What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-09-09 compared with 2020-07-27 · 233 added, 164 removed, 195 unchanged (67% of the section changed)

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Those risks and uncertainties include but are not limited to:

The effect and consequences of the coronavirus (COVID-19) pandemic or future pandemics on a wide range of matters including U.S.

The effect and consequences of the coronavirus (COVID-19) pandemic or future pandemics on a wide range of matters including but not limited to U.S.

and local economies;

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the health and productivity of our employees;

and the impact on our supply chain, the retail environment and our customer base;

and the impact on our global supply chain, the retail environment and our customer base;

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;

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government, such as the current U.S.

administration imposing a 25% tariff on certain goods imported into the United States from China, including almost all furniture and furniture components manufactured in China, with the potential for additional or increased tariffs in the future;

administration’s imposing a 25% tariff on certain goods imported into the United States from China, including almost all furniture and furniture components manufactured in China, with the potential for additional or increased tariffs in the future;

sourcing transitions away from China, including the lack of adequate manufacturing capacity and skilled labor and longer lead times, due to competition and increased demand for resources in those countries;

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

disruptions and damage (including due to weather) affecting our Virginia, North Carolina or California warehouses, our Virginia or North Carolina administrative facilities or our representative offices or warehouses in Vietnam and China;

disruptions and damage (including those due to weather) affecting our Virginia, North Carolina or California warehouses, our Virginia or North Carolina administrative facilities or our representative offices or warehouses in Vietnam and China;

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, availability of skilled labor, and environmental compliance and remediation costs;

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higher than expected employee medical and workers’ compensation costs that may increase the cost of our high-deductible healthcare and workers compensation plans;

product liability claims;

risks related to our other defined benefit plans;

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Accordingly, investors should not assume that we agree with any projection, forecast or report issued by any analyst regardless of the content of the statement or report, as we have a policy against confirming information issued by others.

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began February 3, 2020 and ended May 3, 2020.

This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that began February 4, 2019 and ended May 5, 2019;

and our financial condition as of May 3, 2020 compared to February 2, 2020.

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2021 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “second quarter” or “quarterly period”) that began May 4, 2020, and the twenty-six week period (also referred to as “six months”, “six-month period” or “first half”) that began February 3, 2020, which both ended August 2, 2020.

This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that began May 6, 2019 and the twenty-six week period that began February 4, 2019, which both ended August 4, 2019;

and our financial condition as of August 2, 2020 compared to February 2, 2020.

References in this report to:

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Dollar amounts presented in the tables below are in thousands except for per share data.

In the discussion below we reference changes in sales orders or “orders” and sales order backlog (unshipped orders at a point in time) or “backlog” over and compared to certain periods of time and changes discussed are in sales dollars and not units of inventory, unless stated otherwise.

We believe orders are generally good current indicators of sales momentum and business conditions.

However, except for custom or proprietary products, orders may be cancelled before shipment.

If the items ordered are in stock and the customer has requested immediate delivery, we generally ship products in about 7 days or less from receipt of order;

however, orders may be shipped later if they are out of stock or there are production or shipping delays or the customer has requested the order to be shipped at a later date.

For the Hooker Branded segment, Domestic Upholstery segment and All Other, 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, we do not consider order backlogs to be a reliable indicator of expected long-term sales.

We consider the Home Meridian segment’s backlog to be one helpful indicator of that segment’s sales for the upcoming 90-day period.

Due to (i) Home Meridian’s sales volume, (ii) the average sales order sizes of its mass, club and mega account channels of distribution, (iii) the proprietary nature of many of its products and (iv) the project nature of its hospitality business, for which average order sizes tend to be larger and consequently, its order backlog tends to be larger.

The following discussion should be read in conjunction with the condensed consolidated financial statements, including the related notes, contained elsewhere in this quarterly report.

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Our 2020 Annual Report and our other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com.

Hooker Furniture Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of casegoods (wooden and metal furniture), leather furniture and fabric-upholstered furniture for the residential, hospitality and contract markets.

Hooker Furniture Corporation, incorporated in Virginia in 1924, is a designer, marketer and importer of case goods (wooden and metal furniture), leather-and fabric-upholstered furniture for the residential, hospitality and contract markets.

We also domestically manufacture premium residential custom leather and custom fabric-upholstered furniture.

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retailers, according to a 2020 survey by a leading trade publication.

We believe that consumer tastes and channels in which they shop for furniture are evolving at a rapid pace and we continue to change to meet these demands.

We believe that consumer tastes and buying habits are evolving at a rapid pace and we continue to change to meet these demands.

Our strategy is to leverage the financial strength afforded us by Hooker’s slower-growing but highly profitable traditional businesses in order to boost revenues and earnings both organically and by acquiring companies selling in faster-growing channels of distribution in which our traditional businesses are under-represented.

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We also believe our acquisition of Shenandoah Furniture, a North Carolina-based domestic upholsterer, has better positioned us in the “lifestyle specialty” retail distribution channel.

For that channel, domestically- produced, customizable upholstery is extremely viable and preferred by the end consumers who shop at retailers in that channel.

In that channel, domestically- produced, customizable upholstery is viable product preferred by the end consumers who shop at retailers in that channel.

During the fiscal 2021 first quarter, COVID-19 was recognized as a global pandemic.

Federal, state and local governments in the U.S and elsewhere have imposed restrictions on travel and business operations and are advising or requiring individuals to limit or eliminate time outside of their homes.

Federal, state and local governments in the U.S and elsewhere have imposed restrictions on travel and business operations and have advised or required individuals to limit or eliminate time outside of their homes.

Temporary closures of certain businesses were also ordered in certain jurisdictions and other businesses temporarily closed voluntarily.

Consequently, the COVID-19 outbreak severely restricted the level of economic activity in the U.S.

and around the world.

and around the world and demand for our products plummeted, and orders decreased 40.5% in the fiscal 2021 first quarter as compared to the same prior-year period.

To address the financial impact of the virus, we delayed non-essential capital spending and implemented other cost-cutting measures, including abbreviated shifts, furloughs, the temporary closure of our domestic manufacturing plants, staff reductions, temporary fee reductions for our Board of Directors, temporary salary reductions for officers and other managers, rationalizing current import purchase orders and collaborating with our vendors to cut costs and extend payment terms where possible.

While we continue to spend cautiously, business has improved steadily beginning in May 2020 and we’ve seen greatly increased demand for our products compared to the prior-year period and the first quarter of fiscal 2021.

