribution
High Point, N.C. Both segments Showroom
Cherryville, N.C. Upholstery
Upholstery
Hickory, N.C.
Upholstery
Hickory, N.C.
Upholstery
Bedford, Va.
Manufacturing Supply Plant
Manufacturing
Manufacturing and Offices
Manufacturing and Offices
Customer Support Center
Approximate Size in Square Feet
43,000
580,000
146,000
628,000
80,000
53,000
91,000
36,400
327,000
Owned or Leased
Owned
Owned
Owned
Leased (1)
Leased (2)
Owned (3)
Owned (3)
Leased (3) (4)
Owned (5)
(1) Lease expires March 31, 2021.
(2) Lease expires October 31, 2016.
(3) Comprise the principal properties of Bradington-Young LLC.
(4) Lease expires December 15, 2014 and provides for 2 one-year extensions at our election.
(5) 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
Guangdong, China
Segment Use
Casegoods
Primary Use
Distribution
Approximate Size in Square Feet
210,000 (1)
(1) This property is subject to an operating agreement that expires on July 31, 2014.
Renwal is automatic unless either party gives notice to terminate 120 days prior to expiration.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
15
EXECUTIVE OFFICERS OF
HOOKER FURNITURE CORPORATION
Hooker Furniture’s executive officers and their ages as of April 18, 2014 and the year each joined the Company are as
follows:
Name
Age
Position
Paul B. Toms, Jr.
Paul A. Huckfeldt
59 Chairman and Chief Executive Officer
56 Chief Financial Officer and
Year Joined Company
1983
2004
Michael W. Delgatti, Jr.
Anne M. Jacobsen
60 President - Hooker Furniture Corporation
52 Senior Vice President-Administration
2009
2008
Senior Vice President - Finance and Accounting
Paul B. Toms, Jr. has been Chairman and Chief Executive Officer since December 2000 and also served as President
for most of the period from November 2006 to August 2011. 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.
Paul A. Huckfeldt has been Senior Vice President - Finance and Accounting since September 2013 and Chief Financial
Officer since January 2011. Mr. Huckfeldt served as Vice President – Finance and Accounting from December 2010 to
September 2013, Corporate Controller and Chief Accounting Officer from January 2010 to January 2011, Manager of
Operations Accounting from March 2006 to December 2009 and led the Company’s Sarbanes-Oxley implementation and
subsequent compliance efforts from April 2004 to March 2006.
Michael W. Delgatti, Jr. has been President since February 2014. Mr. Delgatti served as President – Hooker Upholstery
from August 2011 to January 2014 and Executive Vice-President of Corporate Sales from September 2012 to January
2014. Mr. Delgatti joined the Company in January of 2009 as Executive Vice-President of Hooker Upholstery.
Anne M. Jacobsen has been Senior Vice President- Administration since January 2014. Ms. Jacobsen joined the
Company in January of 2008 as Director of Human Resources and served as Vice President- H R and Administration
from January 2011 to January 2014 and Vice President-Human Resources from November 2008 to January 2011.
16
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 we paid with respect to our common
stock for the periods indicated.
November 4, 2013 - February 2, 2014
August 5, - November 3, 2013
May 6, - August 4, 2013
February 4 - May 5, 2013
October 29, 2012 - February 3, 2013
July 30, - October 28, 2012
April 30, - July 29, 2012
January 30 - April 29, 2012
Sales Price Per Share
High
Low
$
17.81
17.20
18.00
18.30
$
15.19
13.77
12.82
13.99
$
15.01
13.35
15.06
13.93
$
13.27
11.35
10.01
11.37
Dividends
Per Share
$
0.10
0.10
0.10
0.10
$
0.10
0.10
0.10
0.10
As of February 2, 2014, we had approximately 2,800 beneficial shareholders. We expect that future regular quarterly
dividends will be paid and declared in the months of March, June, September, and December. Although we presently
intend to continue to declare regular 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.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
During the fiscal 2013 first quarter, our Board of Directors authorized the repurchase of up to $12.5 million of the
Company’s common shares. During fiscal 2013, we used an aggregate of $671,000 to purchase 57,700 shares of our
stock at an average price of $11.63 per share. No shares were purchased during fiscal 2014. Approximately $11.8 million
remains available under the board’s authorization. For additional information regarding this repurchase authorization, see
the “Share Repurchase Authorization” section in Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
17
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 February 1,
2009 to February 2, 2014.
Comparison of Cumulative Total Return (1)
Hooker Furniture Corporation
$400
$350
$300
$250
$200
$150
$100
$50
$0
2/1/2009
1/31/2010
1/30/2011
1/29/2012
2/3/2013
2/2/2014
Hooker Furniture Corp.
Russell 2000 Index (2)
SIC Code 2510-2511 (3)
(1) The graph shows the cumulative total return on $100 invested at the beginning of the measurement period in our
common stock or the specified index, including reinvestment of dividends.
(2)
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.
(3) Household Furniture Index as prepared by Zacks Investment Research, Inc. consists of companies under SIC Codes
2510 and 2511, which includes home furnishings companies that are publically traded in the United States or
Canada. At February 2, 2014, Zacks Investment Research, Inc. reported that these two SIC Codes consisted of
Bassett Furniture Industries, Inc., Dorel Industries, Inc., Ethan Allen Interiors, Inc., Flexsteel Industries, Inc.,
Furniture Brands International, Inc., Hooker Furniture Corporation, La-Z-Boy, Inc., Leggett & Platt, Inc., Natuzzi
SPA-ADR, Nova Lifestyle, Inc., Select Comfort Corporation, Stanley Furniture Company, Inc. and Tempur-Pedic
International, Inc.
18
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for each of our last five fiscal years 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. Additionally, we face a number of significant risks and uncertainties, as more fully
discussed in Item 1A, “Risk Factors”, above. If any or a combination of these risks and uncertainties were to occur, the
information below may not be fully indicative our future financial condition or results of operations.
Incom e Statem ent Data:
Net sales
Cost of sales
Gross profit
Selling and adminstrative expenses (2)
Restructuring charges (3)
Goodw ill and intangible asset impairment charges (4)
Operating income
Other income (expense), net
Income before income taxes
Income taxes
Net income
Per Share Data:
Fiscal Year Ended (1)
February 2,
February 3,
January 29,
January 30,
January 31,
2014
2013
2012
2011
2010
(In thousands, except per share data)
$
228,293
$
218,359
$
222,505
$
215,429
$
203,347
173,568
54,725
42,222
-
-
12,503
(35)
12,468
4,539
7,929
165,813
173,642
168,547
154,931
52,546
39,606
-
-
12,940
53
12,993
4,367
8,626
48,863
40,375
-
1,815
6,673
272
6,945
1,888
5,057
46,882
41,022
1,403
396
4,061
108
4,169
929
3,240
48,416
41,956
-
1,274
5,186
(99)
5,087
2,079
3,008
Basic and diluted earnings per share
$
0.74
$
0.80
$
0.47
$
0.30
$
0.28
Cash dividends per share
Net book value per share (5)
Weighted average shares outstanding (basic)
0.40
12.57
10,722
0.40
12.19
10,745
0.40
11.78
10,762
0.40
11.78
10,757
0.40
11.86
10,753
Balance Sheet Data:
Cash and cash equivalents
Trade accounts receivable
Inventories
Working capital
Total assets
Shareholders' equity
$
23,882
$
26,342
$
40,355
$
16,623
$
37,995
29,393
49,016
94,142
155,481
134,803
28,272
49,872
92,200
155,823
131,045
25,807
34,136
89,534
149,171
127,113
27,670
57,438
89,297
150,411
126,770
25,894
36,176
87,894
149,099
127,592
(1) Our fiscal years end on the Sunday closest to January 31. The fiscal years presented above all had 52 weeks, except for the
fiscal year ended February 3, 2013, which had 53 weeks.
(2) Selling and administrative expenses for fiscal 2014 include $2.1 million of startup costs pre-tax, ($1.4 million, or $0.13 per
share after tax) for our H Contract and Homeware business initiatives.
(3) In fiscal 2011, we closed facilities in order to consolidate our domestic leather upholstered furniture operations. As a result, we
recorded $1.4 million pretax ($874,000 after tax, or $0.08 per share), principally for severance and asset impairment.
(4) Based on our annual impairment analyses, we recorded the following intangible asset impairment charges:
a)
b)
c)
in fiscal 2012, $1.8 million pretax ($1.1 million after tax or $0.10 per share) on our Bradington-Young trade name;
in fiscal 2011, $396,000 pretax ($247,000 after tax or $0.02 per share) on our Opus Designs by Hooker Furniture
trade name; and
in fiscal 2010, $661,000 pretax ($412,000 after tax, or $0.04 per share) on our Opus Designs by Hooker
Furniture trade name and $613,000 pretax ($382,000 after tax, or $0.04 per share) on our Bradington-Young
trade name.
19
(5) Net book value per share is derived by dividing “shareholders’ equity” by the number of common shares issued and
outstanding, excluding unvested restricted shares, all determined as of the end of each fiscal period.
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. We especially encourage users of this
report to familiarize themselves with:
All of our recent public filings made with the Securities and Exchange Commission (“SEC”). Our public filings
made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com;
The forward looking statements contained in Item 1 of this report, which describe the significant risks and
uncertainties that could cause actual results to differ materially from those made in any forward-looking
statements we make in this report, including those contained in this section of our annual report on Form 10-K;
The company-specific risks found in Item 1A “Risk Factors” of this report on Form 10-K. This section contains
critical information regarding significant risks and uncertainties that we face. If any of these risks materialize, our
business, financial condition and future prospects could be adversely impacted; and
Our commitments and contractual obligations and off-balance sheet arrangements described on page 31 and in
Note 17 on page F-29 of this report. These sections describe commitments, contractual obligations and off-
balance sheet arrangements, some of which are not reflected in our consolidated financial statements.
All references to the Company in this discussion refer to the Company and its consolidated subsidiaries, unless
specifically referring to segment information. Unless otherwise indicated, amounts shown in tables are in thousands,
except for share and per share data.
Our fiscal years 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 2013 fiscal year
that ended on February 3, 2013 was a 53-week fiscal year. Our quarterly periods are based on thirteen-week “reporting
periods” (which end on a Sunday) rather than quarterly periods consisting of three calendar months. As a result, each
quarterly period generally is thirteen weeks, or 91 days, long, except as noted above.
The financial statements filed as part of this annual report on Form 10-K include the:
fifty-two week period that began February 4, 2013 and ended on February 2, 2014 (fiscal 2014);
fifty-three week period that began January 30, 2012 and ended on February 3, 2013 (fiscal 2013); and
fifty-two week period that began January 31, 2011 and ended on January 29, 2012 (fiscal 2012).
Nature of Operations
Hooker Furniture Corporation (the “Company”, “we,” “us” and “our”) is a home furnishings marketing and logistics
company offering worldwide sourcing of residential casegoods and upholstery, as well as domestically-produced custom
leather and fabric-upholstered furniture. We were incorporated in Virginia in 1924 and are ranked among the nation’s top
10 largest publicly traded furniture sources, based on 2012 shipments to U.S. retailers, according to a 2013 survey
published by Furniture Today a leading trade publication. We are a key resource for residential wood and metal furniture
(commonly referred to as “casegoods”) and upholstered furniture. Our major casegoods product categories include
accents, home office, dining, bedroom and home entertainment furniture under the Hooker Furniture brand. Our
residential upholstered seating companies include Bradington-Young (acquired in 2003), a specialist in upscale motion
and stationary leather furniture and Sam Moore Furniture (acquired in 2007), a specialist in upscale occasional chairs,
settees, sofas and sectional seating 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 residential furniture retailers, primarily targeting the upper-medium price range. Our principal customers are
retailers of residential home furnishings that are broadly dispersed throughout the United States. Our customers also
include home furniture retailers in Canada and in over 10 other countries internationally. Other customers include
independent furniture stores, specialty retailers, department stores, catalog and internet merchants, interior designers and
national and regional chains. We launched two new initiatives during fiscal 2014, which are intended to help us reach a
broader consumer base:
20
H Contract- which supplies upholstered seating and casegoods to upscale senior living facilities throughout the
country; and
Homeware- which features customer-assembled, modular upholstered and casegoods products, as well as home
accessories, designed for younger and more mobile furniture customers, marketed direct-to-consumer via the
internet.
Overview
Consumer home furnishings purchases are driven by an array of factors, including general economic conditions such as:
consumer confidence;
availability of consumer credit;
energy and other commodity prices; and
housing and mortgage markets;
as well as lifestyle-driven factors such as changes in:
fashion trends;
disposable income;
household formation and turnover; and
Economic and economic-related factors, such as high unemployment and changing consumer priorities, have resulted in
a somewhat depressed retail environment for discretionary home furnishings and related purchases since 2008. However,
the extended weakness in housing and housing-related industries is beginning to show signs of sustained recovery, and
mostly positive news on housing and consumer confidence is encouraging.
Our lower overhead, variable-cost import operations have driven our profitability over the last few years and provide us
with more flexibility to respond to changing demand by adjusting inventory purchases from suppliers. On the other hand,
our import model requires a larger investment in inventory and longer production lead times. In addition, we must
constantly evaluate our imported furniture suppliers and, when quality concerns or inflationary pressures diminish the
value proposition offered by our current suppliers, transition sourcing to other suppliers, often located in different countries
or regions.
Results for our domestic upholstery operations, which have significantly higher overhead and fixed costs than our import
operations, have been particularly affected by the decline in demand for home furnishings and experienced operating
losses or low operating profitability beginning with our fiscal 2009 second quarter through the second quarter of fiscal
2013. We initiated extensive cost reduction efforts over that time, which mitigated the effect of the weakness in demand.
Our upholstery segment operations have been profitable for the last two fiscal years.
The following are the primary factors that affected our consolidated results of operations for fiscal 2014.
Consolidated net sales increased, primarily due to higher average selling prices in both operating segments,
partially offset by higher discounting and returns and allowances in our casegoods segment and five fewer
shipping days in fiscal 2014 than in fiscal 2013.
Consolidated gross profit increased in absolute terms, due primarily to increased sales volume in both segments,
but was essentially flat as a percentage of net sales.
Consolidated selling and administrative expenses increased in both absolute terms and as a percentage of net
sales primarily due to start-up costs for our H Contract and Homeware business initiatives and a number of other
factors such as higher marketing and professional expenses which are discussed in greater detail below; and
Our upholstery segment nearly doubled operating profitability, primarily due to improvements in Bradington-
Young’s domestic leather operations due to increased sales due to higher selling prices, lower cost of sales due
to improved material utilization and lower selling and administrative expenses due to lower marketing related
costs.
