HOOKER FURNISHINGS Corp 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended January 30, 2022. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of January 30, 2022, the end of the period covered by this annual report, to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Management ’ s Report on Internal Control over Financial Reporting In accordance with Section 404 of the Sarbanes-Oxley Act and SEC rules thereunder, management has conducted an assessment of our internal control over financial reporting as of January 30, 2022, based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s report regarding that assessment is included on page F-2 of this report, with our consolidated financial statements, and is incorporated herein by reference. Report of Registered Public Accounting Firm Our independent registered public accounting firm, KPMG LLP, audited the consolidated financial statements included in this annual report on Form 10-K and has issued an audit report on the effectiveness of our internal control over financial reporting. KPMG’s report is included on page F-3 and F-4 of this report, with our consolidated financial statements, and is incorporated herein by reference. Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting during the fiscal quarter ended January 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not Applicable. 39 Table of Contents Hooker Furnishings Corporation Part III In accordance with General Instruction G (3) of Form 10-K, most of the information called for by Items 10, 11, 12, 13 and 14 of Part III will be incorporated by reference to the Company’s definitive Proxy Statement for its Annual Meeting of Shareholders scheduled to be held June 7, 2022 (the “2022 Proxy Statement”), as set forth below. ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information relating to our directors will be set forth under the caption “Proposal One-Election of Directors” in the 2022 Proxy Statement and is incorporated herein by reference. Information relating to our executive officers is included in Part I of this report under the caption “Information about our Executive Officers” and is incorporated herein by reference. Information relating to compliance with Section 16(a) of the Exchange Act will be set forth under the caption “Delinquent Section 16(a) Reports” in the 2022 Proxy Statement and is incorporated herein by reference. Information relating to the code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions will be set forth under the caption “Code of Business Conduct and Ethics” in the 2022 Proxy Statement and is incorporated herein by reference. Information relating to material changes, if any, in the procedures by which shareholders may recommend nominees for our Board of Directors will be set forth under the caption “Procedures for Shareholder Recommendations of Director Nominees” in the 2022 Proxy Statement and is incorporated herein by reference. Information relating to the Audit Committee of our Board of Directors, including the composition of the Audit Committee and the Board’s determinations concerning whether certain members of the Audit Committee are “financial experts” as that term is defined under Item 407(d)(5) of Regulation S-K will be set forth under the captions “Corporate Governance” and “Audit Committee” in the 2022 Proxy Statement and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION Information relating to this item will be set forth under the captions “Report of the Compensation Committee,” “Executive Compensation” and “Director Compensation” in the 2022 Proxy Statement and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS Information relating to this item will be set forth under the captions “Equity Compensation Plan Information” and “Security Ownership of Certain Beneficial Owners and Management” in the 2022 Proxy Statement and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information relating to this item will be set forth in the last two paragraphs under the caption “Audit Committee” and the caption “Corporate Governance” in the 2022 Proxy Statement and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Information relating to this item will be set forth under the caption “Proposal Two - Ratification of Selection of Independent Registered Public Accounting Firm” in the 2022 Proxy Statement and is incorporated herein by reference. 40 Table of Contents Hooker Furnishings Corporation Part IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Documents filed as part of this report on Form 10-K: (1) The following reports and financial statements are included in this report on Form 10-K: Management’s Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of January 30, 2022 and January 31, 2021 Consolidated Statements of Operations for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020 Consolidated Statements of Comprehensive Income/(Loss) for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020 Consolidated Statements of Cash Flows for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020 Consolidated Statements of Shareholders’ Equity for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020 Notes to Consolidated Financial Statements (2) Financial Statement Schedules: Financial Statement Schedules have been omitted because the information required has been separately disclosed in the consolidated financial statements or related notes. (b) Exhibits: 3.1 Amended and Restated Articles of Incorporation of the Company, as amended September 16, 2021 (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter ended October 31, 2021) 3.2 Amended and Restated Bylaws of the Company as amended December 10, 2013 (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-K (SEC File No. 000-25349) for the fiscal year ended February 2, 2014) 4.1 Amended and Restated Articles of Incorporation of the Company (See Exhibit 3.1) 4.2 Amended and Restated Bylaws of the Company (See Exhibit 3.2) 41 Table of Contents 4.3 Description of the Company’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.3 of the Company’s Annual Report on Form 10-K (SEC File No. 000-25349) for the year ended February 2, 2020). Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments, if any, evidencing long-term debt not exceeding 10% of the Company’s total assets have been omitted and will be furnished to the Securities and Exchange Commission upon request. 