hooker-10q_050210.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended May 2, 2010
Commission file number 000-25349
HOOKER FURNITURE CORPORATION
(Exact name of registrant as specified in its charter)
| Virginia |
54-0251350 |
| (State or other jurisdiction of incorporation or organization) |
(IRS employer identification no.) |
440 East Commonwealth Boulevard, Martinsville, VA 24112
(Address of principal executive offices, zip code)
(276) 632-0459
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
|
Large accelerated Filer ¨
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Accelerated filer x
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Non-accelerated Filer ¨ (Do not check if a smaller reporting company)
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Smaller reporting company ¨
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|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of June 7, 2010
| Common stock, no par value |
10,774,743 |
| (Class of common stock) |
(Number of shares) |
| |
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PART I Financial Information
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Item 1.
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3
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Item 2.
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12
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Item 3.
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19
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Item 4
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20
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PART II Other Information
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Item 6.
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21
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22
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PART I. FINANCIAL INFORMATION
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, including share data)
| |
|
|
May 2,
|
|
|
|
January 31,
|
|
| |
|
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2010
|
|
|
|
2010
|
|
| |
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Assets
|
|
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|
|
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|
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Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
38,747
|
|
|
$ |
37,995
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|
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Accounts receivable, less allowance for doubtful accounts
|
|
|
|
|
|
|
|
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of $1,559 and $1,938 on each date
|
|
|
24,388
|
|
|
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25,894
|
|
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Inventories
|
|
|
38,541
|
|
|
|
36,176
|
|
|
Prepaid expenses and other current assets
|
|
|
4,426
|
|
|
|
3,468
|
|
|
Total current assets
|
|
|
106,102
|
|
|
|
103,533
|
|
|
Property, plant, and equipment, net
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|
|
22,198
|
|
|
|
22,747
|
|
|
Intangible assets
|
|
|
3,468
|
|
|
|
3,468
|
|
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Cash surrender value of life insurance policies
|
|
|
15,315
|
|
|
|
14,810
|
|
|
Other assets
|
|
|
4,593
|
|
|
|
4,541
|
|
|
Total assets
|
|
$ |
151,676
|
|
|
$ |
149,099
|
|
| |
|
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|
|
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Liabilities and Shareholders' Equity
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|
|
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Current Liabilities
|
|
|
|
|
|
|
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Trade acccounts payable
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|
$ |
11,781
|
|
|
$ |
10,425
|
|
|
Accrued salaries, wages and benefits
|
|
|
2,565
|
|
|
|
2,184
|
|
|
Other accrued expenses
|
|
|
2,588
|
|
|
|
1,953
|
|
|
Accrued dividends
|
|
|
1,077
|
|
|
|
1,077
|
|
|
Total current liabilities
|
|
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18,011
|
|
|
|
15,639
|
|
|
Deferred compensation
|
|
|
6,099
|
|
|
|
5,868
|
|
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Total liabilities
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|
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24,110
|
|
|
|
21,507
|
|
| |
|
|
|
|
|
|
|
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Shareholders' equity
|
|
|
|
|
|
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Common stock, no par value, 20,000 shares authorized,
|
|
|
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|
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10,775 shares issued and oustanding on each date
|
|
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17,091
|
|
|
|
17,076
|
|
|
Retained earnings
|
|
|
110,069
|
|
|
|
110,073
|
|
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Accumulated other comprehensive income
|
|
|
406
|
|
|
|
443
|
|
|
Total shareholders' equity
|
|
|
127,566
|
|
|
|
127,592
|
|
|
Total liabilities and shareholders' equity
|
|
$ |
151,676
|
|
|
$ |
149,099
|
|
| |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| |
|
Thirteen Weeks Ended
|
|
| |
|
May 2,
|
|
|
May 3,
|
|
| |
|
2010
|
|
|
2009
|
|
| |
|
|
|
|
|
|
|
Net Sales
|
|
$ |
51,353 |
|
|
$ |
52,063 |
|
| |
|
|
|
|
|
|
|
|
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Cost of Sales
|
|
|
39,084 |
|
|
|
40,836 |
|
|
Casualty loss
|
|
|
2,025 |
|
|
|
- |
|
|
Insurance recovery
|
|
|
(1,525 |
) |
|
|
- |
|
|
Total Cost of Sales
|
|
|
39,584 |
|
|
|
40,836 |
|
| |
|
|
|
|
|
|
|
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Gross Profit
|
|
|
11,769 |
|
|
|
11,227 |
|
| |
|
|
|
|
|
|
|
|
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Selling and administrative expenses
|
|
|
10,063 |
|
|
|
11,181 |
|
|
Asset impairment charge
|
|
|
- |
|
|
|
673 |
|
| |
|
|
|
|
|
|
|
|
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Operating income (loss)
|
|
|
1,706 |
|
|
|
(627 |
) |
| |
|
|
|
|
|
|
|
|
|
Other (expense) income, net
|
|
|
12 |
|
|
|
(3 |
) |
| |
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,718 |
|
|
|
(630 |
) |
| |
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
644 |
|
|
|
(174 |
) |
| |
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,074 |
|
|
$ |
(456 |
) |
| |
|
|
|
|
|
|
|
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Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.10 |
