What changed in this filing

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Item 9A. Controls and Procedures

2021-04-16 compared with 2020-04-17 · 273 added, 391 removed, 906 unchanged (42% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended February 2, 2020.

Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of February 2, 2020, the end of the period covered by this annual report, to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of January 31, 2021, the end of the period covered by this annual report, to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Management ’ s Report on Internal Control over Financial Reporting

In accordance with Section 404 of the Sarbanes-Oxley Act and SEC rules thereunder, management has conducted an assessment of our internal control over financial reporting as of February 2, 2020, based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In accordance with Section 404 of the Sarbanes-Oxley Act and SEC rules thereunder, management has conducted an assessment of our internal control over financial reporting as of January 31, 2021, based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Management’s report regarding that assessment is included on page F-2 of this report, with our consolidated financial statements, and is incorporated herein by reference.

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Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended February 2, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no changes in our internal control over financial reporting during the fiscal quarter ended January 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

OTHER INFORMATION

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Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of February 2, 2020 and February 3, 2019

Consolidated Statements of Income for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018

Consolidated Statements of Comprehensive Income for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018

Consolidated Statements of Cash Flows for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018

Consolidated Statements of Shareholders’ Equity for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018

Consolidated Balance Sheets as of January 31, 2021 and February 2, 2020

Consolidated Statements of Operations for the fifty-two-week period ended January 31, 2021, the fifty-two-week period ended February 2, 2020, and the fifty-three-week period ended February 3, 2019

Consolidated Statements of Comprehensive Income/(Loss) for the fifty-two-week period ended January 31, 2021, the fifty-two-week period ended February 2, 2020, and the fifty-three-week period ended February 3, 2019

Consolidated Statements of Cash Flows for the fifty-two-week period ended January 31, 2021, the fifty-two-week period ended February 2, 2020, and the fifty-three-week period ended February 3, 2019

Consolidated Statements of Shareholders’ Equity for the fifty-two-week period ended January 31, 2021, the fifty-two-week period ended February 2, 2020, and the fifty-three-week period ended February 3, 2019

Notes to Consolidated Financial Statements

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Financial Statement Schedules have been omitted because the information required has been separately disclosed in the consolidated financial statements or related notes.

Asset Purchase Agreement, dated as of September 6, 2017, by and among Hooker Furniture Corporation, Shenandoah Furniture Corporation, Gideon C.

Huddle and Candace H.

Payne (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K (SEC File No.

000-25349) filed on September 29, 2017)

Amended and Restated Articles of Incorporation of the Company, as amended March 28, 2003 (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q (SEC File No.

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Amended and Restated Bylaws of the Company (See Exhibit 3.2)

Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (filed herewith).

Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.3 of the Company’s Annual Report on Form 10-K (SEC File No.

000-25349) for the year ended February 2, 2020).

Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments, if any, evidencing long-term debt not exceeding 10% of the Company’s total assets have been omitted and will be furnished to the Securities and Exchange Commission upon request.

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000-25349) filed on December 6, 2018)*

Employment Agreement, dated June 4, 2018, between Douglas Townsend and the Company (incorporated by reference to Exhibit 10.4 of the Company’s Form 10-Q (SEC File No.

000-25349) filed on December 6, 2018)*

Form of Performance Share Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No.

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000-25349) filed with the SEC on November 15, 2019)

Security Agreement (Assignment of Life Insurance Policy as Collateral), dated as of February 1, 2016, between Bank of America, N.A.

and the Company (incorporated by referenced to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No.

000-25349) filed on February 2, 2016)

Second Amended and Restated Loan Agreement, dated as of September 29, 2017, between Bank of America, N.A.

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000-25349) filed on April 19, 2019)

Second Amendment to the Second Amended and Restated Loan Agreement, dated as of November 4, 2020, between Bank of America, N.A.

and Hooker Furniture Corporation, Bradington-Young, LLC, Sam Moore Furniture LLC, and Home Meridian Group, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No.

000-25349) filed on December 10, 2020)

Third Amendment to Second Amended and Restated Loan Agreement, dated as of January 27, 2021, between Bank of America, N.A.

and Hooker Furniture Corporation, Bradington-Young, LLC, Sam Moore Furniture LLC and Home Meridian Group, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (SEC File No.

000-25349) filed on January 28, 2021)

List of Subsidiaries:

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Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2020, formatted in Extensible Business Reporting Language (“XBRL”):

(i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows, (v) consolidated statements of shareholders’ equity and (vi) the notes to the consolidated financial statements, tagged as blocks of text (filed herewith)

The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2021, formatted in Extensible Business Reporting Language (“XBRL”):

(i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of comprehensive income/(loss), (iv) consolidated statements of cash flows, (v) consolidated statements of shareholders’ equity and (vi) the notes to the consolidated financial statements, tagged as blocks of text (filed herewith)

*Management contract or compensatory plan

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April 16, 2021

Chairman and Chief Executive Officer

/s/ Jeremy R.

Chief Executive Officer and Director (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Chairman, Chief Executive Officer and

/s/ Jeremy R.

Chief Executive Officer and

April 16, 2021

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Christopher Beeler, Jr.

April 16, 2021

/s/ Paulette Garafalo

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April 16, 2021

Director (Board Chair)

April 16, 2021

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Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of February 2, 2020 and February 3, 2019

Consolidated Statements of Income for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018

Consolidated Statements of Cash Flows for the fifty-two-week period ended February 2, 2020, the fifty-three-week period ended February 3, 2019 and the fifty-two-week period ended January 28, 2018

Consolidated Balance Sheets as of January 31, 2021 and February 2, 2020

Consolidated Statements of Operations for the fifty-two-week period ended January 31, 2021, the fifty-two-week period ended February 2, 2020 and the fifty-three-week period ended February 3, 2019

Consolidated Statements of Comprehensive Income / (Loss) for the fifty-two-week period ended January 31, 2021, the fifty-two-week period ended February 2, 2020 and the fifty-three-week period ended February 3, 2019

Consolidated Statements of Cash Flows for the fifty-two-week period ended January 31, 2021, the fifty-two-week period ended February 2, 2020 and the fifty-three-week period ended February 3, 2019

Consolidated Statements of Shareholders’ Equity for the fifty-two-week period ended January 31, 2021, the fifty-two-week period ended February 2, 2020 and the fifty-three-week period ended February 3, 2019

Notes to Consolidated Financial Statements

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Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on the Company’s evaluation under that framework, management concluded that the Company’s internal control over financial reporting was effective as of February 2, 2020.

The effectiveness of the Company’s internal control over financial reporting as of February 2, 2020 has been audited by KPMG LLP, the Company’s independent registered public accounting firm, as stated in their report which is included herein.

Chairman and Chief Executive Officer

Based on the Company’s evaluation under that framework, management concluded that the Company’s internal control over financial reporting was effective as of January 31, 2021.

The effectiveness of the Company’s internal control over financial reporting as of January 31, 2021 has been audited by KPMG LLP, the Company’s independent registered public accounting firm, as stated in their report which is included herein.

Chief Executive Officer and Director

(Principal Executive Officer)

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Hooker Furniture Corporation and subsidiaries (the Company) as of February 2, 2020 and February 3, 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended February 2, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 2, 2020 and February 3, 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended February 2, 2020, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Hooker Furniture Corporation and subsidiaries (the Company) as of January 31, 2021 and February 2, 2020, the related consolidated statements of operations, comprehensive income/(loss), shareholders’ equity, and cash flows for each of the years in the three‑year period ended January 31, 2021, and the related notes collectively, the consolidated financial statements.

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and February 2, 2020, and the results of its operations and its cash flows for each of the years in the three‑year period ended January 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 17, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for revenue due to the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 16, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment

As discussed in Note 9 to the consolidated financial statements, the goodwill balance as of January 31, 2021 was $0.5 million related to the Shenandoah reporting unit.

During the first quarter ended May 3, 2020, the Company recorded a goodwill impairment charge of $23.2 million and $16.4 million related to the Home Meridian and Shenandoah reporting units, respectively.

As discussed in Note 2, the Company performs goodwill impairment testing on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired.

As of May 3, 2020, management determined it was likely that the carrying values of the Home Meridian and Shenandoah reporting units exceeded their respective fair values and performed a goodwill impairment test.

To estimate the fair value of its reporting units, the Company used an income and market approach, specifically the discounted cash flow method, guideline public company method, and guideline transaction method.

We identified the evaluation of goodwill for impairment for the Home Meridian and Shenandoah reporting units as a critical audit matter.

Subjective and challenging auditor judgment was required to evaluate the selection of forecasted revenue growth rates and discount rates used to estimate the fair value of the reporting units as they represent subjective determinations of future market and economic conditions.

Additionally, the audit effort associated with the evaluation of goodwill for impairment for the Home Meridian and Shenandoah reporting units required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment evaluation process.

This included controls related to the development of the forecasted revenue growth rates and discount rate assumptions.

We performed sensitivity analyses over the forecasted revenue growth rates and discount rate assumptions to assess their impact on the Company’s determination of fair value for the Home Meridian and Shenandoah reporting units.

We evaluated the Company’s ability to forecast revenue growth rates for the reporting units by comparing the forecasted revenue growth assumptions to historical growth rates, considering future market and economic conditions.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

• evaluating the discount rates used in the determination of fair value, by comparing them against a discount rate range that was independently developed using publicly available market data for comparable entities

• testing the estimate of the reporting units’ fair value using the Company’s cash flow forecast for the reporting units, and discount rates, and comparing the results to the Company’s determination of fair value.

Impairment of non-amortizable intangible assets in the Home Meridian segment

As discussed in Note 9 to the consolidated financial statements, the non-amortizable intangible asset balance as of February 2, 2020 was $8.4 million, of which $6.7 million related to the Home Meridian reportable segment.

During the first quarter ended May 3, 2020, the Company recorded an intangible asset impairment charge of $4.8 million related to the Home Meridian trade names.

The Company performs impairment testing on an annual basis or more frequently if events or changes in circumstances indicate that the asset might be impaired.

As of May 3, 2020, management determined it was likely that the carrying value of each trade name exceeded its fair value and performed a trade name impairment test.

To value the non-amortizing intangible assets, the Company used the income approach, specifically the relief-from-royalty method.

We identified the evaluation of the impairment of non-amortizable intangible assets in the Home Meridian segment as a critical audit matter.

Subjective and challenging auditor judgment was required to evaluate the selection of forecasted revenue growth rates, assumed royalty rates, and discount rates, used to estimate the fair value of the non-amortizable intangible assets in the Home Meridian segment as they represent subjective determinations of future market and economic conditions.

Additionally, the audit effort associated with the evaluation of the trade names for impairment required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s non-amortizable intangible asset impairment assessment process.

This included controls related to the development of the forecasted revenue growth rates, assumed royalty rate, and discount rate assumptions.

We performed sensitivity analyses over the revenue growth rates and discount rate assumptions to assess their impact on the Company’s determination of fair value for the non-amortizable intangible assets in the Home Meridian segment.

We evaluated the reasonableness of management’s forecasted revenue growth rates by comparing the forecasts to historical revenue growth rates, current industry conditions and growth plans.

We compared the Company’s historical revenue forecasts to actual results to assess the Company’s ability to accurately forecast.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

• evaluating the Company’s assumed royalty rates by comparing the selected royalty rates to independently sourced royalty rates for trademarks within the furniture industry and performing a profit split analysis and assessing the resulting royalty rates

• evaluating the discount rates used in the valuation, by comparing them against a discount rate range that was independently developed using publicly available market data for comparable entities

• testing the estimate of the trade names’ fair values using the Company’s estimated cash flow forecast for the trade names, assumed royalty rates, and discount rates and comparing the results to the Company’s fair value estimates.

We have served as the Company’s auditor since 2003.

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Opinion on Internal Control Over Financial Reporting

We have audited Hooker Furniture Corporation and subsidiaries’ (the Company) internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 2, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of February 2, 2020 and February 3, 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended February 2, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated April 17, 2020 expressed an unqualified opinion on those consolidated financial statements.

We have audited Hooker Furniture Corporation and subsidiaries’ (the Company) internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 31, 2021 and February 2, 2020, the related consolidated statements of operations, comprehensive income/(loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended January 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated April 16, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Intangible assets, net (See note 9)

Goodwill (See notes 4 and 10)

Goodwill (See note 9)

Total non-current assets

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Current liabilities

Current portion of term loans

Trade accounts payable

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Customer deposits

Current portion of lease liabilities

Current portion of lease liabilities (See note 11)

Other accrued expenses

Current portion of term loans

Total current liabilities

Long term debt (See note 13)

Deferred compensation (See note 13)

Lease liabilities

Other liabilities

Lease liabilities (See note 11)

Long term debt (See note 12)

Total long-term liabilities

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Retained earnings

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Total shareholders’ equity

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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

For the 52 Week Period Ended February 2, 2020, the 53 Week Period Ended February 3, 2019 and the 52 Week Period Ended January 28, 2018.

For the 52 Week Period Ended January 31, 2021, the 52 Week Period Ended February 2, 2020, and the 53 Week Period Ended February 3, 2019.

Cost of sales

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Selling and administrative expenses

Goodwill impairment charges

Trade name impairment charges

Intangible asset amortization

Operating income

Operating (loss)/income

Other income, net

Interest expense, net

Income before income taxes

Earnings per share:

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

(Loss)/Earnings per share:

Weighted average shares outstanding:

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HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

(In thousands)

For the 52 Week Period Ended February 2, 2020, the 53 Week Period Ended February 3, 2019 and the 52 Week Period Ended January 28, 2018.

For the 52 Week Period Ended January 31, 2021, the 52 Week Period Ended February 2, 2020, and the 53 Week Period Ended February 3, 2019.

Net (Loss)/Income

Other comprehensive income (loss):

Amortization of actuarial (loss)

Income tax effect on amortization

Gain on pension plan settlement

Income tax effect on settlement

Amortization of actuarial (loss) gain

Income tax effect on amortization

Adjustments to net periodic benefit cost

Reclassification of tax effects due to the adoption of ASU 2018-02

Total Comprehensive Income

Total Comprehensive (Loss)/Income

See accompanying Notes to Consolidated Financial Statements.

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(In thousands)

For the 52 Week Period Ended February 2, 2020, the 53 Week Period Ended February 3, 2019 and the 52 Week Period Ended January 28, 2018.

For the 52 Week Period Ended January 31, 2021, the 52 Week Period Ended February 2, 2020, and the 53 Week Period Ended February 3, 2019.

Operating Activities:

Net (loss)/income

Adjustments to reconcile net income to net cash

provided by operating activities:

Goodwill and intangible asset impairment charges

Depreciation and amortization

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Proceeds from casualty loss

Deferred income tax expense (benefit)

Deferred income tax (benefit)/expense

Non-cash restricted stock and performance awards

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Financing Activities:

Proceeds from long-term debt

Payments for long-term debt

Debt issuance cost

Cash dividends paid

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Supplemental schedule of noncash investing activities:

Acquisition cost paid in common stock

Increase in lease liabilities arising from obtaining right-of-use assets

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(In thousands, except per share data)

For the 52 Week Period Ended February 2, 2020, the 53 Week Period Ended February 3, 2019 and the 52 Week Period Ended January 28, 2018.

For the 52 Week Period Ended January 31, 2021, the 52 Week Period Ended February 2, 2020, and the 53 Week Period Ended February 3, 2019.

Comprehensive

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Balance at January 28, 2018

Unrealized loss on defined benefit plan, net of tax of $26

Cash dividends paid and accrued ($0.50 per share)

Stock issued for acquisition

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Balance at January 28, 2018

Prior year adjustment for ASU 2014-09 and 2018-02

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Balance at February 2, 2020

Unrealized loss on defined benefit plan, net of tax of $ 30

Cash dividends paid and accrued ($ 0.66 per share)

Restricted stock grants, net of forfeitures

Restricted stock compensation cost

Performance-based restricted stock units cost

Balance at January 31, 2021

See accompanying Notes to Consolidated Financial Statements.

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(Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated)

For the Fifty-Two Weeks Ended February 2, 2020

For the Fifty-Two Weeks Ended January 31, 2021

NOTE 1 – RECENTLY ADOPTED ACCOUNTING STANDARDS

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to recognize lease right-of-use assets and liabilities on-balance sheet and disclose key information about leasing arrangements.

ASU 2016-02 was subsequently amended by ASU No.

2018-01, Land Easement Practical Expedient for Transition to Topic 842;

2018-10, Codification Improvements to Topic 842, Leases;

2018-11, Targeted Improvements.

We adopted Topic 842 standard on February 4, 2019 and used the effective date transition method.

As a result, our condensed consolidated balance sheets prior to February 4, 2019 were not restated and continue to be reported under previous guidance that did not require the recognition of lease liabilities and corresponding lease assets on the condensed consolidated balance sheets.

In addition, we have elected the package of practical expedients, which allowed us not to reassess prior conclusions related to the expired or existing leases, and not to reassess the accounting for initial direct costs.

As a result of the adoption of Topic 842, we have operating lease right-of-use assets of $39.5 million and operating lease liabilities of $40.1 million as of February 2, 2020.

The adoption of Topic 842 did not have a material impact on our condensed consolidated statements of income and condensed consolidated statement of cash flows for the fiscal 2020.

See Note 12 for additional information and disclosures required by Topic 842.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”).

This new standard replaced most existing revenue recognition guidance in GAAP and codified guidance under FASB Topic 606.

The underlying principle of this new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration that the entity expects to be entitled to receive in exchange for those goods or services.

We adopted ASU No.

2014-09 as of January 29, 2018 using the modified retrospective method.

As a result of adopting Topic 606, we recorded an increase to retained earnings of approximately $210,000, net of tax, as of January 29, 2018, due to the cumulative effect related to the change in accounting for shipments with synthetic FOB destination shipping terms.

Results for the reporting period beginning after January 29, 2018 are presented under Topic 606, while prior period amounts continue to be reported in accordance with the Company's historic accounting practices under previous guidance.

However, given the nature of our products and our sales terms and conditions, with the exception of sales with synthetic FOB destination shipping terms which are immaterial, the timing and amount of revenue recognized based on the underlying principles of ASU No.

2014-09 are consistent with our revenue recognition policy under previous guidance.

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 using the modified retrospective transition approach.

The adoption of this standard did not have a material effect on our consolidated financial statements or results of operations.

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.

While the adoption of ASU 2019-12 impacted the tax benefit recognized in our interim financial statements, it had no material impact on our annual financial statements.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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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;

Home Meridian , 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;

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Once we have determined the receivable is uncollectible, it is charged against the allowance for doubtful accounts.

Business Combinations-Purchase Price Allocation

For business combinations, we allocate the purchase price to the various tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values.

Determining the fair value of certain assets and liabilities acquired is subjective in nature and often involves the use of significant estimates and assumptions, which are inherently uncertain.

Many of the estimates and assumptions used to determine fair values, such as those used for intangible assets, are made based on forecasted information and discount rates.

To assist in the purchase price allocation process, as well as the estimate of remaining useful lives of acquired assets, we may engage a third-party appraisal firm.

In addition, the judgments made in determining the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact our results of operations.

Fair Value Measurements

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See Note 10 for details.

All inventories are stated at the lower of cost, or market value, with cost determined using the last-in, first-out (LIFO) method.

Inventories, consisting of finished furniture for sale, raw materials, manufacturing supplies and furniture in process, are stated at the lower of cost, or market value, with cost determined using the last-in, first-out (LIFO) method.

Under this method, inventory is valued at cost, which is determined by applying a cumulative index to current year inventory dollars.

We review inventories on hand and record an allowance for slow-moving and obsolete inventory based on historical experience and expected sales.

Property, Plant and Equipment

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In accordance with the provisions of Topic 842, since we have not been relieved as the primary obligor of the warehouse lease, we cannot net the sublease income against our lease payment to calculate the lease liability and ROU asset.

Our practice has been, and we will continue to, straight-line the sub-lease income over the term of the sublease.

Our practice is to straight-line the sub-lease income over the term of the sublease.

Our leases have remaining lease terms of less than one year to seven years, some of which include options to extend the leases for up to seven years .

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Cash Surrender Value of Life Insurance Policies

We own 78 life insurance policies on certain of our current and former executives and other key employees.

These policies had a carrying value of $24.9 million at February 2, 2020 and have a face value of approximately $54 million as of that date.

We own seventy-seven life insurance policies on certain of our current and former executives and other key employees.

These policies had a carrying value of $ 25.5 million at January 31, 2021 and have a face value of approximately $ 54 million as of that date.

Proceeds from the policies are used to fund certain employee benefits and for other general corporate purposes.

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We also have arrangements with some dealers to reimburse them for a portion of their advertising costs, which provides advertising benefits to us.

Costs for these arrangements are expensed as incurred and are netted against net sales in our consolidated statements of income and comprehensive income.

Costs for these arrangements are expensed as incurred and are netted against net sales in our consolidated statements of operations and comprehensive income/(loss).

At times, tax law and generally accepted accounting principles differ in the treatment of certain income and expense items.

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The ultimate realization of deferred tax assets is primarily dependent upon the generation of future taxable income during the periods in which those temporary differences reverse.

Currently, we have $ 14.2 million deferred tax assets related to net operating loss carryforwards that can be used to offset taxable income and reduce our income tax liabilities in the future periods.

All deferred tax assets and liabilities are classified as non-current on our consolidated balance sheets.

See Note 16 Income Taxes for additional details.

Earnings Per Share

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In the notes to the consolidated financial statements, references to the:

2021 fiscal year and comparable terminology mean the fiscal year that began February 3, 2020 and ended January 31, 2021;

2020 fiscal year and comparable terminology mean the fiscal year that began February 4, 2019 and ended February 2, 2020;

2019 fiscal year and comparable terminology mean the fiscal year that began January 29, 2018 and ended February 3, 2019.

2018 fiscal year and comparable terminology mean the fiscal year that began January 30, 2017 and ended January 28, 2018.

NOTE 4 – SHENANDOAH ACQUISITION

On September 29, 2017, we completed the previously announced acquisition (the “Shenandoah acquisition”) of substantially all of the assets of Shenandoah Furniture, Inc.

(“SFI”) pursuant to the Asset Purchase Agreement the Company and SFI entered into on September 6, 2017 (the “Asset Purchase Agreement”).

Upon completion and including post-closing working capital adjustments, the Company paid $32.8 million in cash (the “Cash Consideration”) and issued 176,018 shares of the Company’s common stock (the “Stock Consideration”) to the shareholders of SFI as consideration for the Shenandoah acquisition.

The Cash Consideration included an additional payment of approximately $770,000 pursuant to working capital adjustments provided for in the Asset Purchase Agreement.

The number of shares of common stock issued at closing for the Stock Consideration was determined by reference to the mean closing price of the Company’s common stock for the ten trading days immediately preceding the business day preceding the closing date ($45.45).

Under the Asset Purchase Agreement, we also assumed certain assets and liabilities of SFI.

The assumed liabilities did not include the indebtedness (as defined in the Asset Purchase Agreement) of SFI.

Also on September 29, 2017, we entered into a second amended and restated loan agreement (the “Loan Agreement”) with Bank of America, N.A.

(“BofA”) in connection with the completion of the Shenandoah acquisition.

The Loan Agreement amends and restates the amended and restated loan agreement the Company entered into with BofA on February 1, 2016, in connection with its acquisition of substantially all of the assets of Home Meridian International, Inc.

The Amended and Restated Loan Agreement provides us with a new $12 million unsecured term loan (the “New Unsecured Term Loan”).

On September 29, 2017, we borrowed the full $12 million available under the New Unsecured Term Loan in connection with the completion of the Shenandoah acquisition.

For additional details regarding the Loan Agreement, see Note 13.

“Long-Term Debt,” below.

In accordance with FASB Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), the Shenandoah acquisition has been accounted for using the acquisition method of accounting.

We recorded assets acquired, including identifiable intangible assets, and liabilities assumed, from SFI at their respective fair values at the date of completion of the acquisition.

The excess of the purchase price over the net fair value of such assets and liabilities was recorded as goodwill.

The following table summarizes the estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Shenandoah acquisition as of September 29, 2017.

Purchase price consideration

Cash paid for assets acquired, including working capital adjustment

Value of shares issued for assets acquired

Fair value adjustment to shares issued for assets acquired*

Total purchase price

Fair value estimates of assets acquired and liabilities assumed

Accounts receivable

Prepaid expenses and other current assets

Property and equipment

Intangible assets

Accounts payable

Accrued expenses

Total purchase price

*As provided by the Asset Purchase Agreement, we calculated the number of common shares issued to SFI by dividing $8 million by the mean closing price of our common stock for the ten trading days immediately preceding the business day immediately preceding the closing date ($45.45).

However, U.S.

Generally Accepted Accounting Standards provide that we value stock consideration exchanged in the Shenandoah acquisition at fair value.

Consequently, we adjusted the purchase price by $396,000, which represents the difference in the mean closing price of the Company’s common stock for the ten trading days immediately preceding the business day preceding the closing date ($45.45) and the price on September 29, 2017, multiplied by the number of common shares issued (176,018.) No additional consideration was transferred to SFI as a result of this adjustment.

During the fiscal 2018 fourth quarter, we paid $123,000 cash for the post-closing working capital adjustment which increased the purchase price by that same amount.

Additionally, we (i) refined our estimates of the values of certain intangible assets which increased intangible assets by $1.1 million, (ii) recorded additional accrued expenses of $123,000 and (iii) decreased property and equipment by $17,000.

These adjustments decreased goodwill by $774,000.

Property and equipment were recorded at fair value and primarily consist of machinery and equipment and leasehold improvements.

Property and equipment will be amortized over their estimated useful lives and leasehold improvements will be amortized over the lesser of their useful lives or the remaining lease period.

Goodwill is calculated as the excess of the purchase price over the fair value net assets acquired.

The goodwill recognized is attributable to growth opportunities and expected synergies.

All goodwill is expected to be deductible for income tax purposes.

Intangible assets other than goodwill, consist of three separately identified assets:

Shenandoah customer relationships, which are definite-lived intangible assets with an aggregate fair value of $13.2 million.

The customer relationships are amortizable and will be amortized over a period of thirteen years;

The Shenandoah tradename, which is definite-lived intangible assets with an aggregate fair value of $700,000.

The trade name is amortizable and will be amortized over a period of twenty years;

Shenandoah’s order backlog which is a definite-lived intangible asset with an aggregate fair value of $400,000 that we amortized over four months, with all of the expense recognized in fiscal year 2018.

The total weighted average amortization period for these assets is 12.1 years.

The following unaudited consolidated pro forma summary has been prepared by adjusting our historical data to give effect to the Shenandoah acquisition as if it had occurred on February 1, 2016:

Pro Forma - Unaudited

13 Weeks Ended

52 Weeks Ended

January 28, 2018

The unaudited consolidated pro forma financial information was prepared in accordance with existing standards and is not necessarily indicative of the results of operations that would have occurred if the Shenandoah acquisition had been completed on the date indicated, nor is it indicative of our future operating results.

Material adjustments, net of income tax, included in the fiscal 2017 pro forma financial information in the table above consist of the amortization of intangible assets ($171,000 in the quarterly period and $943,000 in the annual period), addition of transaction related costs ($0 in the quarterly period and $520,000 in the annual period), interest on additional debt incurred as part of the acquisition ($46,000 in the quarterly period and $197,000 in the annual period), salary expense ($46,000 in the quarterly period and $185,000 in the annual period), and income tax on Shenandoah operations ($536,000 in the quarterly period and $2.4 million in the annual period).

Material adjustments, net of income tax, included in the fiscal 2018 pro forma financial information in the table above consist of the amortization of intangible assets (decrease of $132,000 in the quarterly period and a net increase of $191,000 in the annual period), reclassification of transaction related costs to fiscal 2017 (-$67,000 in the quarterly period and -$522,000 in the annual period), interest on additional debt incurred as part of the acquisition (-$13,000 in the quarterly period and $61,000 in the annual period), salaries ($0 in the quarterly period and $123,000 in the annual period), and income tax on Shenandoah operations ($0 in the quarterly period and $2.4 million in the annual period).

The unaudited pro forma results do not reflect events that either have occurred or may occur in the future.

They also do not give effect to certain charges that we expect to incur in connection with the Shenandoah acquisition, including, but not limited to, additional professional fees, employee integration, retention, potential asset impairments and accelerated depreciation and amortization.

We incurred approximately $800,000 in Shenandoah acquisition-related costs in fiscal 2018.

These expenses are included in the “Selling and administrative expenses” line of our condensed consolidated statements of income.

Included in our fiscal 2018 results are Shenandoah’s October 2017 through January 2018 results, which include $11.3 million in net sales and $604,000 of operating income, including $750,000 in intangible amortization expense.

NOTE 4 – CASUALTY LOSS

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Charges to cost and expenses

Less allowances applied

Less uncollectible receivables written off, net of recoveries

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Reduction to LIFO basis

If the first-in, first-out (FIFO) method had been used in valuing all inventories, net income would have been $19.5 million in fiscal 2020, $41.5 million in fiscal 2019, and $28.1 million in fiscal 2018.

We recorded LIFO expense of $3.1 million in fiscal 2020, $2.1 million in fiscal 2019, and LIFO income of $225,000 in fiscal 2018.

At February 2, 2020 and February 3, 2019, we had $424,000 and $1.3 million, respectively, in consigned inventories, which are included in the “Finished furniture” line in the table above.

At February 2, 2020, we held $9.6 million in inventory outside of the United States, in China and in Vietnam.

If the first-in, first-out (FIFO) method had been used in valuing all inventories, net loss would have been $ 11.1 million in fiscal 2021, net income would have been $ 19.5 million in fiscal 2020 and $ 41.5 million in fiscal 2019.

We recorded LIFO income of $ 1.3 million in fiscal 2021, LIFO expense of $ 3.1 million in fiscal 2020 and $ 2.1 million in fiscal 2019.

At January 31, 2021 and February 2, 2020, we had $ 355 ,000 and $ 424 ,000, respectively, in consigned inventories, which are included in the “Finished furniture” line in the table above.

At January 31, 2021, we held $ 8.4 million in inventory outside of the United States, in China and in Vietnam.

At February 2, 2020, we held $ 9.6 million in inventory outside of the United States, in China and in Vietnam.

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Property, plant and equipment, net

Depreciation expense for fiscal 2020, 2019 and 2018 were $4.7 million, $5.0 million and $4.5 million, respectively.

Depreciation expense for fiscal 2021, 2020 and 2019 was $ 4.4 million, $ 4.7 million and $ 5.0 million, respectively.

Capitalized Software Costs

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Fifty-Two Weeks

Fifty-Three Weeks

Fifty-Two Weeks

Fifty-Three Weeks

Balance beginning of year

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In accordance with ASU 2017-04, Intangibles — Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment, the goodwill impairment test consists of a two-step process, if necessary.

However, we first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the goodwill impairment test outlined in ASC Topic 350.

The more likely than not threshold is defined as having a likelihood of more than 50 percent.

If, after assessing the totality of events or circumstances, we determine that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the impairment test is unnecessary and our goodwill is considered to be unimpaired.

However, if based on our qualitative assessment we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we will proceed with performing the quantitative assessment.

The quantitative assessment involves estimating the fair value of our goodwill using projected future cash flows that are discounted using a weighted average cost of capital analysis that reflects current market conditions.

Simplifying the Test for Goodwill Impairment , we perform our annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

Management judgment is a significant factor in the goodwill impairment evaluation process.

The computations require management to make estimates and assumptions, the most critical of which are the potential future cash flows and an appropriate discount rate.

In addition to our qualitative assessment, management performed a quantitative analysis on the Home Meridian reporting unit’s goodwill in the fiscal 2020 fourth quarter.

Based on our qualitative assessment and quantitative analysis, we have concluded that our goodwill is not impaired as of February 2, 2020.

The computations require management to make estimates and assumptions, the most critical of which are potential future cash flows and the appropriate discount rate.

In conjunction with our evaluation of the cash flows generated by the Home Meridian, Bradington-Young and Sam Moore reporting units, we evaluated the carrying value of trademarks and trade names using the relief from royalty method, which values the trademark/trade name by estimating the savings achieved by ownership of the trademark/trade name when compared to licensing the mark/name from an independent owner.

The inputs used in the trademark/trade name analyses are considered Level 3 fair value measurements.

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 in the 2021 first quarter.

The calculation methodology for the fair value of our Home Meridian segment’s and the Shenandoah division of our Domestic Upholstery segment’s goodwill 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.

Based on our internal analyses at January 31, 2021, the fair values of our non-amortizable trademarks and trade names exceeded their carrying values and we concluded that Shenandoah goodwill in the Domestic Upholstery segment is not impaired.

Details of our non-amortizable intangible assets are as follows:

January 31, 2021

February 2, 2020

Non-amortizable Intangible Assets

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Total non-amortizable assets

The following table is a rollforward of goodwill for the 2020 and 2019 fiscal years:

February 2, 2020

February 3, 2019

Home Meridian

Domestic Upholstery

Our amortizable intangible assets are recorded in the Home Meridian and in Domestic Upholstery segments.

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Balance at February 2, 2020

The weighted-average amortization period for all amortizable intangible assets is 9.2 years.

The weighted-average amortization period for customer relationships is 9.0 years and is 15.8 years for our trademarks.

Balance at January 31, 2021

The estimated amortization expense associated with our amortizable intangible assets is expected to be as follows:

2027 and thereafter

Gross intangible assets and total accumulated amortization for each major class of intangible assets is as follows:

February 2, 2020

February 3, 2019

Trademarks and tradenames

Accumulated amortization

Trademarks and tradenames, net

Customer relationships

Accumulated amortization

Customer relationships, net

Total Goodwill and other intangible assets, net

NOTE 10 – FAIR VALUE MEASUREMENTS

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Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of February 2, 2020, and February 3, 2019, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs.

As of January 31, 2021, 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.

On January 30, 2019, our Board of Directors voted to terminate the Pension Plan.

We settled all Pension Plan obligations during the fiscal 2020 third quarter with the purchase of annuities for plan participants.

Employee Benefit Plans for additional information about the Plan.

Our assets measured at fair value on a recurring basis at February 2, 2020 and February 3, 2019, were as follows

Fair value at February 2, 2020

Our assets measured at fair value on a recurring basis at January 31, 2021 and February 2, 2020, were as follows

Fair value at January 31, 2021

Fair value at February 2, 2020

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Company-owned life insurance

Pension plan assets

NOTE 12 – L EASES

On February 4, 2019, we adopted Accounting Standards Codification Topic 842 Leases.

Our lease assets are composed of real estate and equipment.

Real estate leases consist primarily of warehouses, showrooms and offices, while equipment leases consist of vehicles, office and warehouse equipment.

At the inception of a contract, we assess whether the contract is, or contains, a lease.

Our assessment is based on:

(a) whether there is an identified asset in the contract that is land or a depreciable asset – i.e.

property, plant or equipment;

(b) whether we have the right to control the use of the identified asset throughout the period of use, which may be different from the overall contract term;

and (c) whether we have the right to direct the use of an identified asset if it can direct (and change) how and for what purpose the asset will be used throughout the period of use.

Leases are classified as either finance leases or operating leases based on criteria in Topic 842.

All of our leases are classified as operating leases.

We do not currently have finance leases but could in the future.

Operating lease right-of-use ("ROU") assets and liabilities are recognized on the adoption date based on the present value of lease payments over the remaining lease term.

As interest rates are not explicitly stated or implicit in any of our leases, we utilized our incremental borrowing rate at the adoption date of February 4, 2019, which was one-month LIBOR plus 1.5%.

For leases without explicitly stated or implicit interest rates that commenced after the adoption date, we used our incremental borrowing rate which was one-month LIBOR at the lease commencement date plus 1.5%.

ROU assets also include any lease payments made and exclude lease incentives.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.

At the inception of a lease, we allocate the consideration in the contract to each lease and non-lease component based on the component's relative stand-alone price to determine the lease payments.

Lease and non-lease components are accounted for separately.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability.

Some of our real estate leases contain variable lease payments, including payments based on the percentage increase in the Consumer Price Index for Urban Consumers (“CPI-U”).

We used February 2019 CPI-U issued by the US Department of Labor’s Bureau of Labor Statistics to measure lease payments and calculate lease liabilities.

Additional payments based on the change in an index or rate, or payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded when incurred and are not included in the calculation of our lease liabilities.

We have a sub-lease at one of our warehouses.

Our practice has been, and we will continue to, straight-line the sub-lease income over the term of the sublease.

We recognized $405,000 sub-lease income in fiscal 2020.

Our leases have remaining lease terms of less than one year to seven years, some of which include options to extend the leases for up to seven years.

We have elected not to recognize ROU assets and lease liabilities that arise from short term leases for any class of underlying asset.

Short term leases are leases with lease terms of 12 months or less with either (a) no renewal option or (b) a renewal option which we are not reasonably certain to exercise.

We have elected to adopt a package of practical expedients provided under Topic 842 that allows us not to reassess:

(a) whether expired or existing contracts contain a lease under the new definition of a lease;

(b) lease classification of expired or existing leases;

and (c) whether previously capitalized initial direct costs would qualify for capitalization under Topic 842.

NOTE 11 – LEASES

In fiscal 2020, we adopted Accounting Standards Codification Topic 842 Leases.

We have a sub-lease at one of our warehouses and we recognized $ 576,000 sub-lease income in fiscal 2021.

The components of lease cost and supplemental cash flow information for leases in fiscal 2021 were:

Fifty-two Weeks Ended

January 31, 2021

February 2, 2020

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Operating cash outflows

The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheets as of February 2, 2020 were:

The right-of-use assets and lease liabilities recorded on our Consolidated Balance Sheets as of January 31, 2021 and February 2, 2020 were:

January 31, 2021

February 2, 2020

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The weighted-average discount rate is 2.25 %.

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheet at February 2, 2020:

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.

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the consolidated balance sheet at January 31, 2021:

Undiscounted Future

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Present value of lease payments

As of February 2, 2020, we did not have any additional material operating or finance leases that had not yet commenced.

Under ASC 840, future minimum lease payments as of February 3, 2019 were as follows:

Minimum Future Operating

Lease Payments

2024 and thereafter

Total minimum lease payments

As of January 31, 2021, the Company had 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 Fall of 2021 with a lease term of up to 10 years.

Since the lease has not commenced, the undiscounted amounts are not included in the table above.

NOTE 12 – LONG-TERM DEBT

We currently have one unsecured term loan and one secured term loan outstanding and a revolving credit facility.

The term loans are related to the Home Meridian acquisition.

Details of our loan agreements and revolving credit facility are detailed below.

Original Loan Agreement

On February 1, 2016, we entered into an amended and restated loan agreement (the “Original Loan Agreement”) with Bank of America, N.A.

(“BofA”) in connection with the closing of the Home Meridian Acquisition.

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

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

Unsecured revolving credit facility.

The Original Loan Agreement increased the amount available under our existing unsecured revolving credit facility from $15 million to $30 million and increased the sublimit of the facility available for the issuance of letters of credit from $3 million to $4 million.

Amounts outstanding under the revolving facility bear interest at a rate, adjusted monthly, equal to the then-current LIBOR monthly rate plus 1.50%.

We must also pay a quarterly unused commitment fee that is based on the average daily amount of the facility utilized during the applicable quarter;

Unsecured Term Loan.

The Original Loan Agreement provided us with a $41 million Unsecured Term Loan.

Any amount borrowed under the Unsecured Term Loan will bear interest at a rate, adjusted monthly, equal to the then-current LIBOR monthly rate plus 1.50%.

We must repay any principal amount borrowed under the Unsecured Term Loan in monthly installments of approximately $490,000, together with any accrued interest, until the full amount borrowed is repaid or until February 1, 2021, at which time all amounts outstanding under the Unsecured Term Loan will become due and payable;

Secured Term Loan.

The Original Loan Agreement provided us with a $19 million term loan secured by a security interest in certain Company-owned life insurance policies granted to BofA under a security agreement, dated as of February 1, 2016 (the “Security Agreement”).

Any amounts borrowed under the Secured Term Loan will bear interest at a rate, adjusted monthly, equal to the then-current LIBOR monthly rate plus 0.50%.

We must pay the interest accrued on any principal amounts borrowed under the Secured Term Loan on a monthly basis until the full principal amount borrowed is repaid or until February 1, 2021, at which time all amounts outstanding under the Secured Term Loan will become due and payable.

BofA’s rights under the Security Agreement are enforceable upon the occurrence of an event of default under the Original Loan Agreement.

New Loan Agreement

On September 29, 2017, we entered into a second amended and restated loan agreement (the “New Loan Agreement”) with BofA in connection with the completion of the Shenandoah acquisition.

The New Loan Agreement:

amended and restated the Original Loan Agreement detailed above such that our existing $30 million unsecured revolving credit facility (the “Existing Revolver”), Unsecured Term Loan, and Secured Term Loan all remain outstanding under the New Loan Agreement;

provided us with a new $12 million unsecured term loan (the “New Unsecured Term Loan”), which we subsequently paid off in full in fiscal 2019.

The New Loan Agreement also included customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants:

We paid off the term loans which were related to the Home Meridian acquisition in fiscal 2021 and currently have a $ 35 million revolving credit facility.

The credit facility was provided for in the amended and restated loan agreement (the “Original Loan Agreement”), which we entered into on February 1, 2016 with Bank of America, N.

(“BofA”) in connection with the Home Meridian Acquisition.

We entered a Second Amended and Restated Loan Agreement dated as of September 29, 2017 (the “Second Amended and Restated Loan Agreement”), a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to the Second Amended and Restated Loan Agreement dated as of January 27, 2021.

Details of our revolving credit facility are outlined below:

The facility is available between January 27, 2021 and February 1, 2026 or such earlier date as the availability may terminate or such later date as BofA may from time to time in its sole discretion designate in any extension notice;

During the availability period, BofA will provide a line of credit to the maximum amount of the Existing Revolver;

The sublimit of the facility available for the issuance of letters of credit was increased to $10 million;

The actual daily amount of undrawn letters of credit is subject to a quarterly fee equal to a per annum rate of 1%;

We may, on a one-time basis, request an increase in the Existing Revolver by an amount not to exceed $30 million at BofA’s discretion;

Any amounts outstanding under the Existing Revolver bear interest at a rate, equal to the then current LIBOR monthly rate (adjusted periodically) plus 1.00%.

We must also pay a quarterly unused commitment fee at a rate of 0.15% determined by the actual daily amount of credit outstanding during the applicable quarter.

The loan covenants agreed to under the Second Amended and Restated Loan Agreement continue to apply to us.

They include customary representations and warranties and requires us to comply with customary covenants, including, among other things, the following financial covenants:

Maintain a ratio of funded debt to EBITDA not exceeding 2.00:1.00.

A basic fixed charge coverage ratio of at least 1.25:1.00;

Limit capital expenditures to no more than $15.0 million during any fiscal year beginning in fiscal 2020.

The New Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions.

The New Loan Agreement does not restrict our ability to pay cash dividends on, or repurchase, shares of our common stock, subject to our compliance with the financial covenants discussed above, if we are not otherwise in default under the New Loan Agreement.

We were in compliance with each of these financial covenants at February 2, 2020.

The full remaining principal amounts of $30.1 million on our term loans are due on February 1, 2021.

We expect to refinance the balance of our term loans and any balance due under our revolving credit facility (currently $0) during fiscal 2021.

Given that our term loans have a floating rate of interest and our credit profile has not materially changed since the inception of the loans, the carrying amount of our term loans approximates their fair value at February 2, 2020.

As of February 2, 2020, we had an aggregate $25.7 million available under the Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $4.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of February 2, 2020.

There were no additional borrowings outstanding under the Existing Revolver as of February 2, 2020.

Limit capital expenditures to no more than $15.0 million during any fiscal year.

The Second Amended and Restated Loan Agreement also limits our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions.

They do not restrict our ability to pay cash dividends on, or repurchase shares of our common stock, subject to our compliance with the financial covenants discussed above, if we are not otherwise in default under the agreements.

We were in compliance with each of these financial covenants at January 31, 2021.

As of January 31, 2021, we had an aggregate $ 28.7 million available under the Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $ 6.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of January 31, 2021.

There were no additional borrowings outstanding under the Existing Revolver as of January 31, 2021.

NOTE 13 – EMPLOYEE BENEFIT PLANS

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This plan assists employees in meeting their savings and retirement planning goals through employee salary deferrals and discretionary employer matching contributions.

Our contributions to the plan amounted to $1.4 million in fiscal 2020, $1.3 million in fiscal 2019 and $974,000 in fiscal 2018.

Our contributions to the plan amounted to $ 1.3 million in fiscal 2021, $ 1.4 million in fiscal 2020, and $ 1.3 million in fiscal 2019.

We adopted ASU 2017-07 as of the beginning of our 2019 fiscal year on January 29, 2018.

Components of net periodic benefit cost other than the service cost for the SRIP, SERP and the Pension Plan are included in the line item “Other income, net” in our condensed consolidated statements of income.

Service cost is included in our condensed consolidated statements of income under “Selling and administrative expenses.” The adoption resulted in the reclassification of a $30,000 gain from Selling and administrative expenses to Other income, net in fiscal 2018 consolidated statements of income.

Components of net periodic benefit cost other than the service cost for the SRIP, SERP and the Pension Plan are included in the line item “Other income, net” in our consolidated statements of operations.

Service cost is included in our consolidated statements of operations under “Selling and administrative expenses.” The adoption resulted in the reclassification of a $ 30,000 gain from Selling and administrative expenses to Other income, net in fiscal 2018 consolidated statements of operations.

Executive Benefits

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Fiscal 2027 through fiscal 2031

For the SRIP, the discount rate used to determine the fiscal 2020 net periodic cost was 3.75% based on the Moody’s Composite Bond Rate as of January 31, 2019.

The discount rate utilized in each period was the Annualized Moody’s Composite Bond Rate rounded to the nearest 0.25%.

At February 2, 2020, combining the Mercer yield curve and the plan's expected benefit payments resulted in a rate of 2.50%.

For the SRIP, the discount rate used to determine the fiscal 2021 net periodic cost was 2.5%, based on the Mercer yield curve and the plan’s expected benefit payments.

At January 31, 2021, combining the Mercer yield curve and the plan's expected benefit payments resulted in a rate of 1.75 %.

This rate was used to value the ending benefit obligations.

Increasing the SRIP discount rate by 1% would decrease the projected benefit obligation at February 2, 2020 by approximately $695,000.

Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at February 2, 2020 by $780,000.

At February 2, 2020, the actuarial losses related to the SRIP amounted to $716,000, net of tax of $149,000.

At January 31, 2021, the actuarial losses related to the SRIP amounted to $ 530 ,000, net of tax of $ 338 ,000.

At February 2, 2020, the actuarial losses related to the SRIP amounted to $ 716 ,000, net of tax of $ 149 ,000.

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There is no expected prior service (cost) or credit amortization.

SERP (Supplemental Executive Retirement Plan)

SERP (Supplemental Executive

Retirement Plan)

Change in benefit obligation:

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Benefits paid

Actuarial loss (gain)

Actuarial (gain)/loss

Ending projected benefit obligation (funded status)

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Other changes recognized in accumulated other comprehensive income

Net loss (gain) arising during period

Net (gain)/loss arising during period

Amortizations:

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Fiscal 2027 through fiscal 2031

For the SERP, the discount rate assumption used to measure the postretirement benefit obligations is set by reference to a certain hypothetical AA-rated corporate bond spot-rate yield curve constructed by our actuary, Aon Hewitt (“Aon”).

For the SERP, the discount rate assumption used to measure the projected benefit obligations is set by reference to a certain hypothetical AA-rated corporate bond spot-rate yield curve constructed by our actuary, Aon (“Aon”).

This yield curve was constructed from the underlying bond price and yield data collected as of the Plan’s measurement date and is represented by a series of annualized, individual discount rates with durations ranging from six months to seventy-five years.

Aon then applies the yield curve to the actuarially projected cash flow patterns to derive the appropriate discount rate.

At February 3, 2019, the plan used 3.90% based on the Aon AA Above Median yield curve as of January 31, 2019.

Aon then applies the spot rates of the yield curve to the actuarially projected cash flow patterns to derive the appropriate single effective discount rate.

At February 2, 2020, the plan used 2.60% based on rounding the Aon AA Above Median yield curve as of January 31, 2019.

This rate was used to determine the fiscal 2021 net periodic cost.

At February 2, 2020, combining the Aon AA Above Median yield curve and the plan's expected benefit payments created a rate of 2.60%.

At January 31, 2021, combining the Aon AA Above Median yield curve and the plan's expected benefit payments created a rate of 2.10%.

This rate was used to value the ending benefit obligations.

Increasing the SERP discount rate by 1% would decrease the projected benefit obligation at February 2, 2020 by approximately $130,000.

Similarly, decreasing the discount rate by 1% would increase the projected benefit obligation at February 2, 2020 by $148,000 .

At January 31, 2021, the actuarial gain related to the SERP was $ 67 ,000.

At February 2, 2020, the actuarial loss related to the SERP was $ 168 ,000.

At February 3, 2019, the actuarial gain related to the SERP was $88,000.

The estimated net transition (asset)/obligation, prior service (cost) credit and actuarial loss that will be amortized from accumulated other comprehensive income into net periodic benefit cost over fiscal 2020 are immaterial.

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We settled all Pension Plan obligations during the third quarter of fiscal 2020 with the purchase of nonparticipating annuity contracts for plan participants.

Consequently, we recognized a $520,000 settlement gain during the quarter, which is recorded in the “other income” line of our condensed consolidated statements of income.

The $520,000 represented an amount recorded in accumulated other comprehensive income until the pension obligation was settled upon plan termination.

Summarized Pension Plan information as of February 2, 2020 (the measurement date) is as follows:

Summarized Pension Plan information as of February 2, 2020 is as follows:

Pulaski Furniture Pension Plan

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Increase in future compensation levels

Performance Grants

The Compensation Committee of our Board of Directors annually awards performance grants to certain senior executives under the Company’s Stock Incentive Plan.

Payments under these awards are based on our achieving specified performance targets during a designated performance period.

Generally, each executive must remain continuously employed with the Company through the end of the performance period.

Typically, performance grants can be paid in cash, shares of the Company’s common stock, or both, at the discretion of the Compensation Committee at the time payment is made.

Outstanding performance grants are classified as liabilities since the (i) settlement amount for each grant is not known until after the applicable performance period is completed and (ii) settlement of the grants may be made in common stock, cash or a combination of both.

The estimated cost of each grant is recorded as compensation expense over its performance period when it becomes probable that the applicable performance targets will be achieved.

The expected cost of the performance grants is revalued each reporting period.

As assumptions change regarding the expected achievement of performance targets, a cumulative adjustment is recorded and future compensation expense will increase or decrease based on the currently projected performance levels.

If we determine that it is not probable that the minimum performance thresholds for outstanding performance grants will be met, no further compensation cost will be recognized and any previously recognized compensation cost will be reversed.

During fiscal 2017, the Compensation Committee awarded performance grants for the 2018 fiscal year.

The 2017 awards had a three-year performance period that ended on January 28, 2018.

The performance criteria for these awards were met and were paid in April 2018.

During fiscal 2018, fiscal 2019 and fiscal 2020, the Compensation Committee awarded performance grants that have three-year performance periods ending on February 3, 2019, February 2, 2020 and January 31, 2021, respectively.

The following amounts were accrued in our consolidated balance sheets as of the fiscal period-end dates indicated:

Performance grants

Fiscal 2017 grant (Current liabilities, Accrued wages, salaries and benefits)

Fiscal 2018 grant (Current liabilities, Accrued wages, salaries and benefits)

Total performance grants accrued

NOTE 14 – SHARE-BASED COMPENSATION

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The weighted average grant-date fair values of restricted stock awards issued during fiscal 2021 were $ 13.92 , $ 19.20 and $ 29.34 , during fiscal 2020 were $ 29.77 , $ 29.21 and $ 19.87 , during fiscal 2019 were $ 37.83 and $ 46.88 , respectively.

The restricted stock awards outstanding as of February 2, 2020 had an aggregate grant-date fair value of $1.2 million, after taking vested and forfeited restricted shares into account.

As of February 2, 2020, we have recognized non-cash compensation expense of approximately $654,000 related to these non-vested awards and $1.9 million for awards that have vested.

The remaining $563,000 of grant-date fair value for unvested restricted stock awards outstanding at February 2, 2020 will be recognized over the remaining vesting periods for these awards.

The restricted stock awards outstanding as of January 31, 2021 had an aggregate grant-date fair value of $ 1.3 million, after taking vested and forfeited restricted shares into account.

As of January 31, 2021, we have recognized non-cash compensation expense of approximately $ 796,000 related to these non-vested awards and $ 2.5 million for awards that have vested.

The remaining $ 473,000 of grant-date fair value for unvested restricted stock awards outstanding at January 31, 2021 will be recognized over the remaining vesting periods for these awards.

The number of outstanding restricted shares increased due primarily to grants of restricted shares to a larger population of our non-executive employees as an incentive for retention and alignment of individual performance to our values.

For each restricted stock issuance, the following table summarizes restricted stock activity, including the weighted average issue price of those shares on the grant date, the fair value of each grant of restricted stock on the grant date, compensation expense recognized for the unvested shares of restricted stock for each grant and the remaining fair value of the unvested shares of restricted stock for each grant as of February 2, 2020:

Grant-Date Fair Value

Unrecognized At

February 2, 2020

January 31, 2021

Previous Awards (vested)

Restricted shares Issued on April 13, 2017

Restricted shares Issued on May 7, 2018

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Restricted shares Issued on May 8, 2019

Restricted shares Issued on April 7, 2020

Restricted shares Issued on June 16, 2020

Awards outstanding at February 2, 2020:

Restricted shares Issued on October 19, 2020

Awards outstanding at January 31, 2021:

We have awarded time-based restricted stock units to certain senior executives since 2011.

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The fair value of each RSU is the market price of a share of our common stock on the grant date, reduced by the present value of the dividends expected to be paid on a share of our common stock during the applicable service period, discounted at the appropriate risk-free rate.

The following table presents RSU activities for the year ended February 2, 2020:

The following table presents RSU activities for the year ended January 31, 2021:

Grant-Date Fair Value

Unrecognized At

February 2, 2020

January 31, 2021

Previous Awards (vested)

RSUs Awarded on April 15, 2017

RSUs Awarded on June 4, 2018

RSUs Awarded on April 17, 2019

Awards outstanding at February 2, 2020:

We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan.

RSUs Awarded on April 7, 2020

Awards outstanding at January 31, 2021:

We have issued Performance-based Restricted Stock Units (“PSUs”) to our named executive officers 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.

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Unrecognized At

February 2, 2020

January 31, 2021

PSUs Awarded on June 4, 2018

PSUs Awarded on April 17, 2019

Awards outstanding at February 2, 2020:

The number of RSUs and PSUs increased primarily due to the addition of three executive officers in the second quarter of fiscal 2019.

PSUs Awarded on April 7, 2020

Awards outstanding at January 31, 2021:

NOTE 15 – EARNINGS PER SHARE

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The following table sets forth the computation of basic and diluted earnings per share:

Net (loss)/income

Dividends on unvested restricted shares

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earnings per share

Basic earnings per share

Diluted earnings per share

In fiscal year 2018, we issued 176,018 shares of common stock to the designees of SFI as partial consideration for the Shenandoah acquisition on September 29, 2017.

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

*Due to the fiscal 2021 net loss, approximately 119,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share.

NOTE 16 – INCOME TAXES

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Total deferred taxes

Income tax expense

Income tax (benefit)/expense

Total tax benefit for fiscal 2021 was $ 4.2 million, of which $ 4.1 million benefit was allocated to continuing operations and $ 30 ,000 tax benefit was allocated to other comprehensive income.

Total tax expense for fiscal 2020 was $ 4.5 million, of which $ 4.8 million expense was allocated to continuing operations and $ 300 ,000 tax benefit was allocated to other comprehensive income.

Total tax expense for fiscal 2019 was $ 11.6 million, of which $ 11.7 million expense was allocated to continuing operations and $ 73 ,000 tax benefit was allocated to other comprehensive income.

Total tax expense for fiscal 2018 was $17.5 million, of which $17.5 million was allocated to continuing operations and $26,000 tax benefit was allocated to other comprehensive income.

The effective income tax rate differed from the federal statutory tax rate as follows for the periods indicated:

The effective income tax rate differed from the federal statutory tax rate as follows for the period s indicated:

Income taxes at statutory rate

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Officer's life insurance

Tax Cuts and Jobs Act of 2017

Consolidated Appropriation Act provisions

Effective income tax rate

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities for the period indicated were:

Intangible assets

Deferred compensation

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Property, plant and equipment

Unrecognized pension actuarial losses

Total deferred tax liabilities

Net deferred tax assets

At February 2, 2020 and February 3, 2019 our net deferred asset was $2.9 million and $4.5, respectively.

At January 31, 2021 and February 2, 2020 our net deferred asset was $ 14.2 million and $ 2.9 million, respectively.

The increase in the valuation allowance of $ 18,000 was due to foreign tax credit limitations.

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The guidance also addresses de-recognition, classification, interest and penalties, accounting in interim periods and disclosures.

A reconciliation of the beginning and ending amount of total unrecognized tax benefits for the fiscal years ended February 2, 2020 and February 3, 2019 are as follows:

Balance, beginning of year

Decrease related to prior year tax positions

Balance, end of year

The net unrecognized tax benefits as of February 2, 2020 which, if recognized, would affect our effective tax rate are $3,000.

We expect that $4,000 of gross unrecognized tax benefits will decrease within the next year.

We have elected to classify interest and penalties recognized with respect to unrecognized tax benefits as income tax expense.

Interest expense of $1,000 and $5,600 was accrued as of February 2, 2020 and February 3, 2019, respectively.

Tax years ending January 29, 2017, through February 2, 2020 remain subject to examination by federal and state taxing authorities.

We do not have unrecognized tax benefits as of January 31, 2021.

Tax years ending January 28, 2018 through January 31, 2021 remain subject to examination by federal and state taxing authorities.

NOTE 17 – SEGMENT INFORMATION

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Fifty-Two Weeks Ended

Fifty-Three Weeks Ended

January 31, 2021

February 2, 2020

February 3, 2019

January 28, 2018

Hooker Branded

$ 162,442 30.1 % $ 161,990 26.4 % $ 178,710 26.2 %

Home Meridian

282,423 52.3 % 340,630 55.8 % 387,825 56.7 %

Domestic Upholstery

83,678 15.5 % 95,670 15.7 % 106,580 15.6 %

11,538 2.1 % 12,534 2.1 % 10,386 1.5 %

$ 540,081 100 % $ 610,824 100 % $ 683,501 100 %

Hooker Branded

$ 51,832 31.9 % $ 51,462 31.8 % $ 58,122 32.5 %

Home Meridian

39,832 14.1 % 36,936 10.8 % 62,850 16.2 %

Domestic Upholstery

Operating Income

17,121 20.5 % 21,120 22.1 % 22,503 21.1 %

3,963 34.4 % 4,440 35.4 % 3,512 33.8 %

$ 112,748 20.9 % $ 113,958 18.7 % $ 146,987 21.5 %

Operating (Loss)/Income

Hooker Branded

$ 22,827 14.1 % $ 21,512 13.3 % $ 25,269 14.1 %

Home Meridian

( 26,071 ) - 9.2 % ( 7,169 ) - 2.1 % 18,828 4.9 %

Domestic Upholstery

( 12,418 ) - 14.8 % 6,637 6.9 % 7,607 7.1 %

1,298 11.3 % 1,727 13.8 % 971 9.4 %

$ ( 14,364 ) - 2.7 % $ 22,707 3.7 % $ 52,675 7.7 %

Capital Expenditures

Hooker Branded

$ 377 $ 690 $ 843

Home Meridian

Domestic Upholstery

475 3,914 3,807

$ 1,210 $ 5,129 $ 5,214

& Amortization

Hooker Branded

$ 1,809 $ 1,930 $ 1,979

Home Meridian

2,160 2,218 2,407

Domestic Upholstery

2,797 2,938 3,049

$ 6,778 $ 7,100 $ 7,442

As of January 31,

As of February 2,

Hooker Branded

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Net Sales (in thousands)

No significant long-lived assets were held outside the United States at either February 2, 2020 or February 3, 2019.

International customers accounted for 1.6% of consolidated invoiced sales in fiscal 2020, 1.2% fiscal 2019 and 2.5% of consolidated invoiced sales in fiscal 2018.

No significant long-lived assets were held outside the United States at either January 31, 2021 or February 2, 2020.

International customers accounted for 2.0 % of consolidated invoiced sales in fiscal 2021, 1.6 % in fiscal 2020, and 1.2 % fiscal 2019.

We define international sales as sales outside of the United States and Canada.

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Future minimum annual commitments under leases and operating agreements are $ 7.4 million in fiscal 2022, $ 5.6 million in fiscal 2023, $ 5.7 million in fiscal 2024, $ 5.3 million in fiscal 2025 and $ 5.3 million in fiscal 2026.

We had letters of credit outstanding totaling $4.3 million on February 2, 2020.

We had letters of credit outstanding totaling $ 6.3 million on January 31, 2021.

We utilize letters of credit to collateralize certain imported inventory purchases and certain insurance arrangements.

Substantially all of the cash value of our company owned life insurance is pledged as collateral for our secured term loan.

In the ordinary course of our business, we may become involved in legal proceedings involving contractual and employment relationships, product liability claims, intellectual property rights and a variety of other matters.

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NOTE 19 – CONCENTRATIONS OF RISK

Imported Products So urcing

We source imported products through multiple vendors, located in eight countries.

Imported Products Sourcing

We source imported products through multiple vendors, located in nine countries.

Because of the large number and diverse nature of the foreign factories from which we can source our imported products, we have some flexibility in the placement of products in any particular factory or country.

Factories located in Vietnam and China are a critical resource for Hooker Furniture.

In fiscal 2020, imported products sourced from Vietnam and China accounted for nearly all of our import purchases and our top five suppliers in those countries accounted for approximately half of our fiscal 2020 import purchases.

In fiscal 2021, imported products sourced from Vietnam and China accounted for 91 % of our import purchases and our top five suppliers in those countries accounted for 45 % of our fiscal 2021 import purchases.

A disruption in our supply chain from Vietnam or China could significantly impact our ability to fill customer orders for products manufactured at that factory or in that country.

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The loss of any one or more of these customers could adversely affect our earnings, financial condition and liquidity.

At February 2, 2020, 35% of our consolidated accounts receivable is concentrated in our top five customers.

Should any one of these receivables become uncollectible, it would have an immediate and material adverse impact on our financial condition and liquidity.

NOTE 2 1 – CONSOLIDATED QUARTERLY DATA (Unaudi ted- see accompanying accountant’s report.)

At January 31, 2021, half of our consolidated accounts receivable is concentrated in our top five customers.

NOTE 20 – CONSOLIDATED QUARTERLY DATA (Unaudited- see accompanying accountant ’ s report.)

Fiscal Quarter

1 unchanged sentence

Selling and administrative expenses

Basic earnings per share

Diluted earnings per share

Goodwill impairment charges

Trade name impairment charges

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

Cost of sales

15 unchanged sentences

On March 1, 2021 , our Board of Directors declared a quarterly cash dividend of $ 0.18 per share, payable on March 31, 2021 to shareholders of record at March 17, 2021 .

In late 2019, an outbreak of COVID-19 was identified and has subsequently been recognized as a global pandemic by the World Health Organization.

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

Temporary closures of businesses have also been ordered in certain jurisdictions and other businesses have temporarily closed on a voluntarily basis.

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

and around the world.

Due to the aforementioned effects of COVID-19, we have seen decreased demand for home furnishings in our industry and for our company.

We have also seen a spike in order cancellations over the last few weeks prior to filing this Annual Report, which has blunted some of the strong backlog we had at fiscal year-end.

Some customers have taken or are expected to take extended payment terms and we expect cash collections to slow.

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

We expect sales and earnings to be down materially in the fiscal 2021 first quarter and for fiscal 2021, both as compared to prior-year periods, but we are unable to reasonably estimate the extent of those decreases.

Additionally, we note we have limited insight into the extent to which our business may be impacted by the COVID-19 pandemic and there are many unknowns including the severity and duration of the current crisis.

Further delays in the receipt of goods and other unanticipated impacts to our supply chain, including on direct imports or goods purchased domestically, or our customers, could have a more significant impact on our future business (including sales and earnings).

We continue to monitor the situation closely and may implement further measures to provide additional financial flexibility as we work to protect our cash position and liquidity.

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-K

Item 9A. Controls and Procedures