10.1(a) Form of Executive Life Insurance Agreement dated December 31, 2003, between the Company and certain of its executive officers (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter ended February 29, 2004)* 10.1(b) Form of Outside Director Restricted Stock Agreement (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-25349) filed on January 17, 2006)* 10.1(c) 2015 Amendment and Restatement of the Hooker Furniture Corporation Stock Incentive Plan (incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement dated March 1, 2015 (SEC File No. 000-25349))* 10.1(d) 2010 Amended and Restated Hooker Furniture Corporation Supplemental Retirement Income Plan, dated as of June 8, 2010 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter ended October 31, 2010)* 10.1(e) Form of Time-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-25349) filed on February 13, 2012)* 10.1(f) Form of Performance Grant Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No. 000-25349) filed on February 13, 2012)* 10.1(i) Employment Agreement, dated June 4, 2018, between Anne Jacobsen (now Anne Smith) and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349) filed on December 6, 2018)* 10.1(j) Employment Agreement, dated June 4, 2018, between Jeremy Hoff and the Company (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q (SEC File No. 000-25349) filed on December 6, 2018)* 10.1(k) Form of Performance Share Agreement (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K (SEC File No. 000-25349) filed on May 11, 2018)* 10.1(l) First Amendment to the 2010 Amended and Restated Hooker Furniture Corporation Supplemental Retirement Income plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (SEC File No. 000-25349) filed with the SEC on November 15, 2019)* 10.2(a) Second Amended and Restated Loan Agreement, dated as of September 29, 2017, between Bank of America, N.A. and Hooker Furniture Corporation, Bradington-Young, LLC, Sam Moore Furniture LLC and Home Meridian Group, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (SEC File No. 000-25349) filed on September 29, 2017) 10.2(b) First Amendment to Second Amended and Restated Loan Agreement, dated as of February 1, 2019, between Bank of America, N.A. and Hooker Furniture Corporation, Bradington-Young, LLC, Sam Moore Furniture LLC and Home Meridian Group, LLC. (incorporated by reference to Exhibit 10.2(d) of the Company’s Form 10-K (SEC File No. 000-25349) filed on April 19,2019) 42 Table of Contents 10.2(c) Second Amendment to the Second Amended and Restated Loan Agreement, dated as of November 4, 2020, between Bank of America, N.A. and Hooker Furniture Corporation, Bradington-Young, LLC, Sam Moore Furniture LLC, and Home Meridian Group, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349) filed on December 10, 2020) 10.2(d) Third Amendment to Second Amended and Restated Loan Agreement, dated as of January 27, 2021, between Bank of America, N.A. and Hooker Furniture Corporation, Bradington-Young, LLC, Sam Moore Furniture LLC and Home Meridian Group, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (SEC File No. 000-25349) filed on January 28, 2021) 10.3 Asset Purchase Agreement dated January 31, 2022 by and among the Company, Sunset West, Wes Stewart, Heath Malone and Martin Jamroz (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (SEC File No. 000-25349) filed on February 1, 2022) 21 List of Subsidiaries: Bradington-Young LLC, a North Carolina limited liability company Home Meridian Group, LLC, a Virginia limited liability company Sam Moore Furniture LLC, a Virginia limited liability company 23 Consent of Independent Registered Public Accounting Firm (filed herewith) 31.1 Rule 13a-14(a) Certification of the Company’s principal executive officer (filed herewith) 31.2 Rule 13a-14(a) Certification of the Company’s principal financial officer (filed herewith) 32.1 Rule 13a-14(b) Certification of the Company’s principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith) 101 The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2022, formatted in Interactive Extensible Business Reporting Language (“IXBRL”): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows, (v) consolidated statements of shareholders’ equity and (vi) the notes to the consolidated financial statements, tagged as blocks of text (filed herewith) 104 Cover page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101) *Management contract or compensatory plan ITEM 16. FORM 10-K SUMMARY None. 43 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HOOKER FURNISHINGS CORPORATION April 15, 2022 By: /s/ Jeremy R. Hoff Jeremy R. Hoff Chief Executive Officer and Director (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Jeremy R. Hoff Chief Executive Officer and April 15, 2022 Jeremy R. Hoff Director (Principal Executive Officer) /s/ Paul A. Huckfeldt Senior Vice President - Finance and Accounting April 15, 2022 Paul A. Huckfeldt and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ W. Christopher Beeler, Jr. Director April 15, 2022 W. Christopher Beeler, Jr. /s/ Maria C. Duey Director April 15, 2022 Maria C. Duey /s/ Paulette Garafalo Director April 15, 2022 Paulette Garafalo /s/ Tonya H. Jackson Director April 15, 2022 Tonya H. Jackson /s/ E. Larry Ryder Director April 15, 2022 E. Larry Ryder /s/ Ellen C. Taaffe Director April 15, 2022 Ellen C. Taaffe /s/ Henry G. Williamson, Jr . Director (Board Chair) April 15, 2022 Henry G. Williamson, Jr. 44 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Management’s Report on Internal Control Over Financial Reporting F-2 Reports of Independent Registered Public Accounting Firm (PCAOB ID 185 ) F-3 Consolidated Balance Sheets as of January 30, 2022 and January 31, 2021 F-5 Consolidated Statements of Operations for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020 F-6 Consolidated Statements of Comprehensive Income / (Loss) for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020 F-7 Consolidated Statements of Cash Flows for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020 F-8 Consolidated Statements of Shareholders’ Equity for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020 F-9 Notes to Consolidated Financial Statements F-10 F-1 Table of Contents MANAGEMENT ’ S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING To the Shareholders of Hooker Furnishings Corporation Martinsville, Virginia Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Securities Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the principal executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the Company’s evaluation under that framework, management concluded that the Company’s internal control over financial reporting was effective as of January 30, 2022. The effectiveness of the Company’s internal control over financial reporting as of January 30, 2022 has been audited by KPMG LLP, the Company’s independent registered public accounting firm, as stated in their report which is included herein. Jeremy R. Hoff Chief Executive Officer and Director (Principal Executive Officer) April 15, 2022 Paul A. Huckfeldt Senior Vice President – Finance and Accounting and Chief Financial Officer (Principal Financial and Accounting Officer) April 15, 2022 F-2 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Hooker Furnishings Corporation: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Hooker Furnishings Corporation and subsidiaries (the Company) as of January 30, 2022 and January 31, 2021, the related consolidated statements of operations, comprehensive income/(loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended January 30, 2022, and the related notes collectively, the consolidated financial statements. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 30, 2022 and January 31, 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended January 30, 2022, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. A. Customer allowances for the Clubs channel of the Home Meridian segment As discussed in Notes 2 and 5 to the consolidated financial statements, the customer allowances balance as of January 30, 2022 was $7.3 million, which included allowances related to the Clubs channel of the Home Meridian segment. These allowances are for unprocessed claims received and anticipated future claims related to products sold in the Clubs channel. Estimates of these anticipated future claims are based on historical experience with the Clubs channel customers. We identified the evaluation of the customer allowances for the Clubs channel of the Home Meridian segment as a critical audit matter. Subjective and challenging auditor judgment was required to evaluate the Company’s customer allowances estimate given the Company’s historical volatility of customer allowance claims in the Clubs channel. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process to estimate and record the customer allowances, including the assumption related to the use of historical experience with the Clubs channel customers. We evaluated the estimated customer allowances by testing the completeness, accuracy and relevance of underlying historical customer allowances data used by management to develop the customer allowances and by performing sensitivity analyses to assess the impact of changes in certain assumptions on the determination of the customer allowances. We have served as the Company’s auditor since 2003. Raleigh, North Carolina April 15, 2022 F-3 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and Board of Directors Hooker Furnishings Corporation: Opinion on Internal Control Over Financial Reporting We have audited Hooker Furnishings Corporation and subsidiaries' (the Company) internal control over financial reporting as of January 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 30, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 30, 2022 and January 31, 2021, the related consolidated statements of operations, comprehensive income/(loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended January 30, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated April 15, 2022 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Raleigh, North Carolina April 15, 2022 F-4 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) As of January 30, January 31, 2022 2021 Assets Current assets Cash and cash equivalents $ 69,366 $ 65,841 Trade accounts receivable, net (See notes 4 and 5) 73,727 83,290 Inventories (see note 6) 75,023 70,159 Income tax recoverable 4,361 - Prepaid expenses and other current assets 5,237 4,432 Total current assets 227,714 223,722 Property, plant and equipment, net (See note 7) 28,058 26,780 Cash surrender value of life insurance policies (See note 9) 26,479 25,365 Deferred taxes (See note 15) 11,612 14,173 Operating leases right-of-use assets (See note 10) 51,854 34,613 Intangible assets, net (See note 8) 23,853 26,237 Goodwill (See note 8) 490 490 Other assets 4,499 893 Total non-current assets 146,845 128,551 Total assets $ 374,559 $ 352,273 Liabilities and Shareholders ’ Equity Current liabilities Trade accounts payable $ 30,916 $ 32,213 Accrued salaries, wages and benefits 7,141 7,136 Income tax accrual (See note 15) - 501 Customer deposits 7,145 4,256 Current portion of lease liabilities (See note 10) 7,471 6,650 Other accrued expenses 4,264 3,354 Total current liabilities 56,937 54,110 Deferred compensation (See note 12) 9,924 11,219 Lease liabilities (See note 10) 46,570 29,441 Total long-term liabilities 56,494 40,660 Total liabilities 113,431 94,770 Shareholders’ equity Common stock, no par value, 20,000 shares authorized, 11,922 and 11,888 shares issued and outstanding on each date 53,295 53,323 Retained earnings 207,884 204,988 Accumulated other comprehensive loss ( 51 ) ( 808 ) Total shareholders’ equity 261,128 257,503 Total liabilities and shareholders’ equity $ 374,559 $ 352,273 See accompanying Notes to Consolidated Financial Statements. F-5 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) For the 52 Week Periods Ended January 30, 2022, January 31, 2021 and February 2, 2020 2022 2021 2020 Net sales $ 593,612 $ 540,081 $ 610,824 Cost of sales 491,910 427,333 496,866 Gross profit 101,702 112,748 113,958 Selling and administrative expenses 84,475 80,410 88,867 Goodwill impairment charges - 39,568 - Trade name impairment charges - 4,750 - Intangible asset amortization 2,384 2,384 2,384 Operating income/(loss) 14,843 ( 14,364 ) 22,707 Other income, net 373 336 458 Interest expense, net 110 540 1,238 Income/(loss) before income taxes 15,106 ( 14,568 ) 21,927 Income tax expense/(benefit) 3,388 ( 4,142 ) 4,844 Net income/(loss) $ 11,718 $ ( 10,426 ) $ 17,083 Earnings/(loss) per share: Basic $ 0.99 $ ( 0.88 ) $ 1.44 Diluted $ 0.97 $ ( 0.88 ) $ 1.44 Weighted average shares outstanding: Basic 11,852 11,822 11,784 Diluted 11,970 11,822 11,838 Cash dividends declared per share $ 0.74 $ 0.66 $ 0.61 See accompanying Notes to Consolidated Financial Statements. F-6 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS) (In thousands) For the 52 Week Periods Ended January 30, 2022, January 31, 2021 and February 2, 2020 2022 2021 2020 Net Income/(Loss) $ 11,718 $ ( 10,426 ) $ 17,083 Other comprehensive income/(loss): Amortization of actuarial gain / (loss) 994 ( 125 ) ( 740 ) Income tax effect on amortization ( 237 ) 30 176 Gain on pension plan settlement - - ( 520 ) Income tax effect on settlement - - 124 Adjustments to net periodic benefit cost 757 ( 95 ) ( 960 ) Total Comprehensive Income/(Loss) $ 12,475 $ ( 10,521 ) $ 16,123 See accompanying Notes to Consolidated Financial Statements. F-7 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the 52 Week Periods Ended January 30, 2022, January 31, 2021 and February 2, 2020 2022 2021 2020 Operating Activities: Net income/(loss) $ 11,718 $ ( 10,426 ) $ 17,083 Adjustments to reconcile net income to net cash provided by operating activities: Goodwill and intangible asset impairment charges - 44,318 - Depreciation and amortization 7,814 6,778 7,100 Gain on pension settlement - - ( 520 ) Gain on disposal of assets ( 18 ) - ( 271 ) Deferred income tax expense/(benefit) 2,323 ( 11,262 ) 1,940 Non-cash