21
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:
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Intangible asset impairment charges
Operating income
Other income, net
Income before income taxes
Income taxes
Net income
Fifty-two
Fifty-two
Fifty-three
weeks ended weeks ended weeks ended
January 29,
February 3,
February 2,
2012
2013
2014
100.0%
78.0
22.0
18.1
0.8
3.0
0.1
3.1
0.8
2.3
100.0%
75.9
24.1
18.1
-
5.9
0.1
6.0
2.0
4.0
100.0%
76.0
24.0
18.5
-
5.5
0.0
5.5
2.0
3.5
Fiscal 2014 Compared to Fiscal 2013
Net Sales
Fifty-two weeks ended
Fifty-three weeks ended
February 2, 2014
February 3, 2013
$ Change % Change
% Net
Sales
% Net
Sales
Casegoods
Upholstery
$
145,266
63.6%
$
141,064
64.6%
$
4,202
83,027
36.4%
77,295
35.4%
$
5,732
Consolidated
$
228,293
100.0%
$
218,359
100.0%
$
9,934
3.0%
7.4%
4.5%
Unit Volume and Average Selling Price
Unit Volume
FY14 %
Increase
vs. FY13
Average Selling Price
Casegoods
Upholstery
Consolidated
-3.4%
1.2%
-2.0%
Casegoods
Upholstery
Consolidated
FY14 %
Increase
vs. FY13
5.9%
6.2%
6.3%
Because we report on a fiscal year that ends on the Sunday closest to January 31st of each year, the 2014 fiscal year was
one week shorter than the comparable 2013 fiscal year which was 53 weeks long. The following table presents average net
sales per shipping day in thousands for the 2014 and 2013 fiscal years:
22
Net Sales per Shipping Day
Fifty-two weeks
ended
February 2, 2014
Fifty-three weeks
ended
February 3, 2013
$
581
$
553
332
303
$
913
$
856
%
Change
5.1%
9.6%
6.6%
250
255
Gross Profit
Fifty-two weeks ended
Fifty-three weeks ended
February 2, 2014
February 3, 2013
$ Change % Change
Casegoods
$
39,332
Upholstery
15,393
Consolidated
$
54,725
% Net
Sales
27.1%
18.5%
24.0%
% Net
Sales
$
38,054
27.0%
$
1,278
14,492
18.8%
901
$
52,546
24.1%
$
2,179
3.4%
6.2%
4.1%
Consolidated gross profit increased in absolute terms, but was essentially flat as percentage of net sales in fiscal 2014, as
compared to the same prior-year period, primarily due to increased sales and higher average selling prices in both
segments and lower distribution costs in our casegoods segment due to the closure of several Asian warehouses and
lower payroll expenses.
Selling and Administrative Expenses
Fifty-two weeks ended
Fifty-three weeks ended
February 2, 2014
February 3, 2013
$ Change % Change
% Net
Sales
% Net
Sales
Casegoods
Upholstery
Consolidated
$
28,742
19.8%
$
26,102
18.5%
$
2,640
13,480
16.2%
13,504
17.5%
(24)
$
42,222
18.5%
$
39,606
18.1%
$
2,616
10.1%
-0.2%
6.6%
Consolidated selling and administrative expenses increased both in absolute terms and as a percentage of net sales in
the fiscal 2014 compared to the prior-year period.
Casegoods selling and administrative expenses increased both in absolute terms and as a percentage of net sales,
primarily due to:
start-up costs for our H Contract and Homeware initiatives, startup costs which were $2.1 million pre-tax, ($1.4
million, or $0.13 per share after tax), in fiscal 2014;
an increase in bad debts expense due to a favorable adjustment in the comparable fiscal 2013 period;
an increase in professional service expense due to increased compliance and regulatory costs;
an increase in salaries and wages due to hiring to fill open positions; and
an increase in selling expenses due to increased marketing and promotional activity.
Upholstery selling and administrative expenses decreased both in absolute terms and as a percentage of net sales due to
increased sales volume.
23
Fifty-two weeks ended
Fifty-three weeks ended
Operating Income
February 2, 2014
February 3, 2013
$ Change % Change
Casegoods
$
10,590
Upholstery
1,913
Consolidated
$
12,503
% Net
Sales
7.3%
2.3%
5.5%
$
11,953
987
$
12,940
% Net
Sales
8.5%
1.3%
5.9%
$
(1,363)
-11.4%
926
$
(437)
93.8%
-3.4%
Operating income decreased for fiscal 2014 compared to the prior-year both as a percentage of net sales and in absolute
terms, due to the factors discussed above. The operating loss for our H Contract and Homeware initiatives was $1.5
million, which is reported in our casegoods segment.
Income Taxes
Fifty-two weeks ended
Fifty-three weeks ended
February 2, 2014
February 3, 2013
$ Change % Change
Consolidated income tax expense
$
4,539
2.0%
$
4,367
2.0%
$
172
3.9%
Effective Tax Rate
36.4%
33.6%
% Net
Sales
% Net
Sales
We recorded income tax expense of $4.5 million during fiscal 2014, compared to $4.4 million for fiscal 2013, due primarily to
our effective tax rate rising, which primarily resulted from a decrease in the favorable permanent difference attributable to the
annual gain associated with Company-owned life insurance.
Net Income and Earnings Per Share
Fifty-two weeks ended
February 2, 2014
Fifty-three weeks ended
February 3, 2013
$ Change % Change
Net Income
Consolidated
$
7,929
% Net
Sales
3.5%
$
8,626
% Net
Sales
4.0%
$
(697)
-8.1%
Earnings per share
$
0.74
$
0.80
24
Fiscal 2013 Compared to Fiscal 2012
Net Sales
Fifty-three weeks ended
Fifty-two weeks ended
February 3, 2013
January 29, 2012
$ Change % Change
% Net
Sales
% Net
Sales
Casegoods
Upholstery
$
141,064
64.6%
$
147,927
66.5%
$
(6,863)
77,295
35.4%
74,578
33.5%
$
2,717
Consolidated
$
218,359
100.0%
$
222,505
100.0%
$
(4,146)
-4.6%
3.6%
-1.9%
Unit Volume
FY13 %
Increase
vs. FY12
Average Selling Price
Casegoods
Upholstery
Consolidated
-19.7%
-4.3%
-15.8%
Casegoods
Upholstery
Consolidated
FY13 %
Increase
vs. FY12
17.8%
7.9%
15.7%
The decrease in consolidated net sales was principally due to lower unit volume, particularly in our casegoods segment,
partially offset by higher average selling prices in both segments. The casegoods sales decrease was driven by out-of-stock
positions on several key items, groups and collections in the first half of the 2013 fiscal year and decreased discounting.
The out-of-stock positions were primarily due to overly-aggressive inventory reductions that began in fiscal 2012 and
continued into the fiscal 2013 first six months. To a lesser extent and consistent with our fiscal 2012 fourth quarter, vendor
shifts from China to other Asian countries resulted in the delay of several well-placed new casegoods collections and
negatively impacted fiscal 2013 first six month sales. These vendor shifts contributed to the out-of-stock positions and
increased the demand for our best-selling, in-stock products. This accelerated demand cycle hastened the out-of-stock
position on best sellers. Sales of imported products in fiscal 2012 were driven by heavy discounting, intended to reduce
inventory of slow selling and discontinued products. Upholstery net sales increased compared to the same prior-year period,
primarily due to increased average selling prices, partially offset by lower unit volume.
Because we report on a fiscal year that ends on the Sunday closest to January 31st of each year, the 2013 fiscal year was
one week longer than the comparable 2012 fiscal year. The following table presents average net sales per shipping day in
thousands for the 2013 and 2012 fiscal years:
Average Net Sales Per Shipping Day
Fifty-three
weeks ended
February 3, 2013
$
553
303
Casegoods
Upholstery
Consolidated
$
856
%
Change
-6.1%
1.9%
-3.8%
Fifty-two weeks
ended
January 29, 2012
$
589
297
$
886
Shipping Days
255
251
25
Gross Profit
Fifty-three weeks ended
Fifty-two weeks ended
February 3, 2013
January 29, 2012
$ Change % Change
Casegoods
$
38,054
Upholstery
14,492
Consolidated
$
52,546
% Net
Sales
27.0%
18.8%
24.1%
% Net
Sales
$
37,550
25.4%
$
504
11,313
15.2%
3,179
$
48,863
22.0%
$
3,683
1.3%
28.1%
7.5%
As a percentage of net sales, consolidated gross margin increased, primarily due to decreased discounting in both
segments and lower domestic upholstery manufacturing costs as a percentage of net sales, partially offset by modestly
higher costs on some of our imported products. The higher levels of product discounting in fiscal 2012 were primarily due
to efforts to reduce slow-moving inventory levels. In absolute terms, consolidated gross profit increased, primarily due to
improved upholstery segment performance, partially offset by the decline in casegoods net sales discussed above.
Selling and Administrative Expenses
Fifty-three weeks ended
Fifty-two weeks ended
February 3, 2013
January 29, 2012
$ Change % Change
% Net
Sales
% Net
Sales
Casegoods
Upholstery
Consolidated
$
26,102
18.5%
$
26,905
18.2%
$
(803)
13,504
17.5%
13,470
18.1%
34
$
39,606
18.1%
$
40,375
18.1%
$
(769)
-3.0%
0.3%
-1.9%
Casegoods selling and administrative expenses increased as a percentage of net sales primarily due to the net sales
decrease discussed above, but decreased in absolute terms, primarily due to:
increased amounts billed to our imported upholstery division for its share of administrative costs compared to prior
periods;
lower contributions expense, due to lower levels of distressed inventory;
lower bad debt expense, due to favorable collections experience;
reduced advertising and sample expenses, due to cost-cutting measures; and
lower sales and design commissions, due to lower net sales.
These expense improvements were partially offset by increases in:
bonus expense, due to the reversal of an accrual for long-term performance grant awards in the comparable
prior-year period;
salary expense, primarily due to an executive promotion and other salary increases; and
fees for professional services, due to additional fees for several corporate initiatives.
Upholstery selling and administrative expenses decreased as a percentage of net sales, primarily due to decreases in:
salary expense, due to an executive promotion to a corporate position and cost reduction efforts undertaken in
fiscal 2012;
benefits expense, due to decreased headcount and lower health claims; and
sample and advertising expenses, due to cost-cutting measures.
26
These decreases were partially offset by an increase in the upholstery segment’s share of Company-wide administrative
costs.
Operating Income
Fifty-three weeks ended
Fifty-two weeks ended
February 3, 2013
January 29, 2012
$ Change % Change
Casegoods
$
11,953
Upholstery
987
Consolidated
$
12,940
% Net
Sales
8.5%
1.3%
5.9%
% Net
Sales
$
10,644
7.2%
$
1,309
12.3%
(3,971)
-5.3%
4,958
$
6,673
3.0%
$
6,267
124.9%
93.9%
Operating profitability increased both as a percentage of net sales and in absolute terms, due to the factors discussed
above. The upholstery segment returned to operating profitability during the 2013 fiscal first quarter and, despite a modest
operating loss in the fiscal 2013 second quarter, posted an operating profit for fiscal 2013. The upholstery segment has
returned to operating profitability due to operational improvements and the non-recurrence of intangible asset impairment
charges in fiscal 2013. During the fourth quarter of fiscal 2012, our upholstery segment recorded a non-cash intangible
asset impairment charge of $1.8 million ($1.1 million, or $0.10 per share, after tax) to write-down the value of the
Bradington-Young trade name. We wrote down the carrying value of the Bradington-Young trade name because of
operating losses incurred in that division through fiscal 2012.
Income Taxes
Fifty-three weeks ended
Fifty-two weeks ended
February 3, 2013
January 29, 2012
$ Change % Change
Consolidated income tax expense
$
4,367
2.0%
$
1,888
0.8%
$
2,479
131.4%
Effective Tax Rate
33.6%
27.2%
% Net
Sales
% Net
Sales
We recorded income tax expense of $4.4 million during fiscal 2013, compared to $1.9 million for fiscal 2012, due primarily to
an increase in pre-tax income. Our effective tax rate rose to 33.6% from 27.2%. The effective rate in fiscal 2013 was higher
than in fiscal 2012 mainly because our taxable income was higher and the dollar value of the favorable permanent differences
we recognized each year (for officers’ life insurance, distributions received from our offshore insurance affiliate and charitable
contributions of inventory) remained fairly constant in dollar terms, but as a percentage of taxable income the benefit was
significantly smaller.
27
Net Income and Earnings Per Share
Fifty-three weeks ended
February 3, 2013
Fifty-two weeks ended
January 29, 2012
$ Change % Change
Net Income
Consolidated
$
8,626
% Net
Sales
4.0%
$
5,057
% Net
Sales
2.3%
$
3,569
70.6%
Earnings per share
$
0.80
$
0.47
Financial Condition, Liquidity and Capital Resources
Balance Sheet and Working Capital
The following chart shows changes in our total assets, current assets, current liabilities, net working capital and working
capital ratio at February 2, 2014 compared to February 3, 2013:
Total Assets
Cash
Trade Receivables
Inventories
Prepaid Expenses & Other
Total Current Assets
Balance Sheet and Working Capital
February 2, 2014
February 3, 2013
$ Change
$
155,481
$
155,823
$
(342)
$
23,882
$
26,342
$
(2,460)
29,393
49,016
4,758
28,272
49,872
5,181
1,121
(856)
(423)
$
107,050
$
109,667
$
(2,618)
Trade accounts payable
Accrued salaries, wages and benefits
Other accrued expenses, commissions and deposits
$
7,077
$
11,620
$
(4,543)
3,478
2,352
3,316
2,531
162
(180)
Total current liabilities
Net working capital
Working capital ratio
$
12,907
$
17,467
$
4,560
$
94,142
$
92,200
$
1,942
8.3 to 1
6.3 to 1
As of February 2, 2014, total assets decreased $342,000 compared to fiscal 2013, due principally to decreased cash
balances and inventories, partially offset by increased cash surrender value of Company-owned life insurance net
property, plant and equipment and income tax recoverable.
Cash decreased primarily due to the reduction in accounts payable resulting from the timing of payments. Inventory
decreased from our efforts to match inventory levels with projected demand. Cash surrender value of Company-owned
life insurance increased due to premiums paid during fiscal 2014. Property, plant and equipment, net, increased primarily
due to expenditures related to our ongoing ERP efforts and other capital projects to enhance our facilities and operations,
partially offset by normal depreciation.
Fiscal 2014 year-end net working capital (current assets less current liabilities) increased compared to the 2013 fiscal
year-end, primarily due to larger decreases in current liabilities than in current assets. Current liabilities decreased $4.6
million primarily due to:
decreased accounts payable due to lower inventory purchases, from our efforts to match inventory levels with
projected demand; and decreased accrued expenses due to the timing of income tax payments.
28
Current assets decreased $2.6 million primarily due to:
decreased cash balances as we paid down outstanding accounts payable balances; and
decreased inventories from our efforts to match inventory levels with projected demand.
