What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-04-15 compared with 2021-04-16 · 205 added, 297 removed, 241 unchanged (68% of the section changed)

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The following graph compares cumulative total shareholder return for the Company with a broad performance indicator, the Russell 2000® Index (2), and a published industry index, the Household Furniture Index (3), for the period from January 29, 2017 to January 30, 2022.

Comparison of Cumulative Total Return

Hooker Furnishings Corporation

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

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At January 30, 2022, Zacks Investment Research, Inc.

reported that these two SIC Codes consisted of Nova Lifestyle, Inc., La-Z-Boy, Inc., Leggett & Platt, Inc., Flexsteel Industries, Inc., Hooker Furniture Corporation, Sleep Number Corp., Kimball International, Inc., Luvu Brands, Inc., Tempur Sealy International, Inc., Compass Diversified Holdings, Natuzzi Spa, Purple Innovation, Inc., Casper Sleep Inc., Bassett Furniture Industries, Inc., Ethan Allen Interiors, Inc., Horrison Resources, Inc., The Rowe Companies, and Dorel Industries.

reported that these two SIC Codes consisted of Nova Lifestyle, Inc., La-Z-Boy, Inc., Leggett & Platt, Inc., Flexsteel Industries, Inc., Hooker Furnishings Corporation, Sleep Number Corp., Kimball International, Inc., Luvu Brands, Inc., Tempur Sealy International, Inc., Compass Diversified Holdings, Natuzzi Spa, Purple Innovation, Inc., Casper Sleep Inc., Bassett Furniture Industries, Inc., Ethan Allen Interiors, Inc., Horrison Resources, Inc., The Rowe Companies, Dorel Industries, and Instadose Pharma Corp.

SELECTED FINANCIAL DATA

SEC disclosure rules no longer require the presentation of selected financial data;

however, based on shareholder and internal feedback we continue to provide this information.

The following selected financial data for each of our last five fiscal years has been derived from our audited, consolidated financial statements.

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Intangible asset amortization (4)

Operating (loss)/income (3)

Operating income / (loss)(3)

Other income, net (3)

Interest Expense, net

(Loss)/Income before income taxes

Income tax (benefit)/expense

Net (loss)/income

Income / (loss) before income taxes

Income tax expense / (benefit)

Net income / (loss)

Per Share Data:

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

Basic earnings/(loss) per share

Diluted earnings/(loss) per share

Cash dividends per share

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Represents the insurance deductible for a casualty loss experienced at one of our Hooker Branded segment facilities in fiscal 2019.

Amounts for fiscal 2018 and 2017 have been adjusted to reflect the reclassifications from Selling and administrative expenses (“S&A”) to Other income (expense), net of certain benefits costs as a result of adopting ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

Amounts for fiscal 2018 have been adjusted to reflect the reclassifications from Selling and administrative expenses (“S&A”) to Other income (expense), net of certain benefits costs as a result of adopting ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.

This accounting standard requires bifurcation of net benefit cost such that all benefit costs except service cost are reported outside of operating costs.

Amounts reclassified from S&A to Other income (expense), net were ($30,000) and $581,000 for fiscal 2018 and 2017, respectively.

Amounts reclassified from S&A to Other income (expense), net were ($30,000).

Represents impairment charges and amortization expense on acquisition-related intangibles.

The Home Meridian acquisition occurred on February 1, 2016 and the Shenandoah acquisition occurred on September 29, 2017.

See note 9 for additional information on our intangible assets.

See Note 8 to our Consolidated Financial Statements for additional information on our intangible assets.

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

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We especially encourage you to familiarize yourself with:

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

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

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

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If any of these risks materialize, our business, financial condition and future prospects could be adversely impacted;

Our commitments and contractual obligations and off-balance sheet arrangements described on page 31 and in Note 18 on page F-35 of this report.

These sections describe commitments, contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements.

Our commitments and contractual obligations and off-balance sheet arrangements described in Note 17 to our Consolidated Financial Statements on page F-30 of this report.

This note describes commitments, contractual obligations and off-balance sheet arrangements, some of which are not reflected in our consolidated financial statements.

In Management’s Discussion and Analysis, we analyze and explain the annual changes in some specific line items in the consolidated financial statements for fiscal 2022 compared to fiscal 2021.

We also provide information regarding the performance of each of our operating segments and All Other.

The analysis and discussions of fiscal 2020 compared to fiscal 2019 results are in our 2020 Form 10-K available through Hooker Furniture and Securities and Exchange Commission websites.

Unless otherwise indicated, references to the “Company”, "we," "our" or "us" refer to Hooker Furniture Corporation and its consolidated subsidiaries, unless specifically referring to segment information.

The analysis and discussions of fiscal 2021 compared to fiscal 2020 results are in our 2021 Form-10K available through Hooker Furnishings and SEC websites.

Unless otherwise indicated, references to the “Company”, "we," "our" or "us" refer to Hooker Furnishings Corporation and its consolidated subsidiaries, unless specifically referring to segment information.

All references to the “Hooker”, “Hooker Division”, “Hooker Legacy Brands” or “traditional Hooker” divisions or companies refer to the current components of our Hooker Branded segment, the Domestic Upholstery segment including Bradington-Young, Sam Moore and Shenandoah Furniture, and All Other which includes H Contract and Lifestyle Brands.

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The Hooker Branded and Home Meridian segments were unchanged.

Fiscal 2020 and 2019 results discussed below have been recast based on the re-composition of our operating segments during the 2020 fourth quarter.

See Note 16 to our consolidated financial statements for additional financial information regarding our segments.

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

Hooker Furnishings 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, contract and outdoor markets.

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

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retailers, according to a 2021 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.

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

Consequently, Hooker acquired Home Meridian on February 1, 2016 (the “Home Meridian acquisition”) and Shenandoah Furniture on September 29, 2017(the “Shenandoah acquisition”).

We believe our acquisition of Home Meridian has better positioned us in some of the fastest growing and advantaged channels of distribution, including e-commerce, warehouse membership clubs and contract hospitality furniture.

While growing faster than industry average, these channels tend to operate at lower margins.

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

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

Executive Summary- Fiscal 2022 Results of Operations

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

The severe and pervasive effects of the economic crisis caused by the COVID-19 pandemic had a material, adverse effect on our fiscal 2021 sales and earnings.

Demand for our products fell sharply at the outset of the crisis, then later surged, as did the demand for home furnishings in general.

The surge in demand led to capacity constraints with our Asian suppliers as we and other importers reacted to increased demand.

Consequently, the cost and availability of shipping containers and steamship bookings increased exponentially which negatively affected our sales and earnings.

Consolidated net sales for fiscal 2021 decreased by $70.7 million or 11.6% as compared to fiscal 2020, from $610.8 million to $540.1 million, due primarily to:

a $58.2 million or 17.1% sales decrease in the Home Meridian segment and to a lesser extent a $12.0 million or 12.5% decrease in the Domestic Upholstery segment;

a $1.0 million or 7.9% decrease in All Other net sales;

flat Hooker Branded segment net sales.

Approximately 75% of the consolidated net sales decreases happened in the first half of fiscal 2021 when our orders and operations were adversely impacted by the initial severity of the COVID-19 crisis.

We reported a $14.4 million operating loss in fiscal 2021 compared to $22.7 million operating income in the prior year period, due principally to $44.3 million non-cash impairment charges ($33.7 million net of tax) to write down goodwill and tradenames in our Home Meridian segment and goodwill in the Shenandoah division of our Domestic Upholstery segment.

The adverse economic effects brought on by the COVID-19 pandemic triggered an intangible asset impairment analysis in the first quarter of fiscal 2021, which required us to perform a valuation of our intangible assets.

Our stock price was near a six-year low at the impairment measurement date, which occurred at the depth of the COVID-19 crisis to that point and was one of the primary inputs in the valuation analysis that indicated these assets were impaired and it was appropriate to write them down.

Consequently, consolidated net loss was $10.4 million or $0.88 per diluted share, as compared to $17.1 million net income or $1.44 diluted earnings per share in the prior year period.

Fiscal 2021 was one of the most challenging years in our nearly 97-year history as we experienced the ups and downs in our business under the COVID-19 global pandemic.

We experienced steep declines in orders and sales early in fiscal 2021 when many of our customers’ stores were closed and the retail environment was severely impacted by the initial pandemic.

When the economy reopened in the second quarter, we were encouraged by increased incoming orders which were attributable to increased demand of home furnishings due to renewed consumer focus on the home, higher levels of consumer confidence, the strong housing market and less competition from other discretionary spending categories, such as travel, dining out and sporting events and other forms of entertainment.

However, our business continues to be impacted by supply chain disruptions, which include industry-wide scarcity of shipping containers and ocean vessel space, limited capacity of our overseas vendors, and production delays at our domestic manufacturing plants.

On a more positive note, we are pleased to report that incoming orders increased by 5.8% and backlog more than doubled, both on consolidated basis, as compared to the prior fiscal year, showing solid improvements from the initial pandemic conditions encountered early in fiscal 2021.

The Hooker Branded segment recovered at the fastest pace among all our reportable segments.

Net sales rebounded in the third and fourth fiscal quarters and the segment finished fiscal 2021 with essentially flat net sales compared to the prior fiscal year.

The majority of this segment’s customers are traditional furniture stores and small or regional chains, which were deemed non-essential businesses and were closed early in the fiscal year.

Demand for our products increased as our customers’ stores reopened during the second quarter, leading to double-digit monthly increases in incoming orders starting in June 2020 and through fiscal year end.

The Hooker Branded segment finished the year with backlog more than tripled compared to the prior year-end backlog.

This segment reported $22.8 million operating income or 14.1% operating margin, an increase of $1.3 million or 6.1% as compared to prior year.

Given the economic conditions in fiscal 2021, we are pleased to have maintained and improved Hooker Branded segment profitability as compared to the prior year.

Home Meridian segment net sales decreased by $58.2 million or 17.1% in fiscal 2021 due primarily to sales declines in the hospitality business and major furniture chains, and to a lesser extent sales declines in the Accentrics Home (“ACH”) division which focuses on the e-commerce channel.

The sales decline at Samuel Lawrence Hospitality (“SLH”) represented 45% of Home Meridian’s net sales decrease, as the hospitality division was severely impacted by COVID-19 pandemic’s negative effects on remodeling and new construction activity in the hospitality industry.

The Pulaski Furniture (“PFC”) and Samuel Lawrence Furniture (“SLF”) divisions experienced a spike in order cancellations early in fiscal 2021 as their customers’ stores were closed or operated under restrictions.

Incoming orders started to recover in mid-year;

however, lack of container availability limited shipments and led to decreased sales as compared to the prior year period.

Sales declines in ACH comprised the remaining sales decrease, which was attributable to Asian vendor production capacity challenges and container availability.

HMidea net sales increased slightly due to steady sales in the Club business.

Prime Resources International (“PRI”) net sales were essentially flat as compared to prior year despite the COVID-19 crisis, due to the additions of mass merchant customers.

Home Meridian segment incoming orders increased by 3.8% and backlog doubled as compared to prior year.

The segment’s $26.1 million operating loss was attributable to $27.9 million intangible asset impairment charge.

Absent the impairment charge necessitated by our low stock price at the end of our first fiscal quarter at the initial height of the COVID-19 economic crisis, segment operating performance improved compared to a $7.2 million operating loss in the prior fiscal year.

Domestic Upholstery segment net sales decreased by $12.0 million or 12.5% due to decreased sales volume in all three domestic manufacturing divisions attributable to factory shutdowns and production delays.

In response to COVID-19 restrictions and significantly reduced orders, in April we temporarily closed our manufacturing plants at Bradington-Young and Shenandoah for a month, while Sam Moore operated at 50% capacity.

All three divisions experienced labor shortages and staffing issues when they resumed operations.

The segment’s $12.4 million operating loss was attributable to $16.4 million intangible asset impairment charge.

Additionally, profitability in this segment was negatively impacted by operating inefficiencies, partially mitigated by cost reduction measures.

At the end of the fiscal year, Domestic Upholstery incoming orders were at the same level as prior year-end and backlog had doubled.

We are pleased with the current historic levels of orders and backlog and as of year-end we were operating at full capacity in all three domestic manufacturing plants.

All Other net sales decreased by $1.0 million or 7.9% as compared to the prior fiscal year, due principally to sales decline at H Contract.

The senior living industry, which comprises the majority of H Contract’s business, is struggling under the COVID-19 crisis.

Factors such as postponed new constructions, low occupancy rates, and COVID-related expenses resulted in reduced spending on furnishings and reduced demand for our product.

H Contract incoming orders decreased by 11.8% for fiscal 2021;

however, we believe vaccine rollouts are beginning to help the senior living industry as the decline in order rates slowed somewhat in the fourth quarter.

Consolidated net sales increased by $53.5 million, or 9.9%, compared to the prior year period, due to over 20% increases in sales in both Hooker Branded and Domestic Upholstery segments, partially offset by a 1.2% sales decrease in the Home Meridian segment.

Despite the sales increases and slight sales decrease in the Home Meridian segment, consolidated gross profit and margin both decreased due to excess freight costs and product cost inflation in the Home Meridian segment and, to a lesser extent, in the Hooker Branded segment, as well as ready-to-assemble (“RTA”) product cancellation costs in the Home Meridian segment incurred as we exited that product category.

Consolidated operating income was $14.8 million compared to a $14.4 million operating loss in the prior year period.

The prior year loss was driven by $44.3 million ($33.7 million net of tax) non-cash intangible assets impairment charge.

Consolidated net income was $11.7 million or $0.97 per diluted share, as compared to net loss of $10.4 million or ($0.88) per diluted share in the prior year period.

Our fiscal 2022 performance is discussed in greater detail below under “Review” and “Results of Operations”.

We started fiscal 2022 with strong order backlogs carried over from the prior year end and reported significantly increased sales and profits in the first two quarters.

Although we were pleased that favorable demand for home furnishings continued through the year, ongoing global supply chain disruptions, the COVID lockdowns in Vietnam and Malaysia and the slower than expected re-openings of our suppliers in those two countries, coupled with freight and product inflationary pressures adversely affected our sales and profitability.

We reported a 9.9% consolidated net sales increase and $14.8 million in operating income and finished fiscal 2022 with a consolidated order backlog 25% higher over the level at the end of our fiscal 2021 year-end.

The Hooker Branded segment ’ s net sales increased by $38.3 million, or 23.5%, as compared to the prior fiscal year, which was attributable to increased sales volume and lower discounting driven by higher demand.

About 80% of the net sales increases were in our casegoods non-container business as we were better able to manage our inventory availability and keep our best-selling products in stock during the first half of fiscal 2022.

However, the unexpected COVID-related lockdown at our suppliers in Vietnam and Malaysia for nearly three months, beginning in August and their slow re-openings coupled with continued difficulty obtaining shipping containers and vessel space caused low inventory receipts in the second half of this year which resulted in out-of-stock issues and decreased net sales in the fourth quarter.

On a more positive note, the majority of shipments in this segment carried the price increases we implemented in July 2021 to mitigate higher ocean freight and product cost inflation.

Hooker Branded reported $30.7 million operating income or 15.3% operating margin, an increase of $7.8 million or 34.3% as compared to the prior year.

Given the current economic conditions, we are pleased to have maintained Hooker Branded segment profitability.

Incoming orders increased by 24.2% as compared to prior year period when business dramatically rebounded.

Backlog remained historically high and nearly doubled as compared to the prior year end when backlog was already at a high level, with part of that increase being due to lower shipments in the fourth quarter.

The Home Meridian segment had a difficult year with net sales decreasing by $3.5 million, or 1.2%, as compared to the prior year.

This segment also reported a $21.3 million operating loss.

Despite the disappointing financial results, we believe the challenges are short-term and the strategic decisions made by management will provide us with opportunities to significantly improve profitability in the coming year.

Net sales decreased due to sales declines with e-commerce and Clubs channels, and the hospitality business, nearly offset by sales increases with mass merchants and major furniture chains driven by higher demand.

E-commerce sales decreased by 30% due to lower demand (which was driven by higher product costs due to excess freight costs) and inventory availability issues.

Clubs sales decreased due to lower volume (which was intentional as we began exiting this channel in fiscal 2022) and $2.9 million of higher than expected chargebacks which negatively impacted net sales.

Hospitality sales also decreased during the year as capital spending in the hospitality industry is still recovering from the COVID crisis.

On a more positive note, hospitality order backlog at fiscal 2022 year-end was higher than prior year end.

In the summer of 2021, the temporary COVID lockdowns at our suppliers in Vietnam and Malaysia immediately impacted shipments and sales as the majority of revenue in this segment is container direct sales.

The sales volume loss during the second half of this year largely offset the sales increases in the first and second quarters.

Higher freight costs adversely impacted gross margin by 530 bps in fiscal 2022 and were the primary driver of increased product costs.

Home Meridian’s Accentrics Home division, was impacted the most by higher freight costs due to the lower sales value of its product.

We imposed freight surcharges and price increases during the second and third quarters to mitigate these excess costs;

however, significant volume was shipped at pre-surcharge selling prices.

To help improve future profitability, eliminate low-margin categories and avoid unnecessary costs, we took steps to optimize our product, sales channel and customer mix at Home Meridian.

Current freight costs made our RTA furniture products unprofitable.

Consequently, we exited the RTA furniture category and incurred one-time order cancellation costs of $2.6 million.

We estimate we avoided at least $10 million of additional costs by exiting this category.

Due to continued poor profitability and excess chargebacks of $2.9 million, we made the decision to exit the Clubs channel and incurred one-time order cancellation costs of $900,000.

Although these actions adversely affected our sales and earnings and helped drive an operating loss at Home Meridian, we believe these actions allow us to focus resources on more profitable business and stable channels to drive long-term growth.

We are also in the process of redefining our e-commerce business’ price points.

The Domestic Upholstery segment net sales increased by $18.6 million, or 22.2%, in fiscal 2022 due to double-digit sales increases at all three divisions as well as the absence of factory shutdowns in the current year.

However, gross margin decreased as compared to the prior year and pre-pandemic levels as this segment faced several manufacturing constraints which adversely impacted profitability.

Raw material cost increases and higher freight surcharges increased product costs by 360 bps.

The foam shortage we experienced early in fiscal 2022 and inconsistent deliveries of raw materials due to supply chain disruptions with our suppliers adversely impacted our production levels.

Labor shortages and inefficiencies at the Sam Moore division also impacted manufacturing capacities and resulted in higher over-time at already inflated wage rates.

We filled key positions at Sam Moore to improve labor productivity and reevaluated pay and benefits in order to attract and retain qualified employees.

In addition, domestic driver and truck shortages adversely impacted the delivery of finished products.

Despite increased material and labor costs, this segment reported operating income of $4.3 million, or a 4.2% operating margin as compared to a $12.4 million operating loss in the prior year, which was attributable to $16.4 million non-cash intangible assets impairment charge.

Incoming orders increased by 38% and this segment finished the year with an order backlog 122% higher than prior year, when backlog levels were already at a historical high.

We implemented price increases and surcharges in July and October of 2021 to mitigate increased material costs.

Since this segment has current order backlog levels of 5-6 months from when the sale was made and prices were not increased on backlog orders, we anticipate seeing the benefits of the price increases beginning in the second quarter of fiscal 2023.

However, these benefits could be offset by continuing price increases from our suppliers that impact us sooner than our price increases.

All Other net sales increased by $197,000 or 1.7% as compared to the prior fiscal year, due principally to sales increase at Lifestyle Brands, a business started in fiscal 2019 targeted at the interior design channel.

Although this business is still small, its net sales increased nearly 80% as compared to the prior fiscal year.

H Contract’s net sales stayed essentially flat as compared to the prior year.

The senior living industry, which comprises the majority of H Contract’s business, has been severely impacted by the pandemic and has reduced capital spending due to increased costs and uncertain revenues.

However, according to an industry survey, with new treatments and increased vaccination rates, especially among the senior population, occupancy level increased in the last two quarters of 2021 despite the later waves caused by delta and omicron variants.

H Contract’s incoming orders increased by 27% in fiscal 2022 and turned into 44% increased net sales in the fourth quarter, which offset the sales decreases in the first three quarters.

H Contract finished the year with backlog 126% higher than prior year end.

Despite sales decline and unfavorable product mix, All Other contributed $1.3 million operating income to the consolidated results.

Despite the operating loss which was driven by $44.3 million in intangible assets impairment charges, we generated $68.3 million from operating activities and paid off the remaining $24.3 million in term loans near year-end.

In addition, in the third quarter of fiscal 2021, our Board of Directors approved the increase of our quarterly dividend to $0.18 per share, an increase of 12.5% or $0.02 per share, for a total of $0.66 per share or $7.8 million paid in fiscal 2021, an increase of 8.2% or $0.05 per share, compared to the prior year.

Cash and cash equivalents stood at $65.8 million at fiscal 2021 year-end, an increase of nearly $30 million compared to the balance at prior year end.

Based on existing cash balances, no debt, and an aggregate $28.7 million available under our revolver, we are confident in our financial position.

H Contract’s gross profit and margin decreased due to an unfavorable product mix and much of the product sold did not carry the full price increases.

All Other reported $1.1 million operating income or 9.6% operating margin for fiscal 2022.

Cash and cash equivalents stood at $69.4 million at fiscal 2022 year-end, an increase of $3.5 million compared to the balance at the fiscal 2021 year-end due primarily to collection of accounts receivable.

During fiscal 2022, we used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends to our shareholders, $6.7 million in capital expenditures in our newly opened Georgia distribution center and enhancements of other facilities and systems.

In the third quarter of fiscal 2022, our Board of Directors approved the increase of our quarterly dividend to $0.20 per share, an increase of 11.1% or $0.02 per share.

In fiscal 2022, dividends totaled $0.74 per share or $8.8 million in the aggregate paid, an increase of 12.1% or $0.08 per share, compared to the prior year representing the sixth consecutive annual dividend increase.

In addition to our cash balance, we have an aggregate of $27.9 million available under our $35 million revolving credit facility with BofA (the “Existing Revolver”) to fund working capital needs and have access to $26.5 million in cash surrender value of Company-owned life insurance policies.

We believe we have the financial resources to fund our business operations for the foreseeable future, including weathering an extended impact of COVID-19 pandemic as well as 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 for the annual periods included in the consolidated statements of operations:

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

Fifty-two weeks ended

Cost of sales

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Intangible asset amortization

Operating (loss)/income

Other income, net

Operating income/(loss)

Other income (expense), net

Interest expense, net

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

Income/(loss) before income taxes

Income tax expense/(benefit)

Net income/(loss)

Fiscal 2022 Compared to Fiscal 2021

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January 30, 2022

February 2, 2020

January 31, 2021

Hooker Branded

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Domestic Upholstery

Consolidated net sales decreased due primarily to sales decline in the Home Meridian segment, and to a lesser extent the decreases in the Domestic Upholstery segment and All Other.

Hooker Branded segment net sales were essentially flat compared to the prior fiscal year.

Despite significant volume loss in the first quarter, unit volume recovered in the second half of fiscal 2021 in this segment, which was attributable to increased incoming orders beginning in June which trended through year end.

Home Meridian segment net sales decreased due to decreased unit volume driven by volume loss with traditional furniture chains and in the hospitality business (severely impacted by COVID-19 pandemic’s negative effects on remodeling and new construction activity in the hospitality industry), inability to ship due to limited container availability, as well as sales declines in the e-commence (ACH) channel which were impacted by inventory availability challenges.

E-commerce sales were strong early in the pandemic causing them to run out of bestsellers earlier than other divisions.

These sales are highly dependent on warehouse inventory which the division was not able to replace due to logistics challenges mentioned.

These decreases were partially offset by increased sales in the mass merchant and general retailer distribution channels.

The ASP increase was attributable to product mix.

Domestic Upholstery net sales decreased due primarily to sales decreases at Bradington-Young and Shenandoah, and to a lesser extent at Sam Moore.

In April 2020, in response to COVID-19 restrictions and reduced incoming orders, we temporarily shut down Bradington-Young’s and Shenandoah’s manufacturing facilities while keeping Sam Moore operating at 50% capacity.

We resumed production in the second quarter.

ASP decreased slightly due to a reduced proportion of higher priced Bradington-Young and Shenandoah products sold.

All Other net sales decreased by $1.0 million or 7.9% due primarily to decreased unit volume in H Contract as this division was adversely impacted by the pandemic, partially offset by increased Lifestyle Brands net sales.

Consolidated net sales increased due to sales increases at Hooker Branded and Domestic Upholstery segments, partially offset by a small sales decrease at Home Meridian segment.

Hooker Branded segment’s net sales increased significantly in fiscal 2022 driven by increased demand.

ASP increased in response to higher freight costs and product cost inflation.

However, Hooker Branded net sales decreased in the fourth quarter of fiscal 2022 due to inventory unavailability issues.

The temporary factory shutdown in Vietnam and Malaysia during the summer resulted in low inventory receipts in the third and fourth quarters of fiscal 2022.

The Home Meridian segment’s net sales decreased by 1.2% as compared to the prior year period due to decreased unit volume as the result of COVID-19 lockdown in Vietnam and Malaysia, which led to lower shipments.

The majority of Home Meridian’s business are container direct customers, which were immediately impacted by factory delays.

Net sales and ASP decreased within the e-commence , hospitality and Clubs channels, partially offset by ASP increases with major furniture chains and retail stores as the result of strong demand.

Domestic Upholstery net sales increased in fiscal 2022 as all three divisions of this segment reported double digit net sales increases due to high demand and reduced prior-year sales due to temporary COVID-19 factory shutdowns.

ASP increased at all three divisions in response to the inflation of raw material costs.

Unit volume increased by double digits at Bradington-Young and Shenandoah, while increasing by lower single digits at Sam Moore due to labor inefficiencies.

All Other net sales increased slightly in fiscal 2022 due to sales increases in the Lifestyle Brands business.

H Contract’s net sales were essentially flat as compared to prior year period even though sales rebounded in the fourth quarter when the orders started to improve.

Gross Profit and Margin

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January 30, 2022

February 2, 2020

January 31, 2021

% Segment Net Sales

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Domestic Upholstery

Consolidated gross profit decreased slightly in absolute terms but increased as a percentage of net sales as compared to the prior fiscal year.

Hooker Branded segment gross profit increased slightly both in absolute terms and as a percentage of net sales.

Product costs benefitted from the transition to non-tariff countries but were negatively impacted by higher container costs and freight surcharges incurred later in fiscal 2021.

Warehousing and distribution expenses decreased due to cost reduction initiatives implemented during the pandemic, partially offset by increases due to the addition of leased warehouse space in Vietnam.

Home Meridian segment gross profit improved significantly both in absolute terms and as a percentage of net sales despite a net sales decline.

In the prior fiscal year, this segment was heavily impacted by increased product costs due to excess tariffs and was exacerbated by higher quality-related expenses and increased warehousing and distribution costs to handle the inventory related to quality issues.

These issues either did not re-occur in fiscal 2021 or re-occurred at much lower levels.

Home Meridian segment gross margin was negatively impacted by reduced sales volume and some lower-margin programs due to customer mix.

Domestic Upholstery segment gross profit decreased in absolute terms and as a percentage of net sales due primarily to sales decline, and to a lesser extent to manufacturing inefficiencies from operating at a reduced production level early in fiscal 2021.

Fixed costs adversely impacted gross margin in this segment.

All three manufacturing divisions experienced labor and staffing issues due to COVID-related absenteeism, turnover and training costs.

Gross profit was also adversely impacted by increased benefits expenses at Sam Moore and Shenandoah due mostly to increased medical claims.

All Other’s gross profit decreased in absolute terms and as a percentage of net sales due to sales decline in H Contract division and a heavier weighting of domestically manufactured product sold which carried higher costs, partially offset by the addition of increased Lifestyle Brands gross profit.

Consolidated gross profit and margin both decreased as compared to the prior fiscal year due principally to significantly decreased gross profit and margin in the Home Meridian segment.

Hooker Branded segment gross profit increased while margin decreased slightly in fiscal 2022.

Favorable sales variances were partially offset by product cost inflation, increased warehouse labor costs due to increased shipments, and higher demurrage and drayage expenses due to supply chain interruptions.

In the third quarter of fiscal 2022, product sold started to carry the price increases we implemented in the second quarter of fiscal 2022, which helped offset excess ocean freight costs.

Home Meridian segment gross profit and margin decreased significantly in fiscal 2022 due to excess ocean freight costs, which impacted margin by 530 bps, as well as sales volume declines, increased product costs due to inflation, order cancellation costs related to the exit of the RTA furniture category, Clubs channel order cancellation costs, and excess moving costs and disposal of obsolete inventory related to the consolidation of segment warehouse operations to our new Georgia warehouse.

Domestic Upholstery segment gross profit increased in fiscal 2022 driven by increased net sales.

Gross margin decreased in fiscal 2022 due primarily to increased raw material costs (including increased freight costs), which negatively impacted margin by 360 bps, partially offset by improved production efficiencies from operating near full capacity due to historic levels of backlog, as compared to the prior year when factories were temporarily closed or operating at a reduced production level during the initial wave of COVID-19 crisis, which resulted in unabsorbed fixed costs.

All Other gross profit and margin both decreased despite increased net sales because of higher costs due to inflation, partially offset by price increases on these products and increased Lifestyle Brands gross profit.

Selling and Administrative Expenses (S&A)

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% Segment Net Sales

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Domestic Upholstery

Consolidated selling and administrative expenses decreased in absolute terms but increased as a percentage of net sales in fiscal 2021.

Hooker Branded segment S&A expenses decreased in absolute terms and as a percentage of net sales due to cost-cutting measures implemented to address the COVID-19 crisis, decreased travel and showroom expenses due to pandemic-related restrictions, decreased advertising supplies and sample expenses, partially offset by increased selling expenses due to higher commission rates and higher bad debt expense due to a customer write-off unrelated to COVID-19 and an increase in reserves to recognize expected future credit losses under ASC 326 requirements, which we adopted during the first quarter of fiscal 2021.

Home Meridian segment S&A expenses decreased in absolute terms due to decreased selling expenses on lower net sales, cost reduction efforts in response to the COVID-19 crisis, decreased travel and showroom expenses due to pandemic-related restrictions, and the absence of the resourcing transition costs and start-up costs for HMidea division incurred in the prior year period.

The decreases were partially offset by increased compliance costs and increased bad debt due to a customer bankruptcy not related to the COVID-19 crisis.

Home Meridian segment S&A expenses increased slightly as a percentage of net sales due to lower net sales.

Domestic Upholstery segment expenses decreased in absolute terms as the result of cost reduction initiatives in response to the pandemic and decreased selling expenses due to lower net sales.

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

All Other S&A expenses stayed flat in absolute terms and increased as a percentage of net sales due to lower net sales.

Consolidated selling and administrative expenses increased in absolute terms but decreased as a percentage of net sales in fiscal 2022.

Hooker Branded segment S&A expenses increased in absolute terms in fiscal 2022 driven by increased selling costs as the result of higher net sales, increased salaries and wages due primarily to inflation, increased professional service expenses related to the recent Sunset West acquisition, increased ERP project expenses, and increased showroom, samples, travel and other general spendings as business returned to more normal levels.

These increases were partially offset by reversal of executives’ bonus accrual on lower profits and lower bad debt expenses due to the absence of a customer write-off in the current year.

S&A expenses decreased as a percentage of net sales in fiscal 2022 due to increased net sales.

Home Meridian segment S&A expenses decreased in absolute terms and as a percentage of net sales due to decreased selling expenses on lower net sales, absence of employee bonuses due to failure to achieve profitability goals, decreased compliance costs and the absence of a customer write-off in the current year period, partially offset by increased severance expenses due to personnel changes, increased depreciation expenses and increased marketing, showroom, travel and other expenses as business returned to more normal levels.

Domestic Upholstery segment S&A expenses increased in absolute terms in fiscal 2022 due to increased salaries and wages because of the absence of employee furloughs when factories were temporarily shut down in the prior year period (and to a lesser extent inflationary pressures), increased selling expenses on higher net sales, and increased depreciation expenses due to the accelerated depreciation of our existing ERP system because of the expected implementation of an upgraded cloud-based ERP solution in fiscal 2023.

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

All Other S&A expenses increased slightly in absolute terms and as a percentage of net sales in fiscal 2022 due to increased selling and market expenses, partially offset by decreased advertising supply expenses.

Goodwill impairment charges

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January 31, 2021

% Segment Net Sales

Home Meridian

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January 31, 2021

% Segment Net Sales

Home Meridian

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

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

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

See Note 9 for additional details on these impairment charges.

See Note 8 to our Consolidated Financial Statements for additional details on these impairment charges.

Intangible Asset Amortization

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February 2, 2020

January 31, 2021

Intangible asset amortization

Intangible asset amortization expense was unchanged compared to the prior year period.

See Note 9 Intangible Assets and Goodwill for additional information about our amortizable intangible assets.

Operating (Loss)/Profit and Margin

See Note 8 Intangible Assets and Goodwill to our Consolidated Financial Statements for additional information about our amortizable intangible assets.

Operating Profit/(Loss) and Margin

Fifty-two weeks ended

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February 2, 2020

January 31, 2021

%Segment Net Sales

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Domestic Upholstery

Operating profitability decreased both in absolute terms and as a percentage of net sales in fiscal 2021 compared to the same prior-year period due to the factors discussed above.

Consolidated operating profitability increased both in absolute terms and as a percentage of net sales in fiscal 2022 compared to the same prior-year period due to the factors discussed above.

Interest Expense, net

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January 31, 2021

Interest expense, net

Consolidated interest expense in fiscal 2021 decreased due to lower balances on our term loans as well as lower interest rates.

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

Fifty-two weeks ended

January 30, 2022

February 2, 2020

Consolidated income tax (benefit)/expense

January 31, 2021

Consolidated income tax expense/(benefit)

Effective Tax Rate

We recorded income tax benefit of $4.1 million for fiscal 2021, of which an income tax benefit of $10.6 was recorded related to goodwill and trade name impairment charges, compared to $4.8 million income tax expense for the same prior year period.

The effective tax rates for the fiscal 2021 and 2020 were 28.4% and 22.1%, respectively.

Our effective tax rate was higher in fiscal 2021 due primarily to the Employer Retention Credit for employers affected by qualified disasters under the Consolidated Appropriations Act of 2020 and increased state income taxes.

See Note 16 “Income Taxes” for additional information about our income taxes.

Net (Loss)/Income and (Loss)/Earnings Per Share

We recorded income tax expense of $3.4 million for fiscal 2022, as compared to income tax benefit of $4.1 million for fiscal 2021, of which an income tax benefit of $10.6 million was recorded related to goodwill and trade name impairment charges.

The effective tax rates for fiscal 2022 and 2021 were 22.4% and 28.4%, respectively.

Our effective tax rate was lower in fiscal 2022 due to change in cash surrender value and the absence of employee retention credit in the current year, which increased the effective tax rate in the prior fiscal year due to a loss before income tax benefits.

See Note 15 Income Taxes to our Consolidated Financial Statements for additional information about our income taxes.

Net Income/(Loss) and Earnings/(Loss) Per Share

Fifty-two weeks ended

January 30, 2022

February 2, 2020

Net (Loss)/Income

Diluted (loss)/earnings per share

The analysis and discussion of fiscal 2020 compared to fiscal 2019 results is available in Item 7 of our 2020 Annual Report on Form 10-K available through Hooker Furniture and Securities and Exchange Commission websites.

January 31, 2021

Net Income/(Loss)

Diluted earnings/(loss) per share

The analysis and discussion of fiscal 2021 compared to fiscal 2020 results is available in Item 7 of our 2021 Annual Report on Form-10K available through Hooker Furnishings and SEC websites.

Financial Condition, Liquidity and Capital Resources

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Net cash provided by operating activities

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Net cash used in financing activities

Net increase (decrease) in cash and cash equivalents

During fiscal 2021, we used existing cash, a portion of the $68.3 million generated from operations and $1.3 million in life insurance proceeds to retire our $30.1 million in outstanding term loans related to the Home Meridian acquisition, pay $7.8 million in cash dividends, $1.2 million in capital expenditures to enhance our systems and facilities and to pay $555,000 for insurance premiums on Company-owned life insurance policies.

Net increase in cash and cash equivalents

During fiscal 2022, we used a portion of the $19.2 million generated from operations and $372,000 in life insurance proceeds to pay $8.8 million in cash dividends, $6.7 million in capital expenditures to enhance our systems and facilities and $560,000 for insurance premiums on Company-owned life insurance policies.

Company-owned life insurance policies are in place to compensate us for the loss of key employees and to facilitate business continuity.

During fiscal 2020, we used some of the $41.4 million generated from operations and $1.4 million proceeds received from a note receivable to pay $7.2 million cash dividends, $6.4 million principal payments and interest towards our term loans, $5.1 million in capital expenditures to expand our domestic manufacturing capacities and to enhance our business systems and facilities and $590,000 for insurance premiums on Company-owned life insurance policies.

During fiscal 2019, $9.7 million generated from operations, $1.2 million in life insurance proceeds and cash on hand helped make $17.9 million in principal payments on our term loans, $6.7 million in cash dividends, $5.2 million of capital expenditures, and $652,000 for insurance premiums on Company-owned life insurance policies.

Liquidity, Financial Resources and Capital Expenditures

Our financial resources include:

Our sources of liquidity are:

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

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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.

The most significant components of our working capital are inventory, accounts receivable and cash and cash equivalents reduced by accounts payable and accrued expenses.

Our primary cash needs are for imported finished goods and raw materials for our domestic upholstery operations and lease payments on our distribution centers, administrative facilities and showrooms.

Our most significant ongoing short-term cash requirements relate primarily to funding operations (including expenditures for inventory, lease payments and labor), quarterly dividend payments and capital expenditures related primarily to our ERP project, showroom renovations and upgrading systems, buildings and equipment.

The timing of our working capital needs can vary greatly depending on demand for and availability of raw materials and imported finished goods but is generally the greatest in the mid-summer as a result of inventory build-up for the traditional fall selling season.

Long-term cash requirements relate primarily to funding lease payments.

We generally fund short-term and long-term cash requirements with cash from operating activities.

We believe our primary sources of liquidity will satisfy our cash requirements over both the short-term (the next twelve months) and long-term.

Loan Agreements and Revolving Credit Facility

We paid off the term loans which were related to the Home Meridian acquisition 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.

(“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;

We paid off the term loans which were related to the Home Meridian acquisition at the end of fiscal 2021 and currently have the Existing Revolver.

The Existing Revolver is based on successive past amendments to previous BofA banking agreements which are collectively referred to as the “Previous Agreements.” Details of our Existing Revolver are outlined below:

The Existing Revolver 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 sublimit of the Existing Revolver 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%;

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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:

They include customary representations and warranties and require 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.

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As of January 30, 2022, we had an aggregate $27.9 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.

Standby letters of credit in the aggregate amount of $7.1 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of January 30, 2022.

There were no additional borrowings outstanding under the Existing Revolver as of January 30, 2022.

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Of those amounts, we expect to spend approximately:

$3.2 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 flexible 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;

$1.4 million on implementation costs for a new common, cloud-based Enterprise Resource Planning (“ERP”) platform which we expect to be online in our legacy Hooker divisions by mid-2022, with other segments following thereafter.

$3.5 million on showroom renovations for both the legacy Hooker divisions and the Home Meridian segment.

The showroom for the Hooker legacy will be moved to a location to maximize interior design traffic and to showcase Sunset West products in an outdoor setting.

The Home Meridian renovation will support new initiatives including the new ‘Portfolio’ sales program aimed at retailers who prefer to buy from our warehouse rather than container direct;

$3.5 million on implementation costs for a new common, cloud-based Enterprise Resource Planning platform which we expect to be online in our legacy Hooker divisions in the second half of our 2023 fiscal-year, with other segments following thereafter.

Enterprise Resource Planning

In early calendar 2021, 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 legacy Hooker divisions by mid calendar 2022, with Home Meridian and Shenandoah following afterwards.

During calendar 2021, 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 legacy Hooker divisions in the second half of fiscal 2023, with the Home Meridian segment and the Shenandoah division 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.

COVID-19 Cost Cutting and Cash Preservation Measures

During the fiscal 2021 first quarter, we initiated certain measures to reduce operating expenses and preserve cash which included temporary fee reductions for our Board of Directors, temporary salary reductions for officers and certain other managers, strategic staff reductions, the temporary closure of our domestic manufacturing plants and the furlough of manufacturing, warehouse and administrative associates.

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

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

Consequently, during the second quarter of fiscal 2021, our domestic manufacturing plants reopened and are currently operating at current capacity.

During the fiscal 2021 third quarter, temporary salary and fee reductions were rescinded and as of early December 2020 furloughs of our associates have ended.

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

Cash and cash equivalents stood at $65.8 million at fiscal 2021 year-end, an increase of nearly $30 million compared to the balance of prior year end.

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

We declared and paid dividends of $0.74 per share or approximately $8.8 million in fiscal 2022, an increase of 12.1% or $0.08 per share compared to $0.66 per share in fiscal 2021.

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

Commitments and Contractual Obligations

As of January 31, 2021, our commitments and contractual obligations were as follows:

Cash Payments Due by Period (In thousands)

Deferred compensation payments (1)

Operating leases (2)

Total contractual cash obligations

These amounts represent estimated cash payments to be paid to participants in our SRIP through fiscal year 2043, which is 15 years after the last current SRIP plan participant is assumed to have retired.

SERP benefits are paid over the lifetimes of plan participants, so the year of final payment is unknown.

The present value of these benefits (the actuarially derived projected benefit obligation for the SRIP and SERP) were approximately $10.6 million and $1.7 million, respectively, on January 31, 2021, and are shown on our consolidated balance sheets, with $1.0 million recorded in current liabilities and $11.3 million recorded in long-term liabilities.

Under the SRIP, the monthly retirement benefit for each participant, regardless of age, would become fully vested and the present value of that benefit would be paid to each participant in a lump sum upon a change in control of the Company as defined in the plan.

See Note 13 to the consolidated financial statements beginning on page F-22 for additional information about the SRIP and SERP.

These amounts represent estimated cash payments due under operating leases for real estate utilized in our operations and warehouse and office equipment, as well as short term leases with remaining terms less than 12 months.

See Note 11 for additional information and disclosures about our leases.

Off-Balance Sheet Arrangements

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 our revolving credit facility as of January 31, 2021.

See the “Commitments and Contractual Obligations” table above and Note 18 to the consolidated financial statements included in this annual report on Form 10-K for additional information on our off-balance sheet arrangements.

Recently Issued Accounting Pronouncements

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.

Early adoption is permitted.

We do not expect the adoption of ASU 2018-14 will have a material impact on our consolidated financial statements or disclosures.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40).

The amendments in this update align the accounting for implementation costs incurred in a hosting arrangement that does not include a license to internal-use software (i.e., a cloud computing arrangement) with one that does.

It therefore requires companies to defer potentially significant implementation costs incurred in a cloud computing arrangement that were often expensed as incurred under legacy US GAAP and recognize them as expense over the term of the hosting arrangement.

This guidance was effective for fiscal years and interim periods beginning after December 15, 2019.

We plan to adopt this guidance in the fiscal 2022 first quarter.

We do not expect the adoption of ASU 2018-15 will have a material impact on our consolidated financial statements and related disclosures.

As discussed under "Item 1A.

Risk Factors," an outbreak of COVID-19 has been recognized as a global pandemic by the World Health Organization.

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.

Risk Factors," COVID-19 was recognized as a global pandemic by the World Health Organization.

We continue to 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, many of our administrative staff are telecommuting for at least part of the work week.

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.

We enter fiscal 2022 with confidence and a positive outlook for our company and our industry.

Demand is strong, and we are experiencing significantly increased order rates so far in fiscal 2022 compared to last year this time.

Our operational priority is to maximize these high levels of demand by servicing our backlogs, as we work to continue the momentum of the improved profitability achieved during the second half of fiscal 2021.

We are currently experiencing two significant headwinds which we believe to be temporary.

The first is the ongoing impact of COVID-19 on global manufacturing capacities, raw materials and the cost and availability of shipping containers.

The second is a shortage of upholstery foam created by the recent power grid outage in Texas from severe weather.

That power grid outage negatively impacted the oil industry, which produces the by-products used in the fabrication of foam.

This has led to allocations of foam to our domestic upholstery segment.

We expect the later issue to be a short to mid-term problem.

The duration of the global logistics constraints is uncertain, but we believe that ports and freight lines are working to overcome these bottlenecks and expect to see improvements later this year.

Additionally, competition for consumers’ discretionary spending such as travel, dining out and entertainment will increase as COVID-19 vaccinations roll out;

however, we see sustainable positive market conditions for home furnishings, driven by the robust housing market, favorable demographics and a bright economic outlook.

As vaccination rates have increased and infection rates have stabilized and started to decline, more admin staff are returning to the office for at least partial workweeks.

Domestic travel and limited international travel has resumed and we have adjusted social distancing and masking protocols to the current public health guidelines.

We are concerned about ongoing global logistics constraints and economic headwinds affecting the consumer that could impact short-term demand, such as inflation, high gas prices and the war in Ukraine.

We expect production capacity of our Asian suppliers to improve significantly, reaching full capacity at some point during the fiscal 2023 first quarter;

although we don’t believe the full financial impact of this improvement will be felt until sometime in the fiscal 2023 second quarter.

We continue to be encouraged by long-term trends such as demand for housing, the renewed and sustainable focus on home interiors and exteriors, and the Millennial generation entering their prime earning and household formation years.

We were also very encouraged by the recently concluded Spring High Point market.

Attendance was up significantly compared to both the Fall 2021 and June 2021 markets and new products were very well received with major placements across all brands, including new placements of Home Meridian’s licensed products.

While we have worked through a broad spectrum of challenges during the past year, our team has continued to focus on multiple strategic growth initiatives, many of which we expect will positively impact us in the next six to twelve months.

One such initiative is the integration of Sunset West, a leading manufacturer of outdoor furniture, which we acquired on the first day of our 2023 fiscal year.

The acquisition immediately positioned us in the growing outdoor furniture segment of the industry with one of the most respected brands in the category and gives Sunset West access to our East Coast distribution system, our High Point showroom and retail and interior design customer base.

We were very encouraged by the strong reception Sunset West received at its recent High Point market debut.

As we integrate Sunset West and move past the current headwinds, we expect faster growth from Sunset West than our existing businesses as it is able to leverage the full capabilities of our organization.

We are confident in our team’s ability to execute our strategies to grow profitably and to adapt successfully to unexpected challenges.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in “Note 2 – Summary of Significant Accounting Policies” to the consolidated financial statements beginning at page F-11 in this report.

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related notes.

In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements, giving due consideration to materiality.

We do not believe that actual results will deviate materially from our estimates related to our accounting policies described below.

However, because application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties, actual results could differ materially from these estimates.

The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results we report in our consolidated financial statements.

Critical accounting estimates are those that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition and results of operations.

Specific areas requiring the application of management’s estimates and judgments include, among others, revenue recognition, assumptions pertaining to valuation of goodwill and intangible assets and useful lives of long-lived assets.

Accordingly, a different financial presentation could result depending on the judgments, estimates or assumptions that are used.

However, we do not believe that actual results will deviate materially from our estimates related to our accounting policies described below but because application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties, actual results could differ materially from these estimates.

Therefore, we consider an understanding of the variability and judgment required in making these estimates and assumptions to be critical in fully understanding and evaluating our reported financial results.

Revenue Recognition

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Due to the highly-customized nature of our hospitality products, we typically require substantial prepayments on these orders, with the balance due within 30 days of delivery.

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 upon adoption of this standard.

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.

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

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 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.

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.

Impairment of Long-Lived Assets

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We regularly review our property, plant and equipment and definite lived intangible assets for indicators of impairment, as specified in the Accounting Standards Codification.

Although not exhaustive, this accounting guidance lists potential indicators of impairment, which we use to facilitate our review.

These potential indicators of impairment include:

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

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

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

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

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

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

When an indicator of impairment is present, the impairment test for our property, plant and equipment requires us to assess the recoverability of the value of the assets by comparing their net carrying value to the sum of undiscounted estimated future cash flows directly associated with and arising from use and eventual disposition of the assets.

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Intangible Assets and Goodwill

We own both definite-lived (amortizable) assets and indefinite-lived intangible assets.

Our amortizable intangible assets are related to the Home Meridian and Shenandoah acquisitions and include customer relationships, backlog and trademarks.

Our indefinite lived assets include goodwill, trademarks and tradenames related to the Home Meridian and Shenandoah acquisitions, as well as the Bradington-Young and Sam Moore tradenames.

We may acquire additional amortizable assets and/or indefinite lived intangible assets in the future.

Our indefinite-lived intangible assets are not amortized but are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired.

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 during the interim period.

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Our goodwill, trademarks and trade names are tested for impairment annually as of the first day of our fourth quarter or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Circumstances that could indicate a potential impairment include, but are not limited to:

a significant adverse change in the economic or business climate either within the furniture industry or the national or global economy;

significant changes in demand for our products;

loss of key personnel;

the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise subject to disposal.

The fair value of our trademarks and tradenames is determined based on the estimated earnings and cash flow capacity of those assets.

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If the assumptions that we use in these calculations differ from actual results, we may realize impairment on our intangible assets that may have a material-adverse effect on our results of operations and financial condition.

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

These items may be excluded or included in taxable income at different times than is required for GAAP or “book” reporting purposes.

These differences may be permanent or temporary in nature.

We determine our annual effective income tax rate based on pre-tax book income and permanent book and tax differences.

To the extent any book and tax differences are temporary in nature, that is, the book realization will occur in a different period than the tax realization, a deferred tax asset or liability is established.

To the extent a deferred tax asset is created, we evaluate our ability to realize this asset.

If we determine that we will not be able to fully utilize deferred tax assets, we establish a valuation reserve.

In assessing the realization of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will be realized.

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 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.

Our other significant accounting policies are described in Note 2 – Summary of Significant Accounting Policies to our Consolidated Financial Statements beginning at page F-10 in this report.

Concentrations of Sourcing Risk

In fiscal 2021, imported products sourced from Vietnam and China accounted for nearly all of our import purchases and our top five suppliers in Vietnam and China account for approximately half of our fiscal 2021 import purchases.

A disruption in our supply chain, or from Vietnam or China in general, could significantly impact our ability to fill customer orders for products manufactured in those countries.

If such a disruption were to occur, we believe that we would have sufficient inventory on hand and in transit to our U.S.

warehouses in Virginia, North Carolina and California to adequately meet demand for several months or slightly longer with an additional month’s worth of demand available for immediate shipment from our warehouses in Asia.

We believe that we could, most likely at higher cost, source most of the products currently sourced in Vietnam or China from factories in other countries and could produce certain upholstered products domestically at our own factories.

However, supply disruptions and delays on selected items could occur for up to six months before the impact of remedial measures would be reflected in our results.

If we were to be unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture suppliers, or from Vietnam or China in general, could adversely affect our sales, earnings, financial condition and liquidity.

In fiscal 2022, imported products sourced from Vietnam and China accounted for 88% of our import purchases and our top five suppliers in Vietnam and China accounted for 42% of our fiscal 2022 import purchases.

A disruption in our supply chain, or from Vietnam, China or Malaysia in general, could significantly impact our ability to fill customer orders for products manufactured in those countries.

Our supply chain could be adversely impacted by the uncertainties of health concerns and governmental restrictions.

For example, in the summer of calendar 2021, our suppliers in Vietnam and Malaysia were temporarily closed or operated at substantially reduced levels due to a COVID-related lockdown.

We faced supply chain constraints including but not limited to slower-than-expected re-openings, capacity limitations and production delays at some of our suppliers, along with the reduced shipping container and ocean vessel space availability.

Home Meridian segment shipping and sales were immediately impacted as the majority of its business is container direct customers.

In the fourth quarter of fiscal 2022, Hooker Branded segment sales were also impacted due to low inventory receipts in the second half of fiscal 2022 which consequently resulted in out-of-stocks.

In some cases, we were able to provide substitutions using inventory on hand, in-transit and from our domestic warehouses, but not enough to entirely mitigate the lost sales.

Supply disruptions and delays on selected items could occur for six months or longer before the impact of remedial measures would be reflected in our results.

If we are unsuccessful in obtaining those products from other sources or at comparable cost, a disruption in our supply chain from our largest import furniture suppliers, or from Vietnam, China or Malaysia in general, could adversely affect our sales, earnings, financial condition 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 5. Market for Registrant’s Common Equity