restricted stock and performance awards ( 28 ) 1,741 1,296 Provision for doubtful accounts and sales allowances 45 4,686 ( 435 ) Gain on life insurance policies ( 1,008 ) ( 1,207 ) ( 831 ) Changes in assets and liabilities: Trade accounts receivable 9,518 ( 323 ) 25,339 Inventories ( 4,863 ) 22,654 12,391 Income tax recoverable ( 4,361 ) 751 ( 751 ) Prepaid expenses and other current assets ( 4,400 ) 515 ( 557 ) Trade accounts payable ( 1,312 ) 6,686 ( 15,349 ) Accrued salaries, wages and benefits 76 2,204 ( 3,070 ) Accrued income taxes ( 501 ) 501 ( 3,159 ) Customer deposits 2,890 904 328 Operating lease liabilities 708 888 299 Other accrued expenses 908 ( 856 ) 645 Deferred compensation ( 300 ) ( 289 ) ( 49 ) Net cash provided by operating activities 19,209 68,263 41,429 Investing Activities: Purchases of property, plant and equipment ( 6,692 ) ( 1,210 ) ( 5,129 ) Proceeds received on notes receivable - - 1,449 Proceeds from sale of property and equipment 18 - 16 Premiums paid on life insurance policies ( 560 ) ( 555 ) ( 590 ) Proceeds received on life insurance policies 372 1,289 - Net cash used in investing activities ( 6,862 ) ( 476 ) ( 4,254 ) Financing Activities: Cash dividends paid ( 8,822 ) ( 7,838 ) ( 7,211 ) Payments for long-term debt - ( 30,139 ) ( 5,368 ) Net cash used in financing activities ( 8,822 ) ( 37,977 ) ( 12,579 ) Net increase in cash and cash equivalents 3,525 29,810 24,596 Cash and cash equivalents at the beginning of year 65,841 36,031 11,435 Cash and cash equivalents at the end of year $ 69,366 $ 65,841 $ 36,031 Supplemental schedule of cash flow information: Income taxes paid, net 5,888 5,872 6,818 Interest paid, net $ - $ 444 $ 993 Supplemental schedule of noncash investing activities: Increase in lease liabilities arising from obtaining right-of-use assets 24,513 2,236 625 Increase in property and equipment through accrued purchases 15 33 5 See accompanying Notes to Consolidated Financial Statements. F-8 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except per share data) For the 52 Week Periods Ended January 30, 2022, January 31, 2021 and February 2, 2020 Accumulated Other Total Common Stock Retained Comprehensive Shareholders' Shares Amount Earnings Income / (Loss) Equity Balance at February 3, 2019 11,785 $ 49,549 $ 213,380 $ 247 $ 263,176 Net income $ 17,083 $ 17,083 Gain on pension settlement, net of tax of $ 124 ( 396 ) ( 396 ) Unrealized loss on defined benefit plan, net of tax of $ 176 ( 564 ) ( 564 ) Cash dividends paid and accrued ($ 0.61 per share) ( 7,211 ) ( 7,211 ) Restricted stock grants, net of forfeitures 53 344 344 Restricted stock compensation cost 790 790 Recognition of PSUs as equity-based awards 899 899 Balance at February 2, 2020 11,838 $ 51,582 $ 223,252 $ ( 713 ) $ 274,121 Net loss $ ( 10,426 ) $ ( 10,426 ) Unrealized loss on defined benefit plan, net of tax of $ 30 $ ( 95 ) ( 95 ) Cash dividends paid and accrued ($ 0.66 per share) ( 7,838 ) ( 7,838 ) Restricted stock grants, net of forfeitures 50 $ 169 169 Restricted stock compensation cost 809 809 Performance-based restricted stock units cost 763 763 Balance at January 31, 2021 11,888 $ 53,323 $ 204,988 $ ( 808 ) $ 257,503 Net income $ 11,718 $ 11,718 Unrealized gain on defined benefit plan, net of tax of $ 237 $ 757 757 Cash dividends paid and accrued ($ 0.74 per share) ( 8,822 ) ( 8,822 ) Restricted stock grants, net of forfeitures 34 $ ( 126 ) ( 126 ) Restricted stock compensation cost 1,074 1,074 Performance-based restricted stock units cost 502 502 PSU awards ( 1,478 ) ( 1,478 ) Balance at January 30, 2022 11,922 $ 53,295 $ 207,884 $ ( 51 ) $ 261,128 See accompanying Notes to Consolidated Financial Statements. F-9 Table of Contents HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar and share amounts in tables, except per share amounts, in thousands unless otherwise indicated) For the Fifty-Two Weeks Ended January 30, 2022 NOTE 1 – RECENTLY ADOPTED ACCOUNTING STANDARDS In August 2018, the Financial Accounting Standards Board (“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. NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business Hooker Furnishings Corporation and subsidiaries (the “Company,” “we,” “us” and “our”) design, import, manufacture and market residential household furniture, hospitality and contract furniture for sale to wholesale and retail merchandisers located principally in North America. Consolidation The consolidated financial statements include the accounts of Hooker Furnishings Corporation and our wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. All references to the Company refer to the Company and our consolidated subsidiaries, unless specifically referring to segment information. Operating Segments As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to: ■ better understand our performance; ■ better assess our prospects for future net cash flows; and ■ make more informed judgments about us as a whole. We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM. For financial reporting purposes, we are organized into three operating segments and “All Other”, which includes the remainder of our businesses: ■ Hooker Branded , consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses; ■ Home Meridian , a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins; ■ Domestic Upholstery , which includes the domestic upholstery manufacturing operations of Bradington-Young, Sam Moore and Shenandoah Furniture; and ■ All Other, consisting of H Contract and Lifestyle Brands. Neither of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280. F-10 Table of Contents Cash and Cash Equivalents We consider cash on hand, demand deposits in banks and all highly liquid investments with an original maturity of three months or less to be cash and cash equivalents. Trade Accounts Receivable Substantially all of our trade accounts receivable are due from retailers and dealers that sell residential home furnishings or commercial purchasers of our hospitality and senior living products, and consist of a large number of entities with a broad geographic dispersion. We perform credit evaluations of our customers and generally do not require collateral. These trade accounts receivable are reported net of customer allowances and an allowance for doubtful accounts. Reserves for customer allowances comprise the majority of the reduction of our gross trade accounts receivable to the estimated fair value reported on the face of our financial statements. We regularly review and revise customer allowances based on unprocessed claims received and current and historical activity and any agreements made with specific customers. In the Home Meridian segment, Clubs channel customers drive most of the customer allowance activity due to their consumer-facing product return policies. We base anticipated future claims on historical