Summary Cash Flow Information – Operating, Investing and Financing Activities
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash used in financing activities
Fifty-Two
Weeks
Ended
Fifty-Three
Weeks
Ended
February 2, February 3,
2014
$
5,696
(3,855)
(4,301)
$
2013
(3,333)
(4,623)
(6,057)
Fifty-Two
Weeks
Ended
January 29,
2012
$
32,276
(4,229)
(4,315)
Net (decrease) increase in cash and cash equivalents
$
(2,460)
$
(14,013)
$
23,732
During fiscal 2014, $5.7 million of cash generated from operations, cash on hand and proceeds received on Company-
owned life insurance policies of $517,000, funded cash dividends of $4.3 million, purchases of property and equipment of
$3.5 million and Company-owned life insurance premium payments of $834,000. Company-owned life insurance policies
are in place to compensate us for the loss of key employees, to facilitate business continuity and to serve as a funding
mechanism for certain executive benefits.
During fiscal 2013, $14 million of cash on hand funded $3.3 million in operating activities, cash dividends of $5.4 million,
$671,000 for the purchase and retirement of common stock, capital expenditures of $4.1 million related to our business
operating systems and facilities and premiums paid on Company-owned life insurance policies of $902,000.
During fiscal 2012, $32.3 million in cash generated from operations funded an increase in cash and cash equivalents of
$23.7 million, cash dividends of $4.3 million, capital expenditures of $3.8 million related to our business operating systems
and facilities and premiums paid on Company-owned life insurance policies of $1.1 million.
Liquidity, Financial Resources and Capital Expenditures
We believe that we have the financial resources, including available cash and cash equivalents, expected cash flow from
operations, lines of credit and the cash surrender value of Company-owned life insurance, needed to meet business
requirements for the foreseeable future, including capital expenditures and working capital, as well as to pay regular
quarterly cash dividends on our common stock. Cash flow from operations is highly dependent on incoming order rates
and our operating performance.
As of February 2, 2014, we had an aggregate $12.9 million available under our revolving credit facility to fund working
capital needs. Standby letters of credit in the aggregate amount of $2.1 million, used to collateralize certain insurance
arrangements and for imported product purchases, were outstanding under the revolving credit facility as of February 2,
2014. There were no additional borrowings outstanding under the revolving credit facility on February 2, 2014.
Loan Agreement and Revolving Credit Facility
We have a $15 million unsecured revolving credit facility under a loan agreement with Bank of America, N.A., up to $3.0
million of which can be used to support letters of credit. The loan agreement allows the Company to permanently
terminate or reduce the $15 million revolving commitment without penalty and includes, among others, the following
terms:
a maturity date of July 31, 2018;
a floating interest rate, adjusted monthly, based on LIBOR, plus an applicable margin based on the ratio of our funded
debt to our EBITDA (each as defined in the loan agreement);
29
a quarterly unused commitment fee of 0.20%; and
no pre-payment penalty.
The loan agreement also includes customary representations and warranties and requires us to comply with customary
covenants, including, among other things, the following financial covenants:
Maintain a tangible net worth of at least $95.0 million;
Limit capital expenditures to no more than $15.0 million during any fiscal year; and
Maintain a ratio of funded debt to EBITDA not exceeding 2.0:1.0.
We were in compliance with each of these financial covenants at February 2, 2014 and expect to remain in compliance
with existing covenants for the foreseeable future. The loan agreement does not restrict our ability to pay cash dividends
on, or repurchase shares of, our common stock, subject to complying with the financial covenants under the agreement.
Factoring Arrangement
We factor substantially all of our domestic upholstery accounts receivable, in most cases without recourse to us. We
factor these receivables because factoring:
allows us to outsource the administrative burden of the credit and collections functions for our domestic upholstery
operations;
allows us to transfer the collection risk associated with the majority of our domestic upholstery receivables to the
factor; and
provides us with an additional, potential source of short-term liquidity.
Capital Expenditures
We expect to spend between $3 million to $4 million in capital expenditures in the 2015 fiscal year to maintain and
enhance our operating systems and facilities. Of these estimated amounts, we expect to spend approximately $1.1 million
on the implementation of our ERP system in our upholstery segment during fiscal 2015.
Enterprise Resource Planning
Our new Enterprise Resource Planning (ERP) system became operational for our casegoods and imported upholstery
operations early in the third quarter of fiscal 2013. ERP conversion efforts began for our domestic upholstery units early in
the fiscal 2014 first quarter, with full implementation scheduled to be completed during fiscal 2015. Once both segments
are fully operational on the ERP platform, we expect to realize operational efficiencies and cost savings as well as present
a single face to our customers and leverage best practices across the organization.
Cost savings are difficult to quantify until the ERP system becomes fully operational Company-wide. We expect to be able
to reduce administrative functions, which are presently duplicated across our segments and improve our purchasing
power and economies of scale. In addition to the capital expenditures discussed above, our ERP implementation will
require a significant amount of time invested by our associates.
We refer you to Item “1A. Risk Factors”, above, for additional discussion of risks involved in our ERP system conversion
and implementation.
Share Repurchase Authorization
During the fiscal 2013 first quarter, our Board of Directors authorized the repurchase of up to $12.5 million of the
Company’s common shares. The authorization does not obligate us to acquire a specific number of shares during any
period and does not have an expiration date, but it may be modified, suspended or discontinued at any time at the
discretion of our Board of Directors. Repurchases may be made from time to time in the open market, or through privately
negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash
requirements for other purposes, compliance with the covenants under the loan agreement for our revolving credit facility
and other factors we deem relevant. We have entered into a trading plan under Rule 10b-18 and Rule 10b5-1 of the
Securities Exchange Act of 1934 for effecting some or all of the purchases under this repurchase authorization. The
trading plan contains provisions that could restrict the amount and timing of purchases. We can terminate this plan at any
time. In fiscal 2013, we used approximately $671,000 of the authorization to purchase 57,700 of our common shares (at
30
an average price of $11.63 per share). No shares were purchased during fiscal 2014. Approximately $11.8 million remains
available for future purchases under the authorization as of the end of the 2014 fiscal year.
Dividends
On March 4, 2014, our Board of Directors declared a quarterly cash dividend of $0.10 per share, payable on March 31,
2014 to shareholders of record at March 17, 2014.
Commitments and Contractual Obligations
As of February 2, 2014, our commitments and contractual obligations were as follows:
Deferred compensation payments (1)
Operating leases (2) (3)
Other long-term obligations (4)
Cash Payments Due by Period (In thousands)
Less than
1 Year
$
354
924
734
1-3 Years
$
1,490
939
22
3-5 Years
$
1,398
6
-
More than
5 years
$
8,494
-
-
$
Total
11,736
1,869
756
Total contractual cash obligations
$2,012
$2,451
$1,404
$8,494
$14,361
__________________
(1) These amounts represent estimated cash payments to be paid to participants in our supplemental retirement income plan or “SRIP” through
fiscal year 2038, which is 15 years after the last current SRIP participant is assumed to have retired. The present value of these benefits (the
actuarially derived projected benefit obligation for this plan) was approximately $7.7 million at February 2, 2014 and is shown on our
consolidated balance sheets, with $354,000 recorded in current liabilities and $7.3 million recorded in long-term liabilities. In addition, the
monthly retirement benefit for each participant, regardless of age, would become fully vested and the present value of that benefit would be
paid to each participant in a lump sum upon a change in control of the Company as defined in the plan. See note 11 to the consolidated
financial statements beginning on page F-18 for additional information about the SRIP.
(2) These amounts represent estimated cash payments due under operating leases for office equipment, warehouse equipment and real estate
utilized in our operations. See Item 2 “Properties,” for a description of our leased real estate.
(3) On April 1, 2014, we entered into a new, seven-year operating lease for a 628,000 square foot warehouse facility that we currently lease in
Henry County, Virginia. We currently occupy approximately 400,000 square feet of this facility. We expect that the new lease will increase the
operating lease obligations shown above by the following amounts (in thousands):
Less than 1 Year: $942
1-3 Years: $2,321
3-5 Years: $2,415
More than 5 Years: $2,725
See note 20 to the consolidated financial statements on page F-30 for additional information about this lease.
(4) These amounts represent estimated cash payments due under various long-term service and support agreements, for items such as
warehouse management services, information technology support and human resources related consulting and support.
Off-Balance Sheet Arrangements
Standby letters of credit in the aggregate amount of $2.1 million, used to collateralize certain insurance arrangements and
for imported product purchases, were outstanding under our revolving credit facility as of February 2, 2014. See the
“Commitments and Contractual Obligations” table above and Note 17 to the consolidated financial statements included in
this annual report on Form 10-K for additional information on our off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
In December 2011, the Financial Accounting Standards Board issued Accounting Standards Update No. 2011-
12,“Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of
Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-
05,” which deferred the requirement to present on the face of the financial statements items that are reclassified from
other comprehensive income to net income. In February 2013, the Financial Accounting Standards Board (FASB) issued
Accounting Standard Update No. 2013-02, which finalized the reporting requirements of reclassifications out of
31
accumulated other comprehensive income. We adopted this guidance beginning in the first quarter of fiscal year 2014
when it was required. The adoption of this update did not have a material effect on our statements of income, financial
position or cash flows.
In December 2011, the FASB issued Accounting Standards Update No. 2011-11, “Balance Sheet (Topic 210):
Disclosures about Offsetting Assets and Liabilities,” which requires disclosure of both gross information and net
information about both instruments and transactions eligible for offset in the statement of financial position and
instruments and transactions subject to agreements similar to master netting arrangements. In January 2013, the
Financial Accounting Standards Board issued Accounting Standards Update No. 2013-01, “Balance Sheet (Topic 210):
Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities,” which clarified the scope of Accounting
Standards Update No. 2011-11. We adopted this guidance beginning in the first quarter of fiscal year 2014 when it was
required. The adoption of this update did not have a material effect on our statements of income, financial position or cash
flows.
Strategy
Our strategy is to offer world-class style, quality and product value as a complete residential casegoods 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 customers, employees, suppliers
and communities. Additionally, we strive to nurture the relationship-focused, team-oriented and honor-driven corporate
culture that has distinguished our company for over 90 years.
Fiscal 2014 in Review
Casegoods Segment
Casegoods sales have been slower to regain their pre-recession momentum, possibly due to the longer life of wood
furniture and its higher average purchase prices compared to upholstery. However, we are shipping better than last year
thanks to a much improved inventory position and the strength of our best-selling lines.
In the fiscal 2014 third quarter, we hired a seasoned furniture design professional who is focusing on expanding our
merchandising reach in the “good” and “better” parts of our “good-better-best” product offerings. In fiscal 2015, we expect
to bring a strong assortment of good and better casegoods to market, as well as a new program that will allow retailers to
order mixed containers of good and better-priced products that will allow us to offer more competitive prices in this market
segment. Our goal is to have the strongest possible offerings at all three levels of good, better and best merchandise. We
believe this will increase our competitiveness and give us further opportunities to grow sales and market share.
Upholstery Segment
We have seen significant improvement in our upholstery segment results since early in the 2013 fiscal year thanks to
higher sales volume and to a number of cost control initiatives. The upholstery segment has higher fixed costs than our
casegoods segment, due to the upholstery segment’s domestic manufacturing operations. To mitigate the impact of sales
declines in recent years, we streamlined our upholstery operations by improving efficiency, reducing overhead and
operating costs and adjusting capacity to better match costs to current and expected sales volume levels. Further
significant cost reductions in our upholstery segment will be challenging. Future profitability increases will continue to
require us to increase sales while maintaining Bradington-Young gross margins at, or close to, current levels and
improving manufacturing processes and work flow at Sam Moore facility.
We believe that the upholstery segment product lines are gaining market share due to:
the expansion of Sam Moore’s product offering to include sofas, sectionals, recliners and ottomans, in addition to
the core decorative chair line;
the success of Bradington-Young’s Comfort@Home gallery program, which is now in approximately 150 retailers.
Growth among our Comfort@Home dealers has outpaced the rest of our dealer base and the Comfort@Home
program now drives approximately 35% of our domestic leather business;
the success of Bradington-Young’s “So You!” highly customizable special order program introduced at the 2013
October High Point International Home Furnishings Market; and
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an approximate 7.0% increase in incoming order rates at Seven Seas for the 2014 fiscal year.
At Sam Moore, the challenge of increasing production, expanding capacity and improving manufacturing productivity has
proven greater than expected. Over the last several quarters, we have continued to hire new manufacturing associates,
but it typically takes at least six to nine months before a new sewer or upholsterer makes a direct contribution.
Consequently, we have incurred significant training and overtime costs. Due to these production challenges and
increased sales, our order backlog was 40% higher at the end of the fiscal 2014 third quarter as compared to the end of
the fiscal 2013 third quarter. However, we have made significant progress in boosting our capacity and believe we have
reached a turning point where our capacity has now exceeded our order rate. Consequently, we successfully reduced our
backlog over the fiscal 2014 fourth quarter by approximately 18% compared to our fiscal 2014 third quarter to more
historical levels. This has allowed us to improve our service to retailers; however, Sam Moore was not profitable in the
2014 fiscal year. As we move forward, we expect to continue to reduce our order backlog to our targeted four to five week
level and also expect to reduce our training and overtime costs for additional savings. While the progress has been slower
than we would like, we are optimistic about the long-term future for both sales growth and achieving profitability at Sam
Moore.
We continue to face inflationary pressures on leather and other upholstery raw materials, such as plywood, and we
implemented two price increases in the second half of fiscal 2014.
Inflation in leather and foreign labor costs are a particular challenge for our imported Seven Seas Seating line, since it is
positioned as a more affordable, moderately-priced leather line and is in a more price-sensitive niche. In order to mitigate
the impact of leather and raw materials inflation we aggressively expanded the product offerings in our Seven Seas
product line and introduced stationary sofas and sectionals at some very attractive wholesale price points at the October
2013 High Point International Home Furnishings Market.
We expect that leather raw material cost increases will be a challenge for the foreseeable future on our premium leather
products, too, since we believe the price increases are a function of demand for leather outpacing supply. Rising leather
costs present inventory challenges for us and we are forced to pass along the increases to our customers.
We expect to be successful in increasing prices in both operating segments to offset rising expenses for raw materials
and imported products; however, we cannot predict the magnitude of the impact on the demand for these products.
Bradington-Young was fairly flat in net sales growth, but reported operating income for sixteen consecutive months
through the fiscal year just ended, demonstrating sustainable profitability after several unprofitable years.
Despite these challenges in our upholstery segment, we were pleased to have grown upholstery and to have improved
profitability in total for the year.
New Initiatives
Our H Contract product line, which supplies upholstered seating and casegoods to upscale senior living facilities
throughout the country, officially launched early in the fiscal 2014 second quarter. It has been well received in initial
meetings with designers, architects and end-users across the country. H Contract products have been included in a
number of upcoming projects, which we expect to positively impact sales well into fiscal 2015. While H Contract is still
operating somewhat below expectations, we are beginning to see sales momentum. Based on our current forecast, we
expect H Contract to contribute positively to consolidated operating profitability in fiscal 2015.
