Item 1. Financial Statements
Item 1. Financial Statements
HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
As of
November 1,
February 2,
2020
2020
(unaudited)
Assets
Current assets
Cash and cash equivalents
$
93,874
$
36,031
Trade accounts receivable, net
75,297
87,653
Inventories
64,083
92,813
Income tax recoverable
-
751
Prepaid expenses and other current assets
4,543
4,719
Total current assets
237,797
221,967
Property, plant and equipment, net
27,315
29,907
Cash surrender value of life insurance policies
25,104
24,888
Deferred taxes
14,152
2,880
Operating leases right-of-use assets
36,322
39,512
Intangible assets, net
26,833
33,371
Goodwill
490
40,058
Other assets
1,244
1,125
Total non-current assets
131,460
171,741
Total assets
$
369,257
$
393,708
Liabilities and Shareholders’ Equity
Current liabilities
Current portion of term loans
$
25,741
$
5,834
Trade accounts payable
28,452
25,493
Accrued salaries, wages and benefits
4,491
4,933
Income tax payable
2,015
-
Customer deposits
4,319
3,351
Current portion of lease liabilities
6,772
6,307
Other accrued expenses
3,045
4,211
Total current liabilities
74,835
50,129
Long term debt
-
24,282
Deferred compensation
11,162
11,382
Lease liabilities
30,937
33,794
Other long-term liabilities
1,187
-
Total long-term liabilities
43,286
69,458
Total liabilities
118,121
119,587
Shareholders’ equity
Common stock, no par value, 20,000 shares authorized,
11,887 and 11,838 shares issued and outstanding on each date
53,055
51,582
Retained earnings
198,601
223,252
Accumulated other comprehensive loss
( 520
)
( 713
)
Total shareholders’ equity
251,136
274,121
Total liabilities and shareholders’ equity
$
369,257
$
393,708
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
For the
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
Nov 1,
Nov 3,
Nov 1,
Nov 3,
2020
2019
2020
2019
Net sales
$
149,687
$
158,176
$
384,821
$
445,942
Cost of sales
116,204
129,777
305,684
363,201
Gross profit
33,483
28,399
79,137
82,741
Selling and administrative expenses
19,850
22,810
57,920
67,286
Goodwill impairment charges
-
-
39,568
-
Trade name impairment charges
-
-
4,750
-
Intangible asset amortization
596
596
1,788
1,788
Operating income / (loss)
13,037
4,993
( 24,889
)
13,667
Other income, net
158
309
107
215
Interest expense, net
106
316
433
986
Income/(loss) before income taxes
13,089
4,986
( 25,215
)
12,896
Income tax expense / (benefit)
2,996
1,066
( 6,263
)
2,829
Net income/(loss)
$
10,093
$
3,920
$
( 18,952
)
$
10,067
Earnings/(Loss) per share
Basic
$
0.85
$
0.33
$
( 1.61
)
$
0.85
Diluted
$
0.84
$
0.33
$
( 1.61
)
$
0.85
Weighted average shares outstanding:
Basic
11,833
11,789
11,818
11,782
Diluted
11,939
11,816
11,818
11,821
Cash dividends declared per share
$
0.16
$
0.15
$
0.48
$
0.45
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(In thousands)
(Unaudited)
For the
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
Nov 1,
Nov 3,
Nov 1,
Nov 3,
2020
2019
2020
2019
Net income/(loss)
$
10,093
$
3,920
$
( 18,952
)
$
10,067
Other comprehensive income (loss):
Gain on pension plan settlement
-
( 520
)
-
( 520
)
Income tax effect on settlement
-
124
-
124
Amortization of actuarial loss
84
37
253
111
Income tax effect on amortization
( 20
)
( 9
)
( 60
)
( 27
)
Adjustments to net periodic benefit cost
64
( 368
)
193
( 312
)
Total Comprehensive Income/(Loss)
$
10,157
$
3,552
$
( 18,759
)
$
9,755
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the
Thirty-Nine Weeks Ended
Nov 1,
Nov 3,
2020
2019
Operating Activities:
Net (loss)/income
$
( 18,952
)
$
10,067
Adjustments to reconcile net income to net cash
provided by operating activities:
Goodwill and intangible asset impairment charges
44,318
-
Depreciation and amortization
5,052
5,260
Gain on pension settlement
-
( 520
)
Gain on disposal of assets