experience with these customers. We regularly review and revise accounts receivable for doubtful accounts based upon historical bad debts . If the financial condition of a customer or customers were to deteriorate, resulting in an impairment of their ability to make payments, additional bad debt allowances may be required. In the event a receivable is determined to be potentially uncollectible, we engage collection agencies or law firms to attempt to collect amounts owed to us after all internal collection attempts have ended. Once we have determined the receivable is uncollectible, it is charged against the allowance for doubtful accounts. Fair Value Measurements We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. We determine fair value based on assumptions that we believe market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels: ■ Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date. ■ Level 2 Inputs: Observable inputs other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. ■ Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. Fair Value of Financial Instruments The carrying value of certain of our financial instruments (cash and cash equivalents, trade accounts receivable and payable, and accrued liabilities) approximates fair value because of the short-term nature of those instruments. The carrying value of Company-owned life insurance is marked to market each reporting period and any change in fair value is reflected in income for that period. See Note 9 for details. Inventories 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. F-11 Table of Contents Property, Plant and Equipment Property, plant and equipment are stated at cost, less allowances for depreciation. Provision for depreciation has been computed at annual rates using straight-line or declining balance depreciation methods that will amortize the cost of the depreciable assets over their estimated useful lives. Leases Leases are classified as either finance leases or operating leases based on criteria in Topic 842. All of our current 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. For leases without explicitly stated or implicit interest rates that commenced after the adoption date, we use 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 is to straight-line the sub-lease income over the term of the sublease. Our leases have remaining lease terms of less than one year to ten years, some of which include options to extend the leases for up to ten 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. Impairment of Long-Lived Assets Long-lived assets, such as property, plant and equipment and definite-lived assets, are evaluated for impairment annually or more frequently when events or changes in circumstances indicate that the carrying amount of the assets or asset groups may not be recoverable through the estimated undiscounted future cash flows from the use of those assets. When any such impairment exists, the related assets are written down to fair value. Long-lived assets subject to disposal by sale are measured at the lower of their carrying amount or fair value less estimated cost to sell, are no longer depreciated, and are reported separately as “assets held for sale” in the consolidated balance sheets. Intangible Assets and Goodwill We own both definite-lived (amortizable) assets and indefinite-lived intangible assets. Our amortizable intangible assets are related to the Shenandoah and Home Meridian acquisitions and includes customer relationships and trademarks. Our indefinite lived assets include goodwill related to the Shenandoah acquisition, 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. F-12 Table of Contents 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; and ■ the likelihood that a reporting unit or significant portion of a reporting unit will be sold or otherwise subject to disposal. The assumptions used to determine the fair value of our intangible assets are highly subjective and judgmental and include long-term growth rates, sales volumes, projected revenues, assumed royalty rates and factors used to develop an applied discount rate. If the assumptions that we use in these calculations differ from actual results, we may realize additional impairment on our intangible assets that may have a material-adverse effect on our results of operations and financial condition. Cash Surrender Value of Life Insurance Policies We own seventy-four life insurance policies on certain of our current and former executives and other key employees. These policies had a carrying value of $ 26.7 million at January 30, 2022 and have a face value of approximately $ 55 million as of that date. Proceeds from the policies are used to fund certain employee benefits and for other general corporate purposes. We account for life insurance as a component of employee benefits cost. Consequently, the cost of the coverage and any resulting gains or losses related to those insurance policies are recorded as a decrease or increase to operating income. Cash payments that increase the cash surrender value of these policies are classified as investing outflows on the Consolidated Statements of Cash Flows, with amounts paid in excess of the increase in cash surrender value included in operating activities. Gains on life insurance policies, which typically occur at the time a policy is redeemed, are included in the reconciliation of net income to net cash used in or provided by operating activities. Revenue Recognition We recognize revenue pursuant to Accounting Standards Codification 606, which requires revenue to be recognized at an amount that reflects the consideration we expect to be entitled to receive in exchange for transferring goods or services to our customers. Our policy is to record revenue when control of the goods transfers to the customer. We have a present right to payment at the time of shipment as customers are invoiced at that time. We believe the customer obtains control of goods at the time of shipment, which is typically when title passes. While the customer may not enjoy immediate physical possession of the products, the customers’ right to re-direct shipment indicates control. In the very limited instances when products are sold under consignment arrangements, we do not recognize revenue until control over such products has transferred to the end consumer. Orders are generally non-cancellable once loaded into a shipping trailer or container. The transaction price for each contract is the stated price of the product, reduced by any stated discounts or allowances at that point in time. We do not engage in sales of products that attach a future material right which could result in a separate performance obligation for the purchase of goods in the future at a material discount. The implicit contract with the customer, as reflected in the