Our Homeware product line, featuring customer-assembled, modular upholstered and casegoods products designed for
younger and more mobile furniture customers, officially launched in August 2013 on two major home furnishings e-
commerce websites. During our fiscal third quarter, we added a third e-commerce website. Early in our fiscal fourth
quarter, we launched the Homeware.com website and hired a seasoned e-commerce development professional to help
drive traffic to Homeware.com. With about ten months of experience in this business, we are enthusiastic about the brand
and the future of online furniture retailing. We have seen steady improvement in month-over-month website traffic and
other key performance indicators, along with double-digit month-over-month sales gain in recent months from a low base.
In the coming fiscal year, we’ve planned at least four major rollouts of new product lines, including home entertainment
furniture, major upholstery such as sofas and sectionals and the home décor categories of rugs, lighting and mirrors, and
casual dining furniture. Expanding the product line will be an important catalyst for growth. We believe the Homeware
initiative is critical to address the migration of retail business to online outlets, but realize it will take longer than H Contract
to reach critical mass and profitability. However, we view this investment as a vital step toward the future of consumer-
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centric home furnishings retailing.
Collectively, these new ventures increased net sales by approximately $1.5 million. Startup costs associated with both
new product lines were approximately $2.1 million before tax, and $1.4 million after-tax, or $0.13 per share, in fiscal 2014.
Results from these new business initiatives are aggregated with the results from our casegoods operating segment.
Review of Fiscal 2014 Goals
In our fiscal 2013 annual report on Form 10-K, we outlined goals for fiscal 2014. Those goals and our fiscal 2014
performance are assessed below.
Develop the right product:
We increased casegoods and upholstery segment net sales.
Continue to refine our import supplier base with our product standards for quality, delivery, value and
cost:
We reduced the number of factories we use and strengthened our relationships with the remaining
suppliers, who we believe best meet our product expectations; and
Investigated and took initial steps toward implementing a consolidating warehouse in Vietnam, in order to
offer more container direct options for products from our Vietnamese suppliers.
Build on upholstery segment profitability by continuing to focus on labor efficiency, cost reduction
projects and volume increases driven by new and updated products and improved volume at key
retailers:
Our upholstery segment operating profitability nearly doubled in fiscal 2014;
We continued successful expansion of Sam Moore’s product offering to include sofas, sectionals,
recliners and ottomans, in addition to the core decorative chair line;
Sam Moore provided product development expertise for H Contract and Homeware upholstery;
We continued successful expansion of Bradington-Young’s Comfort@Home gallery program; and
We successfully launched Bradington-Young’s “So You!” highly customizable special order program
introduced at the October 2013 High Point International Home Furnishings Market.
However, operating losses increased at Sam Moore, which partially offset the gains discussed above, as
Sam Moore struggled to increase manufacturing capacity during the year.
Improve casegoods segment volume and build on its profitability improvements by continued focus on
offering strong product lines, limiting discounting through improved inventory management and growing
our international business:
While casegoods net sales increased, unit volume and operating profitability decreased in fiscal 2014;
Discounting increased as we exited our youth and other slow-moving product lines;
We began to see improvements in inventory management due to sales and operations planning
disciplines implemented during fiscal year 2013; and
Our international business began to grow again in fiscal 2014, with net sales increasing approximately
13% compared to fiscal 2013.
Work towards implementing our ERP system in our domestic upholstery operation in fiscal 2015:
Substantial progress was made in our upholstery segment ERP project in fiscal 2014 and we expect to
complete implementation during fiscal 2015.
Build on our fiscal 2013 efforts to connect directly with our consumers:
Our Preferred Partner Program or “P3”, a digital marketing partnership with our key independent
retailers, met with a great deal of interest, but as a new program offered to an unfamiliar customer base,
the program was slow to pay benefits. We re-launched the P3 program in the fiscal 2014 fourth quarter
by holding two ‘dealer summits’ which brought together retailers, digital marketing experts and several
successful current P3 participants for a day of education, information sharing and exchange of ideas.
Expand into the senior living market:
H Contract was launched, as planned, in April 2013 at a national trade show for the senior living industry.
Throughout the year, we developed sales materials, built an internal staff and a sales force and spent a
great deal of time getting to know the industry and our potential customers. Several months after launch,
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we began shipping market-specific upholstery products as well as accent and occasional wood furniture
into this new distribution channel. Our network of sales representatives now reaches 75% of the US and
H Contract is steadily becoming a factor in its segment.
Launch our new Homeware line:
Homeware was launched in August 2013. Building this brand, with a unique product in a distribution
channel that is new to us, and to much of the furniture industry, has been slow but we remain
enthusiastic about the product and the future of on-line furniture retailing. Following a mid-summer
introduction with on-line retailers, we launched our own e-retail site in time for the Christmas shopping
season. In addition to our unique, ready to assemble, easy to ship chairs, we introduced other home
accessories on the site, helping us build brand recognition and traffic to www.homeware.com.
Outlook
Given the mostly positive macro-economic news over the past year, we are optimistic about our longer-term future, both
with our core businesses and our new ventures. In particular, recent news about record U.S. household wealth, rising
home prices and increased home equity is particularly encouraging, since we believe our performance is tied to the
strength of the U.S. housing market, and is particularly sensitive to consumer confidence, which is, in part, tied to
household wealth and financial markets. We believe we are positioned to capitalize on continued improvements in the
economy as they occur. In the shorter-term, however, the recovery in furniture sales has been somewhat inconsistent
and skewed toward upholstery, which is typically a smaller ticket purchase and generally has lower profit margins.
Additionally, the combined impact of rising mortgage rates and slowing home sales could adversely impact our short-term
results.
As we enter fiscal 2015, we have seen decreased demand for our products compared to the same period a year ago,
which we attribute to a particularly rough winter in many parts of the country. However, we continue to increase production
capacity at our upholstery manufacturing facilities, maintain good inventory positions on our best-selling casegoods
products and promote what we believe to be our strongest product line in several years.
As we progress through fiscal 2015, we will continue to focus on:
pursuing additional distribution channels, including through our new H Contract and Homeware initiatives;
expanding our merchandising reach in the “good” and “better” parts of our “good-better-best” casegoods product
controlling costs;
offerings;
adjusting product pricing on our main-line products in order to mitigate inflation and improve margins;
achieving proper inventory levels, while optimizing product availability on best-selling items;
sourcing product from cost-competitive locations and from quality-conscious sourcing partners and strengthening
our relationships with key vendors;
improving profitability and production capacity at Sam Moore;
offering an array of new products and designs, which we believe will help generate additional sales; and
upgrading and refining our information systems capabilities to support our businesses.
We face a number of significant risks and uncertainties, as more fully discussed in Item 1A, “Risk Factors” beginning on
page 9 and in our “Forward Looking Statements” beginning on page 8,that can affect adversely our results of operations
and financial condition.
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, 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.
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We participate in a voluntary industry-wide environmental stewardship program referred to as Enhancing Furniture’s
Environmental Culture or “EFEC.” In September of fiscal 2010, the American Home Furnishings Alliance granted us initial
EFEC registration, recognizing the successful company-wide implementation of the EFEC program, which includes the
successful reduction of water and electricity usage, recycling efforts to reduce landfill use and the implementation of a
community outreach program. Since our initial registration we have:
recycled over 700,000 pounds of paper, cardboard and plastic;
reduced electricity usage by an average of 6% per year; and
reduced natural gas usage by an average of 9% per year.
We are inspected annually by the EFEC organization in order to maintain our registration under this program and are
currently certified through January 2015.
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 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.
Income Taxes. At times, tax law and generally accepted accounting principles differ in the treatment of certain income
and expense items. These items may be excluded or included in taxable income at different times than is required for
GAAP or “book” reporting purposes. These differences may be permanent or temporary in nature.
We determine our annual effective income tax rate based on forecasted pre-tax book income and forecasted permanent
book and tax differences. The rate is established at the beginning of the year and is evaluated on a quarterly basis. We
consider the level and mix of income of our separate legal entities, statutory tax rates, business credits available in the
various jurisdictions in which we operate and permanent tax differences. Significant judgment is required in evaluating tax
positions that affect the annual tax rate. Any changes to the forecasted information may cause adjustments to the
effective rate. Additional tax, interest and penalties associated with uncertain tax positions are recognized in tax expense
on a quarterly basis.
To the extent that any book and tax differences are temporary in nature, that is, the book realization will occur in a
different period than the tax realization, a deferred tax asset or liability is established. To the extent that a deferred tax
asset is created, we evaluate our ability to realize this asset. If we determine that we will not be able to fully utilize
deferred tax assets, we establish a valuation reserve. In assessing the realization of deferred tax assets, we consider
whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate
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realization of deferred tax assets is primarily dependent upon the generation of future taxable income during the periods in
which those temporary differences reverse.
Restructuring and Impairment of Long-Lived Assets
Tangible Assets
We regularly review our property, plant and equipment for indicators of impairment, as specified in the Property, Plant and
Equipment topic of the Accounting Standards Codification. Although not exhaustive, this accounting guidance lists
potential indicators of impairment, which we use to facilitate our review. These potential indicators of impairment include:
A significant decrease in the market value of the long-lived asset;
A significant adverse change in the extent or manner in which a long-lived asset group is being used, or in its
physical condition;
A significant adverse change in the legal factors or in the business climate that could affect the value of a long-
lived asset, including an adverse action or assessment by a regulator;
An accumulation of costs significantly in excess of the amount originally expected to acquire or construct a long-
lived asset;
A current period operating or cash flow loss or a projection or forecast that demonstrates continuing losses
associated with the long-lived asset’s use; and
A current expectation that more-likely-than-not, a long-lived asset will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life.
The impairment test for our property, plant and equipment requires us to assess the recoverability of the value of the
assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated
with and arising from use and eventual disposition of the assets. We principally use our internal forecasts to estimate the
undiscounted future cash flows used in our impairment analyses. These forecasts are subjective and are largely based on
management’s judgment, primarily due to the changing industry in which we compete; changing consumer tastes, trends
and demographics; and the current economic environment. We monitor changes in these factors as part of the quarter-
end review of these assets. While our forecasts have been reasonably accurate in the past, during periods of economic
instability, uncertainty, or rapid change within our industry, we may not be able to accurately forecast future cash flows
from our long-lived assets and our future cash flows may be diminished. Therefore, our estimates and assumptions
related to the viability of our long-lived assets may change, and are reasonably likely to change in future periods. These
changes could adversely affect our consolidated statements of income and consolidated balance sheets. As of February
2, 2014, the fair value of our property, plant and equipment was substantially in excess of its carrying value.
When we conclude that any of these assets is impaired, the asset is written down to its fair value. Any impaired assets
that we expect to dispose of by sale are measured at the lower of their carrying amount or fair value, less estimated cost
to sell; are no longer depreciated; and are reported separately as “assets held for sale” in the consolidated balance
sheets, if we expect to dispose of the assets in one year or less.
The costs to dispose of these assets are recognized when we commit to a plan of disposal. Severance and related
benefits to be paid to terminated employees affected by facility 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.
Intangible Assets
We own certain indefinite-lived intangible assets, including those related to Bradington-Young, Sam Moore and
Homeware. We may acquire additional amortizable assets and/or indefinite lived intangible assets in the future. Our
principal indefinite-lived intangible assets are trademarks, trade names and a URL, 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 our 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 amount of the indefinite-lived intangible assets exceeds their fair value, an
impairment loss is recognized in an amount equal to that excess.
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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, but are not limited to:
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; and
the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed of.
The assumptions used to determine the fair value of our intangible assets are highly subjective and judgmental and
include long term growth rates, sales volumes, projected revenues, assumed royalty rates and factors used to develop an
applied discount rate. If the assumptions that we use in these calculations differ from actual results, we may realize
additional impairment on our intangible assets which may have a material-adverse effect on our results of operations and
financial condition.
During the fiscal 2012 fourth quarter, we recorded a $1.8 million ($1.1 million after tax, or $0.10 per share) intangible
asset impairment charge to write down the value of our upholstery segment’s Bradington-Young trade name, due to
operating losses in that division over preceding years and near-term performance expectations. Despite this charge, we
believe we have taken the proper steps to adjust capacity and reduce the cost structure at Bradington-Young and expect
it to continue to contribute to consolidated profitability.
At February 2, 2014, the fair value of our Bradington-Young trade name exceeded its carrying value by approximately
$257,000, and the fair value of our Sam Moore trade name was approximately $747,000 in excess of its carrying value.
Concentrations of Sourcing Risk
We source imported products through over 24 different vendors, from 26 separate factories, located in five 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 are an important resource for Hooker Furniture. In fiscal year 2014, imported products sourced
from China accounted for approximately 74% of import purchases, and the factory in China from which we directly source
the most product accounted for approximately 57% 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 currently on hand in and in transit to our U.S. warehouses in Martinsville, VA to adequately meet
demand for approximately five months, with an additional three months available for immediate shipment from our Asia
warehouse. 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 five to 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from foreign currency exchange rates, which could impact our results of operations or
financial condition. We manage our exposure to this risk through our normal operating activities.
For imported products, we generally negotiate firm pricing denominated in U.S. Dollars with our foreign suppliers, typically
for periods 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, but could choose to do so in the future. Most of our
imports are purchased from suppliers located in China. The Chinese currency floats within a limited range in relation to
the U.S. Dollar, resulting in exposure to foreign currency exchange rate fluctuations.
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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 or profit margins during affected periods.
Amounts outstanding under our revolving credit facility would bear interest at variable rates. In the past, we have entered
into swap agreements to hedge against the potential impact of increases in interest rates on our floating-rate debt
instruments. There was no outstanding balance under our revolving credit facility as of February 2, 2014, other than
standby letters of credit in the amount of $2.1 million. Therefore, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated 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 net income, earnings per share and operating income margin 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 this 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
General Description of Internal Control over Financial Reporting
Internal control over financial reporting refers to a process overseen by our Chief Executive Officer and Chief Financial
Officer and effectuated by our Board of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting. Financial reporting involves the preparation of financial statements for
external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). It includes those policies
and procedures that:
pertain to the maintenance of records that fairly and accurately reflect the transactions and dispositions of our
assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with GAAP and that our receipts and expenditures are being made in accordance
with the authorization of our management and Board of Directors; and
provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisitions, uses
or dispositions of our assets that could have a material effect on our financial statements.
Inherent Limitations in Internal Control over Financial Reporting
Internal control over financial reporting (ICFR) cannot provide absolute assurance of achieving financial reporting
objectives because of its inherent limitations. A control system, no matter how well conceived or operated, can provide
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only reasonable, not absolute, assurance of meeting its objectives. Therefore, our management, including our CEO and
CFO, does not expect that ICFR will prevent or detect all errors and all fraud. Some of these inherent limitations include,
but are not limited to the following:
ICFR is a process that involves human diligence and compliance. Consequently, it is subject to lapses in
judgment and breakdowns resulting from human failures, including faulty judgments and control breakdowns due
to simple errors or mistakes;
ICFR can be circumvented or overridden by collusion or other improper activities;
ICFR is based in part upon certain assumptions about the likelihood of future events and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions; and
The design of a control system must reflect the fact that there are resource constraints and the benefits of
controls must be considered relative to their costs.