|
|
$ |
(0.04 |
) |
|
Diluted
|
|
$ |
0.10 |
|
|
$ |
(0.04 |
) |
| |
|
|
|
|
|
|
|
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|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,757 |
|
|
|
10,752 |
|
|
Diluted
|
|
|
10,767 |
|
|
|
10,757 |
|
| |
|
|
|
|
|
|
|
|
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Cash dividends declared per share
|
|
$ |
0.10 |
|
|
$ |
0.10 |
|
| |
|
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|
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The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| |
|
Thirteen Weeks Ended
|
|
| |
|
May 2,
|
|
|
May 3,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
Cash received from customers
|
|
$ |
52,427 |
|
|
$ |
56,838 |
|
|
Cash paid to suppliers and employees
|
|
|
(50,378 |
) |
|
|
(39,872 |
) |
|
Insurance procceds received on casualty loss
|
|
|
500 |
|
|
|
- |
|
|
Income taxes paid, net
|
|
|
(227 |
) |
|
|
(156 |
) |
|
Interest (paid), net
|
|
|
(45 |
) |
|
|
(128 |
) |
|
Net cash provided by operating activities
|
|
$ |
2,277 |
|
|
$ |
16,682 |
|
| |
|
|
|
|
|
|
|
|
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Cash flows from investing activities
|
|
|
|
|
|
|
|
|
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Purchase of property, plant, and equipment
|
|
|
(198 |
) |
|
|
(602 |
) |
|
Proceeds from the sale of property and equipment
|
|
|
5 |
|
|
|
9 |
|
|
Premiums paid on officers' life insurance
|
|
|
(255 |
) |
|
|
(280 |
) |
|
Proceeds received on officers' life insurance
|
|
|
- |
|
|
|
374 |
|
|
Net cash used in investing activities
|
|
|
(448 |
) |
|
|
(499 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(1,077 |
) |
|
|
(1,077 |
) |
|
Payments on long-term debt
|
|
|
- |
|
|
|
(705 |
) |
|
Net cash used in financing activities
|
|
|
(1,077 |
) |
|
|
(1,782 |
) |
| |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$ |
752 |
|
|
$ |
14,401 |
|
|
Cash and cash equivalents at the beginning of the period
|
|
|
37,995 |
|
|
|
11,804 |
|
|
Cash and cash equivalents at the end of the period
|
|
$ |
38,747 |
|
|
$ |
26,205 |
|
| |
|
|
|
|
|
|
|
|
|
Reconciliation of net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
1,074 |
|
|
$ |
(456 |
) |
|
Depreciation and amortization
|
|
|
748 |
|
|
|
730 |
|
|
Non-cash restricted stock awards and performance grants
|
|
|
15 |
|
|
|
20 |
|
|
Asset impairment charges
|
|
|
- |
|
|
|
673 |
|
|
Provision for doubtful accounts
|
|
|
(329 |
) |
|
|
183 |
|
|
Deferred income taxes
|
|
|
(159 |
) |
|
|
(141 |
) |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
1,835 |
|
|
|
4,521 |
|
|
Inventories
|
|
|
(2,365 |
) |
|
|
13,109 |
|
|
Prepaid expenses and other current assets
|
|
|
(30 |
) |
|
|
(83 |
) |
|
Trade accounts payable
|
|
|
279 |
|
|
|
(1,780 |
) |
|
Accrued salaries, wages, and benefits
|
|
|
381 |
|
|
|
64 |
|
|
Accrued income taxes
|
|
|
576 |
|
|
|
- |
|
|
Other accrued expenses
|
|
|
59 |
|
|
|
(382 |
) |
|
Deferred compensation
|
|
|
193 |
|
|
|
192 |
|
|
Other long-term liabilities
|
|
|
- |
|
|
|
32 |
|
|
Net cash provided by operating activties
|
|
$ |
2,277 |
|
|
$ |
16,682 |
|
| |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated)
(Unaudited)
For the Thirteen Weeks Ended May 2, 2010
|
1.
|
Preparation of Interim Financial Statements
|
The condensed consolidated financial statements of Hooker Furniture Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these statements include all adjustments necessary for a fair statement of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) are condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended January 31, 2010.
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates.
The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the thirteen-week period (also referred to as “three months,” “three-month period,” “quarter” or “quarterly period”) that began February 1, 2010 and ended on May 2, 2010. These financial statements also include the thirteen-week period that began February 2, 2009 and ended on May 3, 2009.
References in these notes to the condensed consolidated financial statements of the Company to:
|
§
|
the 2011 fiscal year and comparable terminology mean the fiscal year that began February 1, 2010 and will end January 30, 2011; and
|
|
§
|
the 2010 fiscal year and comparable terminology mean the fiscal year that began February 2, 2009 and ended January 31, 2010.
|
| |
|
May 2,
|
|
|
January 31,
|
|
| |
|
2010
|
|
|
2010
|
|
| |
|
|
|
|
|
|
|
Finished furniture
|
|
$ |
42,060 |
|
|
$ |
40,205 |
|
|
Furniture in process
|
|
|
864 |
|
|
|
798 |
|
|
Materials and supplies
|
|
|
7,866 |
|
|
|
7,258 |
|
|
Inventories at FIFO
|
|
|
50,790 |
|
|
|
48,261 |
|
|
Reduction to LIFO basis
|
|
|
12,249 |
|
|
|
12,085 |
|
|
Inventories
|
|
$ |
38,541 |
|
|
$ |
36,176 |
|
| |
|
|
|
|
|
|
|
|
3. Property, Plant and Equipment
| |
|
May 2,
|
|
|
January 31,
|
|
| |
|
2010
|
|
|
2010
|
|
|
Buildings and land improvements
|
|
$ |
23,814 |
|
|
$ |
23,708 |
|
|
Machinery and equipment
|
|
|
3,553 |
|
|
|
3,507 |
|
|
Furniture and fixtures
|
|
|
27,608 |
|
|
|
27,494 |
|
|
Other
|
|
|
4,104 |
|
|
|
4,043 |
|
|
Total depreciable property at cost
|
|
|
59,079 |
|
|
|
58,752 |
|
|
Less accumulated depreciation
|
|
|
38,346 |
|
|
|
37,603 |
|
|
Total depreciable property, net
|
|
|
20,733 |
|
|
|
21,149 |
|
|
Land
|
|
|
1,357 |
|
|
|
1,357 |
|
|
Construction in progress
|
|
|
108 |
|
|
|
241 |
|
|
Property, plant and equipment, net
|
|
$ |
22,198 |
|
|
$ |
22,747 |
|
4. Intangible Assets
| |
|
May 2,
|
|
|
January 31,
|
|
| |
|
2010
|
|
|
2010
|
|
|
Non-amortizable Intangible Assets
|
|
|
|
|
|
|
|
Trademarks and trade names - Bradington-Young
|
|
$ |
2,676 |
|
|
$ |
2,676 |
|
|
Trademarks and trade names - Sam Moore
|
|
|
396 |
|
|
|
396 |
|
|
Trademarks and trade names - Opus Designs
|
|
|
396 |
|
|
|
396 |
|
|
Total trademarks and tradenames
|
|
|
3,468 |
|
|
|
3,468 |
|
| |
|
|
|
|
|
|
|
|
5. Accounts Receivable
| |
|
May 2,
|
|
|
January 31,
|
|
| |
|
2010
|
|
|
2010
|
|
| |
|
|
|
|
|
|
|
Trade accounts receivable
|
|
$ |
16,917 |
|
|
$ |
19,400 |
|
|
Receivable from factor
|
|
|
9,030 |
|
|
|
8,432 |
|
|
Allowance for doubtful accounts
|
|
|
(1,559 |
) |
|
|
(1,938 |
) |
|
Accounts receivable
|
|
$ |
24,388 |
|
|
$ |
25,894 |
|
| |
|
|
|
|
|
|
|
|
“Receivable from factor” represents amounts due with respect to factored accounts receivable. We factor substantially all of our upholstery division accounts receivable without recourse to us.