Cancellations of stock orders by large customers and deferred orders from retailers who closed their stores during the shutdown partially drove the steep declines in the fiscal 2021 first quarter.

Fiscal 2021 second quarter orders increased nearly 24% compared to the same prior-year period and year-to-date orders as of the end of the fiscal 2021 second quarter were down only 6.5% as compared to the same prior-year period, despite abysmal first quarter orders.

(The favorable trend continued into fiscal August as orders increased over 50% which brought year-to-date orders up 3% as compared to the same prior-year period.) Consequently, during the 2021 second quarter, our domestic manufacturing plants reopened and are currently operating near capacity.

Most furloughs of our associates have ended, and temporary salary and fee reductions have been rescinded.

We are in the process of re-building inventory to meet increased customer demand.

We monitor information on COVID-19 from the Centers for Disease Control and Prevention (“CDC”) and believe we are adhering to their recommendations regarding the health and safety of our personnel.

To address the potential human impact of the virus, most of our administrative staff are telecommuting.

To address the potential human impact of the virus, most of our administrative staff are still telecommuting.

For those administrative staff not telecommuting and our warehouse and domestic manufacturing employees, we have implemented social distancing and mask policies, instituted daily temperature checks and have stepped-up facility cleaning at each location.

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Testing and treatment for COVID-19 is covered 100% under our medical plan and counseling is available through our employee assistance plan to assist employees with financial, mental and emotional stress related to the virus and other issues.

In addition, we are offering temporary paid leave to employees diagnosed with the virus (and those associates with another diagnosed person or persons in their household) and are working to accommodate associates with child-care issues related to school or day-care closures and anticipated re-openings.

To address the financial impact of the virus, we have delayed non-essential capital spending and have implemented other cost-cutting measures, including abbreviated shifts, furloughs, the temporary closure of our domestic manufacturing plants, staff reductions, temporary fee reductions for our Board of Directors, temporary salary reductions for officers and other managers, rationalizing current import purchase orders and we are working with our vendors to cut costs and extend payment terms where we can.

Demand for home furnishings appears to be increasing as order rates in all divisions have increased.

Orders plummeted over 70% year over year in March and approximately 65% year over year in April.

Cancellations of stock orders by large customers and deferred orders from retailers who closed their stores during the shutdown partially drove the steep declines.

Orders declined significantly during the first few weeks of May but then recovered resulting in an about a 5% overall reduction for the full month compared to the prior year.

Fiscal June and July orders have continued this positive trend.

In addition, for employees diagnosed with the virus (and those associates with another diagnosed person or persons in their household) we are offering work-from-home arrangements where feasible and are working to accommodate associates with child-care issues related to school or day-care closures and anticipated re-openings.

Executive Summary-Results of Operations

Consolidated net sales for the fiscal 2021 first quarter decreased by $30.9 million or 22.8% as compared to the prior year period, from $135.5 million to $104.6 million.

Nearly 50% of the sales decrease occurred in April, the first full month we operated under COVID-19 crisis conditions, which caused greatly reduced demand for our products.

We experienced significant sales decreases in all three reportable segments during the fiscal 2021 first quarter.

Hooker Branded’s net sales decreased by $12.4 million or 31.4%, Home Meridian’s net sales decreased by $10.0 million or 14.7% and Domestic Upholstery’s net sales decreased by $8.5 million or 33.7%.

All Other net sales stayed essentially flat, all as compared to the fiscal 2020 first quarter.

The adverse economic effects brought on by the COVID-19 pandemic triggered an interim intangible asset impairment analysis which required us to perform a valuation of our intangible assets.

As a result of the valuation analysis, we recorded $44.3 million in non-cash impairment charges to write down goodwill and tradenames in our Home Meridian segment and goodwill in the Shenandoah division of our Domestic Upholstery segment.

Our stock price was near a six-year low at the impairment measurement date at the end of the fiscal 2021 first quarter, which was near the zenith of the COVID-19 crisis to that point.

Our deflated quarter-end market valuation was one of the primary inputs in the valuation analysis and the analysis indicated these assets were impaired and it was appropriate to write them down.

Primarily due to the impairment charge, but also due to lower sales, and despite cost cutting measures (described further on page 23), for the first time since the housing crisis over a decade ago, we reported quarterly operating and net losses in the fiscal 2021 first quarter.

Consolidated net loss was $34.8 million compared to $2.0 million of net income reported in the fiscal 2020 first quarter.

Loss per share was $2.95 as compared to earnings per share of $0.17 in the comparable prior year period.

As discussed in greater detail under “Results of Operations” below, the following are the primary factors that affected our consolidated fiscal 2021 first quarter results of operations:

G ross profit .

Consolidated gross profit decreased both in absolute terms and as a percentage of net sales, due to decreased gross profit at Hooker Branded and Domestic Upholstery, as a result of sales declines in both segments and unabsorbed costs in Domestic Upholstery due to the temporary idling of most of its domestic manufacturing operations in April.

Home Meridian’s gross profit increased in absolute terms and as a percentage of net sales due to the non-recurrence of several major prior-year costs including excess tariffs, higher returns and allowances, and increased product costs.

All Other’s gross profit stayed essentially flat in absolute terms and as a percentage of net sales.

S elling and a dministrative expenses .

Consolidated selling and administrative (“S&A”) expenses for fiscal 2021 first quarter decreased in absolute terms due to decreased selling expenses on lower net sales and profitability, decreased compensation expenses, and other decreased operating expenses, partially offset by increased allowances for doubtful accounts and the absence of a deferred gain recognized in the prior year period related to the sale of a former distribution facility.

S&A expenses increased as a percentage of net sales due to lower net sales.

Goodwill and trade name impairment charges.

We recorded $44.3 million in non-cash impairment charges during the quarter.

$39.6 million goodwill impairment charges were recorded in the Home Meridian segment and the Domestic Upholstery segment.

$4.8 million in trade name impairment charges were recorded in the Home Meridian segment.

We recorded income tax benefit of $10.9 million for the fiscal 2021 first quarter, of which income tax benefit of $10.6 million was recorded related to these impairment charges.

O perating loss .

Consolidated operating loss was $45.4 million, a decrease of $48.3 million compared to $2.9 million operating income in the prior year first quarter, due to the factors discussed above and in greater detail in the analysis below.

Fiscal 2021 started on a positive note with increased incoming orders in February as compared with the prior year;

however, the COVID-19 pandemic significantly impacted our business in March and April.

Consolidated net sales decreased by about 23% compared to prior year first quarter.

Decreased demand for home furnishings driven by the temporary closure of many of our customers’ stores and continuing deterioration in the retail environment were the primary drivers of the decline in orders and sales.

We reported operating and net losses for the first time in over a decade.

On a more positive note, our e-commerce sales continued to grow even in the current muted retail environment, which has proven the value of our strategy of pursuing multiple distribution channels at multiple price points.

The Hooker Branded segment’s net sales decreased $12.4 million or 31.4% in the fiscal 2021 first quarter, driven by reduced demand.

The majority of this segment’s customers are traditional furniture stores and small or regional chains, most of which were closed since late March, leading to nearly 30% incoming order decline in the segment.

Despite the sales decline, this segment was still highly profitable with a 29.5% gross margin and a 4.9% operating income margin during the quarter, which we believe to be excellent performance under current economic conditions.

The Home Meridian segment’s net sales decreased $10.0 million or 14.7% in the fiscal 2021 first quarter due primarily to lower sales volume due to the COVID-19 pandemic.

Current economic factors, such as high unemployment and low consumer confidence, have resulted in a weak retail environment for home furnishings and caused discretionary purchases of furniture to decline.

Consequently, Home Meridian experienced a spike in order cancellations in March and April, which resulted in nearly 50% decrease in incoming orders and 25.3% decrease in backlog compared to the prior year first quarter.

In addition to the aforementioned intangible asset impairment charges recorded in this segment of $27.9 million and sales decline, lower margin sales programs, promotion expenses and unexpected chargebacks also contributed to the $30.3 million operating loss.

On a more positive note, we believe the cost-related issues which negatively impacted Home Meridian’s sales and profitability in the prior year, such as excess tariffs and higher than expected quality allowances, are largely behind us.

The resourcing transition to non-tariff countries is well along.

Samuel Lawrence Furniture benefited from the Vietnam mixing warehouse program and reported a marginally profitable quarter.

Home Meridian’s emerging distribution channels, including ecommerce and hospitality, had solid performance during the quarter.

Samuel Lawrence Hospitality’s net sales increased by 22.6% as large projects were already in the pipeline at year-end.

E-commerce sales, which were less impacted by retail shutdowns during the COVID-19 pandemic, continued to grow at a steady pace and accounted for 35% of Home Meridian’s total sales in the quarter, while maintaining better margins compared to the other Home Meridian channels.

The Domestic Upholstery segment’s net sales decreased by $8.5 million or 33.7% in the fiscal 2021 first quarter driven by decreased sales volume and lower average selling prices.

The segment experienced a 40% decrease in incoming orders as compared to the same period from the prior year.

In response to those reduced orders, we temporarily closed our manufacturing plants at Bradington-Young and Shenandoah for about a month during the quarter, and Sam Moore operated at about 50% capacity during that period.

Reduced order volume and unabsorbed indirect costs contributed to operating inefficiencies and significantly impacted gross margin in this segment.

All Other’s net sales were essentially flat;

however, it reported $387,000 in operating income in the fiscal 2021 first quarter driven by solid H Contract performance, with a 16% increase in incoming orders and 68% higher backlog compared to the prior year first quarter.

Despite unfavorable product mix having a modest adverse impact on gross margin, H Contract margins remained strong.

Lifestyle Brands, a new business started in fiscal 2019, also reported a profit for the quarter.

To address the financial impact of COVID-19 pandemic, during the fiscal 2021 first quarter we implemented certain measures to reduce operating expenses and preserve cash which included temporary fee reductions for our Board of Directors, temporary salary reductions for officers and certain other managers, strategic staff reductions, the temporary closure of our domestic manufacturing plants and the furlough of manufacturing, warehouse and administrative associates, delaying all non-critical capital spending, rationalizing current import purchase orders, working with our vendors to cut costs and extend payment terms where we could.

Despite the operating loss for the quarter, we generated $18.9 million in cash from operating activities, received $673,000 life insurance proceeds, paid $2.2 million in principal and interest on our term loans, and distributed $1.9 million in cash dividends to our shareholders.

Cash and cash equivalents stood at $51.2 million at fiscal 2021 first quarter-end, an increase of $15.2 million compared to the balance at fiscal 2020 year-end.

Along with an aggregate $25.7 million available under our existing revolver to fund working capital, we are confident in our financial condition and we believe we have financial resources to weather the expected short-term impacts of COVID-19;

We began to recover from the depths of the initial COVID-19 crisis in the fiscal 2021 second quarter.

Our results were greatly improved as compared to the first quarter of fiscal 2021, which was our worst quarterly performance recorded in over a decade.

While second quarter net sales were lower than the prior year-quarter due to the lagging effects of the crisis, net income was up 39% and quarterly earnings per share was $0.48 as compared to $0.35 in the prior year second quarter.

Fiscal 2021 first half results clearly show the adverse economic effects brought on by the initial severity of COVID-19 crisis conditions, which caused demand for our products to plummet.

First half sales were down over 18% with nearly 60% of the consolidated net sales decrease occurring in the first quarter of fiscal 2021.

The net loss reported in the first half was due principally to $44.3 million non-cash impairment charges on our goodwill and trade names ($33.7 million net of tax), driven largely by our depressed stock price which occurred at the depth of the crisis and which was a primary input in the valuation analysis that necessitated the write-off.

First-half loss per share was $2.46 as compared to earnings per share of $0.52 in the comparable period.

Our fiscal 2021 second quarter and first-half performance is discussed in greater detail below under “Review” and “Results of Operations.”

Although the COVID-19 pandemic continued to impact current economic conditions and our business, we are pleased to report encouraging results for the second quarter of fiscal 2021.

Consolidated operating income increased by $1.7 million or 30.2% as compared to the prior year second quarter.

The Home Meridian segment reported $1.1 million in operating income compared to a small operating loss in the prior year second quarter.

Our Hooker Branded segment reported $6.1 million in operating income, with an increased operating margin of 15.7% of net sales compared to 10.4% net sales in the comparable prior-year period.

The Domestic Upholstery segment reported essentially break-even operating results for the second quarter despite decreased net sales and inefficiencies from operating at reduced production volumes and lower capacities, which is a much better performance than initially expected under crisis conditions.

The Hooker Branded segment’s net sales slightly decreased by $584,000 or 1.5% as compared to the prior year second quarter, while increasing nearly $12 million or 43% as compared to the fiscal 2021 first quarter.

Most of our customers’ stores reopened during the second quarter, leading to increased demand for our products.

Incoming orders increased by 11.8% as compared to the prior year second quarter and over 50% as compared to the first quarter.

The Hooker Branded segment finished the quarter with an order backlog 47% higher than the comparable prior year period and 45% higher than the fiscal 2021 first quarter.

The Home Meridian segment’s net sales decreased $16 million or 18.4% in the fiscal 2021 second quarter as compared to the prior year second quarter due primarily to decreases in the Samuel Lawrence Hospitality (“SLH”), Pulaski Furniture (“PFC”) and Samuel Lawrence Furniture (“SLF”) divisions, partially offset by increased sales in the Accentrics Home (“ACH”) and HMidea divisions.

The COVID-19 pandemic severely impacted the hospitality business beginning in the fiscal 2021 second quarter and, consequently, SLH’s sales decreased.

PFC’s and SLF’s sales decreases were mostly due to cancelled and delayed orders early in the pandemic that delayed the normal flow of product.

Most customers in this channel were closed or their operations severely limited in the fiscal 2021 first quarter and were slower to recover in the fiscal 2021 second quarter.

However, incoming orders in this channel increased in the fiscal 2021 second quarter as these customers responded to better than expected business following the initial shutdowns.

ACH’s and HMidea’s sales increased by about 20% and accounted for 34% of Home Meridian’s total sales in the quarter.

These divisions concentrate on the e-commerce and Clubs channels, which were less seriously impacted by the COVID-19 crisis.

Four out of six divisions in the Home Meridian segment reported operating income for the quarter and four out of six divisions reported improved operating margin compared to the prior year period, which we believe was attributable to the reduced occurrence of cost-related issues which negatively impacted Home Meridian’s sales and profitability in the prior year, such as excess tariffs, higher freight costs and warehousing and distribution expenses.

The Domestic Upholstery segment’s net sales decreased by $5.2 million or 22.8% in the fiscal 2021 second quarter as compared to the fiscal 2020 second quarter.

Second quarter incoming orders decreased by 5.9% as compared to the prior year period.

In response to the COVID-19 pandemic and reduced orders, we temporarily closed our manufacturing plants at Bradington-Young and Shenandoah in April and gradually resumed their operations in the second quarter.

At the end of July, all three divisions were operating near capacity as they continue to ramp up from reduced operating schedules.

Domestic Upholstery management implemented cost reduction measures to mitigate unabsorbed fixed costs resulting from the lower production volumes.

At the end of the second quarter, Domestic Upholstery’s backlog was about 45% higher than both the fiscal 2021 first quarter and prior year second quarter, due to the ramp up from reduced operating schedules in the second quarter and the receipt of programmed orders scheduled to ship later in the fall.

All Other’s net sales increased slightly compared to prior year second quarter.

Both H Contract and Lifestyle Brands reported small sales increases.

However, H Contract’s incoming orders decreased by 9% in the second quarter, as senior-living facilities, which comprise the majority of this division’s business, felt the impact of the COVID-19 pandemic.

Although orders were below the prior year, thanks to strong first quarter incoming orders, H Contract’s backlog was over 30% higher than the prior year second quarter.

All Other reported $350,000 in operating income in the fiscal 2021 second quarter which was attributable to H Contract’s performance, despite unfavorable product mix having a modest adverse impact on the gross margin.

To address the financial impact of the COVID-19 pandemic, during the fiscal 2021 first half we implemented certain measures to preserve cash and reduce operating expenses.

We strategically monitored our inventory levels by focusing on best-selling products.

We are in the process of re-building our inventories to meet current demand and given current lead times with our Asian partners, we have and may continue to experience out-of-stocks with respect to certain imported products.

Despite the operating loss for the six-month period, we generated $53.2 million in cash from operating activities, distributed $3.8 million in cash dividends to our shareholders, and paid $3.2 million in principal and interest on our term loans.

Cash and cash equivalents stood at $82.2 million at fiscal 2021 second quarter-end, an increase of $46.2 million compared to the balance at fiscal 2020 year-end.

Along with an aggregate $25.7 million available under our existing revolver to fund working capital, we are confident that our strong financial condition can weather the expected short-term impacts of COVID-19;

however, an extended impact may continue to materially and adversely affect our sales, earnings and liquidity.

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

Cost of sales

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Interest expense, net

(Loss)/income before income taxes

Income tax expense

Income/(loss) before income taxes

Income tax expense/(benefit)

Net (loss)/income

Fiscal 202 1 First Quarter Compared to Fiscal 20 20 First Quarte r

Fiscal 2020 results have been recast based on the re-composition of our reportable segments during the fiscal 2020 fourth quarter.

See Note 13 Segment Information for additional details regarding the re-composition of our operating segments.

Fiscal 2021 Second Quarter Compared to Fiscal 2020 Second Quarter

Thirteen Weeks Ended

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Domestic Upholstery

Average Selling Price

FY21 Q2 % Increase

Average Selling Price (ASP)

FY21 Q2 % Increase

Hooker Branded

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Domestic Upholstery

Consolidated net sales decreased due to significantly reduced sales volume in all three reportable segments versus the prior year period.

The net sales decrease in the Hooker Branded segment was attributable to decreased unit volume in both Hooker Casegoods and Hooker Upholstery divisions.

ASP increased in Hooker Branded segment due to increased ASP in Hooker Casegoods, partially offset by decreased ASP in Hooker Upholstery driven by higher discounting and advertising allowances on e-commerce sales.

However, increased ASP was not sufficient to recover the steep volume loss.

Net sales decreased in Home Meridian segment driven by decreased unit volume with major furniture chains and mega accounts due to significantly reduced orders, partially offset by increased sales in the Samuel Lawrence Hospitality (“SLH”) business and to a lesser extent club and e-commerce sales at Accentrics Home.

ASP increase was attributable to increased ASP in SLH due to the nature of its projects.

Domestic Upholstery segment net sales decreased due to volume loss and decreased ASP.

In April, we temporarily shut down Bradington-Young and Shenandoah manufacturing plants and kept the Sam Moore division operating at 50% capacity in response to COVID-19 pandemic restrictions as well as decreased incoming orders.

Thus, Bradington-Young and Shenandoah essentially did not report sales in April, while Sam Moore’s April net sales were only 37% of the prior year amount.

Domestic Upholstery segment ASP decreased due to a smaller mix of higher-priced Bradington-Young leather products.

All Other net sales increased slightly due to the addition of Lifestyle Brands sales and increased H Contract ASP, partially offset by H Contract decreased unit volume.

Consolidated net sales decreased due primarily to the sales decline in the Home Meridian and Domestic Upholstery segments as a result of significantly reduced sales volume at those two segments.

Hooker Branded segment net sales decreased slightly in the fiscal 2021 second quarter driven by a mid-single digit sales percentage decease in Hooker Casegoods as compared to the prior year period, partially offset by a 12% sales increase at Hooker Upholstery, due to increased unit volume in this division.

ASP decreased slightly in Hooker Casegoods division driven by higher discounting on e-commerce and discontinued product sales.

Hooker Upholstery ASP stayed essentially flat.

Net sales decreased in the Home Meridian segment due primarily to sales declines in the SLH, PFC and SLF divisions which were more adversely impacted by the pandemic, partially offset by increased sales in the ACH and HMIdea divisions which are focused on the e-commerce and Clubs sales channels.

The ASP increase was principally attributable to increased ASP in SLH due to the nature of its projects;

however, it was not sufficient to offset the severe volume loss in its hospitality business.

Domestic Upholstery segment net sales decreased due to net sales decline in Bradington-Young and Shenandoah divisions as their manufacturing plants were temporarily idled in April and reopened at a slower pace in the fiscal 2021 second quarter.

Net sales and unit volume decreased by over 20% in these two divisions.

The Sam Moore division restored operations to 80% capacity and reported a lower single digit net sales decrease as compared to the prior year period.

Domestic Upholstery segment ASP decreased due to a lower ratio of higher-priced Bradington-Young leather products.

All Other net sales increased 1.7% in the fiscal 2021 second quarter.

Both H Contract and Lifestyle Brands reported increased net sales, driven by increased unit volume in both divisions, partially offset by H Contract decreased ASP.

Gross Income and Margin

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Domestic Upholstery

Consolidated gross profit decreased in absolute terms and as a percentage of net sales in the fiscal 2021 first quarter versus the prior year period.

The Hooker Branded segment’s gross profit decreased $4.6 million due primarily to the net sales decline.

Gross margin decreased from 31.7% to 29.5% due to the increase of fixed expenses as a percentage of net sales on lower net sales.

Product costs were negatively impacted in Hooker Upholstery due to a higher mix of product sourced from China which carry higher costs.

Home Meridian segment gross margin increased in absolute terms and as a percentage of net sales despite a net sales decline.

In the prior year period, this segment was heavily impacted by increased product costs due to excess tariffs, unexpected quality allowances, and increased warehousing and distribution costs to handle excess inventory.

These issues did not re-occur in the fiscal 2021 first quarter, which we believe is the result of the resourcing transition to Vietnam which has helped to reduce product costs, and the exit of temporary warehouses, which has reduced warehousing and handling costs.

Home Meridian gross margins were, however, negatively impacted by some lower-margin sales programs.

Domestic Upholstery segment’s gross profit decreased significantly in absolute terms and as a percentage of net sales due to the net sales decline and inefficiencies of operating at reduced production volume.

Unabsorbed indirect and fixed costs adversely impacted gross margin by 6.5% in this segment.

All Other’s gross profit and margin stayed flat in absolute terms and as a percentage of net sales.

Consolidated gross profit decreased in absolute terms and increased as a percentage of net sales in the fiscal 2021 second quarter as compared to the prior year period.

The Hooker Branded segment’s gross profit increased due to increased gross margin in the Hooker Casegoods division, which was attributable to favorable product costs and reduced warehousing and distribution expenses during the pandemic.

Gross profit was negatively impacted by increased product costs at Hooker Upholstery due to a higher mix of product sourced from China which carried higher costs due to tariffs imposed during a prior year.

Home Meridian segment gross profit decreased in absolute terms but improved as a percentage of net sales due to reduced tariff costs as the sourcing transition from China to non-tariff countries has progressed, as well as the absence of several negative issues which impacted the prior year, including higher freight costs and increased warehousing and distribution costs to handle excess inventory related to quality issues and inventory growth due to slower sales than forecast.

These improvements were partially offset by lower margins on the sale of some slow-moving inventory.

Domestic Upholstery segment’s gross profit decreased in absolute terms and as a percentage of net sales due primarily to the net sales decline and to a lesser extent unabsorbed indirect and fixed costs at Shenandoah due to operating inefficiencies resulting from lower production levels.

Cost reduction efforts at Bradington-Young helped this division maintain gross margins at similar levels as compared to the prior year period.

Sam Moore gross margin was negatively impacted by higher benefits expense.

All Other’s gross profit decreased in absolute terms and as a percentage of net sales due to unfavorable product mix at the H Contract division.

Selling and Administrative Expenses (S&A)

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Domestic Upholstery

Consolidated selling and administrative (“S&A”) expenses decreased in absolute terms while increased as a percentage of net sales in the fiscal 2021 first quarter versus the prior year period.

The Hooker Branded segment’s S&A expenses decreased in absolute terms in the fiscal 2021 first quarter due primarily to decreased selling costs as the result of lower net sales, decreased employee compensation expenses related to temporary salary reductions, furloughs and the elimination of positions due to the COVID-19 pandemic and decreased travel and market expenses due also to COVID-19.

The decreases were partially offset by higher bad debt expenses due to a customer write-off during the quarter unrelated to COVID-19 and an increase in reserves to recognize expected future credit losses under the aforementioned ASC 326 requirements effective for us during the current quarter, increased advertising supply expenses for new product introductions, and the absence of a deferred gain related to the sale of a former distribution facility recorded in the prior year period.

Hooker Branded segment S&A expenses increased as a percentage of net sales due to lower net sales.

The Home Meridian segment’s S&A expenses decreased in absolute terms while staying relatively flat as a percentage of net sales.

The decrease was principally attributable to lower selling expenses due to net sales, and to a lesser extent spending reductions, decreased travel and professional service expenses which were higher in the prior year period due to the resourcing transition.

These expenses decreased in the current period as the resourcing transition was in its final stages and business travel was also limited due to COVID-19 pandemic.

The Domestic Upholstery segment’s S&A expenses decreased in absolute terms due to decreased selling expenses on lower net sales, partially offset by higher medical claim costs.

All Other S&A expenses increased slightly in absolute terms and as a percentage of net sales due to internal personnel changes.

Goodwill impairment charges

Consolidated selling and administrative (“S&A”) expenses decreased in absolute terms and as a percentage of net sales in the fiscal 2021 second quarter as compared to prior year period.

The Hooker Branded segment’s S&A expenses decreased in absolute terms and as a percentage of net sales, due to the cost reduction initiatives related to the COVID-19 pandemic, and decreased selling and travel expenses.