Because of these and other limitations, there is a risk that material misstatements may not be prevented or detected on a
timely basis and that control issues or fraud, if any, within the company have been detected.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the
effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended February 2, 2014, based
on the framework in Internal Control-Integrated Framework (1992) issued by the Committee of Sponsoring Organizations
of the Treadway Commission. Based on this evaluation under the framework in Internal Control – Integrated Framework
(1992), our principal executive officer and our principal financial officer concluded that our disclosure controls and
procedures were effective as of February 2, 2014, the end of the period covered by this annual report.
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 2, 2014. Management’s report regarding that
assessment is included on page F-2 of this report, with our consolidated financial statements, 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 has issued an audit report on the effectiveness of our internal control over financial
reporting. KPMG’s report is included on page F-3 of this report, with our consolidated financial statements, 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 2, 2014,
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
40
Hooker Furniture Corporation
Part III
In accordance with General Instruction G (3) of Form 10-K, most of 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 5, 2014 (the “2014 Proxy Statement”), as set forth below.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to our directors will be set forth under the caption “Proposal One Election of Directors” in the 2014
Proxy Statement and is incorporated herein by reference.
Information relating to our executive officers is included in Part I of this report under the caption “Executive Officers of
Hooker Furniture Corporation” 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 2014 Proxy Statement and is incorporated herein by reference.
Information relating to the code of ethics that applies to our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions will be set forth under the caption “Code of
Business Conduct and Ethics” in the 2014 Proxy Statement and is incorporated herein by reference.
Information relating to material changes, if any, in the procedures by which shareholders may recommend nominees for
our Board of Directors will be set forth under the caption “Procedures for Shareholder Recommendations of Director
Nominees” in the 2014 Proxy Statement and is incorporated herein by reference.
Information relating to the Audit Committee of our 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 “Corporate Governance”
and “Audit Committee” in the 2014 Proxy Statement and is incorporated herein by reference.
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 2014 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 2014 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 in the last paragraph under the caption “Audit Committee” and the caption
“Corporate Governance” in the 2014 Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information relating to this item will be set forth under the caption “Proposal Two Ratification of Selection of Independent
Registered Public Accounting Firm” in the 2014 Proxy Statement and is incorporated herein by reference.
41
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Hooker Furniture Corporation
Part IV
(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:
Management’s Report on Internal Control Over Financial Reporting
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of February 2, 2014 and February 3, 2013.
Consolidated Statements of Income for the fifty-two weeks ended February 2, 2014, fifty-three weeks ended
February 3, 2013 and fifty-two weeks ended January 29, 2012.
Consolidated Statements of Comprehensive Income for the fifty-two weeks ended February 2, 2014, fifty-three
weeks ended February 3, 2013 and fifty-two weeks ended January 29, 2012.
Consolidated Statements of Cash Flows for the fifty-two weeks ended February 2, 2014, fifty-three weeks
ended February 3, 2013 and fifty-two weeks ended January 29, 2012.
Consolidated Statements of Shareholders’ Equity for the fifty-two weeks ended February 2, 2014, fifty-three
weeks ended February 3, 2013 and fifty-two weeks ended January 29, 2012.
Notes to Consolidated Financial Statements
(2)
Financial Statement Schedules:
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 as amended December 10, 2013 (filed herewith)
Amended and Restated Articles of Incorporation of the Company (See Exhibit 3.1)
Amended and Restated Bylaws of the Company (See Exhibit 3.2)
(b)
3.1
3.2
4.1
4.2
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments, if any, 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)*
10.1(b) 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 on January 17, 2006)*
10.1(c) 2010 Amendment and Restatement of the Hooker Furniture Corporation 2005 Stock Incentive Plan
(incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement dated March 7, 2010
(SEC File No. 000-25349))*
10.1(d) 2010 Amended and Restated Hooker Furniture Corporation Supplemental Retirement Income Plan, dated as of
42
June 8, 2010 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349)
for the quarter ended October 31, 2010)*
10.1(e) Form of Time-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K (SEC File No. 000-25349) filed on February 13, 2012)*
10.1(f)
Form of Performance Grant Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current
Report on Form 8-K (SEC File No. 000-25349) filed on February 13, 2012)*
10.1(g) 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(h) Amendment to Employment Agreement, dated June 3, 2008, between Alan D. Cole and the Company
(incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-
25349) filed on June 5, 2008)*
10.1(i) Employment Agreement, dated August 22, 2011, between Michael W. Delgatti, Jr. and the Company
(incorporated by reference to Exhibit 10.1(l) of the Company’s Form 10-K (SEC File No. 000-25349) filed on
April 12, 2013)*
10.1(j) Restricted Stock Unit Agreement, dated as of September 7, 2011, between Michael W. Delgatti, Jr. and the
Company (incorporated by reference to Exhibit 10.1(m) of the Company’s Form 10-K (SEC File No. 000-25349)
filed on April 12, 2013)*
10.2(a) Loan Agreement, dated as of December 7, 2010, between Bank of America, N.A. and the Company
(incorporated by referenced to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-
25349) filed on December 8, 2010.
10.2(b) Amendment No. 1 to Loan Agreement, dated as of May 18, 2012, between Bank of America, N.A. and the
Company (incorporated by referenced to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q (SEC
File No. 000-25349) filed on June 6, 2012
21
List of Subsidiaries:
Bradington-Young LLC, a Virginia limited liability company
Sam Moore Furniture LLC, a Virginia limited liability company
23
Consent of Independent Registered Public Accounting Firm (filed herewith)
31.1
Rule 13a-14(a) Certification of the Company’s principal executive officer (filed herewith)
31.2
Rule 13a-14(a) Certification of the Company’s principal financial officer (filed herewith)
32.1
101
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)
The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 2014, formatted in Extensible Business Reporting Language (“XBRL”): (i) consolidated balance
sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv)
consolidated statements of cash flows, (v) consolidated statements of shareholders’ equity and (vi) the notes to
the consolidated financial statements, tagged as blocks of text (filed herewith)
*Management contract or compensatory plan
43
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 18, 2014
HOOKER FURNITURE CORPORATION
/s/ Paul B. Toms, Jr.
Paul B. Toms, Jr.
Chairman 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
/s/ Paul B. Toms, Jr.
Paul B. Toms, Jr.
Chairman, Chief Executive Officer and
Director (Principal Executive Officer)
Date
April 18, 2014
/s/ Paul A. Huckfeldt
Paul A. Huckfeldt
Senior Vice President - Finance and Accounting April 18, 2014
and Chief Financial Officer (Principal
Financial and Accounting Officer)
/s/ W. Christopher Beeler, Jr.
W. Christopher Beeler, Jr.
/s/ John L. Gregory, III
John L. Gregory, III
/s/ E. Larry Ryder
E. Larry Ryder
/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
Director
April 18, 2014
April 18, 2014
April 18, 2014
April 18, 2014
April 18, 2014
April 18, 2014
44
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 2, 2014 and February 3, 2013 ......................... F-5
Consolidated Statements of Income for the fifty-two weeks ended February 2, 2014,
fifty-three weeks ended February 3, 2013 and fifty-two weeks ended January 29, 2012 ........ F-6
Consolidated Statements of Comprehensive Income for the fifty-two weeks ended February 2, 2014,
fifty-three weeks ended February 3, 2013 and fifty-two weeks ended January 29, 2012 ........ . F-7
Consolidated Statements of Cash Flows for the fifty-two weeks ended February 2, 2014,
fifty-three weeks ended February 3, 2013 and fifty-two weeks ended January 29, 2012 . ...... F-8
Consolidated Statements of Shareholders’ Equity for the fifty-two weeks ended February 2, 2014,
fifty-three weeks ended February 3, 2013 and fifty-two weeks ended January 29, 2012 ........ F-9
Notes to Consolidated Financial Statements ........................................................................... F-10
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 Securities 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 (1992) 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 2, 2014.
The effectiveness of the Company’s internal control over financial reporting as of February 2, 2014 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 and Chief Executive Officer
(Principal Executive Officer)
April 18, 2014
Paul A. Huckfeldt
Senior Vice President – Finance and Accounting
and Chief Financial Officer
(Principal Financial and Accounting Officer)
April 18, 2014
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Hooker Furniture Corporation:
We have audited Hooker Furniture Corporation and subsidiaries’ internal control over financial reporting as of
February 2, 2014, based on criteria established in Internal Control — Integrated Framework (1992) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Hooker Furniture Corporation and
subsidiaries’ 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 2, 2014, based on criteria established in Internal Control — Integrated Framework
(1992) 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 2, 2014 and
February 3, 2013 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and
cash flows for each of the years in the three-year period ended February 2, 2014, and our report dated April 18, 2014,
expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Charlotte, North Carolina
April 18, 2014
F-3
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 2, 2014 and February 3, 2013, and the related consolidated statements of income, comprehensive income,
shareholders’ equity, and cash flows for each of the years in the three-year period ended February 2, 2014. 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 2, 2014 and February 3, 2013, and the results of
their operations and their cash flows for each of the years in the three-year period ended February 2, 2014, in conformity
with U.S. generally accepted accounting principles.
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 2, 2014, based on criteria
established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO), and our report dated April 18, 2014, expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Charlotte, North Carolina
April 18, 2014
F-4
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of
Assets
Current assets
Cash and cash equivalents
Trade accounts receivable, less allowance for doubtful
accounts of $1,243 and $1,249 on each respective date
Inventories
Prepaid expenses and other current assets
Deferred taxes
Income tax recoverable
Total current assets
Property, plant and equipment, net
Cash surrender value of life insurance policies
Deferred taxes
Intangible assets
Other assets
Total non-current assets
Total assets
Liabilities and Shareholders’ Equity
Current liabilities
Trade accounts payable
Accrued salaries, wages and benefits
Accrued commissions
Other accrued expenses
Customer deposits
Total current liabilities
Deferred compensation
Income tax accrual
Total long-term liabilities
Total liabilities
Shareholders’ equity
Common stock, no par value, 20,000 shares authorized,
10,753 and 10,746 shares issued and outstanding on each date
Retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
February 2,
2014
February 3,
2013
$
23,882
$
26,342
29,393
49,016
2,413
1,664
682
107,050
23,752
18,891
4,051
1,382
355
48,431
155,481
$
$
7,077
3,478
934
759
659
12,907
7,668
103
7,771
20,678
17,585
117,120
98
134,803
155,481
$
28,272
49,872
3,569
1,612
-
109,667
22,829
17,360
4,379
1,257
331
46,156
155,823
$
$
11,620
3,316
996
1,535
-
17,467
7,311
-
7,311
24,778
17,360
113,483
202
131,045
155,823
$
F-5
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the 52 Week Periods Ended January 29, 2012 and February 2, 2014 and the 53 Week
Period Ended February 3, 2013
Operating income
12,503
12,940
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Intangible asset impairment charges
Other(expense) income, net
Income before income taxes
Income taxes
Net income
Earnings per share:
Basic and diluted
2014
2013
2012
$
228,293
$
218,359
$
222,505
173,568
165,813
173,642
54,725
42,222
-
52,546
48,863
39,606
40,375
-
1,815
6,673
272
6,945
1,888
(35)
12,468
4,539
53
12,993
4,367
$
7,929
$
8,626
$
5,057
$
0.74
$
0.80
$
0.47
Weighted average shares outstanding:
Basic
Diluted
10,722
10,752
10,745
10,775
10,762
10,790
Cash dividends declared per share
$
0.40
$
0.40
$
0.40
See accompanying Notes to Consolidated Financial Statements.
F-6
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the 52 Week Periods Ended January 29, 2012 and February 2, 2014 and the 53 Week Period Ended
February 3, 2013
Net Income
Other comprehensive income (loss):
Amortization of actuarial (loss) gain
Income tax effect on amortization of actuarial gains
Adjustments to net periodic benefit cost
2014
2013
2012
$
7,929
$
8,626
$
5,057
(163)
59
(104)
145
(51)
94
(803)
303
(500)
Comprehensive Income
$
7,825
$
8,720
$
4,557
See accompanying Notes to Consolidated Financial Statements.
F-7
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the 52 Week Periods Ended January 29, 2012 and February 2, 2014 and the 53 Week Period Ended
February 3, 2013
Operating Activities:
Net income
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization
(Gain) loss on disposal of assets
Deferred income tax (benefit) expense
Non-cash restricted stock and performance awards
Asset impairment charges
Provision for doubtful accounts
Changes in assets and liabilities
Trade accounts receivable
Income tax recoverable
Inventories
Gain on life insurance policies
Customer deposits
Prepaid expenses and other current assets
Trade accounts payable
Accrued salaries, wages and benefits
Accrued income taxes
Accrued commissions
Other accrued (income) expenses
Deferred compensation
Other long-term liabilities
Net cash provided by (used in) operating activities
Investing Activities:
Purchases of property, plant and equipment
Proceeds received on notes receivable
Proceeds from sale of property and equipment
Purchase of intangible
Premiums paid on life insurance policies
Proceeds received on life insurance policies
Net cash used in investing activities
Financing Activities:
Cash dividends paid
Purchase and retirement of common stock
Net cash used in financing activities
2014
2013
2012
$
7,929
$
8,626
$
5,057
2,491
(8)
340
338
-
456
(1,576)
(682)
856
(147)
659
30
(4,499)
162
(751)
(62)
(31)
88
103
5,696
(3,471)
36
22
(125)
(834)
517
(3,855)
(4,301)
-
(4,301)
2,566
32
20
465
-
61
(2,526)
-
(15,736)
(680)
-
172
2,387
(539)
1,444
44
251
80
-
(3,333)
(4,061)
37
303
-
(902)
-
(4,623)
(5,386)
(671)
(6,057)
2,566
108
(35)
(38)
1,815
361
1,502
-
23,302
(565)
-
450
(2,552)
429
(63)
(47)
(209)
195
-
32,276
(3,805)
35
125
-
(1,144)
560
(4,229)
(4,315)
-
(4,315)
Net (decrease) / increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents at the end of year
(2,460)
26,342
23,882
$
(14,013)
40,355
26,342
$
23,732
16,623
40,355
$
Supplemental schedule of cash flow information:
Income taxes paid, net
$
5,534
$
2,901
$
1,987
See accompanying Notes to Consolidated Financial Statements.
F - 8
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share data)
For the 52 Week Periods Ended January 29, 2012 and February 2, 2014 and the 53 Week Period Ended February 3, 2013
Balance at January 30, 2011
Common Stock
Shares
10,782
Amount
$
17,161
Net income
Unrealized loss on deferred compensation
Cash dividends paid and accrued ($0.40 per share)
Restricted stock grants, net of forfeitures
Restricted stock compensation cost
Balance at January 29, 2012
-
-
-
11
-
10,793
Net income
Unrealized gain on deferred compensation
Cash dividends paid and accrued ($0.40 per share)
Purchase and retirement of common stock
Restricted stock grants, net of forfeitures
Restricted stock compensation cost
Balance at February 3, 2013
-
-
-
(58)
11
-
10,746
Net income
Unrealized loss on deferred compensation
Cash dividends paid and accrued ($0.40 per share)
Restricted stock grants, net of forfeitures
Restricted stock compensation cost
Balance at February 2, 2014
-
-
-
7
-
10,753
-
-
-
-
101
17,262
$
-
-
-
(93)
-
191
17,360
$
-
-
-
(8)
233
17,585
$
-
-
-
-
Accumulated
Other
Comprehensive
Income
$
609
Total
Shareholders'
Equity
126,770
$
-
(500)
-
-
-
109
$
-
94
-
-
-
-
202
$
-
(104)
-
-
-
98
$
-
-
5,057
(500)
(4,315)
-
101
127,113
$
8,626
94
(4,307)
(671)
-
191
131,045
$
7,929
(104)
(4,301)
-
233
134,803
$
Retained
Earnings
$
109,000
5,057
-
(4,315)
-
-
109,742
$
8,626
-
(4,307)
(578)
-
-
113,483
$
7,929
-
(4,301)
9
-
117,120
$
-
-
See accompanying Notes to Consolidated Financial Statements.
F-9
Notes to Consolidated Financial Statements
(In thousands, except share and per share data)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Hooker Furniture Corporation and subsidiaries (the “Company,” “we,” “us” and “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 our wholly owned
subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. All references to
the Company refer to the Company and our consolidated subsidiaries, unless specifically referring to segment
information. For comparative purposes, certain amounts in the consolidated financial statements and notes have been
reclassified to conform to the fiscal 2014 presentation.
Segments
We are organized into two operating segments – casegoods furniture and upholstered furniture. Results from our new H
Contract and Homeware business initiatives, and the elimination of intercompany sales and profits related to these
businesses, are aggregated with the results from our casegoods operating segment. The upholstery segment consists of
Bradington-Young LLC and Sam Moore Furniture.
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 fair
value.
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 geographic dispersion. We continually perform credit evaluations
of our customers and generally do not require collateral. In the event a receivable is determined to be potentially
uncollectible, we engage collection agencies or law firms to attempt to collect amounts owed to us after all internal
collection attempts have ended. Once we have determined the receivable is uncollectible, it is charged against the
allowance for doubtful accounts. 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 Measurements
We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs
to the extent possible. We determine fair value based on assumptions that we believe market participants would use in
pricing an asset or liability in the principal or most advantageous market. When considering market participant
assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and
unobservable inputs, which are categorized in one of the following levels:
Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the
reporting entity at the measurement date.
Level 2 Inputs: Observable inputs other than quoted prices included in Level 1 inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that
observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for
the asset or liability at measurement date.
F - 10
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
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.
Inventories
All inventories are stated at the lower of cost, using the last-in, first-out (LIFO) method, or market value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less allowances for depreciation. Provision for depreciation has been
computed at annual rates using straight-line or declining balance depreciation methods 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 annually or more frequently 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 estimated cost to sell, are no longer depreciated, and are reported separately as “assets
held for sale” in the consolidated balance sheets.
Intangible Assets
We own certain indefinite-lived intangible assets related to our upholstery segment and our Homeware business initiative.
We may acquire additional amortizable assets and/or indefinite lived intangible assets in the future. Our indefinite-lived
intangible assets are trademarks, trade names and a URL, 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 our 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 amount of the indefinite-lived intangible assets exceeds their fair value, an impairment loss is
recognized in an amount equal to that excess.
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; and
the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise disposed of.
The assumptions used to determine the fair value of our intangible assets are highly subjective, involve significant
judgment and include long term growth rates, sales volumes, projected revenues, assumed royalty rates and various
factors used to develop an applied discount rate. If the assumptions that we use in these calculations differ from actual
results, we may realize additional impairment on our intangible assets which may have a material adverse effect on our
results of operations and financial condition.
F-11
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Cash Surrender Value of Life Insurance Policies
We own eighty-seven life insurance policies on certain of our current and former executives and other key employees.
These policies have a carrying value of $18.9 million and a face value of approximately $36.0 million. Proceeds from 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. Cash payments
that increase the cash surrender value of these policies are classified as investing outflows on the Consolidated
Statements of Cash Flows, with amounts paid in excess of the increase in cash surrender value included in operating
activities. Gains on life insurance policies, which typically occur at the time a policy is redeemed, are included in the
reconciliation of net income to net cash used in or provided by operating activities.
Revenue Recognition
Our sales revenue is recognized when title and the risk of loss pass to the customer, which typically occurs at the time of
shipment. In some cases however, title does not pass until the shipment is delivered to the customer. Sales are recorded
net of allowances for trade promotions, estimated product returns, rebate advertising programs and other discounts.
Cost of Sales
The major components of cost of sales are:
raw materials and supplies used in our domestically manufactured products;
labor, utility and overhead costs associated with our domestically manufactured products;
the cost of imported products purchased for resale;
the cost of our foreign import operations;
charges or credits associated with our inventory reserves;
warehousing and certain shipping and handling costs; and
all other costs required to be classified as cost of sales.
Selling and Administrative Expenses
The major components of our selling and administrative expenses are:
the cost of our marketing and merchandising efforts, including showroom expenses;
sales and design commissions;
the costs of administrative support functions including, executive management, information technology, human
resources and finance; and
all other costs required to be classified as selling and administrative expenses.
Advertising
We offer advertising programs to qualified dealers under which we may provide signage, catalogs and other marketing
support to our dealers and may reimburse advertising and other costs incurred by our dealers 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.
Advertising costs charged to selling and administrative expense for fiscal years 2014, 2013 and 2012 were $2.2 million,
$2.3 million and $2.2 million, respectively. The costs for other advertising allowance programs are charged against net
sales. We also have arrangements with some dealers to reimburse them for a portion of their advertising costs, which
provides advertising benefits to us. Costs for these arrangements are expensed as incurred and are netted against
revenues in our consolidated statements of income and comprehensive income.
F-12
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Income Taxes
At times, tax law and generally accepted accounting principles differ in the treatment of certain income and expense
items. These items may be excluded or included in taxable income at different times than is required for GAAP or “book”
reporting purposes. These differences may be permanent or temporary in nature.
We determine our annual effective income tax rate based on forecasted pre-tax book income and forecasted permanent
book and tax differences. The rate is established at the beginning of the year and is evaluated on a quarterly basis. We
consider the level and mix of income of our separate legal entities, statutory tax rates, business credits available in the
various jurisdictions in which we operate and permanent tax differences. Significant judgment is required in evaluating tax
positions that affect the annual tax rate. Any changes to the forecasted information may cause adjustments to the
effective rate. Additional tax, interest and penalties associated with uncertain tax positions are recognized in tax expense
on a quarterly basis.
To the extent that any book and tax differences are temporary in nature, that is, the book realization will occur in a
different period than the tax realization, a deferred tax asset or liability is established. To the extent that a deferred tax
asset is created, we evaluate our ability to realize this asset. If we determine that we will not be able to fully utilize
deferred tax assets, we establish a valuation reserve. In assessing the realization of deferred tax assets, we consider
whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate
realization of deferred tax assets is primarily dependent upon the generation of future taxable income during the periods in
which those temporary differences reverse.
Earnings Per Share
We use the two class method to compute basic earnings per share. Under this method we allocate earnings to common
shares and participating securities according to their participation rights in dividends declared and undistributed earnings
and divide the income available to each class by the weighted average number of common shares for the period in each
class. Unvested restricted stock grants made to our non-employee directors are considered participating securities
because the shares have the right to receive non-forfeitable dividends. Because the participating shares have no
obligation to share in net losses, we do not allocate losses to our common shares in this calculation.
Diluted earnings per share reflect the potential dilutive effect of securities that could share in our earnings. Restricted
stock awarded to non-employee directors and restricted stock units granted to employees that have not yet vested are
considered when computing diluted earnings per share. We use the treasury stock method to determine the dilutive effect
of both unvested restricted stock and unvested restricted stock units. Shares of unvested restricted stock and unvested
restricted stock units under a stock-based compensation arrangement are considered options for purposes of computing
diluted earnings per share and are considered outstanding shares as of the grant date for purposes of computing diluted
earnings per share even though their exercise may be contingent upon vesting. Those stock-based awards are included
in the diluted earnings per share computation even if the non-employee director may be required to forfeit the stock at
some future date, or no shares may ever be issued to the employees. Unvested restricted stock and unvested restricted
stock units are not included in outstanding common shares in computing basic earnings per share.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to
make estimates and assumptions that affect the reported amounts of: (i) assets and liabilities, including disclosures
regarding contingent assets and liabilities at the dates of the financial statements; and (ii) 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; deferred tax assets; the valuation of fixed assets; our supplemental retirement income
plan; and stock-based compensation. These estimates and assumptions are based on our best judgments. We evaluate
these estimates and assumptions on an ongoing basis using historical experience and other factors, including the current
economic environment that we believe to be reasonable under the circumstances. We adjust our estimates and
assumptions as facts and circumstances dictate. Actual results could differ from our estimates.
F-13
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
NOTE 2 – CHANGE IN PRESENTATION OF CONSOLIDATED STATEMENT OF CASH FLOWS
U.S. generally accepted accounting principles permit the direct or indirect methods of computing cash flows. We have
elected to change the presentation of our cash flow statement from the direct to indirect method of computing cash flows.
We believe the indirect method is preferable because:
it provides a more straight-forward presentation of the reconciliation between consolidated net income and
consolidated cash flows;
it helps financial statement users to better understand how non-cash transactions are factors of consolidated net
income but not sources of consolidated cash flows; and
it helps financial statement users to better understand the different linkages among our consolidated financial
statements.
Consequently, we have recast our prior-year consolidated statements of cash flows to conform to the fiscal 2014
presentation under the indirect method.
NOTE 3- FISCAL YEAR
Our fiscal years 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 2013 fiscal year
that ended on February 3, 2013 was a 53-week fiscal year. Our quarterly periods are based on thirteen-week “reporting
periods,” which end on Sundays. As a result, each quarterly period generally will be thirteen weeks, or 91 days long,
except as noted above.
In the notes to the consolidated financial statements, references to the:
2014 fiscal year and comparable terminology mean the fiscal year that began February 4, 2013 and ended
February 2, 2014;
2013 fiscal year and comparable terminology mean the fiscal year that began January 30, 2012 and ended
February 3, 2013; and
2012 fiscal year and comparable terminology mean the fiscal year that began January 31, 2011 and ended
January 29, 2012.
NOTE 4 – ALLOWANCE FOR DOUBTFUL ACCOUNTS
The activity in the allowance for doubtful accounts was:
Fifty-Two
Fifty-Three
Weeks Ended Weeks Ended Weeks Ended
February 3,
2013
February 2,
2014
January 29,
2012
Fifty-Two
Balance at beginning of year
Non-cash charges to cost and expenses
Less uncollectible receivables written off, net of recoveries
Balance at end of year
1,249
456
(462)
1,243
1,632
61
(444)
1,249
2,082
361
(811)
1,632
$
$
$
$
$
$
F-14
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
NOTE 5 – ACCOUNTS RECEIVABLE
February 2,
2014
February 3,
2013
Trade accounts receivable
Receivable from factor
Allowance for doubtful accounts
Accounts receivable
$
$
22,776
7,860
(1,243)
29,393
22,712
6,809
(1,249)
28,272
$
$
“Receivable from factor” represents amounts due with respect to factored accounts receivable. We factor substantially all
of our domestically produced upholstery accounts receivable without recourse to us.
Under our factoring agreement, invoices for domestically produced upholstery products are generated and transmitted to
our customers, with copies to the factor on a daily basis, as products are shipped to our customers. The factor collects
the amounts due and remits collected funds to us semi-weekly, less factoring fees. We retain ownership of the accounts
receivable until the invoices are 90 days past due. At that time, the factor pays us the net invoice amount, less factoring
fees, and takes ownership of the accounts receivable. The factor is then entitled to collect the invoices on its own behalf
and retain any subsequent remittances. The invoiced amounts are reported as accounts receivable on our condensed
consolidated balance sheets, generally from the date the merchandise is shipped to our customer until payment is
received from the factor.
A limited number of our accounts receivable for our domestically produced upholstery are factored with recourse to us.
The amounts of these receivables at February 2, 2014 and February 3, 2013 were $324,000 and $130,000, respectively.
If the factor is unable to collect the amounts due, invoices are returned to us for collection. We include an estimate of
potentially uncollectible receivables in our calculation of our allowance for doubtful accounts.
NOTE 6 – INVENTORIES
Finished furniture
Furniture in process
Materials and supplies
Inventories at FIFO
Reduction to LIFO basis
Inventories
$
February 2,
2014
58,515
804
8,068
67,387
(18,371)
49,016
$
$
February 3,
2013
58,584
688
8,478
67,750
(17,878)
49,872
$
If the first-in, first-out (FIFO) method had been used in valuing all inventories, net income would have been $8.2 million in
fiscal 2014, $9.2 million in fiscal 2013 and $6.0 million in fiscal 2012.
At February 2, 2014 and February 3, 2013, we had approximately $1.0 million and $832,000, respectively, in consigned
inventories, which are included in the “Finished furniture” line in the table above.
At February 2, 2014, we held $9.7 million in inventory (approximately 6.3% of total assets) outside of the United States, all
in China. At February 3, 2013, we held $7.3 million in inventory (approximately 4.7% of total assets) outside of the United
States, all in China.
F-15
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
Depreciable Lives February 2, February 3,
(In years)
2014
2013
15 - 30
3 - 10
10
Term of lease
3 - 8
5
Buildings and land improvements
Computer software and hardware
Machinery and equipment
Leasehold improvements
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
$
$
24,026
22,294
4,495
2,765
2,060
689
56,329
36,447
19,882
1,152
2,718
23,752
23,680
22,203
3,663
2,697
1,989
704
54,936
34,559
20,377
1,152
1,300
22,829
$
$
At February 2, 2014, construction-in-progress consisted of approximately $1.4 million of expenditures related to our
ongoing Enterprise Resource Planning (ERP) conversion efforts and approximately $1.3 million related to various other
projects to enhance our facilities and operations. The increase in machinery and equipment in fiscal 2014 is primarily
related to the capitalization of computerized equipment for our upholstery operating segment.
No significant property, plant or equipment was held outside of the United States at either February 2, 2014 or February 3,
2013.
Capitalized Software Costs
Certain costs incurred in connection with developing or obtaining computer software for internal use are capitalized.
These costs are amortized over periods of ten years or less. Capitalized software is reported as a component of computer
software and hardware above and on the property, plant, and equipment line of our consolidated balance sheets. The
activity in capitalized software costs was:
Fifty-Two Weeks
Ended
February 2,
2014
$
Fifty-Three Weeks
Ended
February 3,
2013
$
Fifty-Two Weeks
Ended
January 29,
2012
$
2,830
173
(424)
(1)
2,578
618
2,814
(533)
(69)
2,830
1,519
11
(912)
-
618
$
$
$
Balance beginning of year
Purchases
Amortization expense
Disposals
Balance end of year
NOTE 8 – INTANGIBLE ASSETS
We recorded certain intangible assets related to the acquisitions of Bradington-Young and Sam Moore and upon
purchase of the Homeware.com URL. The Bradington-Young and Sam Moore trademarks and trade names have
indefinite useful lives and, consequently, are not subject to amortization for financial reporting purposes but are tested for
F-16
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
impairment annually or more frequently if events or circumstances indicate that the asset might be impaired. See “Note 1
– Summary of Significant Accounting Policies: Intangible Assets.”
Non-amortizable Intangible Assets
Trademarks and trade names - Bradington-Young
Trademarks and trade names - Sam Moore
URL- Homeware.com
Total Non-amortizable Intangible Assets
Segment
Upholstery
Upholstery
Casegoods
February 2,
2014
February 3,
2013
$
861
396
125
1,382
$
861
396
-
1,257
We purchased the Homeware.com URL during the fiscal 2014 third quarter.
Trademarks and trade names are related to the acquisitions of Bradington-Young and Sam Moore. In conjunction with our
evaluation of the cash flows generated by the reporting units, we evaluated the carrying value of trademarks and trade
names using the relief from royalty method, which values the trademark/trade name by estimating the savings achieved
by ownership of the trademark/trade name when compared to licensing the mark/name from an independent owner. The
inputs used in the trademark/trade name analyses are considered Level 3 fair value measurements. Our fiscal 2012
trademark/trade name analysis led us to conclude certain of our trademarks/trade names were impaired. Consequently,
we recorded impairment charges on these intangible assets as follows:
Trade mark/trade name impairment charges:
Bradington-Young
Total trade mark/trade name impairment
Fifty-Two
Weeks
Ended
February 2,
2014
Fifty-Three
Weeks
Ended
February 3,
2013
Fifty-Two
Weeks
Ended
January 29,
2012
$
-
$
-
-
$
$
-
$
$
1,815
1,815
These impairment charges are included in “intangible asset impairment charges” in our consolidated statements of
income.
NOTE 9 – FAIR VALUE MEASUREMENTS
Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly
transaction between market participants on the measurement date. We use a three-tier fair value hierarchy, which
prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as
quoted prices in active markets for identical assets and liabilities; Level 2, defined as inputs other than quoted prices in
active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little
or no market data exists, therefore requiring an entity to develop its own assumptions. As of February 2, 2014 and
February 3, 2013, we held company-owned life insurance measured at fair value on a recurring basis that were
considered Level 2. The fair value of the company-owned life insurance is determined by inputs that are readily available
in public markets or can be derived from information available in publicly quoted markets. Additionally, the change in the
fair value of the company-owned life insurance is marked to market through income.
Our assets and liabilities measured at fair value on a recurring basis at February 2, 2014 and February 3, 2013,
respectively, were as follows:
F-17
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Description
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Fair value at February 2, 2014
Fair value at February 3, 2013
(In thousands)
Assets measured at fair value
Company-ow ned life insurance
$
-
$
18,891
$
-
$
18,891
$
-
$
17,360
$
-
$
17,360
NOTE 10 – LONG-TERM DEBT
Our loan agreement with Bank of America, N.A., which is scheduled to expire on July 31, 2018, includes the following
terms:
A $15.0 million unsecured revolving credit facility, up to $3.0 million of which can be used to support letters of
credit;
A floating interest rate, adjusted monthly, based on USD LIBOR, plus an applicable margin based on the ratio of
our funded debt to our EBITDA (each as defined in the agreement);
A quarterly unused commitment fee of 0.20%; and
No pre-payment penalty.
The Company can permanently terminate or reduce the $15 million revolving commitment under the loan agreement
without penalty. The loan agreement also includes customary representations and warranties and requires us to comply
with customary covenants, including, among other things, the following financial covenants:
Maintain a tangible net worth of at least $95.0 million;
Limit capital expenditures to no more than $15.0 million during any fiscal year; and
Maintain a ratio of funded debt to EBITDA not exceeding 2.0:1.0.
We were in compliance with each of these financial covenants at February 2, 2014 and expect to remain in compliance
with existing covenants for the foreseeable future. The loan agreement does not restrict our ability to pay cash dividends
on, or repurchase our common shares, subject to complying with the financial covenants under the agreement.
As of February 2, 2014, we had an aggregate $12.9 million available under our revolving credit facility to fund working
capital needs. Standby letters of credit in the aggregate amount of $2.1 million, used to collateralize certain insurance
arrangements and for imported product purchases, were outstanding under the revolving credit facility as of February 2,
2014. There were no additional borrowings outstanding under the revolving credit facility on February 2, 2014.
NOTE 11 – EMPLOYEE BENEFIT PLANS
Employee Savings Plans
We sponsor a tax-qualified 401(k) retirement plan covering substantially all employees. This plan assists employees in
meeting their savings and retirement planning goals through employee salary deferrals and discretionary employer
matching contributions. Company contributions to the plan amounted to $593,000 in fiscal 2014, $575,000 in fiscal 2013
and $602,000 in fiscal 2012.
Executive Benefits
We provide supplemental executive retirement benefits to certain management employees under a supplemental
retirement income plan (“SRIP”). The SRIP provides monthly payments to participants or their designated beneficiaries
based on a 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
F-18
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
following the participant’s termination of employment due to retirement, disability or death. In addition, the monthly
retirement benefit for each participant, 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. The plan liability is based on the
aggregate actuarial present value of the vested benefits to which participating employees are currently entitled, but based
on the employees’ expected dates of separation or retirement.
Summarized plan information as of each fiscal year-end (the measurement date) is as follows:
F-19
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Change in benefit obligation:
Beginning projected benefit obligation
Service cost
Interest cost
Benefits paid
Actuarial (gain) loss
Ending projected benefit obligation (funded status)
Fifty-Two
Weeks Ended
February 2,
2014
Fifty-Three
Weeks Ended
February 3,
2013
$
$
7,435
256
292
(379)
58
7,662
354
7,308
7,662
7,569
255
297
(485)
(201)
7,435
379
7,056
7,435
Accumulated benefit obligation
$
7,231
$
7,306
$
$
Amount recognized in the consolidated balance sheets:
Current liabilities
Non-current liabilities
Total
$
$
$
$
Other changes recognized in accumulated other comprehensive income
Net (gain) arising during period
Net periodic benefit cost
Total recognized in net periodic benefit cost and
accumulated other comprehensive income
(106)
548
(58)
552
$
442
$
494
Net periodic benefit cost
Service cost
Interest cost
Net periodic benefit cost
Fifty-Two
Weeks Ended
February 2,
2014
Fifty-Three
Fifty-Two
Weeks Ended Weeks Ended
February 3,
2013
January 29,
2012
$
$
$
255
297
552
525
337
862
$
$
$
256
292
548
Assumptions used to determine net periodic benefit cost:
Discount rate (Moody's Composite Bond Rate)
Increase in future compensation levels
4.5%
4.0%
4.0%
4.0%
5.25%
4.0%
Estimated Future Benefit Payments:
Fiscal 2015
Fiscal 2016
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020 through Fiscal 2024
$
354
745
745
674
724
3,791
F-20
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
At February 2, 2014, $98,000, net of tax of $56,000, was in accumulated other comprehensive income. At February 3,
2013, $202,000, net of tax of $115,000, was in accumulated other comprehensive income representing actuarial gains
related to this plan.
We also provide a life insurance program for certain executives. The life insurance program provides death benefit
protection for these executives during employment up to age 65. Coverage under the program declines when a
participating executive attains age 60 and automatically terminates when the executive attains age 65 or terminates
employment with us for any reason, other than death, 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.
Performance Grants
From time to time, the Compensation Committee of our Board of Directors may award performance grants to certain
senior executives under the Company’s Stock Incentive Plan. Payments under these awards are based on our achieving
specified performance targets during a designated performance period. In addition, each executive must remain
continuously employed with the Company through the end of the performance period. Typically, performance grants can
be paid in cash, shares of the Company’s common stock, or both, at the discretion of the Compensation Committee at the
time payment is made.
Outstanding performance grants are classified as liabilities since the (i) settlement amount for each grant is not 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 is recorded as compensation expense over its
performance period when it becomes probable that the applicable performance targets will be achieved. The expected
cost of the performance grants is revalued each reporting period. As assumptions change regarding the expected
achievement of performance targets, a cumulative adjustment is 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
performance thresholds for outstanding performance grants will be met, no further compensation cost will be recognized
and any previously recognized compensation cost will be reversed.
During fiscal 2013, the Compensation Committee awarded performance grants for the 2013 and 2014 fiscal years. These
awards have three-year performance periods ending on January 25, 2015 and January 15, 2016, respectively. The
following amounts were accrued in the accrued salaries, wages and benefits section of our consolidated balance sheets
as of the fiscal period-end dates indicated:
Performance grants
2013 Fiscal year grant
2014 Fiscal year grant
Total performance grants accrued
February 2,
2014
February 3,
2013
$
305
73
378
$
273
-
273
The performance period for the fiscal 2014 performance awards did not begin until our fiscal 2014 commenced on
February 4, 2013. Therefore, no amounts were accrued for these awards at February 3, 2013.
NOTE 12 – SHARE-BASED COMPENSATION
Our Stock Incentive Plan permits incentive awards of restricted stock, restricted stock units, stock appreciation rights and
performance grants to key employees. A maximum of 750,000 shares of the Company’s common stock is authorized for
issuance under the Stock Incentive Plan. The Stock Incentive Plan also provides for annual restricted stock awards to
non-employee directors. We have issued restricted stock awards to our non-employee directors since January 2006.
F-21
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
We account for restricted stock awards as “non-vested equity shares” until the awards vest or are forfeited. Restricted
stock awards to non-employee directors vest if the director remains on the board through a 36-month service period and
may vest earlier upon certain events specified in the plan. The fair value of each share of restricted stock is the market
price of our common shares on the grant date. The weighted average grant-date fair value of restricted stock awards
issued during fiscal years 2014, 2013 and 2012 was $15.96, $10.38, and $9.83 per share, respectively.
The restricted stock awards outstanding as of February 2, 2014 had an aggregate grant-date fair value of $330,000, after
taking vested and forfeited restricted shares into account. As of February 2, 2014, we have recognized non-cash
compensation expense of approximately $183,000 related to these non-vested awards and $426,000 for awards that have
vested. The remaining $146,000 of grant-date fair value for unvested restricted stock awards outstanding at February 2,
2014 will be recognized over the remaining vesting periods for these awards.
For each restricted stock issuance, the following table summarizes restricted stock activity, including the weighted
average issue price of those shares on the grant date, the fair value of each grant of restricted stock on the grant date,
compensation expense recognized for the unvested shares of restricted stock for each grant and the remaining fair value
of the unvested shares of restricted stock for each grant as of February 2, 2014:
Awards outstanding balance at January 31, 2010
Whole
Number of
Shares
Grant-Date Aggregate Compensation Grant-Date Fair Value
Fair Value Grant-Date
Fair Value
Per Share
Unrecognized At
Febuary 2, 2014
Expense
Recognized
$
426
Restricted shares Issued on June 10, 2011
11,165
$
9.83
Restricted shares Issued on June 5, 2012
10,573
$
10.38
Restricted shares Issued on June 7, 2013
6,876
$
15.96
110
110
110
98
61
24
12
49
85
Awards outstanding at February 2, 2014:
28,614
$
330
$
183
$
146
We awarded time -based restricted stock units to certain senior executives during the 2012 and 2013 fiscal years. Each
restricted stock unit, or “RSU”, entitles the executive to receive one share of the Company’s common stock if he remains
continuously employed with the Company through the end of a three-year service period. The RSUs may be paid in
shares of the Company’s common stock, cash or both, at the discretion of the Compensation Committee. The RSUs are
accounted for as “non-vested stock grants.” Similar to the restricted stock grants issued to our non-employee directors,
RSU compensation expense is recognized ratably over the applicable service period. However, unlike restricted stock
grants, no shares are issued, or other payment made, until the end of the applicable service period (commonly referred to
as “cliff vesting”) and grantees are not entitled to receive dividends on their RSUs during that time. The fair value of each
RSU is the market price of a share of our common stock on the grant date, reduced by the present value of the dividends
expected to be paid on a share of our common stock during the applicable service period, discounted at the appropriate
risk-free rate. The following table presents RSU activity for the years ended February 3, 2013 and January 29, 2012,
adjusted for forfeitures:
F-22
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Whole
Number of
Units
Grant-Date
Fair Value Grant-Date
Fair Value
Per Unit
Aggregate Compensation Grant-Date Fair Value
Expense
Recognized
Unrecognized At
February 2, 2014
RSUs Awarded on September 7, 2011
RSUs Awarded on February 9, 2012
RSUs Awarded on January 15, 2013
10,684
11,846
9,823
$
$
$
8.21
11.95
13.66
$
88
140
134
$
71
97
44
$
17
43
90
Awards outstanding at Febuary 2, 2014:
32,353
$
362
$
212
$
150
NOTE 13 – EARNINGS PER SHARE
We refer you to the Earnings Per Share disclosure in Note 1-Summary of Significant Accounting Policies, above, for more
detailed information concerning the calculation of earnings per share.
We have issued restricted stock awards to non-employee directors since 2006 and restricted stock units (RSUs) to certain
senior executives since fiscal 2012, under the Company’s Stock Incentive Plan. We expect to continue to grant these
types of awards annually in the future. The following table sets forth the number of outstanding restricted stock awards
and RSUs, net of forfeitures and vested shares, as of the fiscal year-end dates indicated:
February 2, February 3, January 29,
2013
2012
2014
Restricted shares
Restricted stock units
28,614
32,353
60,967
29,063
32,353
61,416
21,321
10,684
32,005
All restricted shares awarded that have not yet vested are considered when computing diluted earnings per share. Unlike
the restricted stock grants issued to our non-employee directors, the transfer of ownership of common shares issued
under our RSUs, if any, occurs after the three-year vesting period; however, RSUs are also considered when computing
diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings per share:
F-23
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Fifty-Two
Weeks Ended
February 2,
2014
Fifty-Two
Fifty-Three
Weeks Ended Weeks Ended
February 3,
2013
January 29,
2012
Net income
Less: Dividends on unvested restricted shares
Net earnings allocated to unvested restricted stock
Earnings available for common shareholders
Weighted average shares outstanding for basic
earnings per share
Dilutive effect of unvested restricted stock awards
Weighted average shares outstanding for diluted
earnings per share
$
$
$
7,929
12
22
7,895
8,626
11
23
8,592
$
$
$
5,057
11
13
5,033
10,722
30
10,745
30
10,752
10,775
10,762
28
10,790
Basic earnings per share
$
0.74
$
0.80
$
0.47
Diluted earnings per share
$
0.74
$
0.80
$
0.47
NOTE 14 – INCOME TAXES
Our provision for income taxes was as follows for the periods indicated:
Current expense
Federal
Foreign
State
Total current expense
Deferred taxes
Federal
State
Total deferred taxes
Income tax expense
Fifty-Two
Weeks Ended
February 2,
2014
Fifty-Three
Fifty-Two
Weeks Ended Weeks Ended
February 3,
2013
January 29,
2012
$
3,755
41
403
4,199
$
3,894
50
403
4,347
$
1,687
54
182
1,923
214
126
340
4,539
$
(35)
55
20
4,367
$
(87)
52
(35)
1,888
$
Total tax expense for fiscal 2014 was $4.5 million, of which $4.5 million was allocated to continuing operations and
$59,000 benefit was allocated to Other Comprehensive Income. Total tax expense for the fiscal year ended February 3,
2013 was $4.4 million, of which $4.3 million was allocated to continuing operations and $51,000 was allocated to Other
Comprehensive Income. Total tax expense for fiscal 2012 was $1.6 million, of which $1.9 million was allocated to
continuing operations and $303,000 benefit was allocated to Other Comprehensive Income.
The effective income tax rate differed from the federal statutory tax rate as follows for the periods indicated:
F-24
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Fifty-Two
Fifty-Three
Weeks Ended Weeks Ended Weeks Ended
January 29,
February 3,
2012
2013
February 2,
2014
Fifty-Two
Income taxes at statutory rate
Increase (decrease) in tax rate resulting from:
State taxes, net of federal benefit
Officer's life insurance
Other, net
Effective income tax rate
34.0%
2.1
(1.8)
2.1
36.4%
34.0%
2.1
(3.1)
0.6
33.6%
34.0%
2.3
(5.9)
(3.2)
27.2%
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities for the
period indicated were:
Assets
Deferred com pens ation
Allowance for bad debts
State incom e taxes
Property, plant and equipm ent
Intangible as s ets
Charitable contribution carryforward
Inventories
Other
Total deferred tax as s ets
Valuation allowance
Liabilities
Em ployee benefits
Total deferred tax liabilities
Net deferred tax as s et without AOCI
February 2,
2014
February 3,
2013
$
3,455
448
43
370
745
608
148
308
6,125
(34)
6,091
$
3,319
455
153
220
989
745
447
245
6,573
(139)
6,434
320
320
5,771
328
328
6,106
Deferred tax liability in AOCI
Total net deferred tax as s et
(56)
5,715
$
(115)
5,991
$
At February 2, 2014 and February 3, 2013 our net deferred tax asset was $5.7 million and $6.0 million, respectively.
We have net operating loss carryforwards for state income tax purposes of $869,000 which are available to offset future
state taxable income through 2023. There is a valuation allowance against the tax benefit of the carryforward of $34,000
and $139,000, at February 2, 2014 and February 3, 2013, respectively. Except for the state net operating loss
F-25
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
carryforwards, we expect to fully utilize the remaining deferred tax assets in future periods when the amounts become
deductible.
In fiscal 2014, an uncertain tax position was identified and accrued in the current year for which forthcoming remediation
action steps will effectively settle the uncertainty in the next 12 months. In fiscal 2014, we also established a reserve of
$103,000 for an uncertain tax position related to the use of a portion of state loss carryforwards in our current tax returns
Current accounting standards prescribe 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. The guidance also
addresses de-recognition, classification, interest and penalties, accounting in interim periods and disclosures.
A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the fiscal years ended February
2, 2014 and February 3, 2013 are as follows:
February 2,
February 3,
2014
2013
Balance, beginning of year
$
-
$
-
Increase related to prior year tax positions
Decrease related to prior year tax positions
Increase related to current year tax positions
279
-
80
Balance, end of year
$
359
$
-
The net unrecognized tax benefits as of February 2, 2014, which, if recognized, would affect our effective tax rate are
$303,000.
We have elected to classify interest and penalties recognized with respect to unrecognized tax benefits as income tax
expense. Interest expense of $3,000 and $0 was accrued as of February 2, 2014 and February 3, 2013, respectively.
Because the possibility of the state tax jurisdiction examining our loss deduction is uncertain, we are unable to estimate
the range of possible changes to the balance of unrecognized tax benefits of $103,000 related to that uncertainty. We do
not anticipate a significant increase or decrease in the amount of the unrecognized tax benefits related to the state loss
carryforwards within the next year. However, we do expect that the balance of unrecognized tax benefits of $200,000
related to the captive insurance underpayments will decrease in fiscal 2015 when we amend our prior year returns.
Tax years beginning January 30, 2011, through February 2, 2014 remain subject to examination by federal and state
taxing authorities.
NOTE 15 – RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
Intangible asset impairment charges are included in the “intangible asset impairment charges” line of our consolidated
statements of income.
The following table sets forth the significant components of and activity related to the accrued restructuring charges for
fiscal years 2012, 2013 and 2014:
F-26
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Accrued balance at January 30, 2011
$
163
$
-
$
31
$
194
Severance and
Related Benefits Impairment
Asset
Other
Pretax
Amount
After-tax
Amount
Restructuring charges accrued during fiscal 2012
Non-cash charges
Cash payments
Accrued balance at January 29, 2012
-
(163)
$
-
-
-
$
-
(16)
15
$
Restructuring charges accrued during fiscal 2013
Non-cash charges
Cash payments
-
-
-
Accrued balance at February 3, 2013
$
-
$
-
Restructuring charges accrued during fiscal 2014
Non-cash charges
Cash payments
-
-
-
Accrued balance at February 2, 2014
$
-
$
-
(5)
10
$
(5)
10
$
-
-
(6)
4
$
(6)
$
4
-
-
(179)
15
$
-
-
-
-
-
The $4,000 balance in accrued restructuring charges at February 2, 2014 relates to continuing environmental monitoring
costs at two former casegoods factories.
NOTE 16 – SEGMENT INFORMATION
For financial reporting purposes, we are organized into two operating segments – casegoods furniture and upholstered
furniture. Results from our new H Contract and Homeware business initiatives, and the elimination of intercompany sales
and profits related to these businesses, are aggregated with the results from our casegoods operating segment. The
following table presents segment information for the periods, and as of the dates, indicated:
F-27
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
Fifty-Two Weeks Ended
February 2, 2014
Fifty-Three Weeks Ended
February 3, 2013
Fifty-Two Weeks Ended
January 29, 2012
Net Sales
Casegoods
Upholstery
Consolidated
Gross Profit
Casegoods
Upholstery
Consolidated
Operating Income
Casegoods
Upholstery
Consolidated
Capital Expenditures
Casegoods
Upholstery
Consolidated
Depreciation
& Amortization
Casegoods
Upholstery
Consolidated
Total Assets
Casegoods
Upholstery
Consolidated
$
$
145,266
83,027
228,293
$
$
141,064
77,295
218,359
$
$
147,927
74,578
222,505
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
39,332
15,393
54,725
10,590
1,913
12,503
2,489
982
3,471
1,551
940
2,491
% Net
Sales
63.6%
36.4%
100.0%
27.1%
18.5%
24.0%
7.3%
2.3%
5.5%
%Total
Assets
78.7%
21.3%
100.0%
As of February 2,
2014
$
$
122,345
33,136
155,481
38,054
14,492
52,546
11,953
987
12,940
3,156
905
4,061
1,671
895
2,566
% Net
Sales
64.6%
35.4%
100.0%
27.0%
18.5%
24.1%
8.5%
1.3%
5.9%
%Total
Assets
79.9%
20.1%
100.0%
% Net
Sales
66.5%
33.5%
100.0%
25.4%
15.2%
22.0%
7.2%
-5.3%
3.0%
37,550
11,313
48,863
10,644
(3,971)
6,673
2,979
826
3,805
1,717
849
2,566
As of February 3,
2013
$
$
124,509
31,314
155,823
F-28
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
No significant long-lived assets were held outside the United States at either February 2, 2014 or February 3, 2013.
International customers accounted for approximately 4.0% of consolidated net sales in fiscal 2014, 4.4% of consolidated
net sales in fiscal 2013 and 5.0% of consolidated net sales in fiscal 2012.
NOTE 17 – COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET ARRANGEMENTS
We lease warehousing facilities, showroom space, and office and computer equipment under leases expiring over the
next five years. Rent expense was $2.3 million in fiscal 2014, $2.0 million in fiscal 2013 and $2.2 million in fiscal 2012.
Future minimum annual commitments under leases and operating agreements are $1.7 million in fiscal 2015, $643,000 in
fiscal 2016, $317,000 in fiscal 2017, $6,000 in fiscal 2018 and $0 in fiscal 2019.
We had letters of credit outstanding totaling $2.1 million on February 2, 2014. We utilize letters of credit to collateralize
certain imported inventory purchases and certain insurance arrangements.
In the ordinary course of our 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 18 – CONCENTRATIONS OF SOURCING RISK
We source imported products through over 24 different vendors, from 26 separate factories, located in five 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 are an important resource for Hooker Furniture. In fiscal year 2014, imported products sourced
from China accounted for approximately 74% of import purchases, and the factory in China from which we directly source
the most product accounted for approximately 57% of our worldwide purchases of imported product. A 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.
NOTE 19 – CONSOLIDATED QUARTERLY DATA (Unaudited)
First
Second
Third
Fourth
Fiscal Quarter
2014
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Net income
Basic and diluted earnings per share
2013
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
Net income
Basic and diluted earnings per share
$
$
$
$
$
$
$
$
56,295
42,379
13,916
10,682
2,126
0.20
51,730
40,808
10,922
9,394
1,020
0.09
55,301
42,044
13,257
10,617
1,688
0.16
50,185
38,920
11,265
8,943
1,474
0.14
59,125
45,527
13,598
10,443
2,116
0.20
56,803
43,243
13,560
9,781
2,434
0.23
$
$
$
$
$
$
$
$
57,572
43,618
13,954
10,480
1,999
0.19
59,641
42,842
16,799
11,488
3,698
0.34
Earnings per share for each fiscal quarter is derived using the weighted average number of shares outstanding during that
F-29
Notes to Consolidated Financial Statements - Continued
(In thousands, except share and per share data)
quarter. Earnings per share for each 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 of a fiscal year may not equal earnings per
share for the full fiscal year.
NOTE 20 – SUBSEQUENT EVENTS
Cash Dividend
On March 4, 2014, our Board of Directors declared a quarterly cash dividend of $0.10 per share, payable on March 31,
2014 to shareholders of record at March 17, 2014.
Long-term Operating Lease Agreement and Sale of Existing Warehouse Facility
On April 1, 2014, we entered into a new, seven- year operating lease with 1350 State Road, LLC (as landlord) for a
628,000 square foot warehouse facility in Henry County, Virginia, referred to as our “Central Distribution Center II” facility
(“CDC2”). We occupied, and previously leased, approximately 400,000 square feet in this facility, which is utilized for our
casegoods segment and the imported upholstery division of our upholstery operating segment. We expect to pay rent,
which will increase by 2% annually, of approximately $1.1 million in the first year of the lease to $1.3 million in the seventh
year, for an aggregate of approximately $8.4 million over the initial seven-year term of the lease. Other material terms of
the lease include:
An expanded footprint to encompass the entire 628,000 square foot CDC2 facility;
An initial base rent of $1.80 per square foot;
Two, three-year renewal options, with 180-day advance notice to the landlord;
A schedule of repairs and improvements to be made by the landlord;
Customary covenants, events of default and remedies; and
A right of first refusal for the landlord to provide any additional warehouse space we require within a 25-mile
radius of CDC2.
Concurrent with entering the lease, Yale Realty Associates, LLC, an affiliate of the landlord, purchased our 189,000
square foot “Cloverleaf” warehouse facility located in Henry County, Virginia for $1.75 million.
We have agreed to finance the sale of the Cloverleaf facility with the following terms:
A 10% ($175,000) cash down payment, which was paid at closing;
A five-year promissory note, at 4.5% annual interest rate, with monthly payments computed on a 20-year
amortization;
An initial 18-month interest-only period, unless during that period the landlord secures a tenant for all or a portion
of the property for a lease term of more than one-year;
All unpaid interest and principal being due on April 1, 2019;
The note being secured by the property and a pledge of cash in the amount of one year’s payments under the
note; and
The note becoming due and payable upon any sale of the property.
We expect to record a gain of approximately $300,000 pretax ($191,000 after tax, or $0.02 per share) on the sale of the
property in our fiscal 2015 first quarter financial statements.
F-30
S
R
E
C
I
F
F
O
&
S
R
O
T
C
E
R
I
D
Paul Toms Jr.
Director, Chief Executive Officer and
Chairman of the Board
W. Christopher Beeler Jr.
Lead Director; Chairman—
Virginia Mirror Company and Virginia Glass Products
John Gregory III
Director; Shareholder, Officer and Director—
Young, Haskins, Mann, Gregory, McGarry & Wall P.C.
E. Larry Ryder
Director; Retired Executive Vice President and
Chief Financial Officer—Hooker Furniture
Charlene Bowling
Vice President and Chief Information Officer
Matthew Cowan
Vice President of Sales-Western Region and Special Accounts
Conrad Kerley
Vice President of Leather and Import
Operations, Bradington-Young
Brad Miller
Vice President of International Sales
Bill Reece
Vice President of Asian Operations
Mark Schreiber
Director; Retired President and Chief Operating Officer—
Star Furniture
Frank Richardson III
Vice President of Sales, Northern Region
David Sweet
Director; Retired Vice President—
The North Face, a division of VF Corporation
Henry Williamson Jr.
Director; Retired Chief Operating Officer--
BB& T Corporation and Branch Banking
and Trust Company of North Carolina,
South Carolina and Virginia
Michael Delgatti Jr.
President of Hooker Furniture Corporation
Paul Huckfeldt
Senior Vice President of Finance and Chief Financial Officer
Raymond Harm
Senior Vice President of Sales
Anne Jacobsen
Senior Vice President of Administration
Henry Long Jr.
Senior Vice President of Case Goods Merchandising
and Design
Johne Albanese
Vice President of Marketing
Joel Hermann
Vice President and General Manager, H Contract
Scott Prillaman
Vice President of U.S. Casegoods Operations
Steve Shelor
Vice President of Operations—Hooker Upholstery
Sandi Teague
Vice President of Upholstery Merchandising
Robert Sherwood
Vice President of Credit; Secretary and Treasurer
Pat Watson
Vice President of Case Goods Merchandising
Michael White
Vice President of Upholstery Manufacturing
Craig Young
Vice President of Sales – Southern Region
®
HOO K E R
®
F U R N I T U R E
®
H OO K E R
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