Under our factoring agreement entered into on July 15, 2009, invoices for upholstery products are generated and transmitted to our customers, with copies to the factor on a daily basis, as products are shipped to our upholstery customers. The factor collects the amounts due and remits collected funds to us semi-weekly. We retain ownership of the accounts receivable until the invoices are 90 days past due. At that time, the factor pays us the net invoice amount, less factoring fees and takes ownership of the accounts receivable. The factor is then entitled to collect the invoices on its own behalf and retain any subsequent remittances. The invoiced amounts are reported as accounts receivable on our condensed consolidated balance sheets when the merchandise is delivered to our customer until payment is received from the factor.
A limited number of accounts receivable are factored with recourse to us. The amounts of these receivables at May 2, 2010 and January 31, 2010 were $117,000 and $205,000, respectively. If the factor is unable to collect the amounts due, invoices are returned to us for collection. We include an estimate for these potentially uncollectible receivables in our calculation of our allowance for doubtful accounts.
6. Other Comprehensive Income
| |
|
Thirteen Weeks Ended
|
|
| |
|
May 2,
|
|
|
May 3,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Net income
|
|
$ |
1,074 |
|
|
$ |
(456 |
) |
|
Loss on interest rate swap
|
|
|
- |
|
|
|
(19 |
) |
|
Portion of swap agreement's fair value
|
|
|
|
|
|
|
|
|
|
reclassified to interest expense
|
|
|
- |
|
|
|
62 |
|
|
Unrealized gain on interest rate swap
|
|
|
- |
|
|
|
43 |
|
|
Portion of accumulated acturial gain on Supplemental
|
|
|
|
|
|
|
|
|
|
Retirement Income Plan reclassified to deferred
|
|
|
|
|
|
|
|
|
|
compensation expense
|
|
|
(59 |
) |
|
|
(55 |
) |
|
Other comprehensive loss before tax
|
|
|
(59 |
) |
|
|
(12 |
) |
|
Income tax benefit
|
|
|
22 |
|
|
|
4 |
|
|
Other comprehensive loss, net of tax
|
|
|
(37 |
) |
|
|
(8 |
) |
|
Comprehensive net income (loss)
|
|
$ |
1,037 |
|
|
$ |
(464 |
) |
| |
|
|
|
|
|
|
|
|
7. Supplier Receivable
From May 2007 through September 2009, we advanced payments to, and provided financing guarantees for one of our finished goods suppliers to facilitate the supplier’s purchase of raw materials and supplies to ensure timely delivery of finished goods to us. The balance of the advances and other miscellaneous amounts due from this supplier at May 2, 2010 and January 31, 2010 were $132,000 and $124,000, respectively, and are fully reserved. In order for the supplier to obtain additional bank financing, we issued a standby letter of credit on July 14, 2008 as security in the amount of $600,000. In conjunction with the issuance of the letter of credit, we entered into a security agreement with the supplier and the supplier’s shareholders, which provided us with a security interest in certain assets of the supplier and its shareholders. During September 2009, prior to the expiration of the letter of credit, the supplier ceased operations, and defaulted on its bank notes, and its lender drew on our $600,000 letter of credit. Subsequently, we reimbursed our letter of credit provider for the $600,000. During fiscal year 2010 we wrote down the pledged collateral to our estimate of its net realizable value of $300,000. The estimated net realizable amount for the pledged collateral of $300,000 at May 2, 2010 and January 31, 2010 is recorded in the long-term section of our condensed consolidated balance sheets in “Other assets.” Based on a recent appraisal, we believe that the net realizable value of $300,000 is reasonable and approximates the pledged collateral’s fair value. We are currently working with the supplier and its shareholders to have the pledged collateral conveyed to us and plan to offer the property for sale.
8. Earnings Per Share
Since 2006, we have issued restricted stock awards to non-employee members of the board of directors under the Stock Plan each January, and expect to continue to grant these awards to non-employee board members in the future. As of May 2, 2010 and January 31, 2010 there were 17,640 shares of restricted stock outstanding, net of forfeitures and vested shares on each date. Restricted shares awarded that have not yet vested are considered when computing diluted earnings per share.
The following table sets forth the computation of basic and diluted earnings per share:
| |
|
Thirteen Weeks Ended
|
|
| |
|
May 2,
|
|
|
May 3,
|
|
| |
|
2010
|
|
|
2009
|
|
| |
|
|
|
|
|
|
|
Net income
|
|
$ |
1,074 |
|
|
$ |
(456 |
) |
|
Less: Unvested participating restricted stock dividends
|
|
|
2 |
|
|
|
- |
|
|
Net earnings allocated to unvested participating
|
|
|
|
|
|
|
|
|
|
restricted stock
|
|
|
1 |
|
|
|
- |
|
|
Earnings available for common shareholders
|
|
|
1,071 |
|
|
|
(456 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding for basic
|
|
|
|
|
|
|
|
|
|
earnings per share
|
|
|
10,757 |
|
|
|
10,752 |
|
|
Dilutive effect of non-vested restricted stock awards
|
|
|
10 |
|
|
|
5 |
|
|
Weighted average shares outstanding for diluted
|
|
|
|
|
|
|
|
|
|
earnings per share
|
|
|
10,767 |
|
|
|
10,757 |
|
| |
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$ |
0.10 |
|
|
$ |
(0.04 |
) |
| |
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$ |
0.10 |
|
|
$ |
(0.04 |
) |
| |
|
|
|
|
|
|
|
|
9. Long Term Debt and Interest Rate Swaps
As of May 2, 2010, we had an aggregate $13.1 million available under our revolving credit facility to fund working capital needs. Standby letters of credit in the aggregate amount of $1.9 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under our revolving credit facility as of May 2, 2010. There were no additional borrowings outstanding under the revolving credit line on May 2, 2010. Any principal outstanding under the credit line is due March 1, 2011.
