What changed in this filing

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Item 1. Financial Statements

2021-06-10 compared with 2020-12-10 · 368 added, 163 removed, 295 unchanged (64% of the section changed)

6 unchanged sentences

Trade accounts receivable, net

Income tax recoverable

Prepaid expenses and other current assets

8 unchanged sentences

Current liabilities

Current portion of term loans

Trade accounts payable

Accrued salaries, wages and benefits

Income tax payable

Income tax accrual

Customer deposits

2 unchanged sentences

Total current liabilities

Long term debt

Deferred compensation

Lease liabilities

Other long-term liabilities

Total long-term liabilities

12 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales

4 unchanged sentences

Operating income/(loss)

Other income, net

Other income/(expense), net

Interest expense, net

10 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net Income/(Loss)

Other comprehensive income (loss):

Gain on pension plan settlement

Income tax effect on settlement

Amortization of actuarial loss

6 unchanged sentences

(In thousands)

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Operating Activities:

Net (loss)/income

Net income/(loss)

Adjustments to reconcile net income to net cash

2 unchanged sentences

Depreciation and amortization

Gain on pension settlement

Gain on disposal of assets

Deferred income tax (benefit) / expense

Deferred income tax expense

Noncash restricted stock and performance awards

Provision for doubtful accounts and sales allowances

Benefit from doubtful accounts and sales allowances

Gain on life insurance policies

13 unchanged sentences

Purchases of property and equipment

Proceeds received on notes from sale of assets

Premiums paid on life insurance policies

Proceeds received on life insurance policies

Net cash provided by/(used in) investing activities

Net cash (used in)/provided by investing activities

Financing Activities:

Payments for long-term debt

Cash dividends paid

Payments for long-term debt

Cash used in financing activities

Net increase in cash and cash equivalents

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents - beginning of year

1 unchanged sentence

Supplemental disclosure of cash flow information:

Cash paid for income taxes

Cash paid for interest, net

Cash (refund)/paid for income taxes

Non-cash transactions:

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

Increase/(decrease) in lease liabilities arising from obtaining right-of-use assets

Increase in property and equipment through accrued purchases

7 unchanged sentences

Balance at February 2, 2020

Gain on pension settlement, net of tax of $ 124

Unrealized loss on defined benefit plan, net of tax of $ 20

2 unchanged sentences

Restricted stock compensation cost

Recognition of PSUs as equity-based awards

Balance at November 3, 2019

Balance at February 2, 2020

Performance-based restricted stock units costs

Balance at May 3, 2020

Balance at January 31, 2021

Unrealized loss on defined benefit plan, net of tax of $ 24

2 unchanged sentences

Restricted stock compensation cost

Performance-based restricted stock units cost

Balance at November 1, 2020

Performance-based restricted stock units costs

Balance at May 2, 2021

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

2 unchanged sentences

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

For the Thirty-Nine Weeks Ended November 1, 2020

For the Thirteen Weeks Ended May 2, 2021

Preparation of Interim Financial Statements

5 unchanged sentences

However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and financial position.

These financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our annual report on Form 10-K for the fiscal year ended February 2, 2020 (“2020 Annual Report”).

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect both the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

1 unchanged sentence

Operating results for the interim periods reported herein may not be indicative of the results expected for the fiscal year.

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2021 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 3, 2020, and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began February 3, 2020, which both ended November 1, 2020.

This report discusses our results of operations for this period compared to the 2020 fiscal year thirteen-week period that began August 5, 2019 and the thirty-nine week period that began February 4, 2019, which both ended November 3, 2019;

and our financial condition as of November 1, 2020 compared to February 2, 2020.

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began February 1, 2021 and ended May 2, 2021.

This report discusses our results of operations for this period compared to the thirteen-week period that began February 3, 2020 and ended May 3, 2020;

and our financial condition as of May 2, 2021 compared to January 31, 2021.

References in these notes to the condensed consolidated financial statements of the Company to:

the 2022 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 1, 2021 and will end January 30, 2022;

the 2020 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 4, 2019 and ended February 2, 2020.

We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.

In the fourth quarter of fiscal 2020, we updated our reportable segments.

Consequently, the segment disclosures in this filing have been recast to reflect these changes and therefore differ from prior year quarterly filings.

See Note 13 Segment Information for additional details.

the 2021 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began February 3, 2020 and ended January 31, 2021.

Recently Adopted Accounting Policies

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326).

This update seeks to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including trade receivables, and other commitments to extend credit held by a reporting entity at each reporting date.

The amendments require an entity to replace the incurred loss impairment methodology in current GAAP with a methodology that reflects current expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

We adopted the provisions of Topic 326 on February 3, 2020, the first day of our 2021 fiscal year.

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

We will continue to actively monitor the impact of the COVID-19 pandemic on expected credit losses.

In December 2019, the FASB issued ASU 2019-12, Income Tax (Topic 740) – Simplifying the Accounting for Income Taxes.

The amendments in this update simplify the accounting for income taxes by removing certain exceptions for intra-period tax allocation, the recognition of deferred tax liabilities after an investment in a foreign entity transitions to or from the equity method, and the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The amendments also introduce new guidance on determining how to apply the income tax guidance to franchise taxes that are partially based on income, clarifying the accounting for transactions that result in a step-up in the tax basis of goodwill, and the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period.

The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

We elected to adopt ASU 2019-12 on February 3, 2020, the first day of our 2021 fiscal year.

The adoption of this standard resulted in additional $4.0 million of income tax benefit upon adoption.

See Note 12 Income Taxes for additional details.

In August 2018, the FASB issued ASU No.

2018-14, Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”).

The amendments in this update change the disclosure requirements for employers that sponsor defined benefit pension and/or other post-retirement benefit plans.

It eliminates requirements for certain disclosures that are no longer considered cost beneficial and requires new disclosures that the FASB considers pertinent.

The guidance is effective for fiscal years ending after December 15, 2020.

We adopted this guidance in the fiscal 2022 first quarter.

The adoption of ASU 2018-14 did not have a material impact on our consolidated financial statements or disclosures.

Accounts Receivable

Trade accounts receivable

Receivable from factor

Other accounts receivable allowances

1 unchanged sentence

Accounts receivable

“Receivable from factor” represented amounts due with respect to factored accounts receivable.

The agreement was discontinued in early fiscal 2021.

Finished furniture

23 unchanged sentences

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

As of November 1, 2020 and February 2, 2020, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs.

As of May 2, 2021 and January 31, 2021, Company-owned life insurance was measured at fair value on a recurring basis based on Level 2 inputs.

The fair value of the Company-owned life insurance is determined by inputs that are readily available in public markets or can be derived from information available in publicly quoted markets.

Additionally, the fair value of the Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period.

Our assets measured at fair value on a recurring basis at November 1, 2020 and February 2, 2020, were as follows:

Fair value at November 1, 2020

Fair value at February 2, 2020

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

Fair value at May 2, 2021

Fair value at January 31, 2021

(In thousands)

2 unchanged sentences

Intangible Assets

The adverse economic effects brought on by the COVID-19 pandemic, including reductions in our sales, earnings and market value, as well as other changing market dynamics, required that we perform a valuation of our intangible assets.

The calculation methodology for the fair value of our Home Meridian segment and the Shenandoah division of our Domestic Upholstery segment included three approaches:

the Discounted Cash Flow Method (DCF) which was given the largest weighting, the Guideline Public Company Method (GPCM) based on the consideration of the facts of the Company’s peer competitors and the Guideline Transaction Method (GTM) based on consideration of transactions with varying risk profiles, geographies and market conditions.

The income approach, specifically the relief from royalty method, was used as the valuation methodology for our trade names and trademarks, based on cash flow projections and growth rates for each trade name for five years in the future provided by management, and a royalty rate benchmark for companies with similar activities.

As a result of our intangible asset valuation analysis, in the first quarter of fiscal 2021, we recorded $ 44.3 million non-cash impairment charges including $ 23.2 million to Home Meridian goodwill, $ 16.4 million to Shenandoah goodwill and $ 4.8 million to certain of Home Meridian segment’s trade names.

Thirty-Nine Weeks Ended

November 1, 2020

February 2, 2020

January 31, 2021

Non-amortizable Intangible Assets

Beginning Balance

Impairment Charges

Net Book Value

Beginning Balance

Impairment Charges

Net Book Value

Home Meridian

Domestic Upholstery

Total Goodwill

Trademarks and trade names - Home Meridian

10 unchanged sentences

Relationships

Balance at February 2, 2020

Balance at November 1, 2020

For the remainder of fiscal 2021, amortization expense is expected to be approximately $ 596,000 .

Balance at January 31, 2021

Balance at May 2, 2021

For the remainder of fiscal 2022, amortization expense is expected to be approximately $ 1.8 million.

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

We recognized sub-lease income of $ 144,000 for the three-month period and $ 432,000 for the nine-month period, both ended November 1, 2020.

The components of lease cost and supplemental cash flow information for leases for the three-month and nine-month ended November 1, 2020 were:

We recognized $146,000 sub-lease income for the three-month period ended May 2, 2021.

The components of lease cost and supplemental cash flow information for leases for the three-months ended May 2, 2021 were:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

November 1, 2020

November 3, 2019

November 1, 2020

November 3, 2019

Operating lease cost

3 unchanged sentences

Operating cash outflows

The right-of-use assets and lease liabilities recorded on our Condensed Consolidated Balance Sheets as of November 1, 2020 were:

November 1, 2020

February 2, 2020

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

January 31, 2021

Property and equipment

6 unchanged sentences

The weighted-average discount rate is 2.2 %.

Due to the COVID-19 pandemic, we received concessions on several of our leases, including changes in lease terms and deferred rent payments.

We accounted for the concessions as lease modifications and used current LIBOR plus 1.5% for those leases.

The weighted-average discount rate decreased due to a decrease in LIBOR.

None of the modifications had a material effect on our condensed consolidated financial statements or results of operations.

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on November 1, 2020:

Undiscounted Future Operating Lease Payments

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on May 2, 2021:

Undiscounted Future

Operating Lease Payments

Remainder of 2022

3 unchanged sentences

Present value of lease payments

As of November 1, 2020, the Company has an additional lease for a warehouse in Georgia that had not yet commenced with estimated future minimum rental commitments of approximately $ 28 million.

This lease is expected to commence in December 2021 with lease term of up to 10 years.

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.

None of the modifications had a material effect on our condensed consolidated financial statements or results of operations.

As of May 2, 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 an initial lease term of 10 years.

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

As of November 1, 2020, we had an aggregate $ 25.7 million available under the Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $ 4.3 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the revolving credit facility as of November 1, 2020.

There were no additional borrowings outstanding under the Existing Revolver as of November 1, 2020.

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

The term loans are related to the Home Meridian acquisition.

The full remaining principal amounts of $ 25.7 million on our term loans are due on or before February 1, 2021.

We expect to pay off our term loans in full and enter into a new credit facility on or before the expiration of the current agreement.

Subsequent to the end of the fiscal 2021 third quarter, the Existing Revolver was amended to increase the sublimit of the facility available for the issuance of letters of credit from $ 4 million to $ 10 million in order to support import purchases.

Employee Benefit Plans

We maintain two “frozen” retirement plans, which are paying benefits and may include active employees among the participants.

We do not expect to add participants to these plans in the future.

The two plans include:

a supplemental retirement income plan (“SRIP”) for certain former and current executives of Hooker Furniture Corporation;

the Pulaski Furniture Corporation Supplemental Executive Retirement Plan (“SERP”) for certain former executives.

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net periodic benefit costs

Interest cost

Actuarial loss

Expected return on pension plan assets

Pension plan administrative expenses

Consolidated net periodic benefit costs

The SRIP and SERP plans are unfunded plans.

In fiscal 2021, we paid $ 179 ,000 in the third quarter and $ 538 ,000 in the first nine months and expect to pay a total of approximately $ 191 ,000 in benefit payments from our general assets during the remainder of fiscal 2021 to fund SRIP and SERP payments.

Long-Term Debt

As of May 2, 2021, we had an aggregate $ 28.7 million available under our $ 35 million revolving credit facility (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 May 2, 2021.

There were no additional borrowings outstanding under the Existing Revolver as of May 2, 2021.

Earnings Per Share

14 unchanged sentences

RSUs and PSUs

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

All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share.

1 unchanged sentence

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net income/(loss)

7 unchanged sentences

Diluted earnings/(loss) per share

* Due to the fiscal 2021 year-to-date net loss, approximately 92,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share for the thirty-nine weeks ended November 1, 2020.

We recorded income tax expense of $ 3.0 million for the fiscal 2021 third quarter compared to $ 1.1 million for the comparable prior year period.

The effective tax rates for the fiscal 2021 and 2020 third quarters were 22.9 % and 21.4 %, respectively.

We recorded income tax benefit of $ 6.3 million for the fiscal 2021 first nine months, of which income tax benefit of $ 10.7 million was recorded related to goodwill and trade name impairment charges, compared to $ 2.8 million income tax expense for the comparable prior year period.

The effective tax rates for the first nine months of fiscal 2021 and 2020 were 24.8 % and 21.9 %, respectively.

An entity is required to make its best estimate of the annual effective tax rate for the full fiscal year at the end of each interim period and to use this rate to calculate its income taxes on a year-to-date basis.

Under the current income tax guidance, there is an exception that when the year-to-date loss for an interim period exceeds the projected loss for the full fiscal year, the income tax benefit recognized year-to-date is limited to the amount of benefit that would be recognized if the year-to-date loss were the anticipated loss for the full fiscal year.

ASU 2019-12 removes this exception and no longer limits the computed benefit.

We elected to early adopt ASU 2019-12 in the first quarter of fiscal 2021 and recognized an additional $ 4.0 million of income tax benefits upon adoption.

In the nine months period, we recognized additional $ 2.4 million of income tax benefit.

The net unrecognized tax benefits as of November 1, 2020 and February 2, 2020, which, if recognized, would affect our effective tax rate are $ 3 ,000.

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

We recorded income tax expense of $ 2.8 million for the fiscal 2022 first quarter, compared to income tax benefit of $ 10.9 million for the comparable prior year period, of which $ 10.6 million was recorded related to goodwill and trade name impairment charges.

The effective tax rates for the fiscal 2022 and 2021 first quarters were 22.7 % and 23.8 %, respectively.

No material and non-routine positions have been identified that are uncertain tax positions.

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

Segment Information

9 unchanged sentences

We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary.

In the fourth quarter of fiscal 2020, we updated our reportable segments as follows:

domestic upholstery producers Bradington-Young, Sam Moore and Shenandoah Furniture were moved from All Other and aggregated into a new reportable segment called “Domestic Upholstery.” All Other now consists of H Contract and Lifestyle Brands.

Lifestyle Brands is a business in its start-up phase targeted at the interior design channel.

The Hooker Branded and Home Meridian segments were unchanged.

Therefore, for financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses:

For financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses:

Hooker Branded , consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses;

5 unchanged sentences

The following table presents segment information for the periods, and as of the dates, indicated.

Prior-year information has been recast to reflect the changes in segments discussed above:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

November 1, 2020

November 3, 2019

November 1, 2020

November 3, 2019

Hooker Branded

25 unchanged sentences

Hooker Branded

$ 60 $ 89 $ 173 $ 600

Home Meridian

27 126 137 300

Domestic Upholstery

$ 2,188 $ 380

$ 169 $ 1,086 $ 642 $ 4,745

& Amortization

Hooker Branded

$ 444 $ 471 $ 1,338 $ 1,453

Home Meridian

540 549 1,608 1,627

Domestic Upholstery

$ 1,714 $ 1,685

$ 1,687 $ 1,788 $ 5,052 $ 5,260

As of November 1,

As of February 2,

As of January 31,

Identifiable Assets

7 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

November 1, 2020

November 3, 2019

November 1, 2020

November 3, 2019

Subsequent Events

Loan agreement

On November 4, 2020, we entered the Second Amendment to the Second Amended and Restated Loan Agreement (the “Agreement”) to amend certain provisions of the Existing Loan Agreement.

The Agreement was amended to increase the sublimit of the facility available for the issuance of letters of credit from $ 4 million to $ 10 million in order to support import purchases.

On December 2, 2020 , our board of directors declared a quarterly cash dividend of $ 0.18 per share, payable on December 31, 2020 to shareholders of record at December 16, 2020 .

This represents a 12.5 % increase over the previous quarterly dividend and the fifth consecutive annual dividend increase.

On June 3, 2021 , our board of directors declared a quarterly cash dividend of $ 0.18 per share, which will be paid on June 30, 2021 to shareholders of record at June 16, 2021 .

Management ’ s Discussion and Analysis of Financial Condition and Results of Operations

All references to the “ Company, ” “ we, ” “ us ” and “ our ” in this document refer to Hooker Furniture Corporation and its consolidated subsidiaries, unless specifically referring to segment information.

Forward-Looking Statements

Certain statements made in this report, including statements under Item 2.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the notes to the consolidated financial statements included in this report, are not based on historical facts, but are forward-looking statements.

These statements reflect our reasonable judgment with respect to future events and typically can be identified by the use of forward-looking terminology such as “believes,” “expects,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “would,” “could” or “anticipates,” or the negatives thereof, or other variations thereof, or comparable terminology, or by discussions of strategy.

Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

Those risks and uncertainties include but are not limited to:

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

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

and local economies;

our business operations and continuity;

the health and productivity of our employees;

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

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

adverse political acts or developments in, or affecting, the international markets from which we import products, including duties or tariffs imposed on those products by foreign governments or the U.S.

government, such as the prior U.S.

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

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

risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, ocean freight costs and warehousing costs and the risk that a disruption in our offshore suppliers could adversely affect our ability to timely fill customer orders;

changes in U.S.

and foreign government regulations and in the political, social and economic climates of the countries from which we source our products;

difficulties in forecasting demand for our imported products;

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

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

risks associated with our newly leased warehouse space in Georgia, including delays in construction and occupancy and risks associated with our move to the facility, including information systems, access to warehouse labor and the inability to realize anticipated cost savings;

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

the risks specifically related to the concentrations of a material part of our sales and accounts receivable in only a few customers, including the loss of several large customers through business consolidations, failures or other reasons, or the loss of significant sales programs with major customers;

our inability to collect amounts owed to us or significant delays in collecting such amounts;

the interruption, inadequacy, security breaches or integration failure of our information systems or information technology infrastructure, related service providers or the internet or other related issues including unauthorized disclosures of confidential information or inadequate levels of cyber-insurance or risks not covered by cyber insurance;

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

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

the impairment of our long-lived assets, which can result in reduced earnings and net worth;

capital requirements and costs;

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

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

changes in domestic and international monetary policies and fluctuations in foreign currency exchange rates affecting the price of our imported products and raw materials;

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

price competition in the furniture industry;

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

changes in consumer preferences, including increased demand for lower-quality, lower-priced furniture.

Our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions.

The future events, developments or results described in this report could turn out to be materially different.

Any forward-looking statement we make speaks only as of the date of that statement, and we undertake no obligation, except as required by law, to update any forward-looking statements whether as a result of new information, future events or otherwise and you should not expect us to do so.

Also, our business is subject to a number of significant risks and uncertainties any of which can adversely affect our business, results of operations, financial condition or future prospects.

For a discussion of risks and uncertainties that we face, see the Forward-Looking Statements detailed above and Item 1A, “Risk Factors” in our 2021 annual report on Form 10-K (the “2021 Annual Report”).

Investors should also be aware that while we occasionally communicate with securities analysts and others, it is against our policy to selectively disclose to them any material nonpublic information or other confidential commercial information.

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

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began February 1, 2021 and ended May 2, 2021.

This report discusses our results of operations for this period compared to the 2021 fiscal year thirteen-week period that began February 3, 2020 and ended May 3, 2020;

and our financial condition as of May 2, 2021 compared to January 31, 2021.

References in this report to:

the 2022 fiscal year and comparable terminology mean the fiscal year that began February 1, 2021 and will end January 30, 2022;

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

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

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

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

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

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

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

For the Hooker Branded and Domestic Upholstery segments and All Other, we generally consider unshipped order backlogs to be one helpful indicator of sales for the upcoming 30-day period, but because of our relatively quick delivery and our cancellation policies, we do not consider order backlogs to be a reliable indicator of expected long-term sales.

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

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

There are exceptions to the general predictive nature of our orders and backlogs noted in this paragraph due to current demand and supply chain challenges related to the COVID-19 pandemic.

They are discussed in greater detail below and are essential to understanding our prospects.

At May 2, 2021, our backlog of unshipped orders was as follows:

Order Backlog

(Dollars in 000s)

January 31, 2021

Reporting Entity

Hooker Branded

Home Meridian

Domestic Upholstery

At the end of fiscal 2022 first quarter, order backlog had increased $32.4 million or 13% as compared to the end of fiscal 2021 and increased $188.9 million or 206% as compared to the prior-year first quarter end, due to increased incoming orders in all three reportable segments as well as the supply chain disruptions in the Home Meridian and, to a lesser degree, Hooker Branded segments and production delays in the Domestic Upholstery segment.

We are very encouraged by the current historic levels of orders and backlogs;

however, due to the current supply chain issues including the lack of shipping containers and vessel space and limited overseas vendor capacity, orders are not converting to shipments as quickly as could be expected compared to the pre-pandemic environment and we expect that to continue at least into the second half of fiscal 2022.

The current logistics challenges are slowing order fulfillment, particularly for Home Meridian whose average order sizes tend to be larger and more episodic versus orders for the traditional Hooker businesses, which tend to be smaller and more predictable.

Additionally, Home Meridian orders are programmed out and scheduled for delivery to its larger accounts further into the future than usual, which is also contributing to the increased backlog.

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

We also encourage users of this report to familiarize themselves with all of our recent public filings made with the Securities and Exchange Commission (“SEC”), especially our 2021 Annual Report.

Our 2021 Annual Report contains critical information regarding known risks and uncertainties that we face, critical accounting policies and information on commitments and contractual obligations that are not reflected in our condensed consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives.

Our 2021 Annual Report and our other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurniture.com.

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

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

We are ranked among the nation’s top five largest publicly traded furniture sources, based on 2019 shipments to U.S.

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

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

Executive Summary-Results of Operations

As discussed in greater detail under “Results of Operations” below, the following are the primary factors that affected our consolidated fiscal 2022 first quarter results of operations:

Consolidated net sales for fiscal 2022 first quarter increased by $58.3 million or 55.7% as compared to the prior year period, from $104.6 million to $162.9 million, due to an 89% sales increase in the Hooker Branded segment and 46% sales increases in both Home Meridian and Domestic Upholstery segments.

All Other net sales decreased by 12.3% as H Contract has not yet recovered from certain impacts of the COVID-19 pandemic.

Consolidated gross profit increased both in absolute terms and as a percentage of net sales, due to increased gross profit and margin at Hooker Branded and Domestic Upholstery segments.

Home Meridian’s gross profit increased slightly as a percentage of net sales as this segment was heavily impacted by higher freight costs which largely offset the sales increase.

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

Consolidated operating income was $12.2 million compared to $45.4 million operating loss in the prior year period, which was largely attributable to $44.3 million in non-cash impairment charges.

Consolidated net income was $9.4 million or $0.78 per diluted share, as compared to net loss of $34.8 million or $(2.95) per diluted share in the prior year period.

We are pleased to report fiscal 2022 first quarter results with strong rebound and record growth one year after the severe onset of the COVID-19 pandemic as the Company witnessed the most significant downturn in its history in the prior year.

Despite logistics challenges that impacted our Hooker Branded and Home Meridian segments and some raw material shortages affecting our Domestic Upholstery segment, consolidated net sales increased by 55.7% or $58.3 million as compared to the prior year period with all three reportable segments delivering significant revenue growth, driven by industry-wide ongoing high demand and consumer interest in home furnishings and home-related projects.

The Hooker Branded segment’s net sales increased by $24.2 million or 89% versus the prior year period as incoming orders nearly doubled and finished the quarter with a backlog that more than tripled versus the prior year first quarter end.

The majority of Hooker Branded sales are shipped out of U.S.

warehouses and because we source product on a consistent weekly basis, we were better able to flow imports from Asia and utilize lower cost freight contracts, which helped reduce the unfavorable impacts of vessel space and container shortages and domestic trucking availability.

Additionally, we were also able to sell some slower-moving inventory from our warehouses.

As the result of this higher sales volume, transportation cost containment, and to a lesser extent lower discounting, this segment remained highly profitable and contributed over 75% of consolidated operating profit during the quarter.

The Home Meridian segment’s net sales increased by $26.7 million or 46.4% in the fiscal 2022 first quarter versus the fiscal 2021 first quarter due to increased sales with major furniture chains and retail stores driven by increased demand and incoming orders.

The Pulaski Furniture, Samuel Lawrence Furniture and Prime Resources International divisions experienced increased incoming orders and reported significantly increased net sales.

However, profits on these increased sales were largely offset by higher freight costs as the result of continued global supply chain challenges.

Freight costs have a more material and adverse impact on the Home Meridian segment compared to Hooker Branded segment due to relatively lower value of each of Home Meridian’s containers and Home Meridian’s greater reliance on the spot market for container freight.

Net sales in the Accentrics Home division, which focuses on the e-commerce channel, increased slightly versus the prior year period as inventory availability had a more adverse impact on its sales, since ecommerce customers generally expect immediate shipment.

The HMidea division’s sales to its Club accounts remained stable;

however, current sales volumes are not sufficient to fully cover fixed costs at the relatively lower margins in this channel.

The Samuel Lawrence Hospitality division was also unprofitable during the quarter due to very low sales volume as a result of continued low building and remodeling activity in the hospitality industry as it continues its slow climb out of the depths of the COVID crisis.

The Home Meridian segment finished the quarter with a small operating profit and backlog tripled as compared to the prior year quarter end.

Freight surcharges and price increases were imposed during the quarter to try to mitigate these increased costs;

however these customer increases often trail the increases passed on by our suppliers.

The Domestic Upholstery segment’s net sales increased by $7.7 million or 45.9% in the fiscal 2022 first quarter versus the prior year period due to significantly increased sales volume at all three divisions.

(In response to the COVID-19 restrictions and reduced orders, we temporarily closed our manufacturing plants at Bradington-Young and Shenandoah for about a month during the prior year first quarter, and Sam Moore operated at about 50% capacity.

As a result, these divisions did not report sales or reported sales at much lower levels during that month.) Although we are encouraged by 156% higher incoming orders during this quarter, we started to experience foam shortages and inflation in certain raw materials, such as foam, lumber, plywood, fabric and mechanisms.

These manufacturing constraints led to reduced production levels later this quarter, which adversely impacted sales volume and led to operating inefficiencies in this segment.

We believe the foam shortage is beginning to show signs of improvement and we are increasing prices to our customers where possible to offset increased raw material costs.

All Other’s net sales decreased by $368,000 or 12.3% as compared to the prior year period due principally to 16.6% sales decrease at H Contract.

The senior living industry, which comprises the majority of H Contract’s business, has not yet recovered from the COVID-19 crisis.

However, we believe the ongoing vaccination progress has helped the senior living industry as H Contract’s incoming orders increased by 9.5% during the quarter and backlog was 35% higher than prior year quarter end.

Despite the sale decline, H Contract still reported operating income for the quarter.

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

We used $238,000 generated from operating activities and existing cash on hand to pay $2.2 million of capital expenditures to enhance our business systems and facilities and $2.1 million in cash dividends to our shareholders.

Cash and cash equivalents stood at $61.6 million at fiscal 2022 first quarter-end, a decrease of $4.2 million compared to the balance at fiscal 2021 year-end.

Meanwhile, our inventory balance increased $11.3 million as production capacity at our Asian suppliers continues to return to pre-pandemic levels.

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

In addition to our cash balance, we have an aggregate of $28.7 million available under our existing revolver to fund working capital needs, which we believe we have the financial resources to fund our business operations, including weathering the logistics issues, cost increases and production capacity constraints which are currently impacting our industry.

Results of Operations

The following table sets forth the percentage relationship to net sales of certain items included in the condensed consolidated statements of income included in this report.

Thirteen Weeks Ended

Cost of sales

Selling and administrative expenses

Goodwill impairment charges

Trade name impairment charges

Intangible asset amortization

Operating income/(loss)

Interest expense, net

Income/(Loss) before income taxes

Income tax expense

Net income/(loss)

Fiscal 2022 First Quarter Compared to Fiscal 2021 First Quarter

Thirteen Weeks Ended

Hooker Branded

Home Meridian

Domestic Upholstery

Average Selling Price

Hooker Branded

Home Meridian

Domestic Upholstery

Consolidated net sales increased significantly due to strong sales in all three reportable segments compared to the prior year period.

The Hooker Branded segment’s net sales increased by 89% as compared to the prior year period due to increased unit volume and ASP, driven by increased demand and lower discounting.

A strong retail environment also enabled this segment to sell slower-moving inventory with less promotional and discounting costs.

The Home Meridian segment’s net sales increased due to increased unit volume with major furniture chains and retail stores as the result of strong demand, partially offset by decreased sales in the Samuel Lawrence Hospitality as the hospitality business has not recovered from the pandemic.

Accentrics Home net sales increased slightly compared to prior year first quarter as e-commerce sales were more impacted by inventory availability.

The ASP decrease was attributable to customer mix.

The Domestic Upholstery segment’s net sales increased due to increased unit volume in all three divisions.

In the prior year period, we temporarily shut down Bradington-Young and Shenandoah manufacturing plants and kept the Sam Moore division operating at 50% capacity for a month.

In fiscal 2022 first quarter, all three divisions were operated near full capacity in response to increased orders and backlog.

However, we saw foam allocations and certain material shortages later in the quarter that limited our production levels and adversely impacted sales volume.

All Other’s net sales decrease was attributable to H Contract, as this division has not yet recovered from the pandemic, partially offset by continued growth at Lifestyle Brands.

Gross Profit and Margin

Thirteen Weeks Ended

Hooker Branded

Home Meridian

Domestic Upholstery

Consolidated gross profit and margin both increased in the fiscal 2022 first quarter as compared to the prior year period.

The Hooker Branded segment’s gross profit and margin both increased due primarily to the net sales increase as well as lower fixed distribution costs.

Product costs benefited from a favorable sourcing mix as we imported a higher portion of product from Vietnam which carried lower costs.

The favorable sourcing mix was negatively impacted by higher freight costs and inflation from Asian vendors.

The Home Meridian segment’s gross profit increased in absolute terms and slightly as a percentage of net sales.

Freight costs increased 300 bps as compared to prior year period, which was the primary driver of product costs increase.

Despite a net sales increase, Home Meridian’s gross margins were negatively impacted by some higher-volume but lower-margin sales programs.

The Domestic Upholstery segment’s gross profit and margin increased significantly due to the net sales increases and operating efficiency improvements this segment experienced as compared to the prior year period that included lower sales volumes and operating inefficiencies due to temporary factory shutdowns.

However, foam allocations and other critical material shortages began to impact production in the first quarter of fiscal 2022.

This led to operating at reduced production volumes and resulted in production inefficiencies which adversely impacted gross profit.

Inflation of raw material costs also drove increased product costs in this segment.

All Other’s gross profit and margin decreased in the first quarter due principally to net sales decline at H Contract.

Selling and Administrative Expenses (S&A)

Thirteen Weeks Ended

Hooker Branded

Home Meridian

Domestic Upholstery

Consolidated selling and administrative (“S&A”) expenses increased in absolute terms while decreased as a percentage of net sales in the fiscal 2022 first quarter versus the prior year period.

The Hooker Branded segment’s S&A expenses increased in absolute terms due primarily to increased selling costs as the result of higher net sales, and to a lesser extent increased expenses incurred as part of our ERP system implementation.

The increases were partially offset by lower bad debt expenses due to a customer write-off in the prior year and lower advertising supplies and market expenses due to the postponement of the Spring High Point Furniture Market.

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

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

The increase was principally attributable to increased selling expenses due to higher net sales, partially offset by decreased travel expenses, decreased professional service expenses and other spending reductions.

The Domestic Upholstery segment’s S&A expenses increased in absolute terms due to increased selling expenses on higher net sales, higher salaries and wages compared to the prior year, when a number of employees were furloughed due to factory shutdowns, and increased depreciation expenses due to the accelerated depreciation of our existing ERP system, partially offset by lower medical claims costs.

All Other S&A expenses decreased in absolute terms due to decreased selling expenses as well as decreased advertising supply expenses.

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

Goodwill impairment charges

Thirteen Weeks Ended

Home Meridian

Domestic Upholstery

Trade name impairment charges

Thirteen Weeks Ended

Home Meridian

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

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

Intangible Asset Amortization

Thirteen Weeks Ended

Intangible asset amortization

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

Operating Profit/(Loss) and Margin

Thirteen Weeks Ended

Hooker Branded

Home Meridian

Domestic Upholstery

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

Interest Expense, net

Thirteen Weeks Ended

Consolidated interest expense, net

Consolidated interest expense decreased in fiscal 2022 first quarter primarily due to the payoff of our term loans in fiscal 2021 fourth quarter.

Thirteen Weeks Ended

Consolidated income tax expense/(benefit)

Effective Tax Rate

We recorded income tax expense of $2.8 million for the fiscal 2022 first quarter compared to income tax benefit of $10.9 million for the comparable prior year period.

The effective tax rates for the fiscal 2022 and 2021 first quarters were 22.7% and 23.8%, respectively.

Net Income/(Loss)

Thirteen Weeks Ended

Net income/(loss)

Diluted earnings/(loss) per share

We monitor information on COVID-19 from the CDC and believe we are adhering to their recommendations regarding the health and safety of our personnel.

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

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

Non-essential domestic travel for our employees has ceased and international travel has been prohibited out-right.

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

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

As more state and local governments have eased restrictions on retail activities, we have seen a significant improvement in our business conditions, including order rates, profitability, and financial condition.

We continue to cautiously make decisions regarding our financial resources to weather and adapt to changes in market conditions, including any remaining impacts of COVID-19 and future pandemics.

Our consolidated orders and backlogs are more than double historical norms as we head into the summer months.

Given this strong position, we are cautiously optimistic, considering the industry-wide supply chain, logistics and raw materials shortages and inflation.

We continue to manage our logistics issues, with the goal of minimizing costs and maximizing delivery;

however, there is no indication that ocean freight container rates will return to pre-COVID-19 levels in the near term.

We believe we have mitigated these dynamics as much as possible through surcharges and price increases, but these increases often trail price increases received by logistics partners and suppliers.

Additionally, these supply-side factors are unpredictable and often involve frequent, unexpected changes with little or no notice.

We believe that several macroeconomic factors provide a nice path for growth such as the strong housing market and favorable demographics with the large Millennial generation becoming highly engaged in household formation and home furnishings purchases.

However, we expect increased competition for consumer discretionary income from industries such as travel, apparel, dining out and in-person events as vaccination rates increase.

While we expect the extraordinary levels of demand for home furnishings to diminish somewhat, we also expect that demand for home furnishings will settle into a higher level of demand than pre-pandemic.

We believe we are well positioned to help consumers enhance their homes with comfortable, stylish and quality home furnishings.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

Thirteen Weeks Ended

Net cash provided by operating activities

Net cash used in investing activities

Cash used in financing activities

Net (decrease)/increase in cash and cash equivalents

During the three months ended May 2, 2021, we used a portion of the existing cash and cash equivalent on hand to pay $2.2 million of capital expenditures to enhance our business systems and facilities, $2.1 million in cash dividends, and $155,000 in life insurance premiums on Company-owned life insurance policies.

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

Liquidity, Financial Resources and Capital Expenditures

Our financial resources include:

available cash and cash equivalents, which are highly dependent on incoming order rates and our operating performance;

expected cash flow from operations;

available lines of credit;

cash surrender value of Company-owned life insurance.

We believe these resources are sufficient to meet our business requirements and the payment of dividends through fiscal 2022 and for the foreseeable future, including expected capital expenditures and working capital needs.

Loan Agreements and Revolving Credit Facility

We paid off the remaining $24.3 million term loans at the end of fiscal 2021 and currently have one $35 million revolving credit facility (the “Existing Revolver”).

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.

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 Existing Revolver 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 initial amount of the Existing Revolver is $35 million;

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.

They also limit 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 May 2, 2021 and expect to remain in compliance with existing covenants for the foreseeable future.

We believe we have the financial resources to fund our business operations, including weathering the logistics issues, cost increases and production capacity constraints which are currently impacting our industry.

Revolving Credit Facility Availability

As of May 2, 2021, we had an aggregate $28.7 million available under our 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 Existing Revolver as of May 2, 2021.

There were no additional borrowings outstanding under the revolving credit facility as of May 2, 2021.

Capital Expenditures

We expect to spend approximately $5 million in capital expenditures over the remainder of fiscal 2022 to maintain and enhance our operating systems and facilities.

Of those amounts, we expect to spend approximately:

$3.0 million outfitting a newly built leased warehouse space in Savannah, Georgia that we expect to occupy in the fall of 2021.

The facility will consolidate several older, less efficient Home Meridian segment warehouses into a single strategically located distribution facility near the port of Savannah and major interstate highways.

We believe this is critical to servicing customers and is expected to reduce transportation costs and increase operating efficiencies;

$1.0 million on implementation costs for a new common, cloud-based Enterprise Resource Planning (“ERP”) platform which we expect to be online in our Hooker Branded segment and certain divisions under Domestic Upholstery segment by mid-2022, with other segments following thereafter.

Enterprise Resource Planning

In early fiscal 2022, our Board of Directors approved an upgrade to our current ERP system and implementation efforts began shortly thereafter.

We expect to implement the ERP upgrade in our Hooker Branded segment and certain divisions under Domestic Upholstery segment by mid calendar 2022, with Home Meridian and Shenandoah divisions following afterwards.

To complete the ERP system implementation as anticipated, we will be required to expend significant financial and human resources.

We anticipate spending approximately $5.5 million over the course of this project, with a significant amount of time invested by our associates.

In the fiscal 2022 first quarter, we spent approximately $400,000 on this project.

Subsequent to the end of the fiscal 2022 first quarter, on June 3, 2021, our board of directors declared a quarterly cash dividend of $0.18 per share, which will be paid on June 30, 2021 to shareholders of record at June 16, 2021.

The Board will continue to evaluate the appropriateness of the current dividend rate considering our performance and economic conditions in future quarters.

Critical Accounting Policies

Except as discussed below, there have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2021 Annual Report.

On the first day of the current fiscal year, we adopted the accounting standards outlined in Part 1, Notes to Condensed Consolidated Financial Statements, “Note 2.

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

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

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

What changed 10-Q

Item 1. Financial Statements