Edgar Filing: HOOKER FURNITURE CORP

hookerfurniture10k013116.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended January 31, 2016

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)	(I.R.S. Employer Identification Number)

440 East Commonwealth Boulevard, Martinsville, VA 24112

(Address of principal executive offices, Zip Code)

(276) 632-2133

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, no par value	NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated Filer o

Accelerated Filer x

Non-accelerated Filer o

(Do not check if a smaller reporting company)

Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $262.9 million.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of April 8, 2016:

Common stock, no par value	11,535,251
(Class of common stock)	(Number of shares)

Documents incorporated by reference: Portions of the registrant’s definitive Proxy Statement for its Annual Meeting of Shareholders scheduled to be held June 7, 2016 are incorporated by reference into Part III.

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Hooker Furniture Corporation

TABLE OF CONTENTS

Part I		Page

Item 1.	Business	5
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	20
Item 2.	Properties	20
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures	21
	Executive Officers of Hooker Furniture Corporation	22
Part II

Item 5.	Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	44
Item 9A.	Controls and Procedures	44
Item 9B.	Other Information	44


Part III

Item 10.	Directors, Executive Officers and Corporate Governance	45
Item 11.	Executive Compensation	45
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	45
Item 13.	Certain Relationships and Related Transactions, and Director Independence	45
Item 14.	Principal Accounting Fees and Services	45

Part IV

Item 15.	Exhibits and Financial Statement Schedules	46

Signatures		48

Index to Consolidated Financial Statements		F-1

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All references to the “Company,” “we,” “us” and “our” in this document refer to Hooker Furniture Corporation and its consolidated subsidiaries, unless specifically referring to segment information. All references to 2016, 2015, 2014, 2013 and 2012 or other years are referring to our fiscal years, unless otherwise stated. Our fiscal years end on the Sunday closest to January 31. Our quarterly periods are based on thirteen-week “reporting periods” (which end on a Sunday) rather than quarterly periods consisting of three calendar months. As a result, each quarterly period generally is thirteen weeks, or 91 days, long, except as noted above. 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 2013 fiscal year that ended on February 3, 2013 was a 53-week fiscal year.

Forward-Looking Statements

Certain statements made in this report, including under Part II, Item 7 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the notes to the consolidated financial statements included in this report, are not based on historical facts, but are forward-looking statements. These statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could” or “anticipates,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Those risks and uncertainties include but are not limited to:

general economic or business conditions, both domestically and internationally, and instability in the financial and credit markets, including their potential impact on our (i) sales and operating costs and access to financing or (ii) customers and suppliers and their ability to obtain financing or generate the cash necessary to conduct their respective businesses;

the risks related to the recent acquisition of substantially all of the assets of Home Meridian International, Inc., (“HMI”) including maintaining HMI’s existing customer relationships, deal-related costs to be recognized in fiscal 2017, integration costs, costs related to acquisition debt, including debt service costs, interest rate volatility, the use of operating cash flows to service debt to the detriment of other corporate initiatives or strategic opportunities, financial statement charges related to the application of current accounting guidance in accounting for the acquisition, the recognition of significant additional depreciation and amortization expenses by the combined entity, the loss of key employees from HMI, the ongoing costs related to the assumption of HMI’s pension liabilities, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies across the companies which could adversely affect our internal control or information systems and the costs of bringing them into compliance and failure to realize benefits anticipated from the acquisition;

the risks specifically related to HMI’s operations including significant concentrations of its sales and accounts receivable in only a few customers or disruptions affecting its Madison, NC, Mayodan, NC or Redlands, CA warehouses or its High Point, NC administrative facilities;

achieving and managing growth and change, and the risks associated with new business lines, acquisitions, restructurings, strategic alliances and international operations;

our ability to successfully implement our business plan to increase sales and improve financial performance;

the cost and difficulty of marketing and selling our products in foreign markets;

disruptions involving our vendors or the transportation and handling industries, particularly those affecting imported products from China and Vietnam, including customs issues, labor stoppages, strikes or slowdowns and the availability of shipping containers and cargo ships;

the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the internet;

disruptions affecting our Martinsville and Henry County, Virginia warehouses and corporate headquarters facilities;

when or whether our new business initiatives, including, among others, H Contract and Homeware, meet growth and profitability targets;

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;

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the cyclical nature of the furniture industry, which is particularly sensitive to changes in consumer confidence, the amount of consumers’ income available for discretionary purchases, and the availability and terms of consumer credit;

risks associated with the cost of imported goods, including fluctuation in the prices of purchased finished goods and transportation and warehousing costs;

risks associated with domestic manufacturing operations, including fluctuations in capacity utilization and the prices and availability of key raw materials, as well as changes in transportation, warehousing and domestic labor costs and environmental compliance and remediation costs;

the direct and indirect costs associated with the implementation of our Enterprise Resource Planning system, including costs resulting from unanticipated disruptions to our business;

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 distribution through third-party retailers, such as non-binding dealership arrangements;

capital requirements and costs;

competition from non-traditional outlets, such as catalog and internet retailers and home improvement centers;

changes in consumer preferences, including increased demand for lower-quality, lower-priced furniture due to, among other things, declines in consumer confidence, amounts of discretionary income available for furniture purchases and the availability of consumer credit;

higher than expected costs associated with product quality and safety, including regulatory compliance costs related to the sale of consumer products and costs related to defective or non-compliant products; and

higher than expected employee medical costs.

Any forward-looking statement that we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether as a result of new information, future events or otherwise.

We face a number of significant risks and uncertainties, as more fully discussed in Item 1A, “Risk Factors”.

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Hooker Furniture Corporation

Part I

ITEM 1. BUSINESS

Except where noted, information contained in Item 1 is as of January 31, 2016, our most recently completed fiscal year and does not include the results of or describe the operations of Home Meridian International, a business whose assets we acquired subsequent to the end of the 2016 fiscal year.

Hooker Furniture Corporation (the “Company”, “we,” “us” and “our”) is a home furnishings marketing, design and logistics company offering worldwide sourcing of residential and contract casegoods and upholstery, as well as domestically-produced custom leather and fabric-upholstered furniture. We were incorporated in Virginia in 1924 and are ranked among the nation’s top 10 largest publicly traded furniture sources, based on 2015 shipments to U.S. retailers, according to a 2015 survey published by Furniture Today, a leading trade publication. We are a key resource for residential wood and metal furniture (commonly referred to as “casegoods”) and upholstered furniture. Our major casegoods product categories include accents, home office, dining, bedroom and home entertainment furniture under the Hooker Furniture brand. Our residential upholstered seating companies include Bradington-Young, a specialist in upscale motion and stationary leather furniture and Sam Moore Furniture, focused on upscale occasional chairs, settees, sofas and sectional seating with an emphasis on cover-to-frame customization. An extensive selection of designs and formats along with finish and cover options in each of these product categories makes us a comprehensive resource for retailers primarily targeting the upper-medium price range. We also market a line of imported leather upholstery under the Hooker Upholstery trade name and work directly with several large customers to develop private-label, unbranded products exclusively for those customers. Our H Contract division supplies upholstered seating and casegoods to upscale senior living facilities throughout the country, working with designers specializing in the contract industry to provide functional furniture for senior living facilities that meets the style and comfort expectations of today’s retirees. Homeware is an online-only brand that is sold through leading international e-commerce retailers. It supplies unique chairs, sofas and ottomans designed to be assembled in minutes by the consumer with no tools or hardware required.

For our core product line, our principal customers are both traditional and online retailers of residential home furnishings that are broadly dispersed throughout the United States and in thirty-six other countries around the globe. Our customers include independent furniture stores, specialty retailers, department stores, catalog and internet merchants, interior designers and national and regional chains. They are serviced by over 60 independent North American sales representatives and 8 foreign sales representatives. H Contract’s customers include designers, design firms, industry dealers and distributors and senior living facilities throughout the United States. It has its own sales force of independent multi-line sales representatives. Homeware’s customers are primarily online Home furnishings retailers including Wayfair, Hayneedle and One Kings Lane.

We sold to approximately 3,600 customers during fiscal 2016. No single customer accounted for more than 3.5% of our sales in 2016. No significant part of our business is dependent upon a single customer, the loss of which would have a material effect on our business. However, the loss of several of our major customers could have a material impact on our business. In addition to our broad domestic customer base, 5.4% of our sales in fiscal 2016 were to international customers, which we define as sales outside of the United States. We believe our broad network of retailers and independent sales representatives reduces our exposure to regional recessions and allows us to capitalize on emerging trends in distribution channels.

The Home Meridian Acquisition

On January 5, 2016, we entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Home Meridian International, Inc. (“HMI”) to acquire substantially all of HMI’s assets (the “Acquisition”). On February 1, 2016, we closed on the transaction by paying $85 million in cash and issuing 716,910 shares of our common stock (the “Stock Consideration”) to designees of HMI as consideration for the Acquisition. The Stock Consideration consisted of (i) 530,598 shares accounting for the $15 million of consideration payable in shares of our common stock under the Asset Purchase Agreement, and (ii) 186,312 shares issued pursuant to working capital adjustments detailed in the Asset Purchase Agreement. The working capital adjustment was driven by an increase in HMI’s accounts receivable due to strong sales towards the end of calendar 2015. The number of shares of common stock issued at closing for the Stock Consideration was determined by reference to the mean closing price of our common stock for the fifteen trading days immediately preceding the closing date ($28.27). Under the Asset Purchase Agreement, we also assumed certain liabilities of HMI, including approximately $7.8 million of liabilities related to certain retirement plans. The assumed liabilities did not include the indebtedness (as defined in the Asset Purchase Agreement) of HMI. We believe this acquisition will more than double the size of the Company on a net sales basis and consequently, make us one of the top five sources for the U.S. furniture market. See Item 7 and note 18 to our consolidated financial statements for additional information.

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The Home Meridian division includes five business units: Pulaski Furniture, Samuel Lawrence Furniture, Samuel Lawrence Hospitality, Prime Resources International and Right 2 Home. HMI has a unique business model which allows the company to create global sourcing solutions for major customers and multiple channels of distribution. This business model, global sourcing and broad experience have allowed HMI to adapt and gain significant market share within the industry. HMI has consistently been recognized as an industry and regional leader in sales gain and growth. Its divisional headquarters is located in High Point, N.C., with distribution centers on both coasts and Asian operations in China, Vietnam and Malaysia.

For more information regarding HMI and the significant differences between the Hooker and Home Meridian businesses, please see “The Home Meridian Business” below on page 12.

Strategy and Mission

Our mission is to “enrich the lives of the people we touch,” using the following strategy:

§	To offer world-class style, quality and product value as a complete residential and contract wood, metal and upholstered furniture resource through excellence in product design, manufacturing, global sourcing, marketing, logistics, sales and customer service.

§	To be an industry leader in sales growth and profitability performance, providing an outstanding investment for our shareholders and contributing to the well-being of our customers, employees, suppliers and community.

§	To nurture the relationships, teamwork and integrity that define our corporate culture and have distinguished our company for over 90 years.

Segments

For financial reporting purposes, we are organized into three operating segments – casegoods furniture, upholstered furniture and all other. As of the end of fiscal 2016, our operating segments and their associated brands are as follows:

Hooker Furniture Corporation
Operating Segments

Casegoods	Upholstery	All other
Brands:	Brands:	Brands:
Hooker Furniture	Bradington-Young	H Contract
	Hooker Upholstery	Homeware
	Sam Moore

Home furnishings sales account for all of our net sales. The percentages of net sales provided by each of our segments for the fifty-two week fiscal years that ended January 31, 2016 (fiscal 2016), February 1, 2015 (fiscal 2015), and February 2, 2014 (fiscal 2014):

Segment Sales as a Percentage of Consolidated Net Sales

	Fiscal Year
	2016			2015			2014

Casegoods segment		63	%		63	%		63	%
Upholstery segment		34	%		35	%		36	%
All other segment		3	%		2	%		1	%

Total		100	%		100	%		100	%

See note 14 to our consolidated financial statements for additional financial information regarding our segments.

Sourcing

Imported Products

We have sourced products from foreign manufacturers since 1988. Imported casegoods and upholstered furniture together accounted for approximately 70% of net sales in fiscal 2016, 71% of net sales in fiscal 2015, and 72% of net sales in fiscal 2014. We import finished furniture in a variety of styles, materials and product lines. We believe the best way to leverage our financial strength and differentiate our import business from the industry is through innovative and collaborative design, extensive product lines, compelling products, value, consistent quality, excellent customer service, easy ordering and quick delivery through significant finished goods inventories, world-class global logistics and robust distribution systems.

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We import products predominantly from Asia. Because of the large number and diverse nature of the foreign factories from which we source our imported products, we have significant flexibility in the sourcing of products among any particular factory or country. In fiscal 2016, imported products sourced from China and Vietnam accounted for approximately 68% and 26%, respectively, of import purchases. The factory in China from which we directly source the most product, accounted for approximately 58% of our worldwide purchases of imported product. A disruption in our supply chain from this factory, or from China or Vietnam in general, could significantly compromise our ability to fill customer orders for products manufactured at that factory or in that country. If such a disruption were to occur, we believe that we would have sufficient inventory currently on hand and in transit to our U.S. warehouses in Martinsville, Virginia to adequately meet demand for approximately 4.5 months, with up to an additional 1.25 months available for immediate shipment from our primary Asian warehouse. Also, with the broad spectrum of product we offer, we believe that, in some cases, buyers could be offered similar products available from alternative sources. We believe we could, most likely at higher cost, source most of the products currently sourced in China or Vietnam from factories in other countries and could produce certain upholstered products domestically at our own factories. However, supply disruptions and delays on selected items could occur for up to 6 months. If we were to be unsuccessful in obtaining those products from other sources or at a comparable cost, then a disruption in our supply chain from our largest import furniture supplier, or from China or Vietnam in general, could decrease our sales, earnings and liquidity. Given the capacity available in China, Vietnam and other low-cost producing countries, we believe the risks from these potential supply disruptions are manageable.

Our imported furniture business is subject to inherent risks in importing products manufactured abroad, including, but not limited to, supply disruptions and delays, currency exchange rate fluctuations, transportation-related issues, economic and political developments and instability, as well as the laws, policies and actions of foreign governments and the United States. These acts may include regulations affecting trade or the application of tariffs.

Manufacturing and Raw Materials

At January 31, 2016, we operated approximately 507,400 square feet of manufacturing and supply plant capacity in North Carolina and Virginia for our domestic upholstered furniture production. We consider the machinery and equipment at these locations to be generally modern and well-maintained.

We believe there are continued strong market opportunities for domestically produced upholstery, particularly in the upper and upper-medium price points, which provide two key competitive advantages compared to imported upholstery:

the ability to offer customized upholstery combinations to the upscale consumer and interior design trade; and

the ability to offer quick four-to six-week product delivery of custom products.

Significant materials used in manufacturing upholstered furniture products include leather, fabric, foam, wooden frames and metal mechanisms. Most of the leather is imported from Italy, South America and China, and is purchased as full hides and cut and sewn in our facilities, or is purchased as pre-cut and sewn kits processed by our vendors to our pattern specifications.

We believe that our sources for raw materials are adequate and that we are not dependent on any one supplier. Hooker’s five largest suppliers accounted for approximately 37% of our raw materials supply purchases for domestic upholstered furniture manufacturing operations in fiscal 2016. One supplier accounted for approximately 18% of our raw material purchases in fiscal 2016. Should disruptions with this supplier occur, we believe we could successfully source these products from other suppliers without significant disruption to our operations.

Products

Our product lines cover most major style categories, including European and American traditional, contemporary, transitional, urban, country, casual, and cottage designs. We offer furniture in a variety of materials, such as various types of wood, metal, leather and fabric, as well as veneer and other natural woven products, often accented with marble, stone, slate, glass, ceramic, brass and/or hand-painted finishes.

Major casegoods product categories include accents, home office, dining, bedroom and home entertainment furniture which are marketed under the Hooker Furniture brand name, as well as “private label” products marketed under a retailer’s brand name. Our casegoods are typically designed for and marketed in the upper-medium to lower high-end price range.

Bradington-Young markets its products under the Bradington-Young brand name, offers a broad variety of residential leather and fabric upholstered furniture and specializes in leather reclining and motion chairs, sofas, club chairs and executive desk chairs. It offers numerous leather and fabric selections for domestically produced upholstered furniture, generally targeted at the upper price range.

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Hooker Upholstery is an imported line of leather upholstery and is targeted at the upper-medium price points. It offers numerous leather and fabric selections and offers a broad variety of married cover options on stationary sofa groups, recliners, office chairs, club chairs, motion groups, and decorative ottomans.

Sam Moore Furniture’s products, which are primarily domestically produced, are marketed under the Sam Moore brand name or private label and offer upscale occasional chairs, sofas and other seating with an emphasis on fabric-to-frame customization. Sam Moore offers many different styles of upholstered products in numerous fabric and leather selections, including customer supplied upholstery coverings. Sam Moore’s products are targeted at the upper-medium and upper price ranges.

H Contract’s and Homeware’s products are sourced from Hooker, Sam Moore or domestic or international OEM manufacturers.

Marketing

The product life cycle for home furnishings has shortened in recent years as consumers have demanded innovative new features, functionality, style, finishes and fabrics. New styles in each of our product categories are designed and developed semi-annually to replace discontinued products and collections, and in some cases, to enter new product or style categories. Our collaborative product design process begins with the marketing team identifying customer needs and trends and then conceptualizing product ideas and features. A variety of sketches are produced, usually by independent designers, from which prototype furniture pieces are built. We invite some of our independent sales representatives and a representative group of retailers to view and critique these prototypes. Based on this input, we may modify the designs and then prepare samples for full-scale production. We generally introduce new product styles at the International Home Furnishings Market held each Fall and Spring in High Point, N.C., and support new product launches with promotions, public relations, product brochures, point-of-purchase consumer catalogs and materials and online marketing through our websites, as well as through popular social media venues. We schedule purchases of imported furniture and the production of domestically manufactured upholstered furniture based upon actual and anticipated orders and product acceptance at the Spring and Fall markets. The flexibility of both our global-sourcing business model and the quick delivery times provided by our domestic upholstery manufacturing presence gives us the ability to offer a range of styles, items and price points to a variety of retailers serving a range of consumer markets. Based on sales and market acceptance, we believe our products represent good value, and that the style and quality of our furniture compares favorably with more premium-priced products. Our all-digital marketing strategy is centered on directly engaging the consumer, to connect them with Hooker Furniture brands and direct them to our retail partners.

Warehousing and Distribution

We sell our products through a large number of distribution channels which include independent furniture retailers, department stores, national membership clubs, regional chain stores, catalog merchandisers, specialty retailers, designers and E-retailers, design firms and senior living facilities.

We distribute furniture to retailers from our distribution centers and warehouses in Virginia and North Carolina and directly from Asia via our container direct programs. We have a warehousing and distribution arrangement in China with our largest supplier of imported products and a consolidation warehouse in Vietnam, which allows customers to mix containers from several Vietnamese factories. In addition, we also ship containers directly from a variety of other suppliers in Asia.

We strive to provide imported and domestically produced furniture on-demand for our dealers. During fiscal year 2016, we shipped 80% of all casegoods orders and approximately 61% of all upholstery orders within 30 days of order receipt. It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment; therefore, customer orders for casegoods are not firm. However, domestically produced upholstered products are predominantly custom-built and shipped within six to eight weeks after an order is received and consequently, cannot be cancelled once the leather or fabric has been cut.

For imported products, we generally negotiate firm pricing with foreign suppliers in U.S. Dollars, typically for a term of at least one year. We accept the exposure to exchange rate movements beyond these negotiated periods. We do not use derivative financial instruments to manage this risk but could choose to do so in the future. Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar could increase the price we pay for imported products beyond the negotiated periods. We generally expect to reflect substantially all of the effects of any price increases from suppliers in the prices we charge for imported products. However, these price changes could adversely impact sales volume and profit margin during affected periods. Conversely, a relative increase in the value of the U.S. Dollar could decrease the cost of imported products and favorably impact net sales and profit margins during affected periods. See also “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

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Working Capital Practices

The following describes our working capital practices:

Inventory: We generally import casegoods inventory and certain upholstery items in amounts that enable us to meet the delivery requirements of our customers, our internal in-stock goals and minimum purchase requirements from our sourcing partners. We do not carry significant amounts of domestically produced upholstery inventory, as most of these products are built to order and are shipped shortly after their manufacture.

Accounts receivable: Substantially all of our trade accounts receivable are due from retailers and dealers that sell residential home furnishings, which consist of a large number of entities with a broad geographic dispersion. We perform credit evaluations of our customers and generally do not require collateral. For qualified customers, we offer payment terms, generally requiring payment 30 days from shipment. However, we may offer extended payment terms in certain circumstances, including to promote sales of our products. Sam Moore factored substantially all of its accounts receivable prior to implementing our ERP in May 2015 and Bradington-Young currently factors substantially all of its receivables, in most cases on a non-recourse basis; however, in order to realize operational efficiencies, cost savings, leverage best practices and present a single face to our customers, we plan to end our factoring relationship as our new Enterprise Resource Planning system (“ERP”) becomes fully operational for Bradington-Young in the first half of fiscal 2017. However, given our current and projected liquidity, we do not expect the transition to have a material adverse effect on our future liquidity.

Accounts payable: Payment for our imported products warehoused first in Asia is due fourteen days after our quality audit inspections are complete and the vendor invoice is presented. Payment for goods which are shipped to Hooker FOB Origin is due upon proof of lading onto a US-bound vessel and invoice presentation. Payment terms for domestic raw materials and non-inventory related charges vary, but are generally 30 days from invoice date.

Order Backlog

At January 31, 2016, our backlog of unshipped orders for our casegoods, upholstery and all other segments were as follows:

	Order Backlog
	(Dollars in 000s)

	January 31, 2016				February 1, 2015
	Dollars		Weeks		Dollars		Weeks

Casegoods segment	$	12,310		4.1	$	14,793		5.1
Upholstery segment		9,163		5.7		8,802		5.3
All other segment		950		6.1		542		7.3

Consolidated	$	22,423		4.7	$	24,137		5.2

We consider unshipped order backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies (discussed under Warehousing and Distribution, above), we do not consider order backlogs to be a reliable indicator of expected long-term business.

Seasonality

In general, the summer months are the slowest for our business, especially for leather upholstery sales in our upholstery segment. We believe that consumer home furnishings purchases are driven by an array of factors, including general economic conditions such as:

consumer confidence;

availability of consumer credit;

energy and other commodity prices; and

housing and mortgage markets;

as well as lifestyle-driven factors such as changes in:

fashion trends;

disposable income; and

household formation and turnover.

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Competition

The furniture industry is highly competitive and includes a large number of foreign and domestic manufacturers and importers, none of which dominates the market in our price points. While the markets in which we compete include a large number of relatively small and medium-sized manufacturers, certain competitors have substantially greater sales volumes and financial resources than we do. U.S. imports of furniture produced overseas, such as from China and other Asian countries, have stabilized in recent years.

The primary competitive factors for home furnishings in our price points include price, style, availability, service, quality and durability. We believe our design capabilities, ability to import and/or manufacture upholstered furniture, product value, longstanding customer and supplier relationships, significant sales, distribution and inventory capabilities, ease of ordering, financial strength, experienced management and customer support are significant competitive advantages.

Environmental Matters

As a part of our business operations, our manufacturing sites generate both non-hazardous and hazardous wastes; the treatment, storage, transportation and disposal of which are subject to various local, state and national laws relating to environmental protection. We are in various stages of investigation, remediation or monitoring of alleged or acknowledged contamination at current or former manufacturing sites for soil and groundwater contamination, none of which we believe is material to our results of operations or financial position. Our policy is to record monitoring commitments and environmental liabilities when expenses are probable and can be reasonably estimated. The costs associated with our environmental responsibilities, compliance with federal, state and local laws regulating the discharge of materials into the environment, or costs otherwise relating to the protection of the environment, have not had and are not expected to have a material effect on our financial position, results of operations, capital expenditures or competitive position.

Hooker Furniture is committed to protecting the environment. We participate in a voluntary, industry-wide environmental stewardship program referred to as Enhancing Furniture’s Environmental Culture or “EFEC.” In September of fiscal 2010, the American Home Furnishings Alliance granted us initial EFEC registration, recognizing the successful company-wide implementation of the EFEC program, which includes the successful reduction of water and electricity usage, recycling efforts to reduce landfill use and the implementation of a community outreach program. Since our initial registration we have:

recycled over 850,000 pounds of paper, cardboard and plastic;

reduced electricity usage by an average of 5% per year; and

reduced natural gas usage by an average of 4% per year.

We are inspected annually by the EFEC organization in order to maintain our registration under this program and are currently certified through January 2017.

Employees

As of January 31, 2016, we had 645 full-time employees of which 222 were employed in the casegoods segment, 414 in the upholstery segment and 9 in the All Other segment. None of our employees are represented by a labor union. We consider our relations with our employees to be good.

Patents and Trademarks

The Hooker Furniture, Bradington-Young and Sam Moore trade names represent many years of continued business. We believe these trade names are well-recognized and associated with quality and service in the furniture industry. We also own a number of patents and trademarks, both domestically and internationally, none of which is considered to be material.

Hooker, the “H” logo, Bradington-Young, the “B-Y” logo, Sam Moore, H Contract, Homeware, Sam Moore Furniture Industries, Sam Moore Furniture, LLC, America’s Premier Chair Specialist, America’s Chairmaker for over 70 Years, Rhapsody, Sanctuary, Mélange, Corsica, Solana, Palisade, Beladora, Classique, Abbott Place, Grandover, North Hampton, Small Office Solutions, Preston Ridge, Waverly Place, Sectional Seating by Design, Accommodations, SmartLiving ShowPlace, SmartWorks Home Office, SmartWorks Home Center and The Great Entertainers are trade names or trademarks of Hooker Furniture Corporation.

Governmental Regulations

Our company is subject to U.S. federal, state, and local laws and regulations in the areas of safety, health, employment and environmental pollution controls, as well as U.S. and international trade laws and regulations. We are also subject to foreign laws and regulations. Compliance with these laws and regulations has not in the past had any material effect on our earnings, capital expenditures, or competitive position in excess of those affecting others in our industry; however, the effect of compliance in the future cannot be predicted. We believe we are in material compliance with applicable U.S. and international laws and regulations.

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The Home Meridian Business

Some significant differences between the Hooker and Home Meridian businesses include:

Sales. 100% of HMI’s sales are sourced from Asia, while only about 70% of Hooker’s are, with the balance being domestically-produced upholstery products. However, both businesses’ sales are weighted towards casegoods products. Approximately 70% of HMI’s sales are container direct sales, while less than 10% of Hooker’s sales fall in this category. HMI’s sales tend to be lower margin, higher volume sales, while Hooker’s tend to be the opposite. In terms of seasonality, Hooker’s sales tend to be the slowest in the summer months, while HMI’s sales are slowest early in the calendar year.

Customers. A significant part of HMI’s business is dependent upon mega accounts and key customers. Though the loss of any one of HMI’s largest customers would have an impact on the business, only two of the largest customers individually account for more than 10% of total sales. While Hooker and HMI share some larger customers, most of Hooker’s sales are derived from independent furniture stores and small chains. Average order size for Hooker product is much smaller, due to warehouse oriented business, which services smaller stores and in many cases, individual consumer orders. Many HMI orders are shipped to customer distribution centers for distribution to the customers’ stores. Both companies have a significant and growing ecommerce operation; however HMI’s is larger and more advanced on an operational basis.

Asian operations. Both companies have Asian operations. Hooker has representative offices in China and Vietnam and its Asian associates are responsible primarily for vendor relations, production oversight and quality control. HMI has locations in China, Vietnam and Malaysia. HMI’s Asian operations include order entry, computer programming, accounting, production planning and product development as well as the sourcing related functions performed by Hooker personnel in Asia.

Sourcing. Hooker sources from eighteen vendors with factories located in five countries. Home Meridian primarily sources from approximately sixty different vendors located in three countries. The factory in China from which Hooker sources most of its imported product, accounted for approximately 60% of our worldwide purchases of imported product in fiscal 2016.

Products. Hooker’s product design process usually starts with its design team identifying perceived customer needs based on current home furnishings trends and developing products to fill those perceived needs. While HMI’s process is similar, it provides more customized and proprietary products to customers based on a design process that tends to be more collaborative with its customers. Hooker’s products are sold at upper-medium price to lower high-end price points while HMI’s focus more on the lower-medium to medium price points. Hooker has casegoods and upholstery design teams, while HMI has a sales and design team for each brand. Hooker has around 3,000 SKUs and HMI about 4,500.

Employees. The approximate number of employees of both organizations as of January 31, 2016 are shown below. Approximately two-thirds of Hooker’s US associates are in employed in its domestic upholstery operations.

	Number of Employees at January 31, 2016
	Hooker		HMI		Total

US		200		123		323
Asia		31		160		191

Subtotal		231		283		514

US Upholstery Manufacturing		414		-		414
Totals		645		283		928

Additional Information

You may visit us online at hookerfurniture.com, bradington-young.com, sammoore.com, homeware.com and hcontractfurniture.com. We make available, free of charge through our Hooker Furniture website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to those reports, and other documents as soon as practical after they are filed with or furnished to the Securities and Exchange Commission. A free copy of our annual report on Form 10-K may also be obtained by contacting Robert W. Sherwood, Vice President - Credit, Secretary and Treasurer at BSherwood@hookerfurniture.com or by calling 276-632-2133.

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ITEM 1A. RISK FACTORS

Our business is subject to a variety of risks. The risk factors discussed below should be considered in conjunction with the other information contained in this annual report on Form 10-K. If any of these risks actually materialize, our business, results of operations, financial condition or future prospects could be negatively impacted. These risks are not the only ones we face. There may be additional risks that are presently unknown to us or that we currently believe to be immaterial that could affect our business.

General Risks of the Company

We rely on offshore sourcing, particularly from China, for predominantly all of our casegoods furniture products and for a significant portion of our upholstered products. Consequently:

A disruption in supply from China or from our most significant Chinese supplier could adversely affect our ability to timely fill customer orders for these products and decrease our sales, earnings and liquidity.

In fiscal 2016, imported products sourced from China and Vietnam accounted for approximately 68% and 26%, respectively, of our import purchases and the factory in China from which we directly source the largest portion of our import products accounted for approximately 58% of our worldwide purchases of imported products. Furniture manufacturing creates large amounts of highly flammable wood dust and utilizes other highly flammable materials such as varnishes and solvents in its manufacturing processes and is therefore subject to the risk of losses arising from explosions and fires. A disruption in our supply chain from this factory, or from China or Vietnam in general, could significantly impact our ability to fill customer orders for products manufactured at that factory or in that country. If such a disruption were to occur, we believe that we would have sufficient inventory on hand and in transit to our U.S. warehouses in Martinsville, VA to adequately meet demand for approximately 4.5 months with up to an additional 1.25 months available for immediate shipment from our warehouses in Asia. We believe that we could, most likely at higher cost, source most of the products currently sourced in China from factories in other countries and could produce certain upholstered products domestically at our own factories. However, supply disruptions and delays on selected items could occur for up to 6 months before the impact of remedial measures would be reflected in our results. If we were to be unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture supplier, or from China or Vietnam in general, could adversely affect our sales, earnings, financial condition and liquidity.

We are subject to changes in foreign government regulations and in the political, social and economic climates of the countries from which we source our products.

Changes in political, economic, and social conditions, as well as in the laws and regulations in the foreign countries from which we source our products could adversely affect our sales, earnings, financial condition and liquidity. These changes could make it more difficult to provide products and service to our customers or could increase the cost of those products. International trade regulations and policies of the United States and the countries from which we source finished products could adversely affect us. Imposition of trade sanctions relating to imports, taxes, import duties and other charges on imports affecting our products could increase our costs and decrease our earnings. For example since 2004, the U.S. Department of Commerce has imposed tariffs on wooden bedroom furniture coming into the United States from China. In this case, none of the rates imposed have been of sufficient magnitude to alter our import strategy in any meaningful way; however, these and other tariffs are subject to review and could be implemented or increased in the future.

Our dependence on non-U.S. suppliers could, over time, adversely affect our ability to service customers.

We rely exclusively on non-U.S. suppliers for our casegoods furniture products and for a significant portion of our upholstered products. Our non-U.S. suppliers may not provide goods that meet our quality, design or other specifications in a timely manner and at a competitive price. If our suppliers do not meet our specifications, we may need to find alternative vendors, potentially at a higher cost, or may be forced to discontinue products. Also, delivery of goods from non-U.S. vendors may be delayed for reasons not typically encountered for domestically manufactured furniture, such as shipment delays caused by customs issues, labor issues, port-related issues such as weather, congestion or port equipment, decreased availability of shipping containers and/or the inability to secure space aboard shipping vessels to transport our products. Our failure to timely fill customer orders due to an extended business interruption for a major non-U.S. supplier, or due to transportation issues, could negatively impact existing customer relationships and adversely affect our sales, earnings, financial condition and liquidity.

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Our inability to accurately forecast demand for our imported products could cause us to purchase too much, too little or the wrong mix of inventory.

Manufacturing and delivery lead times for our imported products necessitate that we make forecasts and assumptions regarding current and future demand for these products. If our forecasts and assumptions are inaccurate, we may purchase excess or insufficient amounts of inventory. If we purchase too much or the wrong mix of inventory, we may be forced to sell it at lower margins, which could adversely affect our sales, earnings, financial condition and liquidity. If we purchase too little or the wrong mix of inventory, we may not be able to fill customer orders and may lose market share and weaken or damage customer relationships, which also could adversely affect our sales, earnings, financial condition and liquidity.

Changes in the value of the U.S. Dollar compared to the currencies for the countries from which we obtain our products could adversely affect our sales, earnings and liquidity.

For imported products, we generally negotiate firm pricing with our foreign suppliers in U.S. Dollars, typically for periods of at least one year. We accept the exposure to exchange rate movements beyond these negotiated periods. We do not use derivative financial instruments to manage this risk, but could choose to do so in the future. Since we transact our imported product purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar could increase the price we must pay for imported products beyond the negotiated periods. These price changes could decrease our sales, earnings and liquidity during affected periods.

Supplier transitions, including cost or quality issues, could result in longer lead times and shipping delays.

In the past, inflation concerns, and to a lesser extent quality and supplier viability concerns, affecting some of our imported product suppliers located in China prompted us to source more of our products from lower cost suppliers located in other countries, such as Vietnam and Indonesia. As conditions dictate, we could be forced to make similar transitions in the future. When undertaken, transitions of this type involve significant planning and coordination by and between us and our new suppliers in these countries. Despite our best efforts and those of our new sourcing partners, these transition efforts are likely to result in longer lead times and shipping delays over the short term, which could adversely affect our sales, earnings, financial condition and liquidity.

The interruption, inadequacy, security failure or integration failure of our information systems or information technology infrastructure or the internet could adversely impact our business, sales, earnings, financial condition and liquidity.

Our information systems (software) and information technology (hardware) infrastructure platforms and those of third parties who provide these services to us, including internet service providers and third-parties who store data for us on their servers, facilitate and support every facet of our business, including the sourcing of raw materials and finished goods, planning, manufacturing, warehousing, customer service, shipping, accounting and human resources. Our systems, and those of third parties who provide services to us, are vulnerable to disruption or damage caused by a variety of factors including, but not limited to: power disruptions or outages; natural disasters or other so-called “Acts of God”; computer system or network failures; viruses or malware; physical or electronic break-ins; the theft of computers, tablets and smart phones utilized by our employees or contractors; unauthorized access and cyber-attacks. If these information systems or technologies are interrupted or fail, our operations may be adversely affected, which could adversely affect our sales, earnings, financial condition and liquidity.

Unauthorized disclosure of confidential information provided to us by our customers, employees, or third parties could harm our business.

We rely on the internet and other electronic methods to transmit confidential information and we store confidential information on our networks. If there was a disclosure of confidential information by our employees or contractors, including accidental loss, inadvertent disclosure or unapproved dissemination of information, or if a third party were to gain access to the confidential information we possess, our reputation could be harmed and we could be subject to civil or criminal liability and regulatory actions. A claim that is brought against us, successful or unsuccessful, that is uninsured or under-insured could harm our business, result in substantial costs, divert management attention and adversely affect our sales, earnings, financial condition and liquidity.

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We may engage in acquisitions and investments in companies, form strategic alliances and pursue new business lines. These activities could disrupt our business, dilute our earnings per share, decrease the value of our common stock and decrease our earnings and liquidity.

We may acquire or invest in businesses that offer complementary products and that we believe offer competitive advantages. However, we may fail to identify significant liabilities or risks that could negatively affect us or result in our paying more for the acquired company or assets than they are worth. We may also have difficulty assimilating the operations and personnel of an acquired business into our current operations. Acquisitions may disrupt or distract management from our ongoing business. We may pay for future acquisitions using cash, stock, the assumption of debt, or a combination of these. Future acquisitions could result in dilution to existing shareholders and to earnings per share and decrease the value of our common stock. We may pursue new business lines in which we have limited or no prior experience or expertise. These pursuits may require substantial investment of capital and personnel. New business initiatives may fail outright or fail to produce an adequate return, which could adversely affect our earnings, financial condition and liquidity.

The implementation of our Enterprise Resource Planning system could disrupt our business.

We are in the final phase of implementing an Enterprise Resource Planning (ERP) system in our legacy Hooker Furniture business. (HMI operates on a separate ERP platform.) Our ERP system implementation may not result in improvements that outweigh its costs and may disrupt our operations. Our inability to mitigate existing and future disruptions could adversely affect our sales, earnings, financial condition and liquidity. The ERP system implementation subjects us to substantial costs and inherent risks associated with migrating from our legacy systems. These costs and risks could include, but are not limited to:

§	significant capital and operating expenditures;

§	disruptions to our domestic and international supply chains;

§	inability to fill customer orders accurately and on a timely basis, or at all;

§	inability to process payments to suppliers, vendors and associates accurately and in a timely manner;

§	disruption of our internal control structure;

§	inability to fulfill our SEC or other governmental reporting requirements in a timely or accurate manner;

§	inability to fulfill federal, state and local tax filing requirements in a timely or accurate manner; and

§	increased demands on management and staff time to the detriment of other corporate initiatives.

We may not be able to collect amounts owed to us.

We grant payment terms to most customers ranging from 30 to 60 days and do not generally require collateral. However, in some instances we provide longer payment terms. Some of our customers have experienced, and may in the future experience, credit-related issues. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable. Credit evaluations involve significant management diligence and judgment. Should more customers than we anticipate experience liquidity issues, or if payment is not received on a timely basis, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales, earnings, financial condition and liquidity.

Our new business initiatives could fail to meet growth and profitability targets.

During fiscal 2014, we launched H Contract and Homeware, two new business initiatives which comprise our All Other operating segment. Both businesses require experience and expertise outside of our traditional skillset, so we hired professionals who we believe have the skills and experience to lead them. H Contract has been profitable on an operating profit basis for the last two fiscal years and its net sales have increased; however, there is no guarantee that H Contract’s early successes will continue and that its sales and earnings will continue to grow. Homeware has not yet achieved operating profitability. Consequently, we adjusted Homeware’s strategy during the second half of fiscal 2016. Despite these changes, we may not succeed in growing Homeware into a profitable business and it may fail outright or fail to produce an adequate return. We expect this segment to have a negative impact on our short-term earnings and liquidity as we attempt to grow these businesses. If Homeware fails to become profitable or H Contract’s early successes diminish or stall, our sales, earnings, financial condition and liquidity could be adversely affected.

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A disruption affecting our Martinsville and Henry County Virginia warehouses, distribution or administrative facilities could disrupt our business.

Our Martinsville and Henry County Virginia facilities are critical to our success. Our Martinsville, Virginia warehouses housed approximately 50% of our consolidated inventories at January 31, 2016. During fiscal 2016, approximately 60% of our invoiced sales were shipped out of our Martinsville facilities. Additionally, our corporate headquarters, which houses all of our corporate administration, sourcing, sales, finance, merchandising, customer service and traffic functions for our imported products is located in this area. Any disruption affecting our Martinsville area facilities, for even a relatively short period of time, could adversely affect our ability to ship our imported furniture products and disrupt our business, which could adversely affect our sales, earnings, financial condition and liquidity.

Our ability to grow and maintain sales and earnings depends on the successful execution of our business strategies.

We are primarily a residential furniture design, sourcing, marketing and logistics company with domestic upholstery manufacturing capabilities. We are completely dependent on non-U.S. suppliers for all of our casegoods furniture products and a significant portion of our upholstered products. Our ability to grow and maintain sales and earnings depends on:

the continued correct selection and successful execution and refinement of our overall business strategies and business systems for designing, marketing, sourcing, distributing and servicing our products;

good decisions about product mix and inventory availability targets;

the enhancement of relationships and business systems that allow us to continue to work more efficiently and effectively with our global sourcing suppliers; and

the right mix between domestic manufacturing and foreign sourcing for upholstered products.

Our traditional customer base, independent furniture stores and regional chains, is getting smaller and the demographic profile of the typical home furnishings consumer is evolving. Therefore, we must:

identify and adapt to trends in retailing; and

develop strategies to sell in the channels in which our consumers prefer to shop.

All of these factors affect our ability to grow and maintain sales, earnings and liquidity.

Failure to anticipate or timely respond to changes in fashion and consumer tastes could adversely impact our business.

Furniture is a styled product and is subject to rapidly changing fashion trends and consumer tastes, as well as to increasingly shorter product life cycles. If we fail to anticipate or promptly respond to these changes we may lose market share or be faced with the decision of whether to sell excess inventory at reduced prices. This could adversely affect our sales, earnings, financial condition and liquidity.

Fluctuations in the price, availability or quality of raw materials for our domestically manufactured upholstered furniture could cause manufacturing delays, adversely affect our ability to provide goods to our customers or increase our costs.

We use various types of wood, leather, fabric, foam and other filling material, high carbon spring steel, bar and wire stock and other raw materials in manufacturing upholstered furniture. We depend on outside suppliers for raw materials and must obtain sufficient quantities of quality raw materials from these suppliers at acceptable prices and in a timely manner. We do not have long-term supply contracts with our suppliers. Unfavorable fluctuations in the price, quality or availability of required raw materials could negatively affect our ability to meet the demands of our customers. We may not always be able to pass price increases in raw materials through to our customers due to competition and other market pressures. The inability to meet customers’ demands or recover higher costs could adversely affect our sales, earnings, financial condition and liquidity.

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If demand for our domestically manufactured upholstered furniture declines we may respond by realigning manufacturing.

Our domestic manufacturing operations make only upholstered furniture. A decline in demand for our domestically produced upholstered furniture could result in the realignment of our domestic manufacturing operations and capabilities and the implementation of cost-saving measures. These programs could include the consolidation and integration of facilities, functions, systems and procedures. We may decide to source certain products from other suppliers instead of continuing to manufacture them. These realignments and cost-saving measures typically involve initial upfront costs and could result in decreases in our near-term earnings before the expected cost savings are realized, if they are realized at all. We may not always accomplish these actions as quickly as anticipated and may not achieve the expected cost savings, which could adversely affect our sales, earnings, financial condition and liquidity.

We may experience impairment of our long-lived assets, which would decrease our earnings and net worth.

Accounting rules require that long-lived assets be tested for impairment when circumstances indicate, but at least annually. At January 31, 2016 we had $24.2 million in net long-lived assets, consisting primarily of property, plant and equipment, trademarks and trade names. The outcome of impairment testing could result in the write-off of all or a portion of the value of these assets. A write-down of our assets would, in turn, reduce our earnings and net worth; factors which may lead to additional write-downs of our long-lived assets include, but are not limited to:

A significant decrease in the market value of a long-lived asset;

A significant adverse change in the extent or manner in which a long-lived asset group is being used, or in its physical condition;

A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator;

An accumulation of costs significantly in excess of the amount originally expected to acquire or construct a long-lived asset;

A current period operating or cash flow loss or a projection or forecast that demonstrates continuing losses associated with a long-lived asset’s use; and

A current expectation that more-likely-than-not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

We may not be able to maintain or raise prices in response to inflation and increasing costs.

Competitive and market forces could prohibit future successful price increases for our products in order to offset increased costs of finished goods, raw materials, freight and other product-related costs, which could decrease our sales, earnings and liquidity.

Economic downturns could result in decreased sales, earnings and liquidity.

The furniture industry is particularly sensitive to cyclical variations in the general economy and to uncertainty regarding future economic prospects. Home furnishings are generally considered a postponable purchase by most consumers. Economic downturns could affect consumer spending habits by decreasing the overall demand for home furnishings. Changes in interest rates, consumer confidence, new housing starts, existing home sales, the availability of consumer credit and broader national or geopolitical factors have particularly significant effects on our business. A recovery in our sales could lag significantly behind a general recovery in the economy after an economic downturn, due to, among other things, the postponable nature and relatively significant cost of home furnishings purchases. These events could also impact retailers, our primary customers, possibly adversely affecting our sales, earnings and liquidity.

We may lose market share due to competition.

The furniture industry is very competitive and fragmented. We compete with numerous domestic and non-U.S. residential furniture sources. Some competitors have greater financial resources than we have and often offer extensively advertised, well-recognized, branded products. Competition from non-U.S. sources has increased dramatically over the past decade. We may not be able to meet price competition or otherwise respond to competitive pressures, including increases in supplier and production costs. Also, due to the large number of competitors and their wide range of product offerings, we may not be able to continue to differentiate our products (through value and styling, finish and other construction techniques) from those of our competitors. In addition, some large furniture retailers are sourcing directly from non-U.S. furniture factories. Over time, this practice may expand to smaller retailers. As a result, we are continually subject to the risk of losing market share, which could adversely affect our sales, earnings, financial condition and liquidity.

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The loss of several large customers through business consolidations, failures or other reasons could adversely affect our business.

The loss of several of our major customers through business consolidations, failures or otherwise, could adversely affect our sales, earnings, financial condition and liquidity. Lost sales may be difficult to replace. Amounts owed to us by a customer whose business fails, or is failing, may become uncollectible, and we could lose future sales, any of which could adversely affect our sales, earnings, financial condition and liquidity.

We may incur higher employee costs in the future.

We maintain a self-insured healthcare plan for our employees. We have insurance coverage in place for aggregate claims above a specified amount in any year. While our healthcare costs in recent years have generally increased at the same rate or greater than the national average, those costs have increased more rapidly than general inflation in the U.S. economy. Continued inflation in healthcare costs, as well as additional costs we may incur as a result of current or future federal or state healthcare legislation and regulations, could significantly increase our employee healthcare costs in the future. Continued increases in our healthcare costs could adversely affect our earnings, financial condition and liquidity.

Our results of operations for any quarter are not necessarily indicative of our results of operations for a full year.

Home furnishings sales fluctuate from quarter to quarter due to factors such as changes in economic and competitive conditions, weather conditions and changes in consumer order patterns. From time to time, we have experienced, and may continue to experience, volatility with respect to demand for our home furnishing products. The acquisition and integration of Home Meridian may increase that volatility. Accordingly, our results of operations for any quarter are not necessarily indicative of the results of operations to be expected for a full year.

Future costs of complying with various laws and regulations may adversely impact future operating results.

Our business is subject to various domestic and international laws and regulations that could have a significant impact on our operations and the cost to comply with such laws and regulations could adversely impact our sales, earnings, financial condition and liquidity. In addition, failure to comply with such laws and regulations, even inadvertently, could produce negative consequences which could adversely impact our operations and reputation.

Risks Specific to the Acquisition and Integration of Home Meridian

We may fail to realize all of the anticipated benefits of the Home Meridian acquisition.

While we believe that the Home Meridian acquisition will be accretive to our earnings per share beginning in fiscal 2017, this expectation is based on preliminary estimates which may materially change. While we do not expect to merge operations or change customer-facing services, the success of this acquisition will depend, in part, on our ability to improve each business by sharing best practices in order to lower costs, improve efficiencies and grow sales. There can be no assurance regarding when or the extent to which we will be able to realize these benefits. Achieving the anticipated benefits is subject to a number of uncertainties, including whether the business acquired can be operated in the manner we intend. Events outside of our control could also adversely affect our ability to realize the anticipated benefits from the acquisition. Thus, the integration of Home Meridian’s business may be unpredictable, subject to delays or changed circumstances, and we can give no assurance that the acquired business will perform in accordance with our expectations, or that our expectations with respect to integration or benefits as a result of the acquisition will materialize. Additionally, a major asset acquired in this acquisition was Home Meridian’s existing customer relationships. While we believe that these relationships will continue and result in profitable sales, there can be no assurance that they will.

The anticipated benefits and cost savings of the proposed acquisition may not be realized fully or at all, or may take longer to realize than expected. The integration process could result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies. If the integration is not completed as planned, our ongoing business and financial results may be adversely affected, which could adversely affect our sales, earnings, financial condition and liquidity.

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We incurred significant debt to provide permanent financing for the acquisition.

We funded $60 million of the acquisition price with term loans. Acquisition-related principal and interest payments on the borrowed funds are expected to be approximately $7.0 million in fiscal 2017. We are subject to interest rate volatility due to the variable rates of interest on our loans. Among other risks, our debt:

may limit our flexibility to pursue other strategic opportunities or react to changes in our business and the industry in which we operate and, consequently, place us at a competitive disadvantage to competitors with less debt;

will require a portion of our cash flows from operations to be used for debt service payments, thereby reducing the availability of cash flows to fund working capital, capital expenditures, dividend payments and other general corporate purposes;

may result in higher interest expense in the event of increases in market interest rates for both long‑term debt as well as any borrowings under our line of credit at variable rates; and

may require that additional terms, conditions or covenants be placed on us.

The intangible assets we expect to record as a result of the acquisition could become impaired.

We expect to account for this acquisition using the acquisition method of accounting, which could result in charges to our earnings that could adversely affect our reported operating results. Under this method, we will allocate the total purchase price to the assets acquired and liabilities assumed from HMI based on their fair values as of February 1, 2016 (the date of the completion of the acquisition) and will record any excess of the purchase price over those fair values as goodwill. To the extent the value of goodwill or intangible assets were to become impaired, we may be required to incur charges relating to the impairment of those assets. Goodwill is tested for impairment annually or whenever events or changes in circumstances indicate impairment may have occurred. If we make changes in our business strategy or if market or other conditions adversely affect operations in any of our businesses, we may be forced to record a non-cash impairment charge, which would reduce our reported assets, net income and shareholders’ equity. If the testing performed indicates that impairment has occurred, we are required to record an impairment charge for the difference between the carrying value of the goodwill and the implied fair value of the goodwill in the period the determination is made. The testing of goodwill for impairment requires us to make significant estimates about our future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including: future business operating performance, changes in economic conditions and interest rates, regulatory, industry or market conditions, changes in business operations, or changes in competition. Any changes in key assumptions, or actual performance compared with key assumptions, about our business and its future prospects could affect the fair value of one or more business segments, which may result in an impairment charge which would adversely affect our earnings and financial condition.

We incurred significant acquisition and acquisition‑related costs in connection with this transaction and expect to incur additional acquisition and integration-related costs in fiscal 2017.

Through the end of our 2016 fiscal year, we incurred approximately $1.1 million in deal-related costs and anticipate incurring approximately $1.5 million in additional deal and integration-related costs in fiscal 2017. We could encounter other integration-related costs or other factors, such as the failure to realize benefits anticipated from the proposed transaction, which could negatively impact the projected financial consequences of the acquisition and adversely affect our financial condition and liquidity. Our anticipated costs to achieve the integration of Home Meridian may differ significantly from our current estimates. The integration may place an additional burden on our management and internal resources, and the diversion of management’s attention during the integration process could have an adverse effect on our business, financial condition and expected operating results. Any of these factors could adversely affect our earnings, financial condition and liquidity.

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We assumed HMI’s legacy pension plan obligations.

We assumed approximately $9.0 million of HMI’s legacy pension plan obligations on the acquisition date of February 1, 2016. While the plan is frozen and no new participants are being added, we expect to be impacted by the plan’s investment performance, changes in actuarial assumptions and the funded status of the plan, which could adversely affect our financial condition and liquidity. Should we decide to terminate the pension plan in the future, we expect to record settlement expenses against our earnings and contribute a final cash contribution, which could adversely affect our financial condition and liquidity.

Risks Specific to HMI’s Operations or to the Operations of the Combined Entity

As previously mentioned, we completed the acquisition of substantially all of the assets of Home Meridian International (HMI) subsequent to the end of our 2016 fiscal year and we are early into the process of integrating the two companies. The risks outlined above are forward looking, but are largely based on our operations before the completion of the acquisition on February 1, 2016. However, except for the risk factors above that deal with domestic manufacturing and upholstery operations, we believe that the risk factors disclosed represent, in all material respects, most of the risks of the combined companies. However, there are risk factors not detailed above that are either specific to Home Meridian’s operations or different enough from those discussed above to warrant separate or additional disclosure:

A material part of HMI’s sales and accounts receivable are concentrated in a few customers, some of which are existing Hooker customers.

Sixty-percent of HMI’s fiscal 2015 sales were concentrated in ten customers. Hooker sold to six of those ten customers during its 2016 fiscal year and sales to those customers accounted for nearly 12% of Hooker’s fiscal 2016 sales. Two of those ten customers each accounted for over 10% of HMI’s fiscal 2015 sales and both of those customers combined accounted for over 27% of HMI’s total fiscal 2015 sales. Of those two customers, Hooker sold to only one during its 2016 fiscal year and those sales accounted for less than 1% of Hooker’s fiscal 2016 sales. Those same two customers accounted for over 30% of HMI’s accounts receivable at the end of its fiscal year on November 1, 2015. HMI’s results will be included in Hooker’s quarterly and annual fiscal 2017 results; however, we are early into the 2017 fiscal year and therefore unable to determine if the two customers referenced above will account for 10% or more of the combined entity’s sales or accounts receivable for fiscal 2017. However, the loss of one or a combination of those customers, could adversely affect our earnings, financial condition and liquidity.

A disruption affecting Home Meridian’s Madison, NC, Mayodan, NC or Redlands, CA warehouses or its High Point, NC administrative facilities could disrupt our business.

Home Meridian’s domestic warehouses are critical to its success. Its division headquarters houses most of its administration, sourcing, sales, finance, merchandising, customer service and traffic functions. A disruption affecting any or a combination of these facilities, for even a relatively short period of time, could adversely affect its ability to ship its products and disrupt its business, which could adversely affect our sales, earnings, financial condition and liquidity.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Set forth below is information with respect to our principal properties at April 15, 2016. We believe all of these properties are well-maintained and in good condition. During fiscal 2016, we estimate our upholstery plants operated at approximately 81% of capacity on a one-shift basis. All our production facilities are equipped with automatic sprinkler systems. All facilities maintain modern fire and spark detection systems, which we believe are adequate. We have leased certain warehouse facilities for our distribution and import operations, typically on a short and medium-term basis. We expect that we will be able to renew or extend these leases or find alternative facilities to meet our warehousing and distribution needs at a reasonable cost. All facilities set forth below are active and operational, representing approximately 3.5 million square feet of owned space, leased space or properties utilized under third-party operating agreements.

Location	Segment Use	Primary Use	Approximate Size in Square Feet	Owned or Leased
Martinsville, Va.	All segments	Corporate Headquarters	43,000	Owned
Martinsville, Va.	All segments	Distribution and Imports	580,000	Owned
Martinsville, Va.	All segments	Customer Support Center	146,000	Owned
Martinsville, Va.	All segments	Distribution	628,000	Leased (1)
High Point, N.C.	All segments	Showroom	80,000	Leased (2)
Cherryville, N.C.	Upholstery	Manufacturing Supply Plant	53,000	Owned (3)
Hickory, N.C.	Upholstery	Manufacturing	91,000	Owned (3)
Hickory, N.C.	Upholstery	Manufacturing and Offices	36,400	Leased (3) (4)
Bedford, Va.	Upholstery	Manufacturing and Offices	327,000	Owned (5)
High Point, N.C.	*	Showroom	77,000	Leased (6) (13)
High Point, N.C.	*	Office	23,796	Leased (6) (7)
High Point, N.C.	*	Warehouse	16,900	Leased (6) (8)
Madison, N.C.	*	Warehouse	500,000	Leased (6) (9)
Mayodan, N.C.	*	Warehouse	100,000	Leased (6) (10)
Mayodan, N.C.	*	Warehouse	235,144	Leased (6) (11)
Redlands, CA.	*	Warehouse	327,790	Leased (6) (12)
Ho Chi Minh City, Vietnam	*	Office and Warehouse	4,893	Leased (6) (14)
Haining, China	*	Warehouse	5,920	Leased (6) (12)
Haining, China	*	Office	1,690	Leased (6) (15)
Dongguan, China	*	Office	1,571	Leased (6) (16)

(1) Lease expires March 31, 2021.
(2) Lease expires October 31, 2016.
(3) Comprise the principal properties of Bradington-Young LLC.
(4) Lease expires December 15, 2016 and provides for 2 two-year extensions at our election.
(5) Comprise the principal properties of Sam Moore Furniture LLC.
(6) Comprise the principal properties of Home Meridian International.
(7) Lease expires March 31, 2022.
(8) Lease expires May 31, 2016.
(9) Lease expires August 31, 2016.
(10) Lease expires May 31, 2020 and provides for two twelve-month extensions at our election.
(11) Lease expires October 31, 2020.
(12) Lease expires December 31, 2016.
(13) Lease expires October 31, 2023.
(14) Lease expires March 15, 2018.
(15) Lease expires September 17, 2016.
(16) Lease expires September 30, 2016.

* The completion of the acquisition of HMI's assets occurred subsequent to the end of our 2016 fiscal year.
Consequently, we have not yet determined the operating segments of the combined entity.

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Set forth below is information regarding principal properties we utilize that are owned and operated by third parties.

Location	Segment Use	Primary Use	Approximate Size in Square Feet
Guangdong, China	Casegoods	Distribution	210,000 (1)
Ho Chi Minh City, Vietnam	Casegoods	Distribution	25,000 (2)

(1) This property is subject to an operating agreement that expires on July 31, 2016.
Renewal is automatic unless either party gives notice to terminate 120 days prior to expiration.

(2) This property is subject to an operating agreement that may be canceled by either party
upon 45 days written notice and is canceled if no storage or other services are performed
under the contract for 180 days.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

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EXECUTIVE OFFICERS OF

HOOKER FURNITURE CORPORATION

Hooker Furniture’s executive officers and their ages as of April 15, 2016 and the calendar year each joined the Company are as follows:

Name	Age	Position	Year Joined Company
Paul B. Toms, Jr.	61	Chairman and Chief Executive Officer	1983
Paul A. Huckfeldt	58	Chief Financial Officer and	2004
		Senior Vice President - Finance and Accounting
Michael W. Delgatti, Jr.	62	President - Hooker Furniture Corporation	2009
Anne M. Jacobsen	54	Senior Vice President-Administration	2008
George Revington	69	President and Chief Operating Officer - Home Meridian	2016

Paul B. Toms, Jr. has been Chairman and Chief Executive Officer since December 2000 and also served as President for most of the period from November 2006 to August 2011. Mr. Toms was President and Chief Operating Officer from December 1999 to December 2000, Executive Vice President - Marketing from 1994 to December 1999, Senior Vice President - Sales and Marketing from 1993 to 1994, and Vice President - Sales from 1987 to 1993. Mr. Toms joined the Company in 1983 and has been a Director since 1993.

Paul A. Huckfeldt has been Senior Vice President - Finance and Accounting since September 2013 and Chief Financial Officer since January 2011. Mr. Huckfeldt served as Vice President – Finance and Accounting from December 2010 to September 2013, Corporate Controller and Chief Accounting Officer from January 2010 to January 2011, Manager of Operations Accounting from March 2006 to December 2009 and led the Company’s Sarbanes-Oxley implementation and subsequent compliance efforts from April 2004 to March 2006.

Michael W. Delgatti, Jr. has been President since February 2014. Mr. Delgatti served as President – Hooker Upholstery from August 2011 to January 2014 and Executive Vice-President of Corporate Sales from September 2012 to January 2014. Mr. Delgatti joined the Company in January of 2009 as Executive Vice-President of Hooker Upholstery.

Anne M. Jacobsen has been Senior Vice President- Administration since January 2014. Ms. Jacobsen joined the Company in January of 2008 as Director of Human Resources and served as Vice President- H R and Administration from January 2011 to January 2014 and Vice President-Human Resources from November 2008 to January 2011.

George Revington joined the Company as President and Chief Operating Officer of the Home Meridian division upon the acquisition of Home Meridian’s assets by the Company in February 2016. Prior to that, Mr. Revington served as President and Chief Executive Officer of Home Meridian International since its creation in 2006.

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Hooker Furniture Corporation

Part II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our stock is traded on the NASDAQ Global Select Market under the symbol “HOFT”. The table below sets forth the high and low sales prices per share for our common stock and the dividends per share we paid with respect to our common stock for the periods indicated.

	Sales Price Per Share				Dividends
	High		Low		Per Share
November 2, 2015 - January 31, 2016	$	30.51	$	24.00	$	0.10
August 3, - November 1, 2015		26.50		22.16		0.10
May 4, - August 2, 2015		27.30		23.50		0.10
February 2 - May 3, 2015		26.67		17.57		0.10

November 3, 2014 - February 1, 2015	$	18.77	$	14.25	$	0.10
August 4, - November 2, 2014		16.00		14.24		0.10
May 5, - August 3, 2014		17.40		13.60		0.10
February 3 - May 4, 2014		16.24		13.64		0.10

As of January 31, 2016, we had approximately 5,300 beneficial shareholders. We expect that future regular quarterly dividends will be declared and paid in the months of March, June, September, and December. Although we presently intend to continue to declare regular cash dividends on a quarterly basis for the foreseeable future, the determination as to the payment and the amount of any future dividends will be made by the Board of Directors on a quarterly basis and will depend on our then-current financial condition, capital requirements, results of operations and any other factors then deemed relevant by the Board of Directors.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

During the fiscal 2013 first quarter, our Board of Directors authorized the repurchase of up to $12.5 million of the Company’s common shares. During fiscal 2013, we used an aggregate of $671,000 to purchase 57,700 shares of our stock at an average price of $11.63 per share. No shares were purchased during fiscal 2014, 2015 or fiscal 2016. Approximately $11.8 million remains available under the board’s authorization as of January 31, 2016. For additional information regarding this repurchase authorization, see the “Share Repurchase Authorization” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Performance Graph

The following graph compares cumulative total shareholder return for the Company with a broad performance indicator, the Russell 2000® Index, and an industry index, the Household Furniture Index, for the period from January 30, 2011 to January 31, 2016.

(1)	The graph shows the cumulative total return on $100 invested at the beginning of the measurement period in our common stock or the specified index, including reinvestment of dividends.

(2)	The Russell 2000® Index, prepared by Frank Russell Company, measures the performance of the 2,000 smallest companies out of the 3,000 largest U.S. companies based on total market capitalization.

(3)

Household Furniture Index as prepared by Zacks Investment Research, Inc. consists of companies under SIC Codes 2510 and 2511, which includes home furnishings companies that are publically traded in the United States or Canada. At January 31, 2016, Zacks Investment Research, Inc. reported that these two SIC Codes consisted of Bassett Furniture Industries, Inc., Dorel Industries, Inc., Ethan Allen Interiors, Inc., Flexsteel Industries, Inc., Hooker Furniture Corporation, La-Z-Boy, Inc., Leggett & Platt, Inc., Natuzzi SPA-ADR, Nova Lifestyle, Inc., Select Comfort Corporation, Stanley Furniture Company, Inc., Luvu Brands Inc., Kimball International, Inc. and Tempur Sealy.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data for each of our last five fiscal years has been derived from our audited, consolidated financial statements. The selected financial data should be read in conjunction with the consolidated financial statements, including the related notes, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report. Additionally, we face a number of significant risks and uncertainties, as more fully discussed in Item 1A, “Risk Factors”, above. If any or a combination of these risks and uncertainties were to occur, the information below may not be fully indicative of our future financial condition or results of operations.

	Fiscal Year Ended (1)
	January 31,		February 1,		February 2,			February 3,		January 29,
	2016		2015		2014			2013		2012
	(In thousands, except per share data)
Income Statement Data:
Net sales	$	246,999	$	244,350	$	228,293		$	218,359	$	222,505
Cost of sales		178,311		181,550		173,568			165,813		173,642
Gross profit		68,688		62,800		54,725			52,546		48,863
Selling and administrative expenses (2)		44,426		43,752		42,222			39,606		40,375
Goodwill and intangible asset impairment charges (3)		-		-		-			-		1,815
Operating income		24,262		19,048		12,503			12,940		6,673
Other income (expense), net		197		350		(35	)		53		272
Income before income taxes		24,459		19,398		12,468			12,993		6,945
Income taxes		8,274		6,820		4,539			4,367		1,888
Net income		16,185		12,578		7,929			8,626		5,057

Per Share Data:
Basic earnings per share	$	1.50	$	1.17	$	0.74		$	0.80	$	0.47
Diluted earnings per share	$	1.49	$	1.16	$	0.74		$	0.80	$	0.47
Cash dividends per share		0.40		0.40		0.40			0.40		0.40
Net book value per share (4)		14.46		13.30		12.57			12.19		11.78
Weighted average shares outstanding (basic)		10,779		10,736		10,722			10,745		10,762

Balance Sheet Data:
Cash and cash equivalents	$	53,922	$	38,663	$	23,882		$	26,342	$	40,355
Trade accounts receivable		28,176		32,245		29,393			28,272		25,807
Inventories		43,713		44,973		49,016			49,872		34,136
Working capital		111,462		100,871		94,142			92,200		89,534
Total assets		181,653		170,755		155,481			155,823		149,171
Long-term debt		-		-		-			-		-
Shareholders' equity		156,061		142,909		134,803			131,045		127,113

(1)	Our fiscal years end on the Sunday closest to January 31. The fiscal years presented above all had 52 weeks, except for the fiscal year ended February 3, 2013, which had 53 weeks.

(2)	Selling and administrative expenses for fiscal 2014 included $2.1 million of startup costs pre-tax ($1.4 million, or $0.13 per share after tax) for our H Contract and Homeware business initiatives.

(3)	Based on our annual impairment analyses, we recorded intangible asset impairment charges in fiscal 2012, $1.8 million pretax ($1.1 million after tax or $0.10 per share) on our Bradington-Young trade name.

(4)	Net book value per share is derived by dividing “shareholders’ equity” by the number of common shares issued and outstanding, excluding unvested restricted shares, all determined as of the end of each fiscal period.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the selected financial data and the consolidated financial statements, including the related notes, contained elsewhere in this annual report. We especially encourage users of this report to familiarize themselves with:

All of our recent public filings made with the Securities and Exchange Commission (“SEC”). Our public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com;

The forward-looking statements contained in Item 1 of this report, which describe the significant risks and uncertainties that could cause actual results to differ materially from those forward-looking statements made in this report, including those contained in this section of our annual report on Form 10-K;

The company-specific risks found in Item 1A “Risk Factors” of this report. This section contains critical information regarding significant risks and uncertainties that we face. If any of these risks materialize, our business, financial condition and future prospects could be adversely impacted; and

Our commitments and contractual obligations and off-balance sheet arrangements described on page 36 and in Note 15 on page F-27 of this report. These sections describe commitments, contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements.

All references to the Company in this discussion refer to the Company and its consolidated subsidiaries, unless specifically referring to segment information. Unless otherwise indicated, amounts shown in tables are in thousands, except for share and per share data.

Our fiscal years end on the Sunday closest to January 31. In some years (generally once every six years) the fourth quarter will be fourteen weeks long and the fiscal year will consist of fifty-three weeks. For example, the 2013 fiscal year that ended on February 3, 2013 was a 53-week fiscal year. Our quarterly periods are based on thirteen-week “reporting periods” (which end on a Sunday) rather than quarterly periods consisting of three calendar months. As a result, each quarterly period generally is thirteen weeks, or 91 days, long, except as noted above.

The financial statements filed as part of this annual report on Form 10-K include the:

fifty-two week period that began February 2, 2015 and ended on January 31, 2016 (fiscal 2016);

fifty-two week period that began February 3, 2014 and ended on February 1, 2015 (fiscal 2015); and

fifty-two week period that began February 4, 2013 and ended on February 2, 2014 (fiscal 2014).

Nature of Operations

Hooker Furniture Corporation (the “Company”, “we,” “us” and “our”) is a home furnishings marketing, design and logistics company offering worldwide sourcing of residential and contract casegoods and upholstery, as well as domestically-produced custom leather and fabric-upholstered furniture. We were incorporated in Virginia in 1924 and are ranked among the nation’s top 10 largest publicly traded furniture sources, based on 2015 shipments to U.S. retailers, according to a 2015 survey published by Furniture Today, a leading trade publication. We are a key resource for residential wood and metal furniture (commonly referred to as “casegoods”) and upholstered furniture. Our major casegoods product categories include accents, home office, dining, bedroom and home entertainment furniture under the Hooker Furniture brand. Our residential upholstered seating companies include Bradington-Young, a specialist in upscale motion and stationary leather furniture and Sam Moore Furniture, a specialist in upscale occasional chairs, settees, sofas and sectional seating with an emphasis on cover-to-frame customization. An extensive selection of designs and formats along with finish and cover options in each of these product categories makes us a comprehensive resource for retailers primarily targeting the upper-medium price range. We also market a line of imported leather upholstery under the Hooker Upholstery trade name. We also work directly with several large customers to develop private-label, unbranded products exclusively for those customers. Our H Contract division supplies upholstered seating and casegoods to upscale senior living facilities throughout the country, working with designers specializing in the contract industry to provide functional furniture for senior living facilities that meets the style and comfort expectations of today’s retirees. Homeware is an online-only brand that is sold through leading international e-commerce retailers. It supplies unique chairs, sofas and ottomans designed to be assembled in minutes by the consumer with no tools or hardware required.

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On January 5, 2016, we entered into an asset purchase agreement with Home Meridian International, Inc. (“HMI”) to acquire substantially all of HMI’s assets in exchange for $85 million in cash and approximately $20.3 million in unregistered shares of our common stock, of which $5.3 million was due to a working capital adjustment provided for in the asset purchase agreement. We completed the acquisition on February 1, 2016, subsequent to the end of our 2016 fiscal year and thus none of the results of HMI are included in our fiscal 2016 results. We believe this acquisition will more than double the size of the Company on a net sales basis and consequently, make us one of the top five public sources for the U.S. furniture market. See note 18 to our consolidated financial statements for additional information.

For financial reporting purposes, we are organized into three operating segments – casegoods furniture, upholstered furniture and all other.

Overview

Consumer home furnishings purchases are driven by an array of factors, including general economic conditions such as:

consumer confidence;

availability of consumer credit;

energy and other commodity prices; and

housing and mortgage markets;

as well as lifestyle-driven factors such as changes in:

fashion trends;

disposable income; and

household formation and turnover.

Our lower overhead, variable-cost import operations help drive our profitability and provide us with more flexibility to respond to changing demand by adjusting inventory purchases from suppliers. This import model requires constant vigilance due to a larger investment in inventory and longer production lead times. We constantly evaluate our imported furniture suppliers and when quality concerns, inflationary pressures, or trade barriers, such as duties and tariffs, diminish our value proposition, we transition sourcing to other suppliers, often located in different countries or regions.

Our domestic upholstery operations have significantly higher overhead and fixed costs than our import operations, and their profitability has been and can be adversely affected by economic downturns. Our upholstery segment operations have been profitable since fiscal 2013, with overall profitability improving each year, primarily due to improving profitability in our domestic upholstery, which lagged the import operations during the economic downturn but are now seeing the impact of cost reduction efforts and improving sales on their operations.

Fiscal 2016 Executive Summary-Results of Operations

All segments reported improved operating profitability over the prior year, even on generally modest sales increases. Consolidated gross profit increased 9.4% or $5.9 million primarily due to decreased discounting, reduced returns and allowances and lower quality costs in our casegoods segment; improved operating efficiencies and decreased contract manufacturing in our upholstery segment; and increased net sales in our All Other segment, due primarily to a 70% net sales increase at H Contract. Flat selling and administrative expenses (“S&A”) as a percentage of net sales were due primarily to increased net sales. S&A increased by $674,000 in absolute terms due primarily to $1.2 million in acquisition-related costs recognized in the fiscal year which were mostly offset by other decreases in S&A discussed below. Consolidated operating income increased $5.2 million or about 28% to nearly 10% of net sales due to these factors. Our casegoods segment generated an operating margin of about 12% and upholstery segment operating income more than doubled. Net income increased $3.6 million or nearly 30%.

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Results of Operations

The following table sets forth the percentage relationship to net sales of certain items for the annual periods included in the consolidated statements of income:

	Fifty-two			Fifty-two			Fifty-two
	weeks ended			weeks ended			weeks ended
	January 31,			February 1,			February 2,
	2016			2015			2014
Net sales		100.0	%		100.0	%		100.0	%
Cost of sales		72.2			74.3			76.0
Gross profit		27.8			25.7			24.0
Selling and administrative expenses		18.0			17.9			18.5
Operating income		9.8			7.8			5.5
Other income, net		0.1			0.2			0.0
Income before income taxes		9.9			7.9			5.5
Income taxes		3.3			2.8			2.0
Net income		6.6			5.1			3.5

Fiscal 2016 Compared to Fiscal 2015

Net Sales

	Fifty-two weeks ended						Fifty-two weeks ended
	January 31, 2016						February 1, 2015						$ Change			% Change
				% Net Sales						% Net Sales
Casegoods	$	155,106			62.8	%	$	153,882			63.0	%	$	1,224			0.8	%
Upholstery		84,090			34.0	%		86,362			35.3	%		(2,272	)		-2.6	%
All Other		8,033			3.3	%		5,025			2.1	%		3,008			59.9	%
Intercompany Eliminations		(230	)					(919	)					689
Consolidated	$	246,999			100.0	%	$	244,350			100.0	%	$	2,649			1.1	%

Unit Volume and Average Selling Price

Unit Volume	FY16 % Increase vs. FY15			Average Selling Price ("ASP")	FY16 % Increase vs. FY15

Casegoods		-3.7	%	Casegoods		4.1	%
Upholstery		-5.2	%	Upholstery		2.7	%
All other		98.0	%	All other		-19.7	%
Consolidated		-1.5	%	Consolidated		2.0	%

The increase in consolidated net sales for fiscal 2016 was principally due to increased unit volume in our All Other segment due to significantly increased sales at H Contract and higher ASP in our casegoods segment due to lower product discounting.

We believe the decreased unit volume in our casegoods segment was due to:

Slowing retail furniture sales in the second half of 2016;

Lingering product availability challenges due to expanding lead times and late deliveries of certain of our more popular October 2014 market introductions in that segment during the fiscal 2016 first quarter. We received most of the October market introductions and delivered standing orders to customers during the fiscal 2016 second quarter; however, late deliveries resulted in delayed reorders even on products which have retailed well, which impacted shipments into the fiscal 2016 second half; and

Outages of key component products that prevented orders for certain suites from shipping during the fiscal 2016 third quarter.

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Unit volume decreases in our upholstery segment were primarily caused by:

decreases at Hooker upholstery due to pressure on motion upholstery pricing and, to a lesser extent, exiting lower margin sales programs at the expense of net sales; and

decreases at Sam Moore due to the effects of discontinuing unprofitable sales programs at the expense of net sales and lingering post-ERP implementation inefficiencies during the second half of fiscal 2016.

Gross Profit

	Fifty-two weeks ended					Fifty-two weeks ended
	January 31, 2016					February 1, 2015						$ Change		% Change
			% Segment Net Sales						% Segment Net Sales
Casegoods	$	47,558		30.7	%	$	44,868			29.2	%	$	2,690		6.0	%
Upholstery		18,852		22.4	%		16,489			19.1	%		2,363		14.3	%
All Other		2,252		28.0	%		1,465			29.2	%		787		53.7	%

Intercompany Eliminations		26					(22	)					48
Consolidated	$	68,688		27.8	%	$	62,800			25.7	%	$	5,888		9.4	%

Consolidated gross profit increased in the fiscal 2016, primarily due to:

Improved casegoods segment gross profit due to decreased discounting due to a better product mix, lower cost of goods sold due to declining freight costs, which more than offset vendor price increases, and lower returns and allowances and other quality related costs as a result of better product quality;

Improved upholstery segment gross profit due to operating efficiencies such as decreased contract manufacturing and lower medical claims expense in that segment; and

Improved All Other segment gross profit due primarily to increased net sales at H Contract.

Selling and Administrative Expenses

	Fifty-two weeks ended					Fifty-two weeks ended
	January 31, 2016					February 1, 2015					$ Change			% Change
			% Segment Net Sales					% Segment Net Sales
Casegoods	$	29,049		18.7	%	$	27,582		17.9	%	$	1,467			5.3	%
Upholstery		12,833		15.3	%		13,618		15.8	%		(785	)		-5.8	%
All Other		2,544		31.7	%		2,552		50.8	%		(8	)		-0.3	%
Consolidated	$	44,426		18.0	%	$	43,752		17.9	%	$	674			1.5	%

Flat consolidated S&A expenses as a percentage of net sales were due primarily to slightly increased net sales and the recognition of $1.1 million in acquisition-related costs in casegoods segment S&A. Consolidated S&A increased by $674,000 in absolute terms due primarily due to the acquisition-related costs, which were partially offset by other decreases in S&A, such as bad debts and banking expenses. Upholstery segment S&A decreased primarily due to lower selling expenses due to decreased net sales and lower banking and bad debt expenses. Selling and administrative expenses in our All Other segment decreased despite a net sales increase in that segment, as our H Contract and Homeware businesses have each progressed beyond the startup phase.

Operating Income

	Fifty-two weeks ended						Fifty-two weeks ended
	January 31, 2016						February 1, 2015						$ Change		% Change
				% Segment Net Sales						% Segment Net Sales
Casegoods	$	18,509			11.9	%	$	17,286			11.2	%	$	1,223		7.1	%
Upholstery		6,020			7.2	%		2,871			3.3	%		3,149		109.7	%
All Other		(293	)		-3.6	%		(1,087	)		-21.6	%		794		73.0	%
Intercompany Eliminations		26						(22	)					48
Consolidated	$	24,262			9.8	%	$	19,048			7.8	%	$	5,214		27.4	%

Operating income increased for fiscal 2016 compared to the prior year both as a percentage of net sales and in absolute terms, due to the factors discussed above.

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Income Taxes

	Fifty-two weeks ended						Fifty-two weeks ended
	January 31, 2016						February 1, 2015						$ Change		% Change
				% Net Sales						% Net Sales
Consolidated income tax expense	$	8,274			3.3	%	$	6,820			2.8	%	$	1,454		21.3	%

Effective Tax Rate		33.8	%					35.2	%

We recorded income tax expense of $8.3 million during fiscal 2016, compared to $6.8 million for fiscal 2015, due primarily to higher taxable income. The effective income tax rates for the two fiscal years were 33.8% and 35.2% respectively. The decrease in effective rate is primarily due to the domestic production deduction as well as a decrease in uncertain tax positions.

Net Income and Earnings Per Share

	Fifty-two weeks ended					Fifty-two weeks ended
	January 31, 2016					February 1, 2015					$ Change		% Change
			% Net Sales					% Net Sales
Consolidated	$	16,185		6.6	%	$	12,578		5.1	%	$	3,607		28.7	%

Diluted earnings per share	$	1.49				$	1.16

Fiscal 2015 Compared to Fiscal 2014

Net Sales

	Fifty-two weeks ended						Fifty-two weeks ended
	February 1, 2015						February 2, 2014						$ Change			% Change
				% Net Sales						% Net Sales
Casegoods	$	153,882			63.0	%	$	143,802			63.0	%	$	10,080			7.0	%
Upholstery		86,362			35.3	%		83,027			36.4	%	$	3,335			4.0	%
All Other		5,025			2.1	%		1,487			0.7	%	$	3,538			237.9	%
Intercompany Eliminations		(919	)					(23	)				$	(896	)
Consolidated	$	244,350			100.0	%	$	228,293			100.0	%	$	16,057			7.0	%

Unit Volume	FY15 % Increase vs. FY14			Average Selling Price	FY15 % Increase vs. FY14

Casegoods		-3.8	%	Casegoods		11.5	%
Upholstery		-2.3	%	Upholstery		6.6	%
All other		234.2	%	All other		2.9	%
Consolidated		-1.5	%	Consolidated		9.3	%

The increase in consolidated net sales in fiscal 2015 was primarily due to higher average selling prices in all operating segments, partially offset by lower casegoods and upholstery segment unit volume. Average selling price increased due to increased sales of products in the ‘best’ segment of our ‘better-best’ product assortment, as well as reduced casegoods discounting, which was a result of significant improvements in inventory management which reduced the amount of excess and obsolete inventory sold during the year and the discounts required to move those products. Unit volume decreases in our casegoods segment were primarily due to reduced sales of off-priced products, as well as reduced sales of the lower-priced Opus Designs and Envision products, as we exit those product lines. Upholstery net sales increased due to net sales gains at both Sam Moore and Bradington-Young, which were due primarily to higher average selling prices, partially offset by lower unit volume. We believe that the all other segment percentages shown are of limited use since the businesses in this segment are starting from a very low base and just completed their first full fiscal year in operation in fiscal 2015.

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Gross Profit

	Fifty-two weeks ended						Fifty-two weeks ended
	February 1, 2015						February 2, 2014						$ Change			% Change
				% Segment Net Sales						% Segment Net Sales
Casegoods	$	44,868			29.2	%	$	38,762			27.0	%	$	6,106			15.8	%
Upholstery		16,489			19.1	%		15,393			18.5	%		1,096			7.1	%
All Other		1,465			29.2	%		588			39.5	%		877			149.1	%
Intercompany Eliminations		(22	)					(18	)					(4	)
Consolidated	$	62,800			25.7	%	$	54,725			24.0	%	$	8,075			14.8	%

Consolidated gross profit increased, primarily due to:

decreased casegoods segment discounting, partially offset by increased returns and allowances;

a $1.1 million gross profit increase in our upholstery segment due primarily to higher net sales and reduced manufacturing costs; and

a substantial increase in net sales for our H Contract business initiative as that business completes its first full year in operation and begins to establish itself in the contract furniture industry.

Selling and Administrative Expenses

	Fifty-two weeks ended					Fifty-two weeks ended
	February 1, 2015					February 2, 2014					$ Change		% Change
			% Segment Net Sales					% Segment Net Sales
Casegoods	$	27,582		17.9	%	$	26,612		18.5	%	$	970		3.6	%
Upholstery		13,618		15.8	%		13,480		16.2	%		138		1.0	%
All Other		2,552		50.8	%		2,130		143.3	%		422		19.8	%
Consolidated	$	43,752		17.9	%	$	42,222		18.5	%	$	1,530		3.6	%

Casegoods segment selling and administrative expenses decreased as a percentage of net sales due to higher net sales, but increased in absolute terms primarily due to increased:

commission expense due to higher sales;

bonus expense due to higher earnings; and

bad debts expense due to the write-off of a customer account during the period.

These increases were partially offset by decreased:

professional services due to lower compliance costs; and

salaries and benefits expense due to the retirement of an executive in early fiscal 2015 and decreases in medical claims expense and increases in the cash surrender value of Company-owned life insurance.

Upholstery segment selling and administrative expenses decreased as a percentage of net sales primarily due to increased net sales but increased in absolute terms primarily due to increased:

bad debt expense due to the write-off of a customer account during the period; and

benefits expense due to higher medical claims expense.

These increases were partially offset by decreased:

advertising supplies due to better cost management; and

professional services due to reduced manufacturing-related consulting.

All other segment selling and administrative expenses increased primarily due to completing its first full year of operations, which included increased spending on salaries, wages and benefits and marketing expenses as we grow these new business initiatives out of their start-up phases, and higher commissions and other variable costs due to increased sales.

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Operating Income

	Fifty-two weeks ended						Fifty-two weeks ended
	February 1, 2015						February 2, 2014						$ Change			% Change
				% Segment Net Sales						% Segment Net Sales
Casegoods	$	17,286			11.2	%	$	12,150			8.4	%	$	5,136			42.3	%
Upholstery		2,871			3.3	%		1,913			2.3	%		958			50.1	%
All Other		(1,087	)		-21.6	%		(1,542	)		-103.7	%		455			-29.5	%
Intercompany Eliminations		(22	)					(18	)					(4	)
Consolidated	$	19,048			7.8	%	$	12,503			5.5	%	$	6,545			52.3	%

Operating income increased for fiscal 2015 compared to the prior year both as a percentage of net sales and in absolute terms, due to the factors discussed above.

Income Taxes

	Fifty-two weeks ended						Fifty-two weeks ended
	February 1, 2015						February 2, 2014						$ Change		% Change
				% Net Sales						% Net Sales
Consolidated income tax expense	$	6,820			2.8	%	$	4,539			2.0	%	$	2,281		50.3	%

Effective Tax Rate		35.2	%					36.4	%

We recorded income tax expense of $6.8 million during fiscal 2015, compared to $4.6 million for fiscal 2014, due primarily to higher taxable income. The effective income tax rates for the two fiscal years were 35.2% and 36.4% respectively. The lower effective income tax rate in fiscal 2015 was due to a smaller impact of certain permanent differences due to higher taxable income.

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Net Income and Earnings Per Share

	Fifty-two weeks ended					Fifty-two weeks ended
	February 1, 2015					February 2, 2014					$ Change		% Change
			% Net Sales					% Net Sales
Consolidated	$	12,578		5.1	%	$	7,929		3.5	%	$	4,649		58.6	%

Earnings per share	$	1.16				$	0.74

Financial Condition, Liquidity and Capital Resources

Balance Sheet and Working Capital

The following chart shows changes in our total assets, current assets, current liabilities, net working capital and working capital ratio at January 31, 2016 compared to February 1, 2015:

	Balance Sheet and Working Capital
	January 31, 2016		February 1, 2015		$ Change

Total Assets	$	181,653	$	170,755	$	10,898

Cash	$	53,922	$	38,663	$	15,259
Trade Receivables		28,176		32,245		(4,069	)
Inventories		43,713		44,973		(1,260	)
Prepaid Expenses & Other		2,256		2,353		(97	)

Total Current Assets	$	128,067	$	118,234	$	9,833

Trade accounts payable	$	9,105	$	10,293	$	(1,188	)
Accrued salaries, wages and benefits		4,834		4,824		10
Other accrued expenses, commissions and deposits		2,666		3,950		(1,284	)

Total current liabilities	$	16,605	$	19,067	$	(2,462	)

Net working capital	$	111,462	$	99,167	$	12,295

Working capital ratio	7.7 to 1		6.2 to 1

As of January 31, 2016, total assets increased compared to February 1, 2015, primarily due to increased cash and cash equivalents due to increased operating cash flows during fiscal 2016, decreased accounts receivable due to lower sales in fourth quarter of fiscal 2016 compared to fiscal 2015 and decreased inventories as a result of more effectively matching inventory levels with projected demand.

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Summary Cash Flow Information – Operating, Investing and Financing Activities

	Fifty-Two Weeks Ended			Fifty-Two Weeks Ended			Fifty-Two Weeks Ended
	January 31,			February 1,			February 2,
	2016			2015			2014
Net cash provided by operating activities	$	23,036		$	22,768		$	5,696
Net cash used in investing activities		(3,455	)		(3,681	)		(3,855	)
Net cash used in financing activities		(4,322	)		(4,306	)		(4,301	)
Net increase (decrease) in cash and cash equivalents	$	15,259