From time to time we have entered into swap agreements to hedge against the potential impact of increases in interest rates on our floating-rate debt instruments. Swap agreements that hedge exposures to changes in interest rates expose us to credit risk and market risk. Credit risk is the potential failure of the counterparty to perform under the terms of the swap agreement. We attempt to minimize this risk by entering into transactions with high-quality counterparties. Market risk is the potential adverse effect on the value of the swap agreement that results from a decline in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
We are party to an interest rate swap agreement that provided, in effect, for a fixed interest rate of 4.1% through 2010 on our term loans. Prior to our fiscal 2010 third quarter, we accounted for our interest rate swap agreement as a cash flow hedge and recognized the fair value of the agreement on the balance sheet in shareholders’ equity under the caption “accumulated other comprehensive income.” The related gains or losses on this instrument were recorded through comprehensive income and, accordingly, were included in accumulated other comprehensive income on the balance sheet until recognized in net income. The gains or losses on this transaction were recognized in net income in the periods in which interest expense on our term notes (the related hedged item) were recognized in net income. In August 2009, we repaid our term loans in full. As a result, our interest rate swap no longer qualifies as an effective hedge. Through the remainder of the term of this interest rate swap, which terminates on September 1, 2010, all changes in the swap’s fair value will be charged against net income except for scheduled payments under the agreement.
As of May 2, 2010 we were party to one derivative financial instrument, as described in the following table:
| |
|
|
|
Fixed
|
|
|
|
|
|
| |
|
Notional
|
|
Interest
|
|
|
|
|
|
|
Agreement
|
|
Amount
|
|
Rate
|
|
Expiration Date
|
|
Fair Value
|
|
| |
|
|
|
|
|
|
|
|
|
|
Interest rate swap
|
|
$ |
1,560 |
|
|
3.09 |
% |
September 1, 2010
|
|
$ |
(17 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Disclosure of Derivative Instruments
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
The following table provides quantitative fair value disclosures regarding our interest rate swap at May 2, 2010 and January 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Fair Value at Dates Indicated
|
| |
|
|
|
Quoted Prices in
|
|
Significant
|
|
|
| |
|
Carrying Value and
|
|
Active Markets
|
|
Other
|
|
Significant
|
| |
|
Balance Sheet Location
|
|
for Identical
|
|
Observable
|
|
Unobservable
|
| |
|
(Other Accrued
|
|
Instruments
|
|
Inputs
|
|
Inputs
|
| |
|
Expenses)
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
| |
|
|
|
|
|
|
|
|
|
Interest rate swap at May 2, 2010
|
|
$ |
(17 |
) |
|
|
$ |
(17 |
) |
|
|
Interest rate swap at January 31, 2010
|
|
|
(33 |
) |
|
|
|
(33 |
) |
|
| |
|
|
|
|
|
|
|
|
|
|
| |
|
Thirteen Weeks Ended
|
|
| |
|
May 2,
|
|
|
May 3,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Interest rate swap:
|
|
|
|
|
|
|
|
Loss recognized in other comprehensive income
|
|
$ |
- |
|
|
$ |
(19 |
) |
|
Loss reclassified from accumulated other comprehensive
|
|
|
|
|
|
|
|
|
|
income into interest expense, net
|
|
|
- |
|
|
|
62 |
|
| |
|
|
|
|
|
|
|
|
10. Employee Benefit Plans
Components of net periodic benefit cost:
| |
|
Thirteen Weeks Ended
|
|
| |
|
May 2,
|
|
|
May 3,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Net periodic benefit cost
|
|
|
|
|
|
|
|
Service cost
|
|
$ |
146 |
|
|
$ |
158 |
|
|
Interest cost
|
|
|
85 |
|
|
|
89 |
|
|
Gain
|
|
|
(59 |
) |
|
|
(54 |
) |
|
Net periodic benefit cost
|
|
$ |
172 |
|
|
$ |
193 |
|
| |
|
|
|
|
|
|
|
|
11. Casualty Loss
On March 10, 2010, we experienced a fire at one of our warehouse facilities in Martinsville, Va. The fire was contained to an area of approximately 2,000 square feet within a 580,000 square foot facility. The costs associated with the fire exceeded our insurance deductible of $500,000, but we expect that amounts in excess of our deductible will be fully covered by insurance. During the fiscal 2011 first quarter, we recorded a casualty loss of $2.0 million and an insurance recovery of $1.5 million, both in cost of sales. The net charge to cost of sales of $500,000 represents our insurance deductible. Additionally, we recorded a receivable of $1.0 million for amounts due to us from our insurance carrier. The receivable is recorded in the “Prepaid expenses and other current assets” line of the current assets portion of our condensed consolidated balance sheet. We also recorded a payable of $1.1 million for amounts due to vendors for our fire recovery and remediation efforts. The payable is recorded in the “trade accounts payable” line of the current liabilities portion of our condensed consolidated balance sheet.
12. Subsequent Events
We have evaluated events that occurred subsequent to May 2, 2010, through the financial statement issuance date and determined that there were no recordable or reportable subsequent events.
This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the thirteen-week period (also referred to as “three months,” “three-month period,” “quarter” or “quarterly period”) that began February 1, 2010 and ended on May 2, 2010. This report discusses our results of operations for this period compared to the fiscal year 2010 thirteen-week first quarter that began on February 2, 2009 and ended on May 3, 2009; and our financial condition as of January 31, 2010.
References in this report to:
|
§
|
the 2011 fiscal year and comparable terminology mean the fiscal year that began February 1, 2010 and will end January 30, 2011; and
|
|
§
|
the 2010 fiscal year and comparable terminology mean the fiscal year that began February 2, 2009 and ended January 31, 2010.
|
Nature of Operations
Incorporated in Virginia in 1924, Hooker Furniture Corporation (“Company”, “we”, “us”, and “our”) is ranked among the nation’s top 10 largest publicly traded furniture sources, based on 2009 shipments to U.S. retailers, according to Furniture/Today, a leading trade publication. We are a key resource for residential wood, metal and upholstered furniture. Our major wood furniture product categories include home entertainment, home office, accent, dining, bedroom and bath furniture under the Hooker Furniture brand, and youth furniture sold under the Opus Designs by Hooker brand. Our residential upholstered seating companies include Cherryville, N.C.-based Bradington-Young, LLC, a specialist in upscale motion and stationary leather furniture, and Bedford, Va.-based Sam Moore Furniture LLC, a specialist in upscale occasional chairs with an emphasis on cover-to-frame customization. An extensive selection of designs and formats along with finish and cover options in each of these product categories makes us a comprehensive residential furniture resource, primarily for retailers targeting the medium and upper-medium price range. Our principal customers are retailers of residential home furnishings who are broadly dispersed throughout North America. Customers include independent furniture stores, specialty retailers, department stores, catalog merchants, interior designers and national and regional chains.
Overview
We have seen a growing consumer preference for lower-priced, high-quality imported furniture products since 2001. Led by the change in consumer demand, from 2003 to 2008 we systematically increased our focus on high-quality imported home furnishings with a coordinated exit from domestic wood furniture manufacturing. We closed our last domestic wood manufacturing plant during the fiscal year 2008 first quarter and completed the sale of all wood furniture manufacturing assets no longer needed in the business in December 2007. As a result, we have replaced a domestic operating model for wood furniture, which had high overhead and high fixed costs, with a low overhead, variable cost import model. We are now focused on imported wood and metal furniture, as well as both domestically produced and imported upholstered home furnishings. Maintaining domestic upholstered furniture manufacturing allows us to offer quick turnaround on orders for custom leather and fabric upholstered seating and remains an important part of our strategy.
Since the fall of 2006, our business has been impacted by low levels of consumer confidence and a weakening housing market. By late 2008, this malaise, exacerbated by weak credit markets, had spread to the broader U.S. economy. As a result, the residential home furnishings industry has seen an unprecedented decline in demand for its products. Discretionary purchases of furniture, particularly at the middle and upper-middle price points where we compete, have been highly affected by low consumer confidence. Current economic factors, such as high unemployment and difficult housing and mortgage markets, have resulted in a weak retail environment. We believe, however, that our business model continues to provide us with flexibility to respond to changing market conditions by adjusting inventory purchases from suppliers.
Due to the prolonged downturn and weak demand for residential furniture products as a result of the recession, our Asian sourcing partners realigned production in their plants by closing production lines, laying off employees and making other changes in order to balance production with decreased demand. The shipping lines that we utilize to transport these sourced goods to us have likewise adjusted their capacity by temporarily taking portions of their fleets out of service, which has lengthened the time it takes to get our products to our distribution facilities in the U.S. As our incoming order rates have increased, our order backlog has increased substantially due to these issues. At May 2, 2010 our order backlog stood at 8.2 weeks of sales as compared to 4.6 weeks at May 3, 2009. We are working with our sourcing and transportation partners to alleviate these backlog issues, as well as working to secure new sources in these areas. As Asian manufacturing and transportation capacity increases due to increased demand, we believe that these backlog issues will begin to improve. However, we are likely to experience continued backlog issues in the short to medium term, which will in-turn negatively affect our revenues and margins.
Year-over-year declines in net sales continued through the fiscal year 2011 first quarter. However, fiscal year 2011 first quarter sales decreased by only 1.4% compared to the fiscal year 2010 first quarter, which is the lowest year-over year sales decrease in eleven fiscal quarters and continues a trend that began with the fiscal 2010 fourth quarter’s 6.7% year-over-year decrease, which, at that time, was the lowest decrease in ten fiscal quarters. While overall wood and metal furniture sales decreased, we realized significant increases in upholstery sales over the prior year quarter and over the fiscal 2010 fourth quarter. This increase in upholstery sales mirrors current furniture industry trends. Generally, past furniture industry recoveries were first marked by increased upholstery sales. While the uniqueness of the present economic situation and unpredictable nature of consumer behavior may complicate our industry’s recovery, we are very encouraged by these sales increases both at Hooker and for the industry at large.
The following are the principal factors that impacted our results of operations during the three month period ended May 2, 2010:
|
§
|
Net sales declined by $710,000, or 1.4%, to $51.4 million during the fiscal year 2011 first quarter compared to net sales of $52.1 million during the fiscal year 2010 first quarter. This decline reflects the continued year-over-year declines in case goods incoming order rates experienced since the fiscal 2006 third quarter, resulting from the industry-wide slowdown in business at retail and, more recently, delays in obtaining some of our sourced product (as discussed above.) However, the case goods order rate decrease was partially offset by significantly increased upholstery order rates in the current quarter. Additionally, case goods order rates appear to be stabilizing as decreases in the fiscal 2011 first quarter are significantly lower than the comparable prior year fiscal quarter and are lower than the fiscal year 2010 fourth quarter decrease.
|
|
§
|
Gross margins for the fiscal 2011 first quarter improved primarily due to
|
|
o
|
lower freight costs as a percentage of sales for wood and metal furniture and
|
|
o
|
slightly increased margins at our upholstery division primarily due to increased upholstery sales.
|
These improvements were partially offset by a $500,000 net charge ($312,000 or $0.03 per share, after tax) to cost of sales to recognize our insurance deductible for a fire that occurred at one of our distribution facilities during the fiscal 2011 first quarter.
|
§
|
Selling and administrative expenses decreased in both absolute terms and as a percentage of sales compared to the corresponding fiscal year 2010 period, primarily as a result of cost cutting measures implemented during fiscal 2010 and lower selling expenses due to lower commissions.
|
|
§
|
Operating income for the fiscal year 2011 first quarter was $1.7 million, or 3.3% of net sales, compared to an operating loss of $627,000, or -1.2% of net sales, in the fiscal year 2010 first quarter. This improvement was principally due to lower fixed operating and domestic upholstery overhead costs as a percent of net sales and the lack of asset impairment activity during the fiscal year 2011 first quarter as compared to the corresponding prior year quarter, partially offset by expenses related to the fire at our distribution center.
|
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of operations included in this report.
| |
|
Thirteen Weeks Ended
|
|
| |
|
May 2,
|
|
|
May 3,
|
|
| |
|
2010
|
|
|
2009
|
|
|
Net sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of sales
|
|
|
76.1 |
|
|
|
78.4 |
|
|
Casualty loss
|
|
|
3.9 |
|
|
|
- |
|
|
Insurance recovery
|
|
|
(2.9 |
) |
|
|
- |
|
|
Total cost of sales
|
|
|
77.1 |
|
|
|
78.4 |
|
|
Gross profit
|
|
|
22.9 |
|
|
|
21.6 |
|
|
Selling and administrative expenses
|
|
|
19.6 |
|
|
|
21.5 |
|
|
Restructuring and asset impairment (credit) charge
|
|
|
- |
|
|
|
1.3 |
|
|
Operating income (loss)
|
|
|
3.3 |
|
|
|
(1.2 |
) |
|
Income before income taxes
|
|
|
3.3 |
|
|
|
(1.2 |
) |
|
Income tax expense
|
|
|
1.2 |
|
|
|
(0.3 |
) |
|
Net income (loss)
|
|
|
2.1 |
|
|
|
(0.9 |
) |
Fiscal 2011 First Quarter Compared to Fiscal 2010 First Quarter
Net sales for the fiscal year 2011 first quarter declined $710,000, or 1.4% to $51.4 million compared to $52.1 million for the fiscal 2010 first quarter. This decline was principally due to lower overall selling prices, due to the mix of products sold, partially offset by slightly higher overall unit volume.
Unit volume decreased for our wood and metal furniture compared to the fiscal 2010 first quarter. Unit volume increased for Bradington-Young domestic and imported leather upholstery and Sam Moore domestic and imported upholstered furniture. Total sales of imported upholstery increased approximately 50.0% from the prior year quarter, while overall domestic upholstery sales increased approximately 23.0% in the same period.
Overall, average selling prices decreased in the low single digits during the fiscal year 2011 first quarter compared to the fiscal year 2010 first quarter, primarily due to increased sales of lower-priced products. Wood and metal furniture average selling prices decreased slightly as a result of a higher proportion of lower-priced Envision furniture sold. Selling prices of imported leather upholstery declined slightly due to the mix of products shipped. The average selling prices for domestic leather upholstered furniture decreased modestly, also due to the mix of products shipped. The average selling prices for imported upholstered furniture decreased significantly due to the mix of products shipped, while the average selling price for our domestically produced upholstered furniture decreased only slightly.
Overall, gross profit margin increased to 22.9% of net sales in the fiscal year 2011 first quarter compared to 21.6% in the fiscal year 2010 first quarter, mainly as a result of lower freight costs for wood and metal furniture. Gross margins for wood and metal furniture improved significantly in the fiscal year 2011 first quarter compared to the fiscal 2010 first quarter, primarily due to decreased levels of product discounting and returns and allowances and the exit from our California warehouse during fiscal 2010. Offsetting these improvements was a net charge to cost of sales for $500,000, which represents our insurance deductible for the casualty loss related to the distribution center fire. Margins for upholstered furniture improved moderately due to lower fixed costs as a percentage of sales resulting from higher sales and cost reduction efforts partially offset by higher raw material and manufacturing costs due to product mix and inefficiencies from increased production rates.
Selling and administrative expenses decreased to $10.1 million or 19.6% of net sales for the fiscal year 2011 first quarter, compared to $11.2 million or 21.5% of net sales for the fiscal year 2010 first quarter. The decrease in spending was principally due to the impact of cost reductions implemented in fiscal year 2010, undertaken in response to lower sales volume, as well as lower bad debt expense during the fiscal 2011 quarter.
Operating profitability for the fiscal 2011 first quarter increased year over year compared to the fiscal 2010 first quarter, primarily as a result of higher gross profit margins, the absence of any impairment charges in fiscal 2011 and lower fixed costs as a percentage of sales due to higher sales volumes at our upholstery companies. During the fiscal 2010 first quarter, we determined that our Bradington-Young trade name was impaired and recorded an intangible asset impairment charge of $673,000 ($419,000 or $0.04 per share, after tax.) The following table reconciles operating income as a percentage of net sales ("operating margin") to operating margin excluding this intangible asset impairment charge as a percentage of net sales for each period:
| |
|
Thirteen Weeks Ended
|
|
| |
|
May 2,
|
|
|
May 3,
|
|
| |
|
2010
|
|
|
2009
|
|
| |
|
|
|
|
|
|
|
Operating margin, including asset impairment charge
|
|
|
3.3 |
% |
|
|
-1.2 |
% |
|
Intangible asset impairment charge
|
|
|
0.0 |
% |
|
|
1.3 |
% |
|
Operating margin, excluding asset impairment charge
|
|
|
3.3 |
% |
|
|
0.1 |
% |
The operating margin excluding the impact of the asset impairment charge is a “non-GAAP” financial measure. We have provided this information because we believe it is useful to investors in evaluating our ongoing operations. Non-GAAP financial measures are intended to provide insight into selected financial information and should be evaluated in the context in which they are presented. These measures are of limited usefulness in evaluating our overall financial results presented in accordance with GAAP and should be considered in conjunction with the condensed consolidated financial statements, including the related notes, included elsewhere in this report.
As a result, we realized operating income for the fiscal year 2011 first quarter of $1.7 million, or 3.3% of net sales, compared to operating loss of $627,000, or 1.2% of net sales, in the fiscal year 2010 first quarter.
We recorded income tax expense of $644,000 for the fiscal 2011 first quarter and an income tax benefit of $174,000 for the fiscal year 2010 first quarter. Our effective tax rate increased to 37.5% for the fiscal year 2011 first quarter from 27.7% for the fiscal year 2010 first quarter, primarily due to the expectation that annual pre-tax income for FY 2011 will exceed annual pre-tax income experienced in FY 2010. This increase in pre-tax income reduces the relative benefit received from favorable net permanent differences which have been comparatively stable amounts from year to year. The current rate of 37.5% approximates our expected long-term effective tax rate.
Fiscal year 2011 first quarter net income was $1.1 million, or $0.10 per share, compared to a net loss of $456,000, or ($0.04) per share, in the fiscal year 2010 first quarter.
Although we report operating results in one operating segment on a consolidated basis, we are providing the following information because we believe it helps supplement the detail provided:
| |
|
Thirteen Weeks Ended
|
| |
|
May 2, 2010
|
|
|
May 3, 2009
|
|
| |
|
|
% Segment
Net Sales
|
|
|
|
% Segment
Net Sales
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case Goods
|
|
$ |
32.6 |
|
|
|
|
|
$ |
37.2 |
|
|
|
|
|
Upholstery
|
|
|
18.8 |
|
|
|
|
|
|
14.9 |
|
|
|
|
|
Total
|
|
|
51.4 |
|
|
|
|
|
|
52.1 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case Goods
|
|
|
9.4 |
|
|
28.8 |
% |
|
|
9.6 |
|
|
25.9 |
% |
|
Upholstery
|
|
|
2.4 |
|
|
12.6 |
% |
|
|
1.6 |
|
|
10.8 |
% |
|
Total
|
|
|
11.8 |
|
|
22.9 |
% |
|
|
11.2 |
|
|
21.6 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case Goods
|
|
|
2.7 |
|
|
8.4 |
% |
|
|
1.6 |
|
|
4.4 |
% |
|
Upholstery
|
|
|
(1.0 |
) |
|
-5.5 |
% |
|
|
(2.3 |
) |
|
-15.3 |
% |
|
Total
|
|
|
1.7 |
|
|
3.3 |
% |
|
|
(0.6 |
) |
|
-1.2 |
% |
Outlook
The year-over-year declines in quarterly incoming orders, which began in the Fall of 2006, continued during the fiscal year 2011 first quarter. While business has improved somewhat since the end of fiscal 2010, we believe that additional growth may be slow, irregular, and easily derailed. Our outlook for the remainder of fiscal year 2011 is one of continued cautious optimism. While we expect general retail conditions to remain weak, we have seen signs of improving consumer demand. However, continuing economic uncertainty, difficulty obtaining or shipping imported products and aggressive competition for consumer discretionary dollars could derail our recovery. We believe that our product and business model uniquely position us to take advantage of any upturn in the economy. That optimism, however, is tempered by the uniqueness of the present economic situation and our foreign supply chain challenges. Continued attention to cost control and an intense focus on improving sourced product availability continue to be priorities.
Our new Envision product line, which was designed to address the needs of Gen X and Gen Y consumers, was introduced in October 2008 and debuted on retail sales floors during the fiscal 2010 first quarter. While response to this new line has been encouraging, we have not yet seen an overall rebound in big-ticket consumer products such as furniture, so we remain cautious in our planning and continue to take actions to address challenges to our profitability. Some of those actions include:
|
●
|
deferring, reducing or eliminating certain spending plans;
|
|
●
|
continuing to refine the management of our supply chain, warehousing and distribution operations; and
|
|
●
|
adjusting our inventory levels to reflect current business conditions.
|
Our domestic upholstery manufacturing operations have been particularly impacted by the prolonged sales downturn due to higher fixed overhead costs as a percentage of reduced net sales. To mitigate the impact of these sales declines we are:
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●
|
pursuing additional distribution channels and offering an array of new products and designs, which we believe will generate additional sales growth;
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|
●
|
taking actions to streamline our domestic upholstery operations, by improving efficiency and reducing overhead; and,
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|
●
|
continuing to evaluate our operating costs to better match costs to current sales volume levels.
|
Our upholstery division reported an operating loss of 5.5% of net sales for the fiscal 2011 first quarter, which is an improvement over the operating loss of 15.3% of net sales for the comparable fiscal 2010 period. While we see improvement over the corresponding prior year quarter and upholstery sales have increased substantially overall, margins and profits are still disappointing. This is primarily due to manufacturing inefficiencies related to new products, inefficiencies related to returning our upholstery plants to more normalized production levels due to increased sales and slower than expected savings realization from our continuous improvement initiatives. We have responded by intensifying our focus on cost reduction and sales growth initiatives for our upholstery operations. Cost reduction measures have included reducing personnel, consolidating manufacturing facilities, implementing Lean Manufacturing, and introducing technological changes to reduce labor costs. In terms of sales growth, we have focused on updating our upholstery lines with more contemporary offerings while retaining our best selling traditionally-styled items. In the 2011 first quarter, we began shipping the recently introduced Envision line to respond to the needs of a younger consumer, a market which we believe will recover more quickly than our traditional customer. With continued emphasis on cost control and product development, coupled with a continued improvement in business, we believe we can return our upholstery division to profitability in fiscal 2011.
Financial Condition, Liquidity and Capital Resources
Balance Sheet and Working Capital
As of May 2, 2010, assets totaled $151.7 million, increasing from $149.1 million at January 31, 2010, principally due to increases in inventories and cash and cash equivalents, partially offset by a decrease in trade receivables. Shareholders’ equity remained essentially unchanged at $127.6 million at both May 2, 2010 and January 31, 2010, with net income being offset by dividends. We have no long-term debt at either May 2, 2010 or January 31, 2010.
Net working capital (current assets less current liabilities) increased by $197,000 or less than 1%, to $88.1 million as of May 2, 2010, from $87.9 million at the end of fiscal 2010. This increase was the result of increases of $2.6 million in current assets and $2.4 million in current liabilities. Our working capital ratio (the relationship between our current assets and current liabilities) stood at 5.9:1 at May 2, 2010 compared to 6.6:1 at January 31, 2010.
The increase in current assets was principally due to increases of $2.4 million in inventories, $958,000 in prepaid expenses and other current assets and $752,000 in cash and cash equivalents, partially offset by a decrease of $1.5 million in net accounts receivable. We increased our inventories in anticipation of sales increases. The increase in cash reflects lower accounts receivable and higher accrued expenses, partially offset by increased inventories. The increase in prepaid expenses and other current assets is primarily due to a receivable recorded for amounts due to us from our insurance carrier for the casualty loss discussed above. Accounts receivable decreased primarily due to lower sales.
The increase in current liabilities is primarily due to the casualty loss. Trade accounts payable increased primarily due to amounts owed to vendors in connection with our fire remediation efforts.
Consolidated inventories increased 6.5%, to $38.5 million as of May 2, 2010 from $36.2 million at January 31, 2010. This increase was mainly due to higher imported wood and metal furniture inventories, resulting from increased purchases of finished goods inventory in response to anticipated higher incoming order rates. Upholstery inventories have increased approximately 10% since January 31, 2010, in response to higher incoming order rates.
Cash Flows – Operating, Investing and Financing Activities
During the three months ended May 2, 2010, cash generated from operations ($2.3 million) and insurance proceeds related to our casualty loss ($500,000) funded cash dividends ($1.1 million), an increase in cash and cash equivalents ($752,000), payments to remediate the casualty loss ($586,000) premiums paid on company-owned life insurance policies ($255,000) and capital expenditures to maintain and enhance our business operating systems and facilities ($198,000).
During the three months ended May 3, 2009, cash generated from operations ($16.7 million) and proceeds received on certain company-owned life insurance policies ($374,000) funded an increase in cash and cash equivalents ($14.4 million), cash dividends ($1.1 million), a scheduled principal payment on long-term debt ($705,000), capital expenditures to maintain and enhance our business operating systems and facilities ($602,000) and premiums paid on company-owned life insurance policies ($280,000).
We used $448,000 of cash for investing activities during the first three months of fiscal year 2011 compared to $499,000 during the three-month period ended May 3, 2009. During the first three months of fiscal year 2011, we paid premiums of $255,000 on company-owned life insurance and used $198,000 to purchase property, plant and equipment. During the first three months of fiscal year 2010, we used $602,000 to purchase property, plant and equipment and paid premiums of $280,000 on, and received proceeds of $374,000 from company-owned life insurance.
We used $1.1 million of cash for financing activities during the first three months of fiscal year 2011 compared to $1.8 million in the three-month period ended May 3, 2009. During the first three months of fiscal year 2011, we paid cash dividends of $1.1 million. During the first three months of fiscal year 2010, we paid cash dividends of $1.1 million and made scheduled principal payments of $705,000 on our term loans.
Debt Covenant Compliance
The credit agreement for our revolving credit facility, includes, among other requirements, financial covenants as to minimum tangible net worth, the ratio of funded debt to earnings before interest, taxes, depreciation and amortization, and maximum capital expenditures. We were in compliance with these covenants as of May 2, 2010.
Liquidity, Financial Resources and Capital Expenditures
As of May 2, 2010, we had an aggregate $13.1 million available under our revolving credit facility to fund working capital needs. Standby letters of credit in the aggregate amount of $1.9 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under our revolving credit facility as of May 2, 2010. There were no additional borrowings outstanding under the revolving credit line on May 2, 2010. Any principal outstanding under the credit line is due March 1, 2011.
We believe that we have the financial resources (including available cash and cash equivalents, expected cash flow from operations, and lines of credit) needed to meet business requirements for the foreseeable future, including capital expenditures and working capital. Cash flow from operations is highly dependent on incoming order rates and our operating performance. We expect to spend $4 million to $6 million in capital expenditures during the remainder of fiscal year 2011 to maintain and enhance our operating systems and facilities.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our fiscal 2010 annual report on Form 10-K.
Forward-Looking Statements
Certain statements made in this report, including under “Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are not based on historical facts, but are forward-looking statements. These statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could” or “anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Those risks and uncertainties include but are not limited to:
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§
|
current economic conditions and instability in the financial and credit markets including their potential impact on our (i) sales and operating costs and access to financing, (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their business;
|
|
§
|
general economic or business conditions, both domestically and internationally;
|
|
§
|
price competition in the furniture industry;
|
|
§
|
changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials;
|
|
§
|
the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit;
|
|
§
|
risks associated with the cost of imported goods, including fluctuations in the prices of purchased finished goods and transportation and warehousing costs;
|
|
§
|
supply, transportation and distribution disruptions, particularly those affecting imported products;
|
|
§
|
adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products;
|
|
§
|
risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices of key raw materials, transportation and warehousing costs, domestic labor costs and environmental compliance and remediation costs;
|
|
§
|
our ability to successfully implement our business plan to increase sales and improve financial performance;
|
|
§
|
achieving and managing growth and change, and the risks associated with acquisitions, restructurings, strategic alliances and international operations;
|
|
§
|
risks associated with distribution through retailers, such as non-binding dealership arrangements;
|
|
§
|
capital requirements and costs;
|
|
§
|
competition from non-traditional outlets, such as catalog and internet retailers and home improvement centers;
|
|
§
|
changes in consumer preferences, including increased demand for lower quality, lower priced furniture due to declines in consumer confidence and/or discretionary income available for furniture purchases and the availability of consumer credit; and
|
|
§
|
higher than expected costs associated with product quality and safety, including regulatory compliance costs related to the sale of consumer products and costs related to defective products.
|
Any forward looking statement that we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether as a result of new information, future events, or otherwise.
We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which could impact our results of operations or financial condition. We manage our exposure to these risks through our normal operating and financing activities. With respect to interest rates, we also may use interest rate swap agreements.
From time to time we have entered into swap agreements to hedge against the potential impact of increases in interest rates on our floating-rate debt instruments. Swap agreements that hedge exposures to changes in interest rates, expose us to credit risk and market risk. Credit risk is the potential failure of the counterparty to perform under the terms of the swap agreement. We attempt to minimize this risk by entering into transactions with high-quality counterparties. Market risk is the potential adverse effect on the value of the swap agreement that results from a decline in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken.
Amounts outstanding under our revolving line of credit bear interest at variable rates. There was no outstanding balance under our revolver as of May 2, 2010. Therefore, a fluctuation in market interest rates of one percentage point (or 100 basis points) would not have a material impact on our results of operations or financial condition. See note 11 to the condensed consolidated financial statements included in the report for more information about our interest rate swap agreements.
For imported products, we generally negotiate firm pricing denominated in U.S. Dollars with our foreign suppliers, typically for periods of at least one year. We accept the exposure to exchange rate movements beyond these negotiated periods. We do not use derivative financial instruments to manage this risk. Most of our imports are purchased from China. The Chinese currency now floats within a limited range in relation to the U.S. Dollar, resulting in additional exposure to foreign currency exchange rate fluctuations.
Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar could increase the price we pay for imported products beyond the negotiated periods. We generally expect to reflect substantially all of the effect of any price increases from suppliers in the prices we charge for imported products. However, these changes could adversely impact sales volume or profit margins during affected periods.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended May 2, 2010. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
Changes in Internal Controls
There have been no changes in our internal control over financial reporting during the fiscal quarter ended May 2, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
|
|
3.1
|
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)
|
|
|
3.2
|
Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter ended August 31, 2006)
|
|
|
4.1
|
Amended and Restated Articles of Incorporation of the Company (See Exhibit 3.1)
|
|
|
4.2
|
Amended and Restated Bylaws of the Company (See Exhibit 3.2)
|
** Management contract or compensatory plan
Pursuant to the requirements 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.
HOOKER FURNITURE CORPORATION
Date: June 9, 2010 By: /s E. Larry Ryder
E. Larry Ryder
Executive Vice President – Finance and
Administration and Chief Financial Officer