-
( 271
)
Deferred income tax (benefit) / expense
( 10,143
)
1,461
Noncash restricted stock and performance awards
1,473
891
Provision for doubtful accounts and sales allowances
4,527
1,365
Gain on life insurance policies
( 1,750
)
( 715
)
Changes in assets and liabilities:
Trade accounts receivable
7,829
18,589
Inventories
28,730
1,589
Income tax recoverable
751
( 2,348
)
Prepaid expenses and other current assets
620
( 638
)
Trade accounts payable
2,947
( 13,456
)
Accrued salaries, wages, and benefits
( 441
)
( 2,553
)
Accrued income taxes
2,015
( 3,159
)
Customer deposits
967
10,006
Operating lease liabilities
797
536
Other accrued expenses
( 1,165
)
350
Deferred compensation
32
156
Net cash provided by operating activities
$
67,607
$
26,610
Investing Activities:
Purchases of property and equipment
( 642
)
( 4,745
)
Proceeds received on notes from sale of assets
-
1,465
Premiums paid on life insurance policies
( 519
)
( 558
)
Proceeds received on life insurance policies
1,489
-
Net cash provided by/(used in) investing activities
328
( 3,838
)
Financing Activities:
Payments for long-term debt
( 4,393
)
( 4,393
)
Cash dividends paid
( 5,699
)
( 5,316
)
Cash used in financing activities
( 10,092
)
( 9,709
)
Net increase in cash and cash equivalents
57,843
13,063
Cash and cash equivalents - beginning of year
36,031
11,435
Cash and cash equivalents - end of quarter
$
93,874
$
24,498
Supplemental disclosure of cash flow information:
Cash paid for income taxes
$
2,301
$
6,754
Cash paid for interest, net
365
852
Non-cash transactions:
Increase in lease liabilities arising from obtaining right-of-use assets
$
2,103
$
272
Increase in property and equipment through accrued purchases
12
25
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except per share data)
(Unaudited)
Accumulated
Other
Total
Common Stock
Retained
Comprehensive
Shareholders'
Shares
Amount
Earnings
Income (loss)
Equity
Balance at February 3, 2019
11,785
$
49,549
$
213,380
$
247
$
263,176
Net income
10,067
10,067
Gain on pension settlement, net of tax of $ 124
( 396
)
( 396
)
Unrealized loss on defined benefit plan, net of tax of $ 27
84
84
Cash dividends paid and accrued ($ 0.15 per share)
( 5,316
)
( 5,316
)
Restricted stock grants, net of forfeitures
53
344
344
Restricted stock compensation cost
600
600
Recognition of PSUs as equity-based awards
684
684
Balance at November 3, 2019
11,838
$
51,177
$
218,131
$
( 65
)
$
269,243
Balance at February 2, 2020
11,838
$
51,582
$
223,252
$
( 713
)
$
274,121
Net loss
( 18,952
)
( 18,952
)
Unrealized loss on defined benefit plan, net of tax of $ 60
193
193
Cash dividends paid and accrued ($ 0.16 per share)
( 5,699
)
( 5,699
)
Restricted stock grants, net of forfeitures
49
169
169
Restricted stock compensation cost
651
651
Performance-based restricted stock units cost
653
653
Balance at November 1, 2020
11,887
$
53,055
$
198,601
$
( 520
)
$
251,136
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated)
(Unaudited)
For the Thirty-Nine Weeks Ended November 1, 2020
1. Preparation of Interim Financial Statements
The condensed consolidated financial statements of Hooker Furniture Corporation and subsidiaries (referred to as “we,” “us,” “our,” “Hooker” or the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these statements include all adjustments necessary for a fair statement of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) are condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and financial position. These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended February 2, 2020 (“2020 Annual Report”). The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from our estimates. Operating results for the interim periods reported herein may not be indicative of the results expected for the fiscal year.
The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2021 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 3, 2020, and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began February 3, 2020, which both ended November 1, 2020. This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that began August 5, 2019 and the thirty-nine week period that began February 4, 2019, which both ended November 3, 2019; and our financial condition as of November 1, 2020 compared to February 2, 2020.
References in these notes to the condensed consolidated financial statements of the Company to:
■
the 2021 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 3, 2020 and will end January 31, 2021; and
■
the 2020 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 4, 2019 and ended February 2, 2020.
We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. In the fourth quarter of fiscal 2020, we updated our reportable segments. Consequently, the segment disclosures in this filing have been recast to reflect these changes and therefore differ from prior year quarterly filings. See Note 13 Segment Information for additional details.
2. Recently Adopted Accounting Policies
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326). This update seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require an entity to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. We adopted the provisions of Topic 326 on February 3, 2020, the first day of our 2021 fiscal year. The adoption of this standard did not have a material effect on our condensed consolidated financial statements or results of operations. We will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.
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In December 2019, the FASB issued ASU 2019-12, Income Tax (Topic 740) – Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions for intra-period tax allocation, the recognition of deferred tax liabilities after an investment in a foreign entity transitions to or from the equity method, and the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments also introduce new guidance on determining how to apply the income tax guidance to franchise taxes that are partially based on income, clarifying the accounting for transactions that result in a step-up in the tax basis of goodwill, and the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. We elected to adopt ASU 2019-12 on February 3, 2020, the first day of our 2021 fiscal year. The adoption of this standard resulted in additional $4.0 million of income tax benefit upon adoption. See Note 12 Income Taxes for additional details.
3. Accounts Receivable
November 1,
February 2,
2020
2020
Trade accounts receivable
$
84,467
$
91,261
Receivable from factor
-
788
Other accounts receivable allowances
( 7,503
)
( 3,493
)
Allowance for doubtful accounts
( 1,667
)
( 903
)
Accounts receivable
$
75,297
$
87,653
“Receivable from factor” represented amounts due with respect to factored accounts receivable. The agreement was discontinued in early fiscal 2021.
4. Inventories
November 1,
February 2,
2020
2020
Finished furniture
$
76,943
$
106,495
Furniture in process
1,297
1,304
Materials and supplies
7,585
8,479
Inventories at FIFO
85,825
116,278
Reduction to LIFO basis
( 21,742
)
( 23,465
)
Inventories
$
64,083
$
92,813
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5. Property, Plant and Equipment
Depreciable Lives
November 1,
February 2,
(In years)
2020
2020
Buildings and land improvements
15 - 30
$
31,316
$
31,316
Computer software and hardware
3 - 10
19,294
19,166
Machinery and equipment
10
9,348
9,271
Leasehold improvements
Term of lease
9,882
9,737
Furniture and fixtures
3 - 10
2,617
2,597
Other
5
651
651
Total depreciable property at cost
73,108
72,738
Less accumulated depreciation
47,335
44,089
Total depreciable property, net
25,773
28,649
Land
1,077
1,077
Construction-in-progress
465
181
Property, plant and equipment, net
$
27,315
$
29,907
6. Fair Value Measurements
Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an exit price) in an orderly transaction between market participants on the applicable measurement date. We use a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
■
Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities;
■
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
■
Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.
As of November 1, 2020 and February 2, 2020, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs. The fair value of the Company-owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. Additionally, the fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.
Our assets measured at fair value on a recurring basis at November 1, 2020 and February 2, 2020, were as follows:
Fair value at November 1, 2020
Fair value at February 2, 2020
Description
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
(In thousands)
Assets measured at fair value
Company-owned life insurance
$
-
$
25,104
$
-
$
25,104
$
-
$
24,888
$
-
$
24,888
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7. Intangible Assets
The adverse economic effects brought on by the COVID-19 pandemic, including reductions in our sales, earnings and market value, as well as other changing market dynamics, required that we perform a valuation of our intangible assets.
The calculation methodology for the fair value of our Home Meridian segment and the Shenandoah division of our Domestic Upholstery segment included three approaches: the Discounted Cash Flow Method (DCF) which was given the largest weighting, the Guideline Public Company Method (GPCM) based on the consideration of the facts of the Company’s peer competitors and the Guideline Transaction Method (GTM) based on consideration of transactions with varying risk profiles, geographies and market conditions.
The income approach, specifically the relief from royalty method, was used as the valuation methodology for our trade names and trademarks, based on cash flow projections and growth rates for each trade name for five years in the future provided by management, and a royalty rate benchmark for companies with similar activities.
As a result of our intangible asset valuation analysis, in the first quarter of fiscal 2021, we recorded $ 44.3 million non-cash impairment charges including $ 23.2 million to Home Meridian goodwill, $ 16.4 million to Shenandoah goodwill and $ 4.8 million to certain of Home Meridian segment’s trade names.
Thirty-Nine Weeks Ended
November 1, 2020
February 2, 2020
Non-amortizable Intangible Assets
Segment
Beginning Balance
Impairment Charges
Net Book Value
Beginning Balance
Impairment Charges
Net Book Value
Goodwill
Home Meridian
$
23,187
$
( 23,187
)
$
-
$
23,187
$
-
$
23,187
Goodwill
Domestic Upholstery
16,871
( 16,381
)
490
16,871
-
16,871
Total Goodwill
40,058
( 39,568
)
490
40,058
-
40,058
Trademarks and trade names - Home Meridian
Home Meridian
11,400
( 4,750
)
6,650
11,400
-
11,400
Trademarks and trade names - Bradington-Young
Domestic Upholstery
861
-
861
861
-
861
Trademarks and trade names - Sam Moore
Domestic Upholstery
396
-
396
396
-
396
Total Trademarks and trade names
$
12,657
$
( 4,750
)
$
7,907
$
12,657
$
-
$
12,657
Total non-amortizable assets
$
52,715
$
( 44,318
)
$
8,397
$
52,715
$
-
$
52,715
Our amortizable intangible assets are recorded in our Home Meridian and Domestic Upholstery segments. The carrying amounts and changes therein of those amortizable intangible assets were as follows:
Amortizable Intangible Assets
Customer
Relationships
Trademarks
Totals
Balance at February 2, 2020
$
19,996
$
718
$
20,714
Amortization
( 1,743
)
( 45
)
( 1,788
)
Balance at November 1, 2020
$
18,253
$
673
$
18,926
For the remainder of fiscal 2021, amortization expense is expected to be approximately $ 596,000 .
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8. Leases
In fiscal 2020, we adopted Accounting Standards Codification Topic 842 Leases. We recognized sub-lease income of $ 144,000 for the three-month period and $ 432,000 for the nine-month period, both ended November 1, 2020. The components of lease cost and supplemental cash flow information for leases for the three-month and nine-month ended November 1, 2020 were:
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
November 1, 2020
November 3, 2019
November 1, 2020
November 3, 2019
Operating lease cost
$
2,061
$
2,090
$
6,319
$
6,289
Variable lease cost
37
-
105
-
Short-term lease cost
70
173
272
467
Total operating lease cost
$
2,168
$
2,263
$
6,696
$
6,756
Operating cash outflows
$
2,056
$
1,918
$
5,908
$
6,255
The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheets as of November 1, 2020 were:
November 1, 2020
February 2, 2020
Real estate
$
35,374
$
38,175
Property and equipment
948
1,337
Total operating leases right-of-use assets
$
36,322
$
39,512
Current portion of operating lease liabilities
$
6,772
$
6,307
Long term operating lease liabilities
30,937
33,794
Total operating lease liabilities
$
37,709
$
40,101
The weighted-average remaining lease term is 6.8 years. We used our incremental borrowing rate which is LIBOR plus 1.5 % at the adoption date. The weighted-average discount rate is 2.3 %. Due to the COVID-19 pandemic, we received concessions on several of our leases, including changes in lease terms and deferred rent payments. We accounted for the concessions as lease modifications and used current LIBOR plus 1.5% for those leases. The weighted-average discount rate decreased due to a decrease in LIBOR.
None of the modifications had a material effect on our condensed consolidated financial statements or results of operations.
The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on November 1, 2020:
Undiscounted Future Operating Lease Payments
Remainder of 2020
$
1,949
2021
7,329
2022
5,557
2023
5,629
2024
5,253
2025 and thereafter
15,145
Total lease payments
$
40,862
Less: impact of discounting
( 3,153
)
Present value of lease payments
$
37,709
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As of November 1, 2020, the Company has an additional lease for a warehouse in Georgia that had not yet commenced with estimated future minimum rental commitments of approximately $ 28 million. This lease is expected to commence in December 2021 with lease term of up to 10 years. Since the lease has not commenced, the undiscounted amounts are not included in the table above.
9. Debt
As of November 1, 2020, we had an aggregate $ 25.7 million available under the Existing Revolver to fund working capital needs. Standby letters of credit in the aggregate amount of $ 4.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of November 1, 2020. There were no additional borrowings outstanding under the Existing Revolver as of November 1, 2020.
We currently have one unsecured term loan and one secured term loan outstanding and a revolving credit facility. The term loans are related to the Home Meridian acquisition. The full remaining principal amounts of $ 25.7 million on our term loans are due on or before February 1, 2021. We expect to pay off our term loans in full and enter into a new credit facility on or before the expiration of the current agreement.
Subsequent to the end of the fiscal 2021 third quarter, the Existing Revolver was amended to increase the sublimit of the facility available for the issuance of letters of credit from $ 4 million to $ 10 million in order to support import purchases.
10. Employee Benefit Plans
We maintain two “frozen” retirement plans, which are paying benefits and may include active employees among the participants. We do not expect to add participants to these plans in the future. The two plans include:
■
a supplemental retirement income plan (“SRIP”) for certain former and current executives of Hooker Furniture Corporation; and
■
the Pulaski Furniture Corporation Supplemental Executive Retirement Plan (“SERP”) for certain former executives.
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
November 1,
November 3,
November 1,
November 3,
2020
2019
2020
2019
Net periodic benefit costs
Service cost
32
26
96
78
Interest cost
74
204
222
613
Actuarial loss
84
37
253
111
Expected return on pension plan assets
-
( 101
)
-
( 304
)
Pension plan administrative expenses
-
98
-
293
Consolidated net periodic benefit costs
$
190
$
264
$
571
$
791
The SRIP and SERP plans are unfunded plans. In fiscal 2021, we paid $ 179 ,000 in the third quarter and $ 538 ,000 in the first nine months and expect to pay a total of approximately $ 191 ,000 in benefit payments from our general assets during the remainder of fiscal 2021 to fund SRIP and SERP payments.
11. Earnings Per Share
We refer you to the discussion of Earnings Per Share in Note 2. Summary of Significant Accounting Policies, in the financial statements included in our 2020 Annual Report, for additional information concerning the calculation of earnings per share.
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All stock awards are designed to encourage retention and to provide an incentive for increasing shareholder value. We have issued restricted stock awards to non-employee members of the board of directors since 2006 and to certain non-executive employees since 2014. We have issued restricted stock units (“RSUs”) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company through the end of a three-year service period. The RSUs may be paid in shares of our common stock, cash or both at the discretion of the Compensation Committee of our board of directors. We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers. The payout or settlement of the PSUs will be made in shares of our common stock.
We expect to continue to grant these types of awards annually in the future. The following table sets forth the number of outstanding restricted stock awards and RSUs and PSUs, net of forfeitures and vested shares, as of the fiscal period-end dates indicated:
November 1,
February 2,
2020
2020
Restricted shares
55
46
RSUs and PSUs
159
76
214
122
The number of outstanding restricted shares increased due primarily to grants of restricted shares to a larger population of our non-executive employees as an incentive for retention and alignment of individual performance to our goals.
All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share:
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
November 1,
November 3,
November 1,
November 3,
2020
2019
2020
2019
Net income/(loss)
$
10,093
$
3,920
$
( 18,952
)
$
10,067
Less: Unvested participating restricted stock dividends
9
7
26
18
Net earnings allocated to unvested participating restricted stock
47
16
-
33
Earnings/(loss) available for common shareholders
10,037
3,897
( 18,978
)
10,016
Weighted average shares outstanding for basic earnings per share
11,833
11,789
11,818
11,782
Dilutive effect of unvested restricted stock, RSU and PSU awards
106
27
*
39
Weighted average shares outstanding for diluted earnings per share
11,939
11,816
11,818
11,821
Basic earnings/(loss) per share
$
0.85
$
0.33
$
( 1.61
)
$
0.85
Diluted earnings/(loss) per share
$
0.84
$
0.33
$
( 1.61
)
$
0.85
* Due to the fiscal 2021 year-to-date net loss, approximately 92,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share for the thirty-nine weeks ended November 1, 2020.
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12. Income Taxes
We recorded income tax expense of $ 3.0 million for the fiscal 2021 third quarter compared to $ 1.1 million for the comparable prior year period. The effective tax rates for the fiscal 2021 and 2020 third quarters were 22.9 % and 21.4 %, respectively. We recorded income tax benefit of $ 6.3 million for the fiscal 2021 first nine months, of which income tax benefit of $ 10.7 million was recorded related to goodwill and trade name impairment charges, compared to $ 2.8 million income tax expense for the comparable prior year period. The effective tax rates for the first nine months of fiscal 2021 and 2020 were 24.8 % and 21.9 %, respectively.
An entity is required to make its best estimate of the annual effective tax rate for the full fiscal year at the end of each interim period and to use this rate to calculate its income taxes on a year-to-date basis. Under the current income tax guidance, there is an exception that when the year-to-date loss for an interim period exceeds the projected loss for the full fiscal year, the income tax benefit recognized year-to-date is limited to the amount of benefit that would be recognized if the year-to-date loss were the anticipated loss for the full fiscal year. ASU 2019-12 removes this exception and no longer limits the computed benefit. We elected to early adopt ASU 2019-12 in the first quarter of fiscal 2021 and recognized an additional $ 4.0 million of income tax benefits upon adoption. In the nine months period, we recognized additional $ 2.4 million of income tax benefit.
The net unrecognized tax benefits as of November 1, 2020 and February 2, 2020, which, if recognized, would affect our effective tax rate are $ 3 ,000.
Tax years ending January 29, 2017 through February 2, 2020 remain subject to examination by federal and state taxing authorities.
13. Segment Information
As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to:
■
better understand our performance;
■
better assess our prospects for future net cash flows; and
■
make more informed judgments about us as a whole.
We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM.
We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. In the fourth quarter of fiscal 2020, we updated our reportable segments as follows: domestic upholstery producers Bradington-Young, Sam Moore and Shenandoah Furniture were moved from All Other and aggregated into a new reportable segment called “Domestic Upholstery.” All Other now consists of H Contract and Lifestyle Brands. Lifestyle Brands is a business in its start-up phase targeted at the interior design channel. The Hooker Branded and Home Meridian segments were unchanged. Therefore, for financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses:
■
Hooker Branded , consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses;
■
Home Meridian , a business acquired at the beginning of fiscal 2017, is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins;
■
Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, Sam Moore and Shenandoah Furniture; and
■
All Other , consisting of H Contract and Lifestyle Brands, a new business started in late fiscal 2019. Neither of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280.
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The following table presents segment information for the periods, and as of the dates, indicated. Prior-year information has been recast to reflect the changes in segments discussed above:
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
November 1, 2020
November 3, 2019
November 1, 2020
November 3, 2019
% Net
% Net
% Net
% Net
Net Sales
Sales
Sales
Sales
Sales
Hooker Branded
$ 47,287 31.6 % $ 43,703 27.6 % $ 113,268 29.4 % $ 122,707 27.5 %
Home Meridian
73,727 49.3 % 85,776 54.2 % 202,560 52.6 % 240,594 54.0 %
Domestic Upholstery
25,350 16.9 % 25,029 15.9 % 59,640 15.6 % 73,016 16.3 %
All Other
3,323 2.2 % 3,668 2.3 % 9,353 2.4 % 9,625 2.2 %
Consolidated
$ 149,687 100.0 % $ 158,176 100.0 % $ 384,821 100.0 % $ 445,942 100.0 %
Gross Profit
Hooker Branded
$ 15,446 32.7 % $ 13,947 31.9 % $ 35,894 31.7 % $ 38,323 31.2 %
Home Meridian
11,169 15.1 % 7,286 8.5 % 28,489 14.1 % 24,139 10.0 %
Domestic Upholstery
5,751 22.7 % 5,847 23.4 % 11,555 19.4 % 16,766 23.0 %
All Other
1,117 33.6 % 1,319 36.0 % 3,199 34.2 % 3,513 36.5 %
Consolidated
$ 33,483 22.4 % $ 28,399 18.0 % $ 79,137 20.6 % $ 82,741 18.6 %
Operating Income/(Loss)
Hooker Branded
$ 7,686 16.3 % $ 6,188 14.2 % $ 15,108 13.3 % $ 15,453 12.6 %
Home Meridian
2,510 3.4 % ( 3,955 ) - 4.6 % ( 26,754 ) - 13.2 % ( 9,013 ) - 3.7 %
Domestic Upholstery
2,421 9.6 % 2,278 9.1 % ( 14,399 ) - 24.1 % 5,830 8.0 %
All Other
420 12.6 % 482 13.2 % 1,156 12.4 % 1,397 14.5 %
Consolidated
$ 13,037 8.7 % $ 4,993 3.2 % $ ( 24,889 ) - 6.5 % $ 13,667 3.1 %
Capital Expenditures
Hooker Branded
$ 60 $ 89 $ 173 $ 600
Home Meridian
27 126 137 300
Domestic Upholstery
82 871 332 3,835
All Other
- - - 10
Consolidated
$ 169 $ 1,086 $ 642 $ 4,745
Depreciation
& Amortization
Hooker Branded
$ 444 $ 471 $ 1,338 $ 1,453
Home Meridian
540 549 1,608 1,627
Domestic Upholstery
700 765 2,097 2,170
All Other
3 3 9 10
Consolidated
$ 1,687 $ 1,788 $ 5,052 $ 5,260
As of November 1,
As of February 2,
2020
%Total
2020
%Total
Identifiable Assets
Assets
Assets
Hooker Branded
$
201,158
58.8
%
$
144,112
45.0
%
Home Meridian
91,547
26.8
%
138,313
43.2
%
Domestic Upholstery
47,775
14.0
%
36,085
11.3
%
All Other
1,454
0.4
%
1,769
0.5
%
Consolidated
$
341,934
100.0
%
$
320,279
100.0
%
Consolidated Goodwill and Intangibles
27,323
73,429
Total Consolidated Assets
$
369,257
$
393,708
Sales by product type are as follows:
Net Sales (in thousands)
Thirteen Weeks Ended
Thirty-Nine Weeks Ended
November 1, 2020
%Total
November 3, 2019
%Total
November 1, 2020
%Total
November 3, 2019
%Total
Casegoods
$
91,457
61
%
$
105,018
66
%
$
234,905
61
%
$
288,470
65
%
Upholstery
58,230
39
%
53,158
34
%
149,916
39
%
157,472
35
%
$
149,687
100
%
$
158,176
100
%
$
384,821
100
%
$
445,942
100
%
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14. Subsequent Events
Loan agreement
On November 4, 2020, we entered the Second Amendment to the Second Amended and Restated Loan Agreement (the “Agreement”) to amend certain provisions of the Existing Loan Agreement. The Agreement was amended to increase the sublimit of the facility available for the issuance of letters of credit from $ 4 million to $ 10 million in order to support import purchases.
Dividends
On December 2, 2020 , our board of directors declared a quarterly cash dividend of $ 0.18 per share, payable on December 31, 2020 to shareholders of record at December 16, 2020 . This represents a 12.5 % increase over the previous quarterly dividend and the fifth consecutive annual dividend increase.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.