The Home Meridian segment’s S&A expenses decreased in absolute terms due to lower selling expenses on decreased net sales and spending reduction initiatives in response to the COVID-19 crisis, but increased as a percentage of net sales due to lower sales.

These decreases were partially offset by increased professional service expenses.

The Domestic Upholstery segment’s S&A expenses decreased in absolute terms due to the cost reduction efforts and to a lesser extent decreased selling expenses on lower net sales.

S&A increased as a percentage of net sales due to lower net sales.

All Other S&A expenses were essentially flat.

Intangible Asset Amortization

Thirteen Weeks Ended

Intangible asset amortization

Intangible asset amortization expense stayed the same compared to the prior year second quarter.

Operating Profit / (loss) and Margin

Thirteen Weeks Ended

Hooker Branded

Home Meridian

Domestic Upholstery

Trade name impairment charges

Operating income increased in absolute terms and as a percentage of net sales, due to the factors discussed above.

Interest Expense, net

Thirteen Weeks Ended

Consolidated interest expense, net

Consolidated interest expense decreased in fiscal 2021 second quarter primarily due to lower interest rates on our variable-rate term loans, as well as lower principal balances.

Thirteen Weeks Ended

Consolidated income tax expense

Effective Tax Rate

We recorded income tax expense of $1.6 million for the fiscal 2021 second quarter compared to $1.2 million for the comparable prior year period.

The effective tax rates for the fiscal 2021 and 2020 second quarters were 21.8% and 23.1%, respectively.

Thirteen Weeks Ended

Diluted earnings per share

Fiscal 2021 First Half Compared to Fiscal 2020 First Half

Twenty-Six Weeks Ended

Hooker Branded

Home Meridian

We recorded $23.2 million and $16.4 million in non-cash impairment charges to write down goodwill in Home Meridian segment and the Shenandoah division under Domestic Upholstery segment, respectively.

We also recorded $4.8 million non-cash impairment charges to write down tradenames in the Home Meridian segment.

Domestic Upholstery

FY21 YTD % Increase

Average Selling Price (ASP)

FY21 YTD % Increase

Hooker Branded

Home Meridian

Domestic Upholstery

Consolidated net sales decreased due to significantly reduced sales volume in all three reportable segments as compared to the prior year period.

Much of the unit volume decline in all segments is attributable to order cancelations and reduced ordering by our customers in immediate response to the COVID-19 pandemic, which caused many of our customers, particularly traditional furniture retailers which were deemed non-essential, to face state-mandated temporary store closures to help reduce the spread of COVID-19.

The net sales decrease in the Hooker Branded segment was attributable to decreased unit volume primarily in the Hooker Casegoods division and to a lesser extent in the Hooker Upholstery division.

ASP increased in the Hooker Branded segment due to increased ASP in Hooker Casegoods, partially offset by decreased ASP in Hooker Upholstery driven by higher discounting on e-commerce and discontinued product sales.

Home Meridian segment net sales decreased due to decreased unit volume in all divisions except for HMidea, which saw higher sales due to increased sales in the e-commerce and Clubs channels.

The ASP increase was attributable to increased ASP in SLH due to the nature of its projects.

Domestic Upholstery segment net sales decreased due to volume loss in all three divisions and decreased ASP.

We temporarily shut down Bradington-Young’s and Shenandoah’s manufacturing plants in April in response to COVID-19 pandemic restrictions and a decline in orders.

Thus, Bradington-Young and Shenandoah essentially did not report sales in April and reported net sales at 40% and 60%, respectively, of the prior year amounts in May.

The Sam Moore division operated at 50% capacity in April and resumed to 80% in the second quarter.

Its sales decrease was driven by decreased unit volume.

The Domestic Upholstery segment’s ASP decreased due to reduced proportion of higher-priced Bradington-Young leather products.

All Other net sales increased slightly due to the addition of Lifestyle Brands sales, partially offset by decreased net sales at H Contract due to decreased unit volume and ASP.

Gross Income and Margin

Twenty-Six Weeks Ended

Hooker Branded

Home Meridian

Domestic Upholstery

Consolidated gross profit decreased in absolute terms while increased as a percentage of net sales in the fiscal 2021 first half versus the prior year period.

The Hooker Branded segment’s gross profit decreased in absolute terms due to the decline in sales and stayed essentially flat as a percentage of net sales.

Home Meridian segment gross margin increased in absolute terms in spite of lower net sales, but consequently increased as a percentage of net sales.

In the prior year period, this segment was heavily impacted by increased product costs due to excess tariffs, higher freight costs, and increased warehousing and distribution costs to handle excess inventory.

These issues did not re-occur in fiscal 2021, which we believe is the result of the resourcing transition to Vietnam which has helped to reduce product costs, and the exit of temporary warehouses, which has reduced warehousing and handling costs.

Unabsorbed fixed costs adversely impacted gross margin by 5.6% in this segment.

All Other’s gross profit and margin decreased in absolute terms and as a percentage of net sales due to unfavorable product mix.

Selling and Administrative Expenses (S&A)

Twenty-Six Weeks Ended

Hooker Branded

Home Meridian

Domestic Upholstery

Consolidated S&A expenses decreased in absolute terms but increased as a percentage of net sales in the fiscal 2021 first half versus the prior year period.

The Hooker Branded segment’s S&A expenses decreased in absolute terms in the fiscal 2021 first half due primarily to decreased selling costs on lower net sales, as well as cost-cutting measures implemented to address the COVID-19 crisis.

The decreases were partially offset by higher bad debt expenses due to a customer write-off during the first quarter unrelated to COVID-19 and an increase in reserves to recognize expected future credit losses under ASC 326 requirements, which we adopted during the first quarter of fiscal 2021.

The Home Meridian segment’s S&A expenses decreased in absolute terms and increased slightly as a percentage of net sales.

The decrease was principally attributable to lower selling expenses due to lower net sales and cost reductions implemented in response to the COVID-19 crisis.

These decreases were partially offset by increased professional service expenses.

The Domestic Upholstery segment’s S&A expenses decreased in absolute terms due to decreased selling expenses on lower net sales, as well as cost reductions such as decreased compensation expenses and advertising supply expenses.

All Other S&A expenses increased both in absolute terms and as a percentage of net sales.

Goodwill impairment charges

Twenty-Six Weeks Ended

Home Meridian

Domestic Upholstery

Trade name impairment charges

Twenty-Six Weeks Ended

Home Meridian

In the first quarter of fiscal 2021, we recorded $23.2 million and $16.4 million in non-cash impairment charges to write down goodwill in the Home Meridian segment and the Shenandoah division under Domestic Upholstery segment, respectively.

We also recorded $4.8 million in non-cash impairment charges to write down tradenames in the Home Meridian segment.

Intangible Asset Amortization

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Intangible asset amortization

Intangible asset amortization expense stayed the same compared to the prior year first quarter.

Intangible asset amortization expense stayed the same compared to the prior year first half.

Operating (Loss)/Profit and Margin

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Hooker Branded

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Interest Expense, net

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Consolidated interest expense, net

Consolidated interest expense decreased in fiscal 2021 first quarter primarily due to lower interest rates on our variable-rate term loans, as well as lower principal balances.

Thirteen Weeks Ended

Consolidated interest expense decreased in the fiscal 2021 first half primarily due to lower interest rates on our variable-rate term loans, as well as lower principal balances.

Twenty-Six Weeks Ended

Consolidated income tax (benefit)/expense

Effective Tax Rate

We recorded income tax benefit of $10.9 million for the fiscal 2021 first quarter, of which income tax benefit of $10.6 million was recorded related to goodwill and trade name impairment charges, compared to $515,000 income tax expense for the comparable prior year period.

The effective tax rates for the fiscal 2021 and 2020 first quarters were 23.8% and 20.6%, respectively.

We recorded income tax benefit of $9.3 million for the fiscal 2021 first half, of which $10.7 million was recorded related to goodwill and trade name impairment charges, compared to $1.8 million income tax expense for the comparable prior year period.

The effective tax rates for the fiscal 2021 and 2020 first half periods were 24.2% and 22.3%, respectively.

Net (Loss)/Income

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Net (loss)/income

Diluted (loss) / earnings per share

The COVID-19 crisis drove the most significant downturn in our business in over 50 years.

However, the disruption has not been as severe as we initially projected.

Based on the improvement in orders and retail sales we’ve seen since the end of the fiscal 2021 first quarter, as stores and the economy continue to reopen, we are cautiously optimistic that the worst is behind us and that business will steadily improve through the summer and fall.

We believe the Company remains in exceptional financial condition with a strong balance sheet and barring a second nationwide or large-scale lock-down, we expect business to improve each quarter as we go through the year.

However, we have limited visibility of how the economic and health crises may fluctuate in the coming months and face headwinds of significant levels of unemployment, recent social unrest and general uncertainty.

After beginning the current fiscal year on an upturn with an 8.3% year-over-year increase in consolidated incoming orders in February, orders plummeted over 70% year-over-year in March and approximately 65% year-over-year in April partially driven by cancellations of stock orders by large customers and deferred orders from retailers who closed their stores during the shutdown.

Orders declined significantly during the first few weeks of May but then recovered resulting in about a 5% overall reduction for the full month of May compared to the prior year.

Fiscal June and to-date July orders have continued this positive trend with fiscal June orders and orders thus far in July at higher rate than the comparable month a year ago.

We believe there are several positive factors in play such as pent-up demand, more focus on home environments and less competition for discretionary consumer spending from travel, dining out, sporting events, concerts and other activities.

In addition, Hooker’s domestic upholstery manufacturing facilities for Bradington-Young, Sam Moore and Shenandoah began ramping up production in early May and are currently operating near capacity on a consolidated basis, which is a significant increase over the fiscal 2021 first quarter, which will improve efficiencies and cost absorption.

As of the end of our fiscal 2021 first quarter of May 3, 2020, our cash position was $51.2 million, an increase of $15.2 million over the end of the 2020 fiscal year on February 2, 2020.

Since the end of the fiscal 2021 first quarter on May 3, 2020, we added an additional $31.0 million in cash to the quarter-end balance as of the date of July 23, 2020.

Additionally, we have access to about $26 million under our existing revolver to fund working capital requirements and have access to an additional $25.6 million in cash surrender value of Company-owned life insurance policies.

While we expect our cash balances to decline somewhat as we rebuild inventories and trade receivables increase- both to accommodate increased sales- we expect our liquidity to be sufficient.

Discussions with our lender to refinance our credit facility which expires in February 2021 have begun and we expect to be successful in refinancing our debt;

however, we believe we have sufficient financial resources to continue to operate even without refinancing our debt.

Given the strong demand we have seen since mid-May and with backlogs up 35% as of the end of the second quarter, we are entering the fall selling season with momentum and optimism.

The factors noted above have currently positioned home furnishings as an advantaged category and we are well-positioned to capitalize on that.

We are concerned about the human and economic toll of COVID-19, both currently and prospectively, as the possibility of additional surges of the virus may delay re-openings and have adverse effects in certain regions or states and consequently on demand for our products.

Barring a second nationwide or large-scale lock-down, we expect business to improve in the second half of the fiscal year.

However, we have limited visibility of how the economic and health crises may fluctuate in the coming months and face headwinds of substantial unemployment, continuing social unrest and general uncertainty.

We remain in exceptional financial condition with a strong balance sheet.

As of the end of our fiscal 2021 second quarter, our cash position was $82.2 million, an increase of $46 million over the end of the 2020 fiscal year on February 2, 2020.

Additionally, we have access to about $26 million under our existing revolver to fund working capital requirements and to an additional $25 million in cash surrender value of Company-owned life insurance policies.

While we expect our cash balances to decline somewhat over the remainder of the year as we rebuild inventories and as trade receivables increase- both to accommodate increased sales- we expect our liquidity to be sufficient.

Discussions with lenders to refinance our credit facility which expires in February 2021 have begun and we expect to be successful in refinancing our debt;

however, we believe we have sufficient financial resources to continue to operate effectively even without refinancing our debt.

We expect to continue managing cash and spending cautiously as we move through the coming months.

2 unchanged sentences

Cash Flows – Operating, Investing and Financing Activities

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Net cash provided by operating activities

Net cash provided by/(used in) investing activities

Net cash used in investing activities

Cash used in financing activities

Net increase in cash and cash equivalents

During the three months ended May 3, 2020, we used a portion of the $18.9 million cash generated from operations and $673,000 life insurance proceeds to pay $2.2 million in principal and interest payments on our term loans, $1.9 million in cash dividends, and $162,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, during the three months ended May 5, 2019, cash generated from operations of $20.3 million and $1.4 million proceeds on a note receivable helped to pay $1.8 million in cash dividends, $1.5 million in long-term debt payments, $1.5 million of capital expenditures to expand our domestic manufacturing capacities and to enhance our business systems and facilities, and $157,000 in life insurance premiums.

During the six months ended August 2, 2020, we used a portion of the $53.2 million cash generated from operations and $673,000 life insurance proceeds to pay $3.8 million in cash dividends, $3.2 million in principal and interest payments on our term loans, and $453,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, during the six months ended August 4, 2019, we used some of the $11.0 million of cash generated from operations and $1.4 million of proceeds on a note receivable to pay for $3.7 million of capital expenditures to expand our domestic manufacturing capacities and to enhance our business systems and facilities, $3.5 million in cash dividends, $2.9 million in long-term debt payments, and $489,000 in life insurance premiums.

Liquidity, Financial Resources and Capital Expenditures

16 unchanged sentences

Also on February 1, 2016, we borrowed in full the amounts available under the Unsecured Term Loan (the “Unsecured Term Loan”) and the Secured Term Loan (the “Secured Term Loan”) in connection with the completion of the Home Meridian acquisition.

Details of the individual credit facilities provided for in the Original Loan Agreement are as follows:

Details of the individual credit facilities referenced in the Original Loan Agreement are as follows:

Unsecured revolving credit facility.

26 unchanged sentences

We paid off the New Unsecured Term Loan in fiscal 2019.

We were in compliance with each of these financial covenants at May 3, 2020 and expect to remain in compliance with existing covenants for the foreseeable future.

We were in compliance with each of these financial covenants at August 2, 2020 and expect to remain in compliance with existing covenants for the foreseeable future.

We believe we have the financial resources to weather the expected short-term impacts of COVID-19;

however, an extended impact may materially and adversely affect our sales, earnings and liquidity.

As of May 3, 2020, $11.1 million was outstanding under the Unsecured Term Loan, $17.1 million was outstanding under the Secured Term Loan.

As of August 2, 2020, $10.1 million was outstanding under the Unsecured Term Loan, $17.1 million was outstanding under the Secured Term Loan.

Revolving Credit Facility Availability

As of May 3, 2020, we had an aggregate $25.7 million available under our revolving credit facility to fund working capital needs.

Standby letters of credit in the aggregate amount of $4.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of May 3, 2020.

There were no additional borrowings outstanding under the revolving credit facility as of May 3, 2020.

As of August 2, 2020, we had an aggregate $25.7 million available under our revolving credit facility to fund working capital needs.

There were no additional borrowings outstanding under the revolving credit facility as of August 2, 2020.

Expected Refinancing in Fiscal 2021

All amounts outstanding on our term loans and revolving credit facility are due and payable on the first day of fiscal 2022, February 1, 2021 and discussions with our lender about refinancing have begun.

We expect to refinance any amounts outstanding under these loans and credit facility during fiscal 2021.

However, if the negative economic effects of COVID-19 persist, it would likely have a material adverse effect on our sales, earnings and liquidity.

All amounts outstanding on our term loans and revolving credit facility are due and payable on the first day of fiscal 2022, February 1, 2021 and discussions with lenders about refinancing are underway.

We expect to enter into a new credit facility on or before the expiration of the current agreement.

Given current market dynamics, we expect credit to be more costly than our current lending arrangements.

If the negative economic effects of COVID-19 persist, it would likely have a material adverse effect on our sales, earnings and liquidity.

Consequently, our credit rating may decrease or the availability of loans may be limited and refinancing our debt may be more difficult and loans more costly.

Irrespective of our success in refinancing these loans, we believe we could pay them off and have sufficient liquidity for working capital needs thanks to our strong cash position and access to cash surrender value of Company-owned life insurance.

Capital Expenditures

Prior to the COVID-19 crisis, we expected to spend between $2.5 million to $4.5 million in capital expenditures in fiscal 2021 to maintain and enhance our operating systems and facilities.

Prior to the COVID-19 crisis, we expected to spend between $2.5 million to $4.5 million for capital projects in fiscal 2021 to maintain and enhance our operating systems and facilities.

However, due to the negative economic effects of COVID-19, we have delayed indefinitely about $3 million in non-critical capital spending.

We expect to spend between $1.0 to $2.0 million in the remainder of the 2021 fiscal year to maintain and continue to enhance our operating systems and facilities.

We expect to spend between $500,000 to $1.0 million in the remainder of the 2021 fiscal year to maintain and enhance our operating systems and facilities.

COVID-19 Cost Cutting and Cash Preservation Measures

During the fiscal 2021 first quarter, we initiated certain measures to reduce operating expenses and preserve cash which include temporary fee reductions for our Board of Directors, temporary salary reductions for officers and certain other managers, strategic staff reductions, the temporary closure of our domestic manufacturing plants and the furlough of manufacturing, warehouse and administrative associates, delaying all non-critical capital spending, rationalizing current import purchase orders, working with our vendors to cut costs and extend payment terms where we can.

As of the end of our fiscal 2021 first quarter of May 3, 2020, our cash position had increased by $15.2 million over the end of the 2020 fiscal year on February 2, 2020.

Since the end of the fiscal 2021 first quarter on May 3, 2020, we added an additional $31 million in cash as of July 23, 2020.

Subsequent to the end of the fiscal 2021 first quarter on June 2, 2020, our board of directors declared a quarterly cash dividend of $0.16 per share, which was paid on June 30, 2020 to shareholders of record at June 16, 2020.

We have seen steady improvement in orders and shipments since the end of our fiscal 2021 first quarter on May 3, 2020.

We also delayed all non-critical capital spending, rationalized our import purchase orders and accepted certain accommodations from our vendors to cut costs and extend payment terms where possible.

While we continue to spend cautiously, business has improved steadily beginning in May 2020 and we’ve seen greatly increased demand for our products.

Consequently, during the 2021 second quarter, our domestic manufacturing plants reopened and are currently operating near capacity.

Most furloughs of our associates have ended and temporary salary and fee reductions have been rescinded.

We are in the process of re-building inventory to meet increased customer demand.

As of the end of our fiscal 2021 second quarter of August 2, 2020, our cash position had increased by $46.2 million over the end of the 2020 fiscal year on February 2, 2020.

We expect these cash balances to decrease as we build inventories to meet increased customer demand.

On September 2, 2020, our board of directors declared a quarterly cash dividend of $0.16 per share, payable on September 30, 2020 to shareholders of record at September 18, 2020.

We expect our low fixed cost business model, which served us well during the Great Recession, to help us navigate the current disruption.

6 unchanged sentences

Recently Adopted Accounting Policies” (“Note 2”).

See Note 2 for additional information related to the impact of adopting this accounting standard.

See Note 2 for additional information related to the impact of adopting these accounting standards.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis