ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
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Documents filed as part of this report on Form 10-K:
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(1)
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The following reports and financial statements are included in this report on Form 10-K:
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Management’s Report on Internal Control Over Financial Reporting
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Reports of Independent Registered Public Accounting Firm
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Consolidated Balance Sheets as of February 2, 2020 and February 3, 2019
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Consolidated Statements of Income for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018
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Consolidated Statements of Comprehensive Income for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018
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Consolidated Statements of Cash Flows for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018
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Consolidated Statements of Shareholders’ Equity for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018
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Notes to Consolidated Financial Statements
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(2)
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Financial Statement Schedules:
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Financial Statement Schedules have been omitted because the information required has been separately disclosed in the consolidated financial statements or related notes.
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(b)
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Exhibits:
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2.1
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Asset Purchase Agreement, dated as of September 6, 2017, by and among Hooker Furniture Corporation, Shenandoah Furniture Corporation, Gideon C. Huddle and Candace H. Payne (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K (SEC File No. 000-25349) filed on September 29, 2017)
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3.1
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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)
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3.2
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Amended and Restated Bylaws of the Company as amended December 10, 2013 (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-K (SEC File No. 000-25349) for the fiscal year ended February 2, 2014)
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4.1
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Amended and Restated Articles of Incorporation of the Company (See Exhibit 3.1)
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4.2
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Amended and Restated Bylaws of the Company (See Exhibit 3.2)
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4.3
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Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (filed herewith).
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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.
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10.1(a)
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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)*
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10.1(b)
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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)*
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10.1(c)
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2015 Amendment and Restatement of the Hooker Furniture Corporation Stock Incentive Plan (incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement dated March 1, 2015 (SEC File No. 000-25349))*
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10.1(d)
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2010 Amended and Restated Hooker Furniture Corporation Supplemental Retirement Income Plan, dated as of 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)*
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10.1(e)
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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)*
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10.1(f)
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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)*
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10.1(i)
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Employment Agreement, dated June 4, 2018, between Anne Jacobsen and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349) filed on December 6, 2018)*
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10.1(j)
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Employment Agreement, dated June 25, 2018, between Donald Lee Boone and the Company (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q (SEC File No. 000-25349) filed on December 6, 2018)*
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10.1(k)
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Employment Agreement, dated June 4, 2018, between Jeremy Hoff and the Company (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q (SEC File No. 000-25349) filed on December 6, 2018)*
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10.1(l)
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Employment Agreement, dated June 4, 2018, between Douglas Townsend and the Company (incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q (SEC File No. 000-25349) filed on December 6, 2018)*
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10.1(m)
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Form of Performance Share 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 May 11, 2018)*
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10.1
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First Amendment to the 2010 Amended and Restated Hooker Furniture Corporation Supplemental Retirement Income plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-25349) filed with the SEC on November 15, 2019)
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10.2(a)
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Security Agreement (Assignment of Life Insurance Policy as Collateral), dated as of February 1, 2016, between Bank of America, N.A. and the Company (incorporated by referenced to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No. 000-25349) filed on February 2, 2016)
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10.2(b)
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Second Amended and Restated Loan Agreement, dated as of September 29, 2017, between Bank of America, N.A. and Hooker Furniture Corporation, Bradington-Young, LLC, Sam Moore Furniture LLC and Home Meridian Group, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (SEC File No. 000-25349) filed on September 29, 2017)
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10.2(c)
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First Amendment to Second Amended and Restated Loan Agreement, dated as of February 1, 2019, between Bank of America, N.A. and Hooker Furniture Corporation, Bradington-Young, LLC, Sam Moore Furniture LLC and Home Meridian Group, LLC. (incorporated by reference to Exhibit 10.2(d) of the Company’s Form 10-K (SEC File No. 000-25349) filed on April 19,2019)
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21
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List of Subsidiaries:
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Bradington-Young LLC, a North Carolina limited liability company
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Home Meridian Group, LLC, a Virginia limited liability company
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Sam Moore Furniture LLC, a Virginia limited liability company
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23
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Consent of Independent Registered Public Accounting Firm (filed herewith)
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31.1
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Rule 13a-14(a) Certification of the Company’s principal executive officer (filed herewith)
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31.2
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Rule 13a-14(a) Certification of the Company’s principal financial officer (filed herewith)
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32.1
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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 (furnished herewith)
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101
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The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2020, 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)
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*Management contract or compensatory plan
ITEM 16. FORM 10-K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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HOOKER FURNITURE CORPORATION
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April 17, 2020
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By:
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/s/ Paul B. Toms, Jr.
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Paul B. Toms, Jr.
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Chairman and Chief Executive Officer
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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
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Title
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Date
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/s/ Paul B. Toms, Jr.
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Chairman, Chief Executive Officer and
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April 17, 2020
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Paul B. Toms, Jr.
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Director (Principal Executive Officer)
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/s/ Paul A. Huckfeldt
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Senior Vice President - Finance and Accounting
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April 17, 2020
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Paul A. Huckfeldt
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and Chief Financial Officer (Principal
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Financial and Accounting Officer)
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/s/ W. Christopher Beeler, Jr.
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Director
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April 17, 2020
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W. Christopher Beeler, Jr.
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/s/ Paulette Garafalo
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Director
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April 17, 2020
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Paulette Garafalo
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/s/ John L. Gregory, III
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Director
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April 17, 2020
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John L. Gregory, III
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/s/ Tonya H. Jackson
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Director
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April 17, 2020
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Tonya H. Jackson
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/s/ E. Larry Ryder
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Director
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April 17, 2020
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E. Larry Ryder
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/s/ Ellen C. Taaffe
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Director
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April 17, 2020
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Ellen C. Taaffe
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/s/ Henry G. Williamson, Jr
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.
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Director
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April 17, 2020
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Henry G. Williamson, Jr.
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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page
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Management’s Report on Internal Control Over Financial Reporting
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F-2
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Reports of Independent Registered Public Accounting Firm
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F-3
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Consolidated Balance Sheets as of February 2, 2020 and February 3, 2019
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F-5
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Consolidated Statements of Income for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018
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F-6
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Consolidated Statements of Comprehensive Income for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018
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F-7
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Consolidated Statements of Cash Flows for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018
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F-8
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Consolidated Statements of Shareholders’ Equity for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018
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F-9
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Notes to Consolidated Financial Statements
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F-10
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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 (2013) 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, 2020.
The effectiveness of the Company’s internal control over financial reporting as of February 2, 2020 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 17, 2020
Paul A. Huckfeldt
Senior Vice President – Finance and Accounting
and Chief Financial Officer
(Principal Financial and Accounting Officer)
April 17, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Hooker Furniture Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Hooker Furniture Corporation and subsidiaries (the Company) as of February 2, 2020 and February 3, 2019, 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, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2020 and February 3, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended February 2, 2020, 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) (PCAOB), the Company’s internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 17, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue due to the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers.
Basis for Opinion
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company’s auditor since 2003.
Raleigh, North Carolina
April 17, 2020
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Hooker Furniture Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Hooker Furniture Corporation and subsidiaries’ (the Company) internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control – Integrated Framework (2013) 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) (PCAOB), the consolidated balance sheets of the Company as of February 2, 2020 and February 3, 2019, 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, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated April 17, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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 of internal control over financial reporting 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
/S/ KPMG LLP
Raleigh, North Carolina
April 17, 2020
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
As of
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February 2,
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February 3,
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2020
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2019
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Assets
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Current assets
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Cash and cash equivalents
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$
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36,031
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$
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11,435
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Trade accounts receivable, net
(See notes 6 and 7)
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87,653
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112,557
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Inventories (see note 8)
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92,813
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105,204
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Income tax recoverable
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751
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-
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Prepaid expenses and other current assets
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4,719
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5,735
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Total current assets
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221,967
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234,931
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Property, plant and equipment, net (See note 9)
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29,907
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29,482
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Cash surrender value of life insurance policies (See note 11)
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24,888
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23,816
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Deferred taxes (See note 17)
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2,880
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4,522
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Operating leases right-of-use assets (See note 12)
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39,512
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-
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Intangible assets, net (See note 10)
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33,371
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35,755
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Goodwill (See notes 4 and 10)
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40,058
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40,058
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Other assets
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1,125
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1,152
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Total non-current assets
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171,741
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134,785
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Total assets
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$
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393,708
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$
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369,716
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Liabilities and Shareholders’ Equity
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Current liabilities
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Current portion of term loans
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$
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5,834
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$
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5,829
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Trade accounts payable
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25,493
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40,838
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Accrued salaries, wages and benefits
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4,933
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8,002
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Income tax accrual (See note 17)
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-
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3,159
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Customer deposits
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3,351
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3,023
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Current portion of lease liabilities
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6,307
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-
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Other accrued expenses
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4,211
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|
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3,564
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Total current liabilities
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50,129
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64,415
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Long term debt (See note 13)
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24,282
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29,628
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Deferred compensation (See note 14)
|
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11,382
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|
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11,513
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Lease liabilities
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33,794
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-
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Other liabilities
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-
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984
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Total long-term liabilities
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69,458
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|
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42,125
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Total liabilities
|
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119,587
|
|
|
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106,540
|
|
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|
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Shareholders’ equity
|
|
|
|
|
|
|
|
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Common stock, no par value, 20,000 shares authorized,
11,838 and 11,785 shares issued and outstanding on each date
|
|
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51,582
|
|
|
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49,549
|
|
Retained earnings
|
|
|
223,252
|
|
|
|
213,380
|
|
Accumulated other comprehensive (loss) income
|
|
|
(713
|
)
|
|
|
247
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|
Total shareholders’ equity
|
|
|
274,121
|
|
|
|
263,176
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|
Total liabilities and shareholders’ equity
|
|
$
|
393,708
|
|
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$
|
369,716
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|
See accompanying Notes to Consolidated Financial Statements.
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
For the 52 Week Period Ended February 2, 2020, the 53 Week Period Ended February 3, 2019 and the 52 Week Period Ended January 28, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
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2019
|
|
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2018
|
|
|
|
|
|
|
|
|
|
|
|
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Net sales
|
|
$
|
610,824
|
|
|
$
|
683,501
|
|
|
$
|
620,632
|
|
|
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|
|
|
|
|
|
|
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|
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Cost of sales
|
|
|
496,866
|
|
|
|
536,014
|
|
|
|
485,815
|
|
Casualty loss
|
|
|
-
|
|
|
|
500
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
113,958
|
|
|
|
146,987
|
|
|
|
134,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
|
88,867
|
|
|
|
91,928
|
|
|
|
87,279
|
|
Intangible asset amortization
|
|
|
2,384
|
|
|
|
2,384
|
|
|
|
2,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
22,707
|
|
|
|
52,675
|
|
|
|
45,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net
|
|
|
458
|
|
|
|
369
|
|
|
|
1,566
|
|
Interest expense, net
|
|
|
1,238
|
|
|
|
1,454
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
21,927
|
|
|
|
51,590
|
|
|
|
45,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
4,844
|
|
|
|
11,717
|
|
|
|
17,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,083
|
|
|
$
|
39,873
|
|
|
$
|
28,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.44
|
|
|
$
|
3.38
|
|
|
$
|
2.42
|
|
Diluted
|
|
$
|
1.44
|
|
|
$
|
3.38
|
|
|
$
|
2.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
11,784
|
|
|
|
11,759
|
|
|
|
11,633
|
|
Diluted
|
|
|
11,838
|
|
|
|
11,783
|
|
|
|
11,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.61
|
|
|
$
|
0.57
|
|
|
$
|
0.50
|
|
See accompanying Notes to Consolidated Financial Statements.
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
For the 52 Week Period Ended February 2, 2020, the 53 Week Period Ended February 3, 2019 and the 52 Week Period Ended January 28, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
17,083
|
|
|
$
|
39,873
|
|
|
$
|
28,250
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on pension plan settlement
|
|
|
(520
|
)
|
|
|
-
|
|
|
|
-
|
|
Income tax effect on settlement
|
|
|
124
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of actuarial (loss) gain
|
|
|
(740
|
)
|
|
|
(305
|
)
|
|
|
(144
|
)
|
Income tax effect on amortization
|
|
|
176
|
|
|
|
73
|
|
|
|
26
|
|
Adjustments to net periodic benefit cost
|
|
|
(960
|
)
|
|
|
(232
|
)
|
|
|
(118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of tax effects due to the adoption of ASU 2018-02
|
|
|
-
|
|
|
|
111
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income
|
|
$
|
16,123
|
|
|
$
|
39,752
|
|
|
$
|
28,132
|
|
See accompanying Notes to Consolidated Financial Statements.
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the 52 Week Period Ended February 2, 2020, the 53 Week Period Ended February 3, 2019 and the 52 Week Period Ended January 28, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,083
|
|
|
$
|
39,873
|
|
|
$
|
28,250
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,100
|
|
|
|
7,442
|
|
|
|
6,647
|
|
Gain on pension settlement
|
|
|
(520
|
)
|
|
|
-
|
|
|
|
-
|
|
(Gain)/Loss on disposal of assets
|
|
|
(271
|
)
|
|
|
(73
|
)
|
|
|
571
|
|
Proceeds from Casualty Loss
|
|
|
-
|
|
|
|
409
|
|
|
|
-
|
|
Deferred income tax expense (benefit)
|
|
|
1,940
|
|
|
|
(1,221
|
)
|
|
|
4,110
|
|
Non-cash restricted stock and performance awards
|
|
|
1,296
|
|
|
|
1,284
|
|
|
|
1,175
|
|
Provision for doubtful accounts and sales allowances
|
|
|
(435
|
)
|
|
|
(799
|
)
|
|
|
(531
|
)
|
Gain on life insurance policies
|
|
|
(831
|
)
|
|
|
(748
|
)
|
|
|
(582
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
25,339
|
|
|
|
(17,982
|
)
|
|
|
2,908
|
|
Inventories
|
|
|
12,391
|
|
|
|
(21,323
|
)
|
|
|
(6,776
|
)
|
Income tax recoverable
|
|
|
(751
|
)
|
|
|
-
|
|
|
|
-
|
|
Prepaid expenses and other current assets
|
|
|
(557
|
)
|
|
|
267
|
|
|
|
(1,067
|
)
|
Trade accounts payable
|
|
|
(15,349
|
)
|
|
|
8,130
|
|
|
|
(4,623
|
)
|
Accrued salaries, wages and benefits
|
|
|
(3,070
|
)
|
|
|
(1,643
|
)
|
|
|
129
|
|
Accrued income taxes
|
|
|
(3,159
|
)
|
|
|
(672
|
)
|
|
|
(612
|
)
|
Customer deposits
|
|
|
328
|
|
|
|
(1,270
|
)
|
|
|
(339
|
)
|
Operating lease liabilities
|
|
|
299
|
|
|
|
-
|
|
|
|
-
|
|
Other accrued expenses
|
|
|
645
|
|
|
|
604
|
|
|
|
(696
|
)
|
Deferred compensation
|
|
|
(49
|
)
|
|
|
(2,757
|
)
|
|
|
(1,151
|
)
|
Other long-term liabilities
|
|
|
-
|
|
|
|
141
|
|
|
|
333
|
|
Net cash provided by operating activities
|
|
|
41,429
|
|
|
|
9,662
|
|
|
|
27,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
-
|
|
|
|
-
|
|
|
|
(32,773
|
)
|
Purchases of property, plant and equipment
|
|
|
(5,129
|
)
|
|
|
(5,214
|
)
|
|
|
(3,166
|
)
|
Proceeds received on notes receivable
|
|
|
1,449
|
|
|
|
119
|
|
|
|
120
|
|
Proceeds from sale of property and equipment
|
|
|
16
|
|
|
|
11
|
|
|
|
9
|
|
Premiums paid on life insurance policies
|
|
|
(590
|
)
|
|
|
(652
|
)
|
|
|
(673
|
)
|
Proceeds received on life insurance policies
|
|
|
-
|
|
|
|
1,225
|
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(4,254
|
)
|
|
|
(4,511
|
)
|
|
|
(36,483
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt
|
|
|
-
|
|
|
|
-
|
|
|
|
12,000
|
|
Payments for long-term debt
|
|
|
(5,368
|
)
|
|
|
(17,917
|
)
|
|
|
(6,285
|
)
|
Debt issuance cost
|
|
|
-
|
|
|
|
-
|
|
|
|
(39
|
)
|
Cash dividends paid
|
|
|
(7,211
|
)
|
|
|
(6,714
|
)
|
|
|
(5,816
|
)
|
Net cash used in financing activities
|
|
|
(12,579
|
)
|
|
|
(24,631
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
24,596
|
|
|
|
(19,480
|
)
|
|
|
(8,877
|
)
|
Cash and cash equivalents at the beginning of year
|
|
|
11,435
|
|
|
|
30,915
|
|
|
|
39,792
|
|
Cash and cash equivalents at the end of year
|
|
$
|
36,031
|
|
|
$
|
11,435
|
|
|
$
|
30,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid, net
|
|
$
|
993
|
|
|
$
|
1,338
|
|
|
|
1,135
|
|
Income taxes paid, net
|
|
|
6,818
|
|
|
|
13,613
|
|
|
$
|
14,122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of noncash investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition cost paid in common stock
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
8,396
|
|
Increase in lease liabilities arising from obtaining right-of-use assets
|
|
|
625
|
|
|
|
-
|
|
|
|
-
|
|
Increase in property and equipment through accrued purchases
|
|
|
5
|
|
|
|
23
|
|
|
|
58
|
|
See accompanying Notes to Consolidated Financial Statements.
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except per share data)
For the 52 Week Period Ended February 2, 2020, the 53 Week Period Ended February 3, 2019 and the 52 Week Period Ended January 28, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Earnings
|
|
|
Income / (Loss)
|
|
|
Equity
|
|
Balance at January 29, 2017
|
|
|
11,563
|
|
|
$
|
39,753
|
|
|
$
|
157,688
|
|
|
$
|
486
|
|
|
$
|
197,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
28,250
|
|
|
|
|
|
|
|
28,250
|
|
Unrealized loss on defined benefit plan, net of tax of $26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(118
|
)
|
|
|
(118
|
)
|
Cash dividends paid and accrued ($0.50 per share)
|
|
|
|
|
|
|
|
|
|
|
(5,816
|
)
|
|
|
|
|
|
|
(5,816
|
)
|
Stock issued for acquisition
|
|
|
176
|
|
|
|
8,396
|
|
|
|
|
|
|
|
|
|
|
|
8,396
|
|
Restricted stock grants, net of forfeitures
|
|
|
23
|
|
|
|
432
|
|
|
|
|
|
|
|
|
|
|
|
432
|
|
Restricted stock compensation cost
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
389
|
|
Balance at January 28, 2018
|
|
|
11,762
|
|
|
$
|
48,970
|
|
|
$
|
180,122
|
|
|
$
|
368
|
|
|
$
|
229,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
39,873
|
|
|
|
|
|
|
$
|
39,873
|
|
Prior year adjustment for ASU 2014-09 and 2018-02
|
|
|
|
|
|
|
|
|
|
|
99
|
|
|
$
|
111
|
|
|
|
210
|
|
Unrealized loss on defined benefit plan, net of tax of $73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(232
|
)
|
|
|
(232
|
)
|
Cash dividends paid and accrued ($0.57 per share)
|
|
|
|
|
|
|
|
|
|
|
(6,714
|
)
|
|
|
|
|
|
|
(6,714
|
)
|
Restricted stock grants, net of forfeitures
|
|
|
23
|
|
|
$
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
|
(30
|
)
|
Restricted stock compensation cost
|
|
|
|
|
|
$
|
609
|
|
|
|
|
|
|
|
|
|
|
|
609
|
|
Balance at February 3, 2019
|
|
|
11,785
|
|
|
$
|
49,549
|
|
|
$
|
213,380
|
|
|
$
|
247
|
|
|
$
|
263,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
17,083
|
|
|
|
|
|
|
$
|
17,083
|
|
Gain on pension settlement, net of tax of $124
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(396
|
)
|
|
|
(396
|
)
|
Unrealized loss on defined benefit plan, net of tax of $176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(564
|
)
|
|
|
(564
|
)
|
Cash dividends paid and accrued ($0.61 per share)
|
|
|
|
|
|
|
|
|
|
|
(7,211
|
)
|
|
|
|
|
|
|
(7,211
|
)
|
Restricted stock grants, net of forfeitures
|
|
|
53
|
|
|
$
|
344
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
Restricted stock compensation cost
|
|
|
|
|
|
$
|
790
|
|
|
|
|
|
|
|
|
|
|
|
790
|
|
Recognition of PSUs as equity-based awards
|
|
|
|
|
|
$
|
899
|
|
|
|
|
|
|
|
|
|
|
|
899
|
|
Balance at February 2, 2020
|
|
|
11,838
|
|
|
$
|
51,582
|
|
|
$
|
223,252
|
|
|
$
|
(713
|
)
|
|
$
|
274,121
|
|
See accompanying Notes to Consolidated Financial Statements.
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated)
For the Fifty-Two Weeks Ended February 2, 2020
NOTE 1 – RECENTLY ADOPTED ACCOUNTING STANDARDS
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to recognize lease right-of-use assets and liabilities on-balance sheet and disclose key information about leasing arrangements. ASU 2016-02 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10, Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements. We adopted Topic 842 standard on February 4, 2019 and used the effective date transition method. As a result, our condensed consolidated balance sheets prior to February 4, 2019 were not restated and continue to be reported under previous guidance that did not require the recognition of lease liabilities and corresponding lease assets on the condensed consolidated balance sheets. In addition, we have elected the package of practical expedients, which allowed us not to reassess prior conclusions related to the expired or existing leases, and not to reassess the accounting for initial direct costs. As a result of the adoption of Topic 842, we have operating lease right-of-use assets of $39.5 million and operating lease liabilities of $40.1 million as of February 2, 2020. The adoption of Topic 842 did not have a material impact on our condensed consolidated statements of income and condensed consolidated statement of cash flows for the fiscal 2020. See Note 12 for additional information and disclosures required by Topic 842.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). This new standard replaced most existing revenue recognition guidance in GAAP and codified guidance under FASB Topic 606. The underlying principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services. We adopted ASU No. 2014-09 as of January 29, 2018 using the modified retrospective method. As a result of adopting Topic 606, we recorded an increase to retained earnings of approximately $210,000, net of tax, as of January 29, 2018, due to the cumulative effect related to the change in accounting for shipments with synthetic FOB destination shipping terms. Results for the reporting period beginning after January 29, 2018 are presented under Topic 606, while prior period amounts continue to be reported in accordance with the Company's historic accounting practices under previous guidance. However, given the nature of our products and our sales terms and conditions, with the exception of sales with synthetic FOB destination shipping terms which are immaterial, the timing and amount of revenue recognized based on the underlying principles of ASU No. 2014-09 are consistent with our revenue recognition policy under previous guidance.
NOTE 2 – 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, hospitality and contract 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.
Operating Segments
As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to:
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better understand our performance;
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better assess our prospects for future net cash flows; and
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make more informed judgments about us as a whole.
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We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM.
For financial reporting purposes, we are organized into three operating segments and “All Other”, which includes the remainder of our businesses:
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Hooker Branded, consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses;
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Home Meridian, a business acquired at the beginning of fiscal 2017, is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins;
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Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, Sam Moore and Shenandoah Furniture; and
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All Other, consisting of H Contract and Lifestyle Brands. Neither of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280.
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Cash and Cash Equivalents
We consider cash on hand, demand deposits in banks and all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.
Trade Accounts Receivable
Accounts receivable are reported net of the allowance for doubtful accounts and sales-related allowances. Substantially all of our trade accounts receivable are due from retailers and dealers that sell residential home furnishings or commercial purchasers of our hospitality and senior living products, and consist of a large number of entities with a broad geographic dispersion. We perform credit evaluations of our customers and generally do not require collateral. We regularly review and revise accounts receivable for doubtful accounts and customer allowances based upon historical bad debts and customer allowances and any agreements with specific customers. If the financial condition of a customer or customers were to deteriorate, resulting in an impairment of their ability to make payments, additional bad debt allowances may be required. 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.
Business Combinations-Purchase Price Allocation
For business combinations, we allocate the purchase price to the various tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values. Determining the fair value of certain assets and liabilities acquired is subjective in nature and often involves the use of significant estimates and assumptions, which are inherently uncertain. Many of the estimates and assumptions used to determine fair values, such as those used for intangible assets, are made based on forecasted information and discount rates. To assist in the purchase price allocation process, as well as the estimate of remaining useful lives of acquired assets, we may engage a third-party appraisal firm. In addition, the judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.
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:
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Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.
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■
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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.
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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.
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Fair Value of Financial Instruments
The carrying value of certain of our financial instruments (cash and cash equivalents, trade accounts receivable and payable, and accrued liabilities) approximates fair value because of the short-term nature of those instruments. The carrying value of Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period. See Note 11 for details.
Inventories
All inventories are stated at the lower of cost, or market value, with cost determined using the last-in, first-out (LIFO) method.
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.
Leases
Leases are classified as either finance leases or operating leases based on criteria in Topic 842. All of our current leases are classified as operating leases. We do not currently have finance leases but could in the future.
Operating lease right-of-use ("ROU") assets and liabilities are recognized on the adoption date based on the present value of lease payments over the remaining lease term. As interest rates are not explicitly stated or implicit in any of our leases, we utilized our incremental borrowing rate at the adoption date of February 4, 2019. For leases without explicitly stated or implicit interest rates that commenced after the adoption date, we use our incremental borrowing rate which was one-month LIBOR at the lease commencement date plus 1.5%. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
At the inception of a lease, we allocate the consideration in the contract to each lease and non-lease component based on the component's relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Some of our real estate leases contain variable lease payments, including payments based on the percentage increase in the Consumer Price Index for Urban Consumers (“CPI-U”). We used February 2019 CPI-U issued by the US Department of Labor’s Bureau of Labor Statistics to measure lease payments and calculate lease liabilities upon adoption of this standard. Additional payments based on the change in an index or rate, or payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded when incurred.
We have a sub-lease at one of our warehouses. In accordance with the provisions of Topic 842, since we have not been relieved as the primary obligor of the warehouse lease, we cannot net the sublease income against our lease payment to calculate the lease liability and ROU asset. Our practice has been, and we will continue to, straight-line the sub-lease income over the term of the sublease.
Our leases have remaining lease terms of less than one year to seven years, some of which include options to extend the leases for up to seven years. We have elected not to recognize ROU assets and lease liabilities that arise from short term leases for any class of underlying asset. Short term leases are leases with lease terms of 12 months or less with either (a) no renewal option or (b) a renewal option which we are not reasonably certain to exercise.
Impairment of Long-Lived Assets
Long-lived assets, such as property, plant and equipment and definite-lived assets, are evaluated for impairment annually or more frequently when events or changes in circumstances indicate that the carrying amount of the assets or asset groups 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 subject to disposal 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 and Goodwill
We own both definite-lived (amortizable) assets and indefinite-lived intangible assets. Our amortizable intangible assets are related to the Shenandoah and Home Meridian acquisitions and includes customer relationships and trademarks. Our indefinite lived assets include goodwill related to the Shenandoah and Home Meridian acquisitions, as well as the Bradington-Young and Sam Moore tradenames. We may acquire additional amortizable assets and/or indefinite lived intangible assets in the future. Our indefinite-lived intangible assets are not amortized but are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired.
Our goodwill, trademarks and trade names are tested for impairment annually as of the first day of our 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:
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a significant adverse change in the economic or business climate either within the furniture industry or the national or global economy;
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significant changes in demand for our products;
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|
loss of key personnel; and
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■
|
the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise subject to disposal.
|
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 that may have a material-adverse effect on our results of operations and financial condition.
Cash Surrender Value of Life Insurance Policies
We own 78 life insurance policies on certain of our current and former executives and other key employees. These policies had a carrying value of $24.9 million at February 2, 2020 and have a face value of approximately $54 million as of that date. 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. Substantially all of the cash value of our company owned life insurance is pledged as collateral for our secured term loan.
Revenue Recognition
We recognize revenue pursuant to Accounting Standards Codification 606, which requires revenue to be recognized at an amount that reflects the consideration we expect to be entitled to receive in exchange for transferring goods or services to our customers. Our policy is to record revenue when control of the goods transfers to the customer. We have a present right to payment at the time of shipment as customers are invoiced at that time. We believe the customer obtains control of goods at the time of shipment, which is typically when title passes. While the customer may not enjoy immediate physical possession of the products, the customers’ right to re-direct shipment indicates control. In the very limited instances when products are sold under consignment arrangements, we do not recognize revenue until control over such products has transferred to the end consumer. Orders are generally non-cancellable once loaded into a shipping trailer or container.
The transaction price for each contract is the stated price of the product, reduced by any stated discounts or allowances at that point in time. We do not engage in sales of products that attach a future material right which could result in a separate performance obligation for the purchase of goods in the future at a material discount. The implicit contract with the customer, as reflected in the order acknowledgement and invoice, states the final terms of the sale, including the description, quantity, and price of each product purchased. The transaction price reflects the amount of estimated consideration to which we expect to be entitled. This amount of variable consideration included in the transaction price, and measurement of net sales, is included in net sales only to the extent that it is probable that there will be no significant reversal in a future period.
Net sales are comprised of gross revenues from sales of home furnishings and hospitality furniture products and are recorded net of allowances for trade promotions, estimated product returns, rebate advertising programs and other discounts. Physical product returns are very rare due to the high probability of damages to our products in return transit. Other revenues, primarily royalties, are immaterial to our overall results. Payment is typically due within 30-60 days of shipment for customers qualifying for payment terms. Collectability is reasonably assured since we extend credit to customers for whom we have performed credit evaluations and/or from whom we have received a down payment or deposit. Due to the highly-customized nature of our hospitality products, we typically require substantial prepayments on these orders, with the balance due within 30 days of delivery.
Cost of Sales
The major components of cost of sales are:
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the cost of imported products purchased for resale;
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|
raw materials and supplies used in our domestically manufactured products;
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■
|
labor and overhead costs associated with our domestically manufactured products;
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|
■
|
the cost of our foreign import operations;
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|
■
|
charges associated with our inventory reserves;
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■
|
warehousing and certain shipping and handling costs; and
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|
■
|
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:
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|
the cost of our marketing and merchandising efforts, including showroom expenses;
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■
|
sales and design commissions;
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|
■
|
the costs of administrative support functions including, executive management, information technology, human resources and finance; and
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■
|
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 some 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, catalogs, and fabric and leather swatches) to selling and administrative expense as incurred. Advertising costs charged to selling and administrative expense for fiscal years 2020, 2019 and 2018 were $3.4 million, $3.3 million, and $3.0 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 net sales in our consolidated statements of income and comprehensive income.
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 pre-tax book income and permanent book and tax differences.
To the extent 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 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. All deferred tax assets and liabilities are classified as non-current on our consolidated balance sheets.
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 and certain employees 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 certain employees 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 useful lives of fixed and intangible assets; allowance for doubtful accounts; deferred tax assets; the valuation of fixed assets and goodwill; our pension and supplemental retirement income plans; 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, which 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.
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. The 2019 fiscal year that ended on February 3, 2019 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 during a 53-week fiscal year which will have 14 weeks in the fourth quarter.
In the notes to the consolidated financial statements, references to the:
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2020 fiscal year and comparable terminology mean the fiscal year that began February 4, 2019 and ended February 2, 2020;
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|
2019 fiscal year and comparable terminology mean the fiscal year that began January 29, 2018 and ended February 3, 2019; and
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|
2018 fiscal year and comparable terminology mean the fiscal year that began January 30, 2017 and ended January 28, 2018.
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NOTE 4 – SHENANDOAH ACQUISITION
On September 29, 2017, we completed the previously announced acquisition (the “Shenandoah acquisition”) of substantially all of the assets of Shenandoah Furniture, Inc. (“SFI”) pursuant to the Asset Purchase Agreement the Company and SFI entered into on September 6, 2017 (the “Asset Purchase Agreement”). Upon completion and including post-closing working capital adjustments, the Company paid $32.8 million in cash (the “Cash Consideration”) and issued 176,018 shares of the Company’s common stock (the “Stock Consideration”) to the shareholders of SFI as consideration for the Shenandoah acquisition. The Cash Consideration included an additional payment of approximately $770,000 pursuant to working capital adjustments provided for in the Asset Purchase Agreement. The number of shares of common stock issued at closing for the Stock Consideration was determined by reference to the mean closing price of the Company’s common stock for the ten trading days immediately preceding the business day preceding the closing date ($45.45). Under the Asset Purchase Agreement, we also assumed certain assets and liabilities of SFI. The assumed liabilities did not include the indebtedness (as defined in the Asset Purchase Agreement) of SFI.
Also on September 29, 2017, we entered into a second amended and restated loan agreement (the “Loan Agreement”) with Bank of America, N.A. (“BofA”) in connection with the completion of the Shenandoah acquisition. The Loan Agreement amends and restates the amended and restated loan agreement the Company entered into with BofA on February 1, 2016, in connection with its acquisition of substantially all of the assets of Home Meridian International, Inc. The Amended and Restated Loan Agreement provides us with a new $12 million unsecured term loan (the “New Unsecured Term Loan”). On September 29, 2017, we borrowed the full $12 million available under the New Unsecured Term Loan in connection with the completion of the Shenandoah acquisition. For additional details regarding the Loan Agreement, see Note 13. “Long-Term Debt,” below.
In accordance with FASB Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), the Shenandoah acquisition has been accounted for using the acquisition method of accounting. We recorded assets acquired, including identifiable intangible assets, and liabilities assumed, from SFI at their respective fair values at the date of completion of the acquisition. The excess of the purchase price over the net fair value of such assets and liabilities was recorded as goodwill.
The following table summarizes the estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Shenandoah acquisition as of September 29, 2017.
Purchase price consideration
|
|
|
|
|
Cash paid for assets acquired, including working capital adjustment
|
|
$
|
32,773
|
|
Value of shares issued for assets acquired
|
|
|
8,000
|
|
Fair value adjustment to shares issued for assets acquired*
|
|
|
396
|
|
Total purchase price
|
|
$
|
41,169
|
|
|
|
|
|
|
Fair value estimates of assets acquired and liabilities assumed
|
|
Accounts receivable
|
|
$
|
3,576
|
|
Inventory
|
|
|
2,380
|
|
Prepaid expenses and other current assets
|
|
|
52
|
|
Property and equipment
|
|
|
5,401
|
|
Intangible assets
|
|
|
14,300
|
|
Goodwill
|
|
|
16,871
|
|
Accounts payable
|
|
|
(699
|
)
|
Accrued expenses
|
|
|
(712
|
)
|
Total purchase price
|
|
$
|
41,169
|
|
*As provided by the Asset Purchase Agreement, we calculated the number of common shares issued to SFI by dividing $8 million by the mean closing price of our common stock for the ten trading days immediately preceding the business day immediately preceding the closing date ($45.45). However, U.S. Generally Accepted Accounting Standards provide that we value stock consideration exchanged in the Shenandoah acquisition at fair value. Consequently, we adjusted the purchase price by $396,000, which represents the difference in the mean closing price of the Company’s common stock for the ten trading days immediately preceding the business day preceding the closing date ($45.45) and the price on September 29, 2017, multiplied by the number of common shares issued (176,018.) No additional consideration was transferred to SFI as a result of this adjustment.
During the fiscal 2018 fourth quarter, we paid $123,000 cash for the post-closing working capital adjustment which increased the purchase price by that same amount. Additionally, we (i) refined our estimates of the values of certain intangible assets which increased intangible assets by $1.1 million, (ii) recorded additional accrued expenses of $123,000 and (iii) decreased property and equipment by $17,000. These adjustments decreased goodwill by $774,000.
Property and equipment were recorded at fair value and primarily consist of machinery and equipment and leasehold improvements. Property and equipment will be amortized over their estimated useful lives and leasehold improvements will be amortized over the lesser of their useful lives or the remaining lease period.
Goodwill is calculated as the excess of the purchase price over the fair value net assets acquired. The goodwill recognized is attributable to growth opportunities and expected synergies. All goodwill is expected to be deductible for income tax purposes.
Intangible assets other than goodwill, consist of three separately identified assets:
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Shenandoah customer relationships, which are definite-lived intangible assets with an aggregate fair value of $13.2 million. The customer relationships are amortizable and will be amortized over a period of thirteen years;
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|
The Shenandoah tradename, which is definite-lived intangible assets with an aggregate fair value of $700,000. The trade name is amortizable and will be amortized over a period of twenty years; and
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|
Shenandoah’s order backlog which is a definite-lived intangible asset with an aggregate fair value of $400,000 that we amortized over four months, with all of the expense recognized in fiscal year 2018.
|
The total weighted average amortization period for these assets is 12.1 years.
The following unaudited consolidated pro forma summary has been prepared by adjusting our historical data to give effect to the Shenandoah acquisition as if it had occurred on February 1, 2016:
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|
Pro Forma - Unaudited
|
|
|
|
13 Weeks Ended
|
|
|
52 Weeks Ended
|
|
|
|
January 28, 2018
|
|
|
January 28, 2018
|
|
|
|
(Pro forma)
|
|
|
(Pro forma)
|
|
Net Sales
|
|
$
|
175,365
|
|
|
$
|
649,936
|
|
Net Income
|
|
$
|
8,775
|
|
|
$
|
32,977
|
|
Basic EPS
|
|
$
|
0.75
|
|
|
$
|
2.82
|
|
Diluted EPS
|
|
$
|
0.75
|
|
|
$
|
2.81
|
|
The unaudited consolidated pro forma financial information was prepared in accordance with existing standards and is not necessarily indicative of the results of operations that would have occurred if the Shenandoah acquisition had been completed on the date indicated, nor is it indicative of our future operating results.
Material adjustments, net of income tax, included in the fiscal 2017 pro forma financial information in the table above consist of the amortization of intangible assets ($171,000 in the quarterly period and $943,000 in the annual period), addition of transaction related costs ($0 in the quarterly period and $520,000 in the annual period), interest on additional debt incurred as part of the acquisition ($46,000 in the quarterly period and $197,000 in the annual period), salary expense ($46,000 in the quarterly period and $185,000 in the annual period), and income tax on Shenandoah operations ($536,000 in the quarterly period and $2.4 million in the annual period).
Material adjustments, net of income tax, included in the fiscal 2018 pro forma financial information in the table above consist of the amortization of intangible assets (decrease of $132,000 in the quarterly period and a net increase of $191,000 in the annual period), reclassification of transaction related costs to fiscal 2017 (-$67,000 in the quarterly period and -$522,000 in the annual period), interest on additional debt incurred as part of the acquisition (-$13,000 in the quarterly period and $61,000 in the annual period), salaries ($0 in the quarterly period and $123,000 in the annual period), and income tax on Shenandoah operations ($0 in the quarterly period and $2.4 million in the annual period).
The unaudited pro forma results do not reflect events that either have occurred or may occur in the future. They also do not give effect to certain charges that we expect to incur in connection with the Shenandoah acquisition, including, but not limited to, additional professional fees, employee integration, retention, potential asset impairments and accelerated depreciation and amortization.
We incurred approximately $800,000 in Shenandoah acquisition-related costs in fiscal 2018. These expenses are included in the “Selling and administrative expenses” line of our condensed consolidated statements of income. Included in our fiscal 2018 results are Shenandoah’s October 2017 through January 2018 results, which include $11.3 million in net sales and $604,000 of operating income, including $750,000 in intangible amortization expense.
NOTE 5 – Casualty Loss
On May 18, 2018, the Martinsville/Henry County, Va. area experienced torrential rains. Two of our Hooker Brands segment warehouse facilities were damaged as a result. No employees were injured, and the casualty loss caused only a nominal disruption in our ability to fulfill and ship orders. The costs associated with the recovery efforts exceeded our insurance deductible of $500,000. Consequently, we recorded a $500,000 casualty loss during the fiscal 2019 second quarter. We incurred another $409,000 of repair and remediation-related expenses during the third quarter, which was recovered from our casualty insurer during the fourth quarter of fiscal 2019.
NOTE 6 – DOUBTFUL ACCOUNTS AND OTHER ACCOUNTS RECEIVABLE ALLOWANCES
The activity in the allowance for doubtful accounts was:
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
908
|
|
|
$
|
1,014
|
|
|
$
|
508
|
|
Non-cash charges to cost and expenses
|
|
|
417
|
|
|
|
158
|
|
|
|
767
|
|
Less uncollectible receivables written off, net of recoveries
|
|
|
(422
|
)
|
|
|
(264
|
)
|
|
|
(261
|
)
|
Balance at end of year
|
|
$
|
903
|
|
|
$
|
908
|
|
|
$
|
1,014
|
|
The activity in other accounts receivable allowances was:
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
4,267
|
|
|
$
|
5,117
|
|
|
$
|
6,298
|
|
Charges to cost and expenses
|
|
|
31,815
|
|
|
|
41,606
|
)
|
|
|
30,447
|
)
|
Less uncollectible receivables written off, net of recoveries
|
|
|
(32,589
|
)
|
|
|
(42,456
|
)
|
|
|
(31,628
|
)
|
Balance at end of year
|
|
$
|
3,493
|
|
|
$
|
4,267
|
|
|
$
|
5,117
|
|
NOTE 7 – ACCOUNTS RECEIVABLE
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2020
|
|
|
2019
|
|
Trade accounts receivable
|
|
$
|
91,261
|
|
|
$
|
117,732
|
|
Receivable from factor
|
|
|
788
|
|
|
|
-
|
|
Other accounts receivable allowances
|
|
|
(3,493
|
)
|
|
|
(4,267
|
)
|
Allowance for doubtful accounts
|
|
|
(903
|
)
|
|
|
(908
|
)
|
Accounts receivable
|
|
$
|
87,653
|
|
|
$
|
112,557
|
|
“Receivable from factor” represented amounts due with respect to factored accounts receivable for a single customer. The agreement was discontinued in early fiscal 2021.
NOTE 8 – INVENTORIES
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2020
|
|
|
2019
|
|
Finished furniture
|
|
$
|
106,495
|
|
|
$
|
112,847
|
|
Furniture in process
|
|
|
1,304
|
|
|
|
1,825
|
|
Materials and supplies
|
|
|
8,479
|
|
|
|
10,896
|
|
Inventories at FIFO
|
|
|
116,278
|
|
|
|
125,568
|
|
Reduction to LIFO basis
|
|
|
(23,465
|
)
|
|
|
(20,364
|
)
|
Inventories
|
|
$
|
92,813
|
|
|
$
|
105,204
|
|
If the first-in, first-out (FIFO) method had been used in valuing all inventories, net income would have been $19.5 million in fiscal 2020, $41.5 million in fiscal 2019, and $28.1 million in fiscal 2018. We recorded LIFO expense of $3.1 million in fiscal 2020, $2.1 million in fiscal 2019, and LIFO income of $225,000 in fiscal 2018.
At February 2, 2020 and February 3, 2019, we had $424,000 and $1.3 million, respectively, in consigned inventories, which are included in the “Finished furniture” line in the table above.
At February 2, 2020, we held $9.6 million in inventory outside of the United States, in China and in Vietnam. At February 3, 2019, we held $8.1 million in inventory outside of the United States, in China and in Vietnam.
NOTE 9 – PROPERTY, PLANT AND EQUIPMENT
|
|
Depreciable Lives
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
(In years)
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings and land improvements
|
|
15 - 30
|
|
|
$
|
31,316
|
|
|
$
|
24,588
|
|
Computer software and hardware
|
|
3 - 10
|
|
|
|
19,166
|
|
|
|
18,719
|
|
Machinery and equipment
|
|
10
|
|
|
|
9,271
|
|
|
|
8,934
|
|
Leasehold improvements
|
|
Term of lease
|
|
|
|
9,737
|
|
|
|
9,376
|
|
Furniture and fixtures
|
|
3 - 8
|
|
|
|
2,597
|
|
|
|
2,318
|
|
Other
|
|
5
|
|
|
|
651
|
|
|
|
665
|
|
Total depreciable property at cost
|
|
|
|
|
|
72,738
|
|
|
|
64,600
|
|
Less accumulated depreciation
|
|
|
|
|
|
44,089
|
|
|
|
39,925
|
|
Total depreciable property, net
|
|
|
|
|
|
28,649
|
|
|
|
24,675
|
|
Land
|
|
|
|
|
|
1,077
|
|
|
|
1,067
|
|
Construction-in-progress
|
|
|
|
|
|
181
|
|
|
|
3,740
|
|
Property, plant and equipment, net
|
|
|
|
|
$
|
29,907
|
|
|
$
|
29,482
|
|
Depreciation expense for fiscal 2020, 2019 and 2018 were $4.7 million, $5.0 million and $4.5 million, respectively.
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
|
|
|
Fifty-Three Weeks
|
|
|
Fifty-Two Weeks
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Balance beginning of year
|
|
$
|
5,123
|
|
|
$
|
5,982
|
|
|
$
|
6,510
|
|
Additions
|
|
|
286
|
|
|
|
373
|
|
|
|
630
|
|
Amortization expense
|
|
|
(1,132
|
)
|
|
|
(1,227
|
)
|
|
|
(1,151
|
)
|
Disposals
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(7
|
)
|
Balance end of year
|
|
$
|
4,277
|
|
|
$
|
5,123
|
|
|
$
|
5,982
|
|
NOTE 10 – INTANGIBLE ASSETS AND GOODWILL
Our goodwill, some trademarks and trade names have indefinite useful lives and, consequently, are not subject to amortization for financial reporting purposes but are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired.
Our non-amortizable intangible assets consist of:
|
■
|
Goodwill and trademarks and tradenames related to the Home Meridian and Shenandoah acquisitions; and
|
|
■
|
Trademarks and tradenames related to the acquisitions of Bradington-Young (acquired in 2002), Sam Moore (acquired in 2007) and Home Meridian (acquired in 2016).
|
We review goodwill annually for impairment or more frequently if events or circumstances indicate that it might be impaired.
In accordance with ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, the goodwill impairment test consists of a two-step process, if necessary. However, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment test outlined in ASC Topic 350. The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary and our goodwill is considered to be unimpaired. However, if based on our qualitative assessment we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed with performing the quantitative assessment. The quantitative assessment involves estimating the fair value of our goodwill using projected future cash flows that are discounted using a weighted average cost of capital analysis that reflects current market conditions. Management judgment is a significant factor in the goodwill impairment evaluation process. The computations require management to make estimates and assumptions, the most critical of which are the potential future cash flows and an appropriate discount rate. In addition to our qualitative assessment, management performed a quantitative analysis on the Home Meridian reporting unit’s goodwill in the fiscal 2020 fourth quarter. Based on our qualitative assessment and quantitative analysis, we have concluded that our goodwill is not impaired as of February 2, 2020.
In conjunction with our evaluation of the cash flows generated by the Home Meridian, Bradington-Young and Sam Moore 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.
Details of our non-amortizable intangible assets are as follows:
|
|
|
February 2,
|
|
|
February 3,
|
|
Non-amortizable Intangible Assets
|
Segment
|
|
2020
|
|
|
2019
|
|
Goodwill
|
Home Meridian
|
|
$
|
23,187
|
|
|
$
|
23,187
|
|
Goodwill
|
Domestic Upholstery
|
|
|
16,871
|
|
|
|
16,871
|
|
Total Goodwill
|
|
|
40,058
|
|
|
|
40,058
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks and trade names - Home Meridian
|
Home Meridian
|
|
|
11,400
|
|
|
|
11,400
|
|
Trademarks and trade names - Bradington-Young
|
Domestic Upholstery
|
|
|
861
|
|
|
|
861
|
|
Trademarks and trade names - Sam Moore
|
Domestic Upholstery
|
|
|
396
|
|
|
|
396
|
|
Total Trademarks and trade names
|
|
$
|
12,657
|
|
|
$
|
12,657
|
|
|
|
|
|
|
|
|
|
|
|
Total non-amortizable assets
|
|
$
|
52,715
|
|
|
$
|
52,715
|
|
The following table is a rollforward of goodwill for the 2020 and 2019 fiscal years:
Segment
|
|
February 2, 2020
|
|
|
February 3, 2019
|
|
|
|
|
|
|
|
|
|
|
Home Meridian
|
|
$
|
23,187
|
|
|
$
|
23,187
|
|
Domestic Upholstery
|
|
|
16,871
|
|
|
|
16,871
|
|
|
|
$
|
40,058
|
|
|
$
|
40,058
|
|
Our amortizable intangible assets are recorded in the Home Meridian and in Domestic Upholstery segments. The carrying amounts and changes therein of those amortizable intangible assets were as follows:
|
|
Amortizable Intangible Assets
|
|
|
|
Customer
|
|
|
|
|
|
|
|
|
|
|
|
Relationships
|
|
|
Trademarks
|
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 3, 2019
|
|
$
|
22,320
|
|
|
$
|
778
|
|
|
$
|
23,098
|
|
Amortization
|
|
|
(2,324
|
)
|
|
|
(60
|
)
|
|
|
(2,384
|
)
|
Balance at February 2, 2020
|
|
$
|
19,996
|
|
|
$
|
718
|
|
|
$
|
20,714
|
|
The weighted-average amortization period for all amortizable intangible assets is 9.2 years. The weighted-average amortization period for customer relationships is 9.0 years and is 15.8 years for our trademarks.
The estimated amortization expense associated with our amortizable intangible assets is expected to be as follows:
Fiscal Year
|
|
Amount
|
|
|
|
2021
|
|
2,384
|
2022
|
|
2,384
|
2023
|
|
2,384
|
2024
|
|
2,384
|
2025
|
|
2,359
|
2026 and thereafter
|
|
8,819
|
|
|
$ 20,714
|
Gross intangible assets and total accumulated amortization for each major class of intangible assets is as follows:
|
|
February 2, 2020
|
|
|
February 3, 2019
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
40,058
|
|
|
$
|
40,058
|
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames
|
|
|
13,435
|
|
|
|
13,495
|
|
Accumulated amortization
|
|
|
(60
|
)
|
|
|
(60
|
)
|
Trademarks and tradenames, net
|
|
|
13,375
|
|
|
|
13,435
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
22,320
|
|
|
|
24,644
|
|
Accumulated amortization
|
|
|
(2,324
|
)
|
|
|
(2,324
|
)
|
Customer relationships, net
|
|
|
19,996
|
|
|
|
22,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Goodwill and other intangible assets, net
|
|
$
|
73,429
|
|
|
$
|
75,813
|
|
NOTE 11 – FAIR VALUE MEASUREMENTS
Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an exit price) in an orderly transaction between market participants on the applicable 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 for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of February 2, 2020, and February 3, 2019, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs. 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 fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.
On January 30, 2019, our Board of Directors voted to terminate the Pension Plan. We settled all Pension Plan obligations during the fiscal 2020 third quarter with the purchase of annuities for plan participants. See Note 14. Employee Benefit Plans for additional information about the Plan.
Our assets measured at fair value on a recurring basis at February 2, 2020 and February 3, 2019, were as follows
|
|
Fair value at February 2, 2020
|
|
|
Fair value at February 3, 2019
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
(In thousands)
|
|
Assets measured at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company-owned life insurance
|
|
$
|
-
|
|
|
$
|
24,888
|
|
|
$
|
-
|
|
|
$
|
24,888
|
|
|
$
|
-
|
|
|
$
|
23,816
|
|
|
$
|
-
|
|
|
$
|
23,816
|
|
Pension plan assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,992
|
|
NOTE 12 – LEASES
On February 4, 2019, we adopted Accounting Standards Codification Topic 842 Leases. Our lease assets are composed of real estate and equipment. Real estate leases consist primarily of warehouses, showrooms and offices, while equipment leases consist of vehicles, office and warehouse equipment. At the inception of a contract, we assess whether the contract is, or contains, a lease. Our assessment is based on: (a) whether there is an identified asset in the contract that is land or a depreciable asset – i.e. property, plant or equipment; (b) whether we have the right to control the use of the identified asset throughout the period of use, which may be different from the overall contract term; and (c) whether we have the right to direct the use of an identified asset if it can direct (and change) how and for what purpose the asset will be used throughout the period of use.
Leases are classified as either finance leases or operating leases based on criteria in Topic 842. All of our leases are classified as operating leases. We do not currently have finance leases but could in the future.
Operating lease right-of-use ("ROU") assets and liabilities are recognized on the adoption date based on the present value of lease payments over the remaining lease term. As interest rates are not explicitly stated or implicit in any of our leases, we utilized our incremental borrowing rate at the adoption date of February 4, 2019, which was one-month LIBOR plus 1.5%. For leases without explicitly stated or implicit interest rates that commenced after the adoption date, we used our incremental borrowing rate which was one-month LIBOR at the lease commencement date plus 1.5%. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
At the inception of a lease, we allocate the consideration in the contract to each lease and non-lease component based on the component's relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately. Lease expense for operating leases is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Some of our real estate leases contain variable lease payments, including payments based on the percentage increase in the Consumer Price Index for Urban Consumers (“CPI-U”). We used February 2019 CPI-U issued by the US Department of Labor’s Bureau of Labor Statistics to measure lease payments and calculate lease liabilities. Additional payments based on the change in an index or rate, or payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded when incurred and are not included in the calculation of our lease liabilities.
We have a sub-lease at one of our warehouses. In accordance with the provisions of Topic 842, since we have not been relieved as the primary obligor of the warehouse lease, we cannot net the sublease income against our lease payment to calculate the lease liability and ROU asset. Our practice has been, and we will continue to, straight-line the sub-lease income over the term of the sublease. We recognized $405,000 sub-lease income in fiscal 2020.
Our leases have remaining lease terms of less than one year to seven years, some of which include options to extend the leases for up to seven years. We have elected not to recognize ROU assets and lease liabilities that arise from short term leases for any class of underlying asset. Short term leases are leases with lease terms of 12 months or less with either (a) no renewal option or (b) a renewal option which we are not reasonably certain to exercise.
We have elected to adopt a package of practical expedients provided under Topic 842 that allows us not to reassess: (a) whether expired or existing contracts contain a lease under the new definition of a lease; (b) lease classification of expired or existing leases; and (c) whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.
The components of lease cost and supplemental cash flow information for leases in fiscal 2020 were:
|
|
Fifty-two Weeks Ended
|
|
|
|
February 2, 2020
|
|
Operating lease cost
|
|
$
|
8,408
|
|
Variable lease cost
|
|
|
153
|
|
Short-term lease cost
|
|
|
581
|
|
Total operating lease cost
|
|
$
|
9,142
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash outflows
|
|
$
|
8,725
|
|
The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheets as of February 2, 2020 were:
|
|
February 2, 2020
|
|
Real estate
|
|
$
|
38,175
|
|
Property and equipment
|
|
|
1,337
|
|
Total operating leases right-of-use assets
|
|
$
|
39,512
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of operating lease liabilities
|
|
$
|
6,307
|
|
Long term operating lease liabilities
|
|
|
33,794
|
|
Total operating lease liabilities
|
|
$
|
40,101
|
|
Weighted-average remaining lease term is 7.4 years. We used our incremental borrowing rate which is LIBOR plus 1.5% at the adoption date. The weighted-average discount rate is 3.99%.
The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheet at February 2, 2020:
|
|
Undiscounted Future
Operating Lease Payments
|
|
2020
|
|
$
|
7,805
|
|
2021
|
|
|
7,182
|
|
2022
|
|
|
5,588
|
|
2023
|
|
|
5,329
|
|
2024
|
|
|
5,280
|
|
2025 and thereafter
|
|
|
15,205
|
|
Total lease payments
|
|
$
|
46,389
|
|
Less: impact of discounting
|
|
|
(6,288
|
)
|
Present value of lease payments
|
|
$
|
40,101
|
|
As of February 2, 2020, we did not have any additional material operating or finance leases that had not yet commenced.
Under ASC 840, future minimum lease payments as of February 3, 2019 were as follows:
|
|
Minimum Future Operating
Lease Payments
|
|
2019
|
|
$
|
7,778
|
|
2020
|
|
|
7,226
|
|
2021
|
|
|
5,320
|
|
2022
|
|
|
3,610
|
|
2023
|
|
|
2,412
|
|
2024 and thereafter
|
|
|
588
|
|
Total minimum lease payments
|
|
$
|
26,934
|
|
NOTE 13 – LONG-TERM DEBT
We currently have one unsecured term loan and one secured term loan outstanding and a revolving credit facility. The term loans are related to the Home Meridian acquisition. Details of our loan agreements and revolving credit facility are detailed below.
Original Loan Agreement
On February 1, 2016, we entered into an amended and restated loan agreement (the “Original Loan Agreement”) with Bank of America, N.A. (“BofA”) in connection with the closing of the Home Meridian Acquisition. Also on February 1, 2016, we borrowed in full the amounts available under the Unsecured Term Loan (the “Unsecured Term Loan”) and the Secured Term Loan (the “Secured Term Loan”) in connection with the completion of the Home Meridian Acquisition.
Details of the individual credit facilities provided for in the Original Loan Agreement are as follows:
|
■
|
Unsecured revolving credit facility. The Original Loan Agreement increased the amount available under our existing unsecured revolving credit facility from $15 million to $30 million and increased the sublimit of the facility available for the issuance of letters of credit from $3 million to $4 million. Amounts outstanding under the revolving facility bear interest at a rate, adjusted monthly, equal to the then-current LIBOR monthly rate plus 1.50%. We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter;
|
|
■
|
Unsecured Term Loan. The Original Loan Agreement provided us with a $41 million Unsecured Term Loan. Any amount borrowed under the Unsecured Term Loan will bear interest at a rate, adjusted monthly, equal to the then-current LIBOR monthly rate plus 1.50%. We must repay any principal amount borrowed under the Unsecured Term Loan in monthly installments of approximately $490,000, together with any accrued interest, until the full amount borrowed is repaid or until February 1, 2021, at which time all amounts outstanding under the Unsecured Term Loan will become due and payable; and
|
|
■
|
Secured Term Loan. The Original Loan Agreement provided us with a $19 million term loan secured by a security interest in certain Company-owned life insurance policies granted to BofA under a security agreement, dated as of February 1, 2016 (the “Security Agreement”). Any amounts borrowed under the Secured Term Loan will bear interest at a rate, adjusted monthly, equal to the then-current LIBOR monthly rate plus 0.50%. We must pay the interest accrued on any principal amounts borrowed under the Secured Term Loan on a monthly basis until the full principal amount borrowed is repaid or until February 1, 2021, at which time all amounts outstanding under the Secured Term Loan will become due and payable. BofA’s rights under the Security Agreement are enforceable upon the occurrence of an event of default under the Original Loan Agreement.
|
New Loan Agreement
On September 29, 2017, we entered into a second amended and restated loan agreement (the “New Loan Agreement”) with BofA in connection with the completion of the Shenandoah acquisition. The New Loan Agreement:
|
■
|
amended and restated the Original Loan Agreement detailed above such that our existing $30 million unsecured revolving credit facility (the “Existing Revolver”), Unsecured Term Loan, and Secured Term Loan all remain outstanding under the New Loan Agreement; and
|
|
■
|
provided us with a new $12 million unsecured term loan (the “New Unsecured Term Loan”), which we subsequently paid off in full in fiscal 2019.
|
The New Loan Agreement also included customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants:
|
●
|
Maintain a ratio of funded debt to EBITDA not exceeding:
|
|
●
|
A basic fixed charge coverage ratio of at least 1.25:1.00; and
|
|
●
|
Limit capital expenditures to no more than $15.0 million during any fiscal year beginning in fiscal 2020.
|
The New Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions. The New Loan Agreement does not restrict our ability to pay cash dividends on, or repurchase, shares of our common stock, subject to our compliance with the financial covenants discussed above, if we are not otherwise in default under the New Loan Agreement.
We were in compliance with each of these financial covenants at February 2, 2020.
The full remaining principal amounts of $30.1 million on our term loans are due on February 1, 2021. We expect to refinance the balance of our term loans and any balance due under our revolving credit facility (currently $0) during fiscal 2021.
Given that our term loans have a floating rate of interest and our credit profile has not materially changed since the inception of the loans, the carrying amount of our term loans approximates their fair value at February 2, 2020.
As of February 2, 2020, we had an aggregate $25.7 million available under the Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $4.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of February 2, 2020. There were no additional borrowings outstanding under the Existing Revolver as of February 2, 2020.
NOTE 14 – 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. Our contributions to the plan amounted to $1.4 million in fiscal 2020, $1.3 million in fiscal 2019 and $974,000 in fiscal 2018.
We adopted ASU 2017-07 as of the beginning of our 2019 fiscal year on January 29, 2018. Components of net periodic benefit cost other than the service cost for the SRIP, SERP and the Pension Plan are included in the line item “Other income, net” in our condensed consolidated statements of income. Service cost is included in our condensed consolidated statements of income under “Selling and administrative expenses.” The adoption resulted in the reclassification of a $30,000 gain from Selling and administrative expenses to Other income, net in fiscal 2018 consolidated statements of income.
Executive Benefits
Pension, SRIP and SERP Overview
We maintain two “frozen” retirement plans, which are paying benefits and may include active employees among the participants but we do not expect to add participants to these plans in the future. The two plans include:
|
■
|
a supplemental retirement income plan (“SRIP”) for certain former and current executives of Hooker Furniture Corporation; and
|
|
■
|
the Pulaski Furniture Corporation Supplemental Executive Retirement Plan (“SERP”) for certain former executives.
|
In January 2019, we terminated the Pulaski Furniture Corporation Pension Plan (“Pension Plan”) settled all the obligations in fiscal 2020 which was also frozen and had been frozen since we acquired it in the Home Meridian acquisition.
SRIP and SERP
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 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 our general assets. 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. No employees have been added to the plan since 2008 and we do not expect to add additional employees in the future, due to changes in our compensation philosophy, which emphasizes more performance-based compensation measures in total management compensation.
The SERP provides monthly payments to eight retirees or their designated beneficiaries based on a defined benefit formula as defined in the plan. The benefit is payable for the life of the retiree with the following forms available as a reduced monthly benefit: Ten-year Certain and Life; 50% or 100% Joint and Survivor Annuity. The SERP is unfunded and all benefits are payable solely from our general assets. The plan liability is based on the aggregate actuarial present value of the benefits to which retired employees are currently entitled. No employees have been added to the plan since 2006 and we do not expect to add additional employees in the future.
Summarized SRIP and SERP information as of each fiscal year-end (the measurement date) is as follows:
|
|
SRIP (Supplemental Retirement Income Plan)
|
|
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
|
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning projected benefit obligation
|
|
$
|
9,622
|
|
|
$
|
9,365
|
|
|
|
|
|
Service cost
|
|
|
104
|
|
|
|
326
|
|
|
|
|
|
Interest cost
|
|
|
351
|
|
|
|
341
|
|
|
|
|
|
Benefits paid
|
|
|
(537
|
)
|
|
|
(511
|
)
|
|
|
|
|
Actuarial loss
|
|
|
716
|
|
|
|
101
|
|
|
|
|
|
Ending projected benefit obligation (funded status)
|
|
$
|
10,256
|
|
|
$
|
9,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
10,131
|
|
|
$
|
9,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate used to value the ending benefit obligations:
|
|
|
2.50
|
%
|
|
|
3.75
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (Accrued salaries, wages and benefits line)
|
|
$
|
557
|
|
|
$
|
511
|
|
|
|
|
|
Non-current liabilities (Deferred compensation line)
|
|
|
9,699
|
|
|
|
9,111
|
|
|
|
|
|
Total
|
|
$
|
10,256
|
|
|
$
|
9,622
|
|
|
|
|
|
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
104
|
|
|
$
|
326
|
|
|
$
|
302
|
|
Interest cost
|
|
|
351
|
|
|
|
341
|
|
|
|
345
|
|
Net loss
|
|
|
149
|
|
|
|
172
|
|
|
|
62
|
|
Net periodic benefit cost
|
|
$
|
604
|
|
|
$
|
839
|
|
|
$
|
709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes recognized in accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss arising during period
|
|
|
716
|
|
|
|
101
|
|
|
|
393
|
|
Amortizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
(149
|
)
|
|
|
(172
|
)
|
|
|
(62
|
)
|
Total recognized in other comprehensive loss (income)
|
|
|
567
|
|
|
|
(71
|
)
|
|
|
331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive income
|
|
$
|
1,171
|
|
|
$
|
768
|
|
|
$
|
1,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.75
|
%
|
|
|
3.75
|
%
|
|
|
4.00
|
%
|
Increase in future compensation levels
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
|
|
4.00
|
%
|
Estimated Future Benefit Payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2021
|
|
$
|
556
|
|
|
|
|
|
|
|
|
|
Fiscal 2022
|
|
|
868
|
|
|
|
|
|
|
|
|
|
Fiscal 2023
|
|
|
868
|
|
|
|
|
|
|
|
|
|
Fiscal 2024
|
|
|
955
|
|
|
|
|
|
|
|
|
|
Fiscal 2025
|
|
|
955
|
|
|
|
|
|
|
|
|
|
Fiscal 2026 through fiscal 2030
|
|
|
4,202
|
|
|
|
|
|
|
|
|
|
For the SRIP, the discount rate used to determine the fiscal 2020 net periodic cost was 3.75% based on the Moody’s Composite Bond Rate as of January 31, 2019. The discount rate utilized in each period was the Annualized Moody’s Composite Bond Rate rounded to the nearest 0.25%. At February 2, 2020, combining the Mercer yield curve and the plan's expected benefit payments resulted in a rate of 2.50%. This rate was used to value the ending benefit obligations. Increasing the SRIP discount rate by 1% would decrease the projected benefit obligation at February 2, 2020 by approximately $695,000. Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at February 2, 2020 by $780,000.
At February 2, 2020, the actuarial losses related to the SRIP amounted to $716,000, net of tax of $149,000. At February 3, 2019, the actuarial losses related to the SRIP amounted to $101,000, net of tax of $23,000. The estimated actuarial loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the 2021 fiscal year is $337,633. There is no expected prior service (cost) or credit amortization.
|
|
SERP (Supplemental Executive Retirement Plan)
|
|
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
|
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning projected benefit obligation
|
|
$
|
1,805
|
|
|
$
|
2,008
|
|
|
|
|
|
Service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Interest cost
|
|
|
67
|
|
|
|
70
|
|
|
|
|
|
Benefits paid
|
|
|
(180
|
)
|
|
|
(185
|
)
|
|
|
|
|
Actuarial loss (gain)
|
|
|
168
|
|
|
|
(88
|
)
|
|
|
|
|
Ending projected benefit obligation (funded status)
|
|
$
|
1,860
|
|
|
$
|
1,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
1,860
|
|
|
$
|
1,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate used to value the ending benefit obligations:
|
|
|
2.60
|
%
|
|
|
3.90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (Accrued salaries, wages and benefits line)
|
|
$
|
172
|
|
|
$
|
173
|
|
|
|
|
|
Non-current liabilities (Deferred compensation line)
|
|
|
1,688
|
|
|
|
1,632
|
|
|
|
|
|
Total
|
|
$
|
1,860
|
|
|
$
|
1,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest cost
|
|
|
67
|
|
|
|
70
|
|
|
|
83
|
|
Net gain
|
|
|
(5
|
)
|
|
|
-
|
|
|
|
-
|
|
Net periodic benefit cost
|
|
$
|
62
|
|
|
$
|
70
|
|
|
$
|
83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes recognized in accumulated other comprehensive income
|
|
|
|
|
|
|
|
|
|
Net loss (gain) arising during period
|
|
|
168
|
|
|
|
(88
|
)
|
|
|
(160
|
)
|
Amortizations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
5
|
|
|
|
-
|
|
|
|
-
|
|
Total recognized in other comprehensive loss (income)
|
|
|
173
|
|
|
|
(88
|
)
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and
|
|
|
|
|
|
|
|
|
|
|
|
|
accumulated other comprehensive income
|
|
$
|
235
|
|
|
$
|
(18
|
)
|
|
$
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.90
|
%
|
|
|
3.64
|
%
|
|
|
3.77
|
%
|
Increase in future compensation levels
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Estimated Future Benefit Payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2021
|
|
$
|
172
|
|
|
|
|
|
|
|
|
|
Fiscal 2022
|
|
|
168
|
|
|
|
|
|
|
|
|
|
Fiscal 2023
|
|
|
163
|
|
|
|
|
|
|
|
|
|
Fiscal 2024
|
|
|
158
|
|
|
|
|
|
|
|
|
|
Fiscal 2025
|
|
|
152
|
|
|
|
|
|
|
|
|
|
Fiscal 2026 through fiscal 2030
|
|
|
651
|
|
|
|
|
|
|
|
|
|
For the SERP, the discount rate assumption used to measure the postretirement benefit obligations is set by reference to a certain hypothetical AA-rated corporate bond spot-rate yield curve constructed by our actuary, Aon Hewitt (“Aon”). This yield curve was constructed from the underlying bond price and yield data collected as of the Plan’s measurement date and is represented by a series of annualized, individual discount rates with durations ranging from six months to seventy-five years. Aon then applies the yield curve to the actuarially projected cash flow patterns to derive the appropriate discount rate. At February 3, 2019, the plan used 3.90% based on the Aon AA Above Median yield curve as of January 31, 2019. This rate was used to determine the fiscal 2020 net periodic cost. At February 2, 2020, combining the Aon AA Above Median yield curve and the plan's expected benefit payments created a rate of 2.60%. This rate was used to value the ending benefit obligations. Increasing the SERP discount rate by 1% would decrease the projected benefit obligation at February 2, 2020 by approximately $130,000. Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at February 2, 2020 by $148,000.
At February 2, 2020, the actuarial loss related to the SERP was $168,000. At February 3, 2019, the actuarial gain related to the SERP was $88,000. The estimated net transition (asset)/obligation, prior service (cost) credit and actuarial loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over fiscal 2020 are immaterial.
The Pension Plan
On January 30, 2019, our Board of Directors voted to terminate the Pension Plan. We settled all Pension Plan obligations during the third quarter of fiscal 2020 with the purchase of nonparticipating annuity contracts for plan participants. Consequently, we recognized a $520,000 settlement gain during the quarter, which is recorded in the “other income” line of our condensed consolidated statements of income. The $520,000 represented an amount recorded in accumulated other comprehensive income until the pension obligation was settled upon plan termination.
Summarized Pension Plan information as of February 2, 2020 (the measurement date) is as follows:
Pulaski Furniture Pension Plan
|
|
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
|
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning projected benefit obligation
|
|
$
|
10,906
|
|
|
$
|
11,198
|
|
|
|
|
|
Acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Interest cost
|
|
|
303
|
|
|
|
415
|
|
|
|
|
|
Benefits paid
|
|
|
(522
|
)
|
|
|
(708
|
)
|
|
|
|
|
Settlement
|
|
|
(12,557
|
)
|
|
|
-
|
|
|
|
|
|
Actuarial loss
|
|
|
1,870
|
|
|
|
1
|
|
|
|
|
|
Ending projected benefit obligation
|
|
$
|
-
|
|
|
$
|
10,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning fair value of plan assets
|
|
$
|
10,992
|
|
|
$
|
8,757
|
|
|
|
|
|
Actual return on plan assets
|
|
|
1,960
|
|
|
|
23
|
|
|
|
|
|
Employer contributions
|
|
|
344
|
|
|
|
3,110
|
|
|
|
|
|
Actual expenses paid
|
|
|
(217
|
)
|
|
|
(190
|
)
|
|
|
|
|
Settlement
|
|
|
(12,557
|
)
|
|
|
-
|
|
|
|
|
|
Actual benefits paid
|
|
|
(522
|
)
|
|
|
(708
|
)
|
|
|
|
|
Ending fair value of plan assets
|
|
$
|
-
|
|
|
$
|
10,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status of the Plan
|
|
$
|
-
|
|
|
$
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate used to value the ending benefit obligations:
|
|
|
N/A
|
|
|
|
3.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount recognized in the consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities (Accrued salaries, wages and benefits line)
|
|
$
|
-
|
|
|
$
|
86
|
|
|
|
|
|
Non-current liabilities (Deferred compensation line)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Net Asset/(Liability)
|
|
$
|
-
|
|
|
$
|
86
|
|
|
|
|
|
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected administrative expenses
|
|
$
|
105
|
|
|
$
|
280
|
|
|
$
|
280
|
|
Interest cost
|
|
|
303
|
|
|
|
415
|
|
|
|
695
|
|
Net gain
|
|
|
(305
|
)
|
|
|
(575
|
)
|
|
|
(933
|
)
|
Net periodic benefit cost
|
|
$
|
103
|
|
|
$
|
120
|
|
|
$
|
42
|
|
Settlement/Curtailment Income
|
|
|
(193
|
)
|
|
|
-
|
|
|
|
(562
|
)
|
Total net periodic benefit cost (Income)
|
|
$
|
(90
|
)
|
|
$
|
120
|
|
|
$
|
(520
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other changes recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (gain) loss arising during period
|
|
|
327
|
|
|
|
464
|
|
|
|
(590
|
)
|
Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
|
|
|
193
|
|
|
|
-
|
|
|
|
562
|
|
Total recognized in other comprehensive (income) loss
|
|
|
520
|
|
|
|
464
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognized in net periodic benefit cost and
accumulated other comprehensive income
|
|
$
|
430
|
|
|
$
|
584
|
|
|
$
|
(548
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumptions used to determine net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
3.80
|
%
|
|
|
3.82
|
%
|
|
|
4.14
|
%
|
Increase in future compensation levels
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Performance Grants
The Compensation Committee of our Board of Directors annually awards 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. Generally, 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 2017, the Compensation Committee awarded performance grants for the 2018 fiscal year. The 2017 awards had a three-year performance period that ended on January 28, 2018. The performance criteria for these awards were met and were paid in April 2018. During fiscal 2018, fiscal 2019 and fiscal 2020, the Compensation Committee awarded performance grants that have three-year performance periods ending on February 3, 2019, February 2, 2020 and January 31, 2021, respectively. The following amounts were accrued in our consolidated balance sheets as of the fiscal period-end dates indicated:
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2020
|
|
|
2019
|
|
Performance grants
|
|
|
|
|
|
|
|
|
Fiscal 2017 grant (Current liabilities, Accrued wages, salaries and benefits)
|
|
$
|
-
|
|
|
$
|
621
|
|
Fiscal 2018 grant (Current liabilities, Accrued wages, salaries and benefits)
|
|
|
333
|
|
|
|
468
|
|
Total performance grants accrued
|
|
$
|
333
|
|
|
$
|
1,089
|
|
NOTE 15 – 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 and certain other management employees since 2014.
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 and certain other management employees vest if the director/employee remains on the board/employed through the specified vesting period for shares and may vest earlier upon certain events specified in the plan. For shares issued to non-employee directors during fiscal 2016 and after, there is a 12-month service period. 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 values of restricted stock awards issued during fiscal 2020 were $29.77, $29.21 and $19.87, during fiscal 2019 were $37.83 and $46.88, during fiscal 2018 were $31.45, $41.70 and $39.05, respectively.
The restricted stock awards outstanding as of February 2, 2020 had an aggregate grant-date fair value of $1.2 million, after taking vested and forfeited restricted shares into account. As of February 2, 2020, we have recognized non-cash compensation expense of approximately $654,000 related to these non-vested awards and $1.9 million for awards that have vested. The remaining $563,000 of grant-date fair value for unvested restricted stock awards outstanding at February 2, 2020 will be recognized over the remaining vesting periods for these awards. The number of outstanding restricted shares increased due primarily to grants of restricted shares to a larger population of our non-executive employees as an incentive for retention and alignment of individual performance to our values.
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, 2020:
|
|
Whole
Number of
Shares
|
|
|
Grant-Date
Fair Value
Per Share
|
|
|
Aggregate
Grant-Date
Fair Value
|
|
|
Compensation
Expense
Recognized
|
|
|
Grant-Date Fair Value
Unrecognized At
February 2, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous Awards (vested)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares Issued on April 13, 2017
|
|
|
4,572
|
|
|
|
31.45
|
|
|
|
142
|
|
|
|
102
|
|
|
|
6
|
|
Forfeited
|
|
|
(1,058
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares Issued on May 7, 2018
|
|
|
7,972
|
|
|
|
37.83
|
|
|
|
301
|
|
|
|
156
|
|
|
|
111
|
|
Forfeited
|
|
|
(886
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares Issued on April 17, 2019
|
|
|
15,239
|
|
|
|
29.77
|
|
|
|
454
|
|
|
|
109
|
|
|
|
283
|
|
Forfeited
|
|
|
(2,058
|
)
|
|
|
|
|
|
|
(62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares Issued on May 8, 2019
|
|
|
1,027
|
|
|
|
29.21
|
|
|
|
30
|
|
|
|
7
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares Issued on June 17, 2019
|
|
|
21,138
|
|
|
|
19.87
|
|
|
|
420
|
|
|
|
280
|
|
|
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at February 2, 2020:
|
|
|
45,946
|
|
|
|
|
|
|
$
|
1,217
|
|
|
$
|
654
|
|
|
$
|
563
|
|
We have awarded time-based restricted stock units to certain senior executives since 2011. 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 activities for the year ended February 2, 2020:
|
|
Whole
Number of
Units
|
|
|
Grant-Date
Fair Value
Per Unit
|
|
|
Aggregate
Grant-Date
Fair Value
|
|
|
Compensation
Expense
Recognized
|
|
|
Grant-Date Fair Value
Unrecognized At
February 2, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous Awards (vested)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs Awarded on April 15, 2017
|
|
|
6,258
|
|
|
$
|
30.03
|
|
|
|
185
|
|
|
|
129
|
|
|
|
4
|
|
Forfeited
|
|
|
(2,687
|
)
|
|
|
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs Awarded on June 4, 2018
|
|
|
6,032
|
|
|
$
|
35.86
|
|
|
|
216
|
|
|
|
125
|
|
|
|
69
|
|
Forfeited
|
|
|
(616
|
)
|
|
|
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs Awarded on April 17, 2019
|
|
|
10,196
|
|
|
$
|
28.01
|
|
|
|
286
|
|
|
|
78
|
|
|
|
168
|
|
Forfeited
|
|
|
(1,441
|
)
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at February 2, 2020:
|
|
|
17,742
|
|
|
|
|
|
|
$
|
573
|
|
|
$
|
332
|
|
|
$
|
241
|
|
We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers. The payout or settlement of the PSUs will be made in shares of our common stock.
|
|
Whole
Number of
Units
|
|
|
Grant-Date
Fair Value
Per Unit
|
|
|
Aggregate
Grant-Date
Fair Value
|
|
|
Compensation
Expense
Recognized
|
|
|
Grant-Date Fair Value
Unrecognized At
February 2, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs Awarded on June 4, 2018
|
|
|
22,499
|
|
|
$
|
35.86
|
|
|
|
807
|
|
|
|
538
|
|
|
|
229
|
|
Forfeited
|
|
|
(893
|
)
|
|
|
|
|
|
|
(40
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs Awarded on April 17, 2019
|
|
|
36,412
|
|
|
$
|
29.77
|
|
|
|
1,084
|
|
|
|
361
|
|
|
|
642
|
|
Forfeited
|
|
|
(2,700
|
)
|
|
|
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards outstanding at February 2, 2020:
|
|
|
55,318
|
|
|
|
|
|
|
$
|
1,770
|
|
|
$
|
899
|
|
|
$
|
871
|
|
The number of RSUs and PSUs increased primarily due to the addition of three executive officers in the second quarter of fiscal 2019.
NOTE 16 – EARNINGS PER SHARE
We refer you to the Earnings Per Share disclosure in Note 2-Summary of Significant Accounting Policies, above, for more detailed information concerning the calculation of earnings per share.
All stock awards are designed to encourage retention and to provide an incentive for increasing shareholder value. We have issued restricted stock awards to non-employee members of the board of directors since 2006 and to certain non-executive employees since 2014. We have issued restricted stock units (“RSUs”) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company through the end of a three-year service period. The RSUs may be paid in shares of our common stock, cash or both at the discretion of the Compensation Committee of our board of directors. We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers. The payout or settlement of the PSUs will be made in shares of our common stock.
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 and PSUs, net of forfeitures and vested shares, as of the fiscal period-end dates indicated:
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted shares
|
|
|
45,946
|
|
|
|
22,070
|
|
|
|
15,777
|
|
RSUs and PSUs
|
|
|
73,060
|
|
|
|
14,189
|
|
|
|
19,397
|
|
|
|
|
119,006
|
|
|
|
36,259
|
|
|
|
35,174
|
|
All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share:
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
17,083
|
|
|
$
|
39,873
|
|
|
$
|
28,250
|
|
Less: Dividends on unvested restricted shares
|
|
|
25
|
|
|
|
11
|
|
|
|
10
|
|
Net earnings allocated to unvested restricted stock
|
|
|
60
|
|
|
|
68
|
|
|
|
50
|
|
Earnings available for common shareholders
|
|
$
|
16,998
|
|
|
$
|
39,794
|
|
|
$
|
28,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic
earnings per share
|
|
|
11,784
|
|
|
|
11,759
|
|
|
|
11,633
|
|
Dilutive effect of unvested restricted stock awards
|
|
|
54
|
|
|
|
24
|
|
|
|
30
|
|
Weighted average shares outstanding for diluted
earnings per share
|
|
|
11,838
|
|
|
|
11,783
|
|
|
|
11,663
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.44
|
|
|
$
|
3.38
|
|
|
$
|
2.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.44
|
|
|
$
|
3.38
|
|
|
$
|
2.42
|
|
In fiscal year 2018, we issued 176,018 shares of common stock to the designees of SFI as partial consideration for the Shenandoah acquisition on September 29, 2017.
NOTE 17 – INCOME TAXES
Our provision for income taxes was as follows for the periods indicated:
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
Current expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
2,312
|
|
|
$
|
10,537
|
|
|
$
|
12,022
|
|
Foreign
|
|
|
255
|
|
|
|
118
|
|
|
|
85
|
|
State
|
|
|
334
|
|
|
|
2,247
|
|
|
|
1,390
|
|
Total current expense
|
|
|
2,901
|
|
|
|
12,902
|
|
|
|
13,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
1,645
|
|
|
|
(963
|
)
|
|
|
4,038
|
|
State
|
|
|
298
|
|
|
|
(222
|
)
|
|
|
(13
|
)
|
Total deferred taxes
|
|
|
1,943
|
|
|
|
(1,185
|
)
|
|
|
4,025
|
|
Income tax expense
|
|
$
|
4,844
|
|
|
$
|
11,717
|
|
|
$
|
17,522
|
|
Total tax expense for fiscal 2020 was $4.5 million, of which $4.8 million expense was allocated to continuing operations and $ 300,000 tax benefit was allocated to other comprehensive income. Total tax expense for fiscal 2019 was $11.6 million, of which $11.7 million expense was allocated to continuing operations and $73,000 tax benefit was allocated to other comprehensive income. Total tax expense for fiscal 2018 was $17.5 million, of which $17.5 million was allocated to continuing operations and $26,000 tax 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:
|
|
Fifty-Two
|
|
|
Fifty-Three
|
|
|
Fifty-Two
|
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
Weeks Ended
|
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes at statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
|
|
33.9
|
%
|
Increase (decrease) in tax rate resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
|
|
2.4
|
|
|
|
3.2
|
|
|
|
2.0
|
|
Officer's life insurance
|
|
|
-1.1
|
|
|
|
-0.7
|
|
|
|
-0.6
|
|
Tax Cuts and Jobs Act of 2017
|
|
|
0.0
|
|
|
|
0.0
|
|
|
|
4.0
|
|
Other
|
|
|
-0.2
|
|
|
|
-0.8
|
|
|
|
-1.0
|
|
Effective income tax rate
|
|
|
22.1
|
%
|
|
|
22.7
|
%
|
|
|
38.3
|
%
|
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities for the period indicated were:
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2020
|
|
|
2019
|
|
Assets
|
|
|
|
|
|
|
|
|
Deferred compensation
|
|
$
|
2,673
|
|
|
$
|
3,572
|
|
Allowance for bad debts
|
|
|
1,050
|
|
|
|
1,236
|
|
Employee benefits
|
|
|
607
|
|
|
|
335
|
|
Inventories
|
|
|
600
|
|
|
|
882
|
|
Capital loss carryover
|
|
|
393
|
|
|
|
339
|
|
Accrued liabilities
|
|
|
338
|
|
|
|
448
|
|
Deferred rent
|
|
|
231
|
|
|
|
168
|
|
Other
|
|
|
431
|
|
|
|
169
|
|
Total deferred tax assets
|
|
|
6,323
|
|
|
|
7,149
|
|
Valuation allowance
|
|
|
(393
|
)
|
|
|
(339
|
)
|
|
|
|
5,930
|
|
|
|
6,810
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
1,737
|
|
|
|
923
|
|
Property, plant and equipment
|
|
|
1,313
|
|
|
|
1,288
|
|
Unrecognized pension actuarial losses
|
|
|
-
|
|
|
|
77
|
|
Total deferred tax liabilities
|
|
|
3,050
|
|
|
|
2,288
|
|
Net deferred tax assets
|
|
$
|
2,880
|
|
|
$
|
4,522
|
|
At February 2, 2020 and February 3, 2019 our net deferred asset was $2.9 million and $4.5, respectively. The increase in the valuation allowance of $54,000 was due to foreign tax credit limitations. We expect to fully realize the benefit of the deferred tax assets, with the exception of the capital loss carry forward and foreign tax credit carry forward, in future periods when the amounts become deductible. The capital loss carry-forward is $1.4 million and expires in fiscal 2022. The foreign tax credit carry-forward is $54,000 and expires beginning in fiscal 2029.
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, 2020 and February 3, 2019 are as follows:
|
|
February 2,
|
|
|
February 3,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
$
|
43
|
|
|
$
|
91
|
|
Decrease related to prior year tax positions
|
|
|
(39
|
)
|
|
|
(48
|
)
|
Balance, end of year
|
|
$
|
4
|
|
|
$
|
43
|
|
The net unrecognized tax benefits as of February 2, 2020 which, if recognized, would affect our effective tax rate are $3,000. We expect that $4,000 of gross unrecognized tax benefits will decrease within the next year.
We have elected to classify interest and penalties recognized with respect to unrecognized tax benefits as income tax expense. Interest expense of $1,000 and $5,600 was accrued as of February 2, 2020 and February 3, 2019, respectively.
Tax years ending January 29, 2017, through February 2, 2020 remain subject to examination by federal and state taxing authorities.
NOTE 18 – SEGMENT INFORMATION
As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to:
|
■
|
better understand our performance;
|
|
■
|
better assess our prospects for future net cash flows; and
|
|
■
|
make more informed judgments about us as a whole.
|
We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM.
We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. In the fourth quarter of fiscal 2020, we updated our reportable segments as follows: Domestic upholstery producers Bradington-Young, Sam Moore and Shenandoah Furniture were moved from All other and aggregated into a new reportable segment called “Domestic Upholstery.” All Other now consists of H Contract and Lifestyle Brands. Lifestyle Brands is a business in its start-up phase targeted at the interior designer channel. The Hooker Branded and Home Meridian segments were unchanged. Therefore, for financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses:
|
■
|
Hooker Branded, consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses;
|
|
■
|
Home Meridian, a business acquired at the beginning of fiscal 2017, is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins;
|
|
■
|
Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, Sam Moore and Shenandoah Furniture; and
|
|
■
|
All Other, consisting of H Contract and Lifestyle Brands, a new business started in late fiscal 2019. Neither of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280.
|
The following table presents segment information for the periods, and as of the dates, indicated. Prior-year information has been recast to reflect the changes in segments discussed above.
|
|
Fifty-Two Weeks Ended
|
|
|
|
|
|
|
Fifty-Three Weeks Ended
|
|
|
|
|
|
|
Fifty-Two
Weeks Ended
|
|
|
|
|
|
|
|
February 2, 2020
|
|
|
|
|
|
|
February 3, 2019
|
|
|
|
|
|
|
January 28, 2018
|
|
|
|
|
|
|
|
|
|
|
|
% Net
|
|
|
|
|
|
|
% Net
|
|
|
|
|
|
|
% Net
|
|
Net Sales
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
Sales
|
|
|
|
|
|
|
Sales
|
|
Hooker Branded
|
|
$
|
161,990
|
|
|
|
26.4
|
%
|
|
$
|
178,710
|
|
|
|
26.2
|
%
|
|
$
|
166,754
|
|
|
|
26.9
|
%
|
Home Meridian
|
|
|
340,630
|
|
|
|
55.8
|
%
|
|
|
387,825
|
|
|
|
56.7
|
%
|
|
|
365,472
|
|
|
|
58.9
|
%
|
Domestic Upholstery
|
|
|
95,670
|
|
|
|
15.7
|
%
|
|
|
106,580
|
|
|
|
15.6
|
%
|
|
|
78,392
|
|
|
|
12.6
|
%
|
All Other
|
|
|
12,534
|
|
|
|
2.1
|
%
|
|
|
10,386
|
|
|
|
1.5
|
%
|
|
|
10,014
|
|
|
|
1.6
|
%
|
Consolidated
|
|
$
|
610,824
|
|
|
|
100
|
%
|
|
$
|
683,501
|
|
|
|
100
|
%
|
|
$
|
620,632
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hooker Branded
|
|
$
|
51,462
|
|
|
|
31.8
|
%
|
|
$
|
58,122
|
|
|
|
32.5
|
%
|
|
$
|
53,007
|
|
|
|
31.8
|
%
|
Home Meridian
|
|
|
36,936
|
|
|
|
10.8
|
%
|
|
|
62,850
|
|
|
|
16.2
|
%
|
|
|
62,325
|
|
|
|
17.1
|
%
|
Domestic Upholstery
|
|
|
21,120
|
|
|
|
22.1
|
%
|
|
|
22,503
|
|
|
|
21.1
|
%
|
|
|
16,228
|
|
|
|
20.7
|
%
|
All Other
|
|
|
4,440
|
|
|
|
35.4
|
%
|
|
|
3,512
|
|
|
|
33.8
|
%
|
|
|
3,257
|
|
|
|
32.5
|
%
|
Consolidated
|
|
$
|
113,958
|
|
|
|
18.7
|
%
|
|
$
|
146,987
|
|
|
|
21.5
|
%
|
|
$
|
134,817
|
|
|
|
21.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hooker Branded
|
|
$
|
21,512
|
|
|
|
13.3
|
%
|
|
$
|
25,269
|
|
|
|
14.1
|
%
|
|
$
|
22,139
|
|
|
|
13.3
|
%
|
Home Meridian
|
|
|
(7,169
|
)
|
|
|
-2.1
|
%
|
|
|
18,828
|
|
|
|
4.9
|
%
|
|
|
17,828
|
|
|
|
4.9
|
%
|
Domestic Upholstery
|
|
|
6,637
|
|
|
|
6.9
|
%
|
|
|
7,607
|
|
|
|
7.1
|
%
|
|
|
4,463
|
|
|
|
5.7
|
%
|
All Other
|
|
|
1,727
|
|
|
|
13.8
|
%
|
|
|
971
|
|
|
|
9.4
|
%
|
|
|
1,024
|
|
|
|
10.2
|
%
|
Consolidated
|
|
$
|
22,707
|
|
|
|
3.7
|
%
|
|
$
|
52,675
|
|
|
|
7.7
|
%
|
|
$
|
45,454
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hooker Branded
|
|
$
|
690
|
|
|
|
|
|
|
$
|
843
|
|
|
|
|
|
|
$
|
1,372
|
|
|
|
|
|
Home Meridian
|
|
|
496
|
|
|
|
|
|
|
|
534
|
|
|
|
|
|
|
|
1,098
|
|
|
|
|
|
Domestic Upholstery
|
|
|
3,914
|
|
|
|
|
|
|
|
3,807
|
|
|
|
|
|
|
|
696
|
|
|
|
|
|
All Other
|
|
|
29
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
Consolidated
|
|
$
|
5,129
|
|
|
|
|
|
|
$
|
5,214
|
|
|
|
|
|
|
$
|
3,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hooker Branded
|
|
$
|
1,930
|
|
|
|
|
|
|
$
|
1,979
|
|
|
|
|
|
|
$
|
1,956
|
|
|
|
|
|
Home Meridian
|
|
|
2,218
|
|
|
|
|
|
|
|
2,407
|
|
|
|
|
|
|
|
2,716
|
|
|
|
|
|
Domestic Upholstery
|
|
|
2,938
|
|
|
|
|
|
|
|
3,049
|
|
|
|
|
|
|
|
1,968
|
|
|
|
|
|
All Other
|
|
|
14
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
Consolidated
|
|
$
|
7,100
|
|
|
|
|
|
|
$
|
7,442
|
|
|
|
|
|
|
$
|
6,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
February 2,
|
|
|
|
|
|
|
As of
February 3,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
%Total
|
|
|
2019
|
|
|
%Total
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Hooker Branded
|
|
$
|
144,112
|
|
|
|
45.0
|
%
|
|
$
|
109,702
|
|
|
|
37.3
|
%
|
|
|
|
|
|
|
|
|
Home Meridian
|
|
|
138,313
|
|
|
|
43.2
|
%
|
|
|
144,277
|
|
|
|
49.1
|
%
|
|
|
|
|
|
|
|
|
Domestic Upholstery
|
|
|
36,085
|
|
|
|
11.3
|
%
|
|
|
38,467
|
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
All Other
|
|
|
1,769
|
|
|
|
0.6
|
%
|
|
|
1,457
|
|
|
|
0.5
|
%
|
|
|
|
|
|
|
|
|
Consolidated Assets
|
|
$
|
320,279
|
|
|
|
100
|
%
|
|
$
|
293,903
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
Consolidated Goodwill
and Intangibles
|
|
|
73,429
|
|
|
|
|
|
|
|
75,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Consolidated Assets
|
|
$
|
393,708
|
|
|
|
|
|
|
$
|
369,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by product type are as follows:
|
|
Net Sales (in thousands)
|
|
|
Fiscal
|
|
|
2020
|
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casegoods
|
|
$
|
397,192
|
|
|
|
65
|
%
|
|
$
|
417,677
|
|
|
|
61
|
%
|
|
$
|
404,808
|
|
|
|
65
|
%
|
Upholstery
|
|
|
213,632
|
|
|
|
35
|
%
|
|
|
265,824
|
|
|
|
39
|
%
|
|
|
215,824
|
|
|
|
35
|
%
|
|
|
$
|
610,824
|
|
|
|
|
|
|
$
|
683,501
|
|
|
|
|
|
|
$
|
620,632
|
|
|
|
|
|
No significant long-lived assets were held outside the United States at either February 2, 2020 or February 3, 2019. International customers accounted for 1.6% of consolidated invoiced sales in fiscal 2020, 1.2% fiscal 2019 and 2.5% of consolidated invoiced sales in fiscal 2018. We define international sales as sales outside of the United States and Canada.
NOTE 19 – COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET ARRANGEMENTS
Commitments and Off-Balance Sheet Arrangements
We lease office space, warehousing facilities, showroom space and office equipment under leases expiring over the next five years. Rent expense was $11.2 million in fiscal 2020, $10.1 million in fiscal 2019, and $9.0 million in fiscal 2018. Future minimum annual commitments under leases and operating agreements are $8.7 million in fiscal 2021, $8.2 million in fiscal 2022, $6.6 million in fiscal 2023, $6.4 million in fiscal 2024 and $6.4 million in fiscal 2025.
We had letters of credit outstanding totaling $4.3 million on February 2, 2020. We utilize letters of credit to collateralize certain imported inventory purchases and certain insurance arrangements.
Substantially all of the cash value of our company owned life insurance is pledged as collateral for our secured term loan.
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.
Our business is subject to a number of significant risks and uncertainties, including our reliance on offshore sourcing, any of which can adversely affect our business, results of operations, financial condition or future prospects.
NOTE 20 – CONCENTRATIONS OF RISK
Imported Products Sourcing
We source imported products through multiple vendors, located in eight 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 Vietnam and China are a critical resource for Hooker Furniture. In fiscal 2020, imported products sourced from Vietnam and China accounted for nearly all of our import purchases and our top five suppliers in those countries accounted for approximately half of our fiscal 2020 import purchases. A disruption in our supply chain from Vietnam or China could significantly impact our ability to fill customer orders for products manufactured at that factory or in that country.
Raw Materials Sourcing for Domestic Upholstery Manufacturing
Our five largest domestic upholstery suppliers accounted for 28% of our raw materials supply purchases for domestic upholstered furniture manufacturing operations in fiscal 2020. One supplier accounted for 8.1% of our raw material purchases in fiscal 2020. Should disruptions with these suppliers occur, we believe we could successfully source these products from other suppliers without significant disruption to our operations.
Concentration of Sales and Accounts Receivable
One customer accounted for nearly 11% of our consolidated sales in fiscal 2020. Our top five customers accounted for approximately 30% of our fiscal 2020 consolidated sales. The loss of any one or more of these customers could adversely affect our earnings, financial condition and liquidity. At February 2, 2020, 35% of our consolidated accounts receivable is concentrated in our top five customers. Should any one of these receivables become uncollectible, it would have an immediate and material adverse impact on our financial condition and liquidity.
NOTE 21 – CONSOLIDATED QUARTERLY DATA (Unaudited- see accompanying accountant’s report.)
|
|
Fiscal Quarter
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
135,518
|
|
|
$
|
152,248
|
|
|
$
|
158,176
|
|
|
$
|
164,882
|
|
Cost of sales
|
|
|
110,001
|
|
|
|
123,422
|
|
|
|
129,777
|
|
|
|
133,665
|
|
Gross profit
|
|
|
25,517
|
|
|
|
28,826
|
|
|
|
28,399
|
|
|
|
31,217
|
|
Selling and administrative expenses
|
|
|
22,016
|
|
|
|
22,462
|
|
|
|
22,810
|
|
|
|
21,581
|
|
Net income
|
|
|
1,987
|
|
|
|
4,160
|
|
|
|
3,920
|
|
|
|
7,016
|
|
Basic earnings per share
|
|
$
|
0.17
|
|
|
$
|
0.35
|
|
|
$
|
0.33
|
|
|
$
|
0.59
|
|
Diluted earnings per share
|
|
$
|
0.17
|
|
|
$
|
0.35
|
|
|
$
|
0.33
|
|
|
$
|
0.59
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
142,892
|
|
|
$
|
168,661
|
|
|
$
|
171,474
|
|
|
$
|
200,475
|
|
Cost of sales
|
|
|
110,926
|
|
|
|
133,016
|
|
|
|
135,638
|
|
|
|
156,935
|
|
Gross profit
|
|
|
31,966
|
|
|
|
35,645
|
|
|
|
35,836
|
|
|
|
43,540
|
|
Selling and administrative expenses
|
|
|
21,990
|
|
|
|
23,184
|
|
|
|
22,979
|
|
|
|
23,777
|
|
Net income
|
|
|
7,154
|
|
|
|
8,693
|
|
|
|
9,332
|
|
|
|
14,691
|
|
Basic earnings per share
|
|
$
|
0.61
|
|
|
$
|
0.74
|
|
|
$
|
0.79
|
|
|
$
|
1.25
|
|
Diluted earnings per share
|
|
$
|
0.61
|
|
|
$
|
0.74
|
|
|
$
|
0.79
|
|
|
$
|
1.24
|
|
Earnings per share for each fiscal quarter is derived using the weighted average number of shares outstanding during that 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 22 – RELATED PARTY TRANSACTIONS
We lease the four properties utilized in Shenandoah’s operations. One of our employees has an ownership interest in the entities that own these properties. The leases commenced on September 29, 2017 and an option to renew each for an additional seven years. All four leases include annual rent escalation clauses with respect to minimum lease payments after the initial 84-month term of the lease is completed. In addition to monthly lease payments, we also incur expenses for property taxes, routine repairs and maintenance and other operating expenses. We paid $821,000 in lease payments to these entities during fiscal 2020.
NOTE 23 – SUBSEQUENT EVENTS
Cash Dividend
On March 2, 2020, our Board of Directors declared a quarterly cash dividend of $0.16 per share, payable on March 31, 2020 to shareholders of record at March 17, 2020.
COVID-19
In late 2019, an outbreak of COVID-19 was identified and has subsequently been recognized as a global pandemic by the World Health Organization. Federal, state and local governments in the U.S and elsewhere have imposed restrictions on travel and business operations and are advising or requiring individuals to limit or eliminate time outside of their homes. Temporary closures of businesses have also been ordered in certain jurisdictions and other businesses have temporarily closed on a voluntarily basis. Consequently, the COVID-19 outbreak has severely restricted the level of economic activity in the U.S. and around the world.
Due to the aforementioned effects of COVID-19, we have seen decreased demand for home furnishings in our industry and for our company. We have also seen a spike in order cancellations over the last few weeks prior to filing this Annual Report, which has blunted some of the strong backlog we had at fiscal year-end. Some customers have taken or are expected to take extended payment terms and we expect cash collections to slow.
To begin to address the financial impact of the virus, we have delayed non-essential capital spending and have implemented other cost-cutting measures, including abbreviated shifts, furloughs, the temporary closure of our domestic manufacturing plants, staff reductions, temporary fee reductions for Board of Directors, temporary salary reductions for officers and other managers, rationalizing current import purchase orders and working with our vendors to cut costs and extend payment terms where we can.
We expect sales and earnings to be down materially in the fiscal 2021 first quarter and for fiscal 2021, both as compared to prior-year periods, but we are unable to reasonably estimate the extent of those decreases. Additionally, we note we have limited insight into the extent to which our business may be impacted by the COVID-19 pandemic and there are many unknowns including the severity and duration of the current crisis. Further delays in the receipt of goods and other unanticipated impacts to our supply chain, including on direct imports or goods purchased domestically, or our customers, could have a more significant impact on our future business (including sales and earnings).
We continue to monitor the situation closely and may implement further measures to provide additional financial flexibility as we work to protect our cash position and liquidity.
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