order acknowledgement and invoice, states the final terms of the sale, including the description, quantity, and price of each product purchased. The transaction price reflects the amount of estimated consideration to which we expect to be entitled. This amount of variable consideration included in the transaction price, and measurement of net sales, is included in net sales only to the extent that it is probable that there will be no significant reversal in a future period. Net sales are comprised of gross revenues from sales of home furnishings and hospitality furniture products and are recorded net of allowances for trade promotions, estimated product returns, rebate advertising programs and other discounts. Physical product returns are very rare due to the high probability of damages to our products in return transit. Other revenues, primarily royalties, are immaterial to our overall results. Payment is typically due within 30-60 days of shipment for customers qualifying for payment terms. Collectability is reasonably assured since we extend credit to customers for whom we have performed credit evaluations and/or from whom we have received a down payment or deposit. 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. F-13 Table of Contents Cost of Sales The major components of cost of sales are: ■ the cost of imported products purchased for resale; ■ raw materials and supplies used in our domestically manufactured products; ■ labor and overhead costs associated with our domestically manufactured products; ■ the cost of our foreign import operations; ■ charges associated with our inventory reserves; ■ warehousing and certain shipping and handling costs; and ■ all other costs required to be classified as cost of sales. Selling and Administrative Expenses The major components of our selling and administrative expenses are: ■ the cost of our marketing and merchandising efforts, including showroom expenses; ■ sales and design commissions; ■ the costs of administrative support functions including, executive management, information technology, human resources and finance; and ■ all other costs required to be classified as selling and administrative expenses. Advertising We offer advertising programs to qualified dealers under which we may provide signage, catalogs and other marketing support to our dealers and may reimburse some advertising and other costs incurred by our dealers in connection with promoting our products. The cost of these programs does not exceed the fair value of the benefit received. We charge the cost of point-of-purchase materials (including signage, catalogs, and fabric and leather swatches) to selling and administrative expense as incurred. Advertising costs charged to selling and administrative expense for fiscal years 2022, 2021 and 2020 were $ 1.9 million, $ 2.1 million, and $ 3.4 million, respectively. The costs for other advertising allowance programs are charged against net sales. We also have arrangements with some dealers to reimburse them for a portion of their advertising costs, which provides advertising benefits to us. Costs for these arrangements are expensed as incurred and are netted against net sales in our consolidated statements of operations and comprehensive income. Earnings Per Share We use the two-class method to compute basic earnings per share. Under this method we allocate earnings to common shares and participating securities according to their participation rights in dividends declared and undistributed earnings and divide the income available to each class by the weighted average number of common shares for the period in each class. Unvested restricted stock grants made to our non-employee directors and certain employees are considered participating securities because the shares have the right to receive non-forfeitable dividends. Because the participating shares have no obligation to share in net losses, we do not allocate losses to our common shares in this calculation. Diluted earnings per share reflect the potential dilutive effect of securities that could share in our earnings. Restricted stock awarded to non-employee directors and certain employees and restricted stock units granted to employees that have not yet vested are considered when computing diluted earnings per share. We use the treasury stock method to determine the dilutive effect of both unvested restricted stock and unvested restricted stock units. Shares of unvested restricted stock and unvested restricted stock units under a stock-based compensation arrangement are considered options for purposes of computing diluted earnings per share and are considered outstanding shares as of the grant date for purposes of computing diluted earnings per share even though their exercise may be contingent upon vesting. Those stock-based awards are included in the diluted earnings per share computation even if the non-employee director may be required to forfeit the stock at some future date, or no shares may ever be issued to the employees. Unvested restricted stock and unvested restricted stock units are not included in outstanding common shares in computing basic earnings per share. F-14 Table of Contents Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of: (i) assets and liabilities, including disclosures regarding contingent assets and liabilities at the dates of the financial statements; and (ii) revenue and expenses during the reported periods. Significant items subject to such estimates and assumptions include useful lives of fixed and intangible assets; allowance for doubtful accounts; deferred tax assets; the valuation of fixed assets and goodwill; our pension and supplemental retirement income plans; and stock-based compensation. These estimates and assumptions are based on our best judgments. We evaluate these estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which we believe to be reasonable under the circumstances. We adjust our estimates and assumptions as facts and circumstances dictate. Actual results could differ from our estimates. NOTE 3- FISCAL YEAR Our fiscal years end on the Sunday closest to January 31. In some years, generally once every six years, the fourth quarter will be fourteen weeks long and the fiscal year will consist of fifty-three weeks. The 2019 fiscal year that ended on February 3, 2019 was a 53-week fiscal year. Our quarterly periods are based on thirteen-week “reporting periods,” which end on Sundays. As a result, each quarterly period generally will be thirteen weeks, or 91 days long, except during a 53-week fiscal year which will have 14 weeks in the fourth quarter. In the notes to the consolidated financial statements, references to the: ■ 2022 fiscal year and comparable terminology mean the fiscal year that began February 1, 2021 and ended January 30, 2022; ■ 2021 fiscal year and comparable terminology mean the fiscal year that began February 3, 2020 and ended January 31, 2021; ■ 2020 fiscal year and comparable terminology mean the fiscal year that began February 4, 2019 and ended February 2, 2020. NOTE 4 – DOUBTFUL ACCOUNTS AND CUSTOMER ALLOWANCES The activity in the allowance for doubtful accounts was: Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Balance at beginning of year $ 2,338 $ 903 $ 908 Non-cash charges to cost and expenses ( 76 ) 1,262 417 Less uncollectible receivables written off, net of recoveries ( 246 ) 173 ( 422 ) Balance at end of year $ 2,016 $ 2,338 $ 903 The activity in customer allowances was: Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Balance at beginning of year $ 6,993 $ 3,493 $ 4,267 Charges to cost and expenses 23,766 29,243 31,815 Less allowances applied ( 23,305 ) ( 25,666 ) ( 32,511 ) Less uncollectible receivables written off, net of recoveries ( 170 ) ( 77 ) ( 78 ) Balance at end of year $ 7,284 $ 6,993 $ 3,493 F-15 Table of Contents NOTE 5 – ACCOUNTS RECEIVABLE January 30, January 31, 2022 2021 Gross accounts receivable $ 83,027 $ 92,621 Customer allowances ( 7,284 ) ( 6,993 ) Allowance for doubtful accounts ( 2,016 ) ( 2,338 ) Trade accounts receivable $ 73,727 $ 83,290 NOTE 6 – INVENTORIES January 30, January 31, 2022 2021 Finished furniture $ 89,066 $ 81,290 Furniture in process 2,314 1,397 Materials and supplies 13,179 9,639 Inventories at FIFO 104,559 92,326 Reduction to LIFO basis ( 29,536 ) ( 22,167 ) Inventories $ 75,023 $ 70,159 If the first-in, first-out (FIFO) method had been used in valuing all inventories, net income would have been $ 17.4 million in fiscal 2022, net loss would have been $ 11.1 million in fiscal 2021, and net income would have been $ 19.5 million in fiscal 2020. We recorded LIFO expense of $ 7.4 million in fiscal 2022, LIFO income of $ 1.3 million in fiscal 2021, and LIFO expense of $ 3.1 million in fiscal 2020. At January 30, 2022 and January 31, 2021, we had $ 8.9 million and $ 6.7 million, respectively, in consigned inventories, which are included in the “Finished furniture” line in the table above. At January 30, 2022, we held $ 11.1 million in inventory outside of the United States, in Vietnam and China. At January 31, 2021, we held $ 11.3 million in inventory outside of the United States, in Vietnam and China. NOTE 7 – PROPERTY, PLANT AND EQUIPMENT Depreciable Lives January 30, January 31, (In years) 2022 2021 Buildings and land improvements 15 - 30 $ 32,030 $ 31,316 Computer software and hardware 3 - 10 15,648 15,012 Machinery and equipment 10 10,390 9,314 Leasehold improvements Term of lease 10,984 10,005 Furniture and fixtures 3 - 8 5,829 2,614 Other 5 676 651 Total depreciable property at cost 75,557 68,912 Less accumulated depreciation ( 49,077 ) ( 44,098 ) Total depreciable property, net 26,480 24,814 Land 1,077 1,077 Construction-in-progress 501 889 Property, plant and equipment, net $ 28,058 $ 26,780 Depreciation expense for fiscal 2022, 2021 and 2020 was $ 5.4 million, $ 4.4 million and $ 4.7 million, respectively. F-16 Table of Contents Capitalized Software Costs Certain costs incurred in connection with developing or obtaining computer software for internal use are capitalized. These costs are amortized over periods of ten years or less. Capitalized software is reported as a component of computer software and hardware above and on the property, plant, and equipment line of our consolidated balance sheets. The activity in capitalized software costs was: Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Balance beginning of year $ 3,211 $ 4,277 $ 5,123 Additions 65 33 286 Amortization expense ( 1,053 ) ( 1,099 ) ( 1,132 ) Disposals - - - Balance end of year $ 2,223 $ 3,211 $ 4,277 NOTE 8 – INTANGIBLE ASSETS AND GOODWILL Our goodwill, some trademarks and trade names have indefinite useful lives and, consequently, are not subject to amortization for financial reporting purposes but are tested for impairment annually or more frequently if events or circumstances indicate that the asset might be impaired. Our non-amortizable intangible assets consist of: ■ Goodwill and trademarks and tradenames related to the Home Meridian and Shenandoah acquisitions; and ■ Trademarks and tradenames related to the acquisitions of Bradington-Young (acquired in 2002), Sam Moore (acquired in 2007) and Home Meridian (acquired in 2016). We review goodwill annually for impairment or more frequently if events or circumstances indicate that it might be impaired. In accordance with ASU 2017-04, Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment , we perform our annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Management judgment is a significant factor in the goodwill impairment evaluation process. The computations require management to make estimates and assumptions, the most critical of which are potential future cash flows and the appropriate discount rate. In conjunction with our evaluation of the cash flows generated by the Home Meridian, Bradington-Young and Sam Moore reporting units, we evaluated the carrying value of trademarks and trade names using the relief from royalty method, which values the trademark/trade name by estimating the savings achieved by ownership of the trademark/trade name when compared to licensing the mark/name from an independent owner. The inputs used in the trademark/trade name analyses are considered Level 3 fair value measurements. The adverse economic effects brought on by the COVID-19 pandemic, including reductions in our sales, earnings and market value, as well as other changing market dynamics, required that we perform a valuation of our intangible assets in the 2021 first quarter. The calculation methodology for the fair value of our Home Meridian segment’s and the Shenandoah division of our Domestic Upholstery segment’s goodwill included three approaches: the Discounted Cash Flow Method (DCF) which was given the largest weighting, the Guideline Public Company Method (GPCM) based on the consideration of the facts of the Company’s peer competitors and the Guideline Transaction Method (GTM) based on consideration of transactions with varying risk profiles, geographies and market conditions. The income approach, specifically the relief from royalty method, was used as the valuation methodology for our trade names and trademarks, based on cash flow projections and growth rates for each trade name for five years in the future provided by management, and a royalty rate benchmark for companies with similar activities. As a result of our intangible asset valuation analysis, in the first quarter of fiscal 2021, we recorded $ 44.3 million non-cash impairment charges including $ 23.2 million to Home Meridian goodwill, $ 16.4 million to Shenandoah goodwill and $ 4.8 million to certain of Home Meridian segment’s trade names. Based on our internal analyses at January 30, 2022, the fair values of our non-amortizable trademarks and trade names exceeded their carrying values and we concluded that Shenandoah goodwill in the Domestic Upholstery segment is not impaired. F-17 Table of Contents Details of our non-amortizable intangible assets are as follows: Fifty-Two Weeks Ended January 30, 2022 January 31, 2021 Non-amortizable Intangible Assets Segment Beginning Balance Impairment Charges Net Book Value Beginning Balance Impairment Charges Net Book Value Goodwill Domestic Upholstery $ 490 $ - $ 490 $ 16,871 $ ( 16,381 ) $ 490 Goodwill Home Meridian - - - 23,187 ( 23,187 ) - Total Goodwill 490 - 490 40,058 ( 39,568 ) 490 Trademarks and trade names - Home Meridian Home Meridian 6,650 - 6,650 11,400 ( 4,750 ) 6,650 Trademarks and trade names - Bradington-Young Domestic Upholstery 861 - 861 861 - 861 Trademarks and trade names - Sam Moore Domestic Upholstery 396 - 396 396 - 396 Total Trademarks and trade names $ 7,907 $ - $ 7,907 $ 12,657 $ ( 4,750 ) $ 7,907 Total non-amortizable assets $ 8,397 $ - $ 8,397 $ 52,715 $ ( 44,318 ) $ 8,397 Our amortizable intangible assets are recorded in the Home Meridian and in Domestic Upholstery segments. The carrying amounts and changes therein of those amortizable intangible assets were as follows: Amortizable Intangible Assets Customer Relationships Trademarks Totals Balance at January 31, 2021 $ 17,672 $ 658 $ 18,330 Amortization ( 2,324 ) ( 60 ) ( 2,384 ) Balance at January 30, 2022 $ 15,348 $ 598 $ 15,946 The estimated amortization expense associated with our amortizable intangible assets is expected to be as follows: Fiscal Year Amount 2023 2,384 2024 2,384 2025 2,359 2026 2,359 2027 2,359 2028 and thereafter 4,101 $ 15,946 NOTE 9 – FAIR VALUE MEASUREMENTS Fair value is the price that would be received upon the sale of an asset or paid upon the transfer of a liability (an exit price) in an orderly transaction between market participants on the applicable measurement date. We use a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets for identical assets and liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. F-18 Table of Contents As of January 30, 2022, 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 January 30, 2022 and January 31, 2021, were as follows Fair value at January 30, 2022 Fair value at January 31, 2021 Description Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total (In thousands) Assets measured at fair value Company-owned life insurance $ - $ 26,479 $ - $ 26,479 $ - $ 25,365 $ - $ 25,365 NOTE 10 – LEASES In fiscal 2020, we adopted Accounting Standards Codification Topic 842 Leases. We have a sub-lease at one of our warehouses and we recognized sub-lease income of $ 890,000 , $ 576,000 and $ 405,000 in fiscal 2022, fiscal 2021 and fiscal 2020, respectively. The components of lease cost and supplemental cash flow information for leases in fiscal 2022, 2021 and 2020 were: Fifty-two Weeks Ended January 30, 2022 January 31, 2021 February 2, 2020 Operating lease cost $ 8,144 $ 8,367 $ 8,408 Variable lease cost 208 146 153 Short-term lease cost 117 291 581 Total operating lease cost $ 8,469 $ 8,804 $ 9,142 Operating cash outflows $ 7,730 $ 7,921 $ 8,725 The right-of-use assets and lease liabilities recorded on our Consolidated Balance Sheets as of January 30, 2022 and January 31, 2021 were: January 30, 2022 January 31, 2021 Real estate $ 50,749 $ 33,651 Property and equipment 1,105 962 Total operating leases right-of-use assets $ 51,854 $ 34,613 Current portion of operating lease liabilities $ 7,471 $ 6,650 Long term operating lease liabilities 46,570 29,441 Total operating lease liabilities $ 54,041 $ 36,091 The increase in right-of-use assets and lease liabilities is primarily due to the commencement of the operating lease at our new warehouse facility in Georgia during the fiscal 2022 third quarter. Weighted-average remaining lease term is 8.3 years. We used our incremental borrowing rate which is LIBOR plus 1.5 % at the adoption date. The weighted-average discount rate is 1.91 %. F-19 Table of Contents The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the consolidated balance sheet at January 30, 2022: Fiscal Year Undiscounted Future Operating Lease Payments 2023 $ 8,414 2024 7,098 2025 7,140 2026 7,213 2027 6,850 2028 and thereafter 21,805 Total lease payments $ 58,520 Less: impact of discounting ( 4,479 ) Present value of lease payments $ 54,041 As of January 30, 2022, the Company had an additional lease for a showroom in High Point, North Carolina. This lease is expected to commence in Fall of calendar 2022 with an initial lease term of 10 years and estimated future minimum rental commitments of approximately $ 23.7 million. Since the lease has not yet commenced, the undiscounted amounts are not included in the table above. NOTE 11 – LONG-TERM DEBT We paid off the term loans which were related to the Home Meridian acquisition in fiscal 2021 and currently have a $ 35 million revolving credit facility (“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 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%; ■ 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; and ■ 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; and ● 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. F-20 Table of Contents We were in compliance with each of these financial covenants at January 30, 2022. 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 $ 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. NOTE 12 – EMPLOYEE BENEFIT PLANS Employee Savings Plans We sponsor a tax-qualified 401(k) retirement plan covering substantially all employees. This plan assists employees in meeting their savings and retirement planning goals through employee salary deferrals and discretionary employer matching contributions. Our contributions to the plan amounted to $ 1.4 million in fiscal 2022, $ 1.3 million in fiscal 2021, and $ 1.4 million in fiscal 2020. Executive Benefits SRIP and SERP Overview We maintain two “frozen” retirement plans, which are paying benefits and may include active employees among the participants but 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 Furnishings Corporation; and ■ the Pulaski Furniture Corporation Supplemental Executive Retirement Plan (“SERP”) for certain former executives. SRIP and SERP The SRIP provides monthly payments to participants or their designated beneficiaries based on a participant’s “final average monthly earnings” and “specified percentage” participation level as defined in the plan, subject to a vesting schedule that may vary for each participant. The benefit is payable for a 15-year period following the participant’s termination of employment due to retirement, disability or death . In addition, the monthly retirement benefit for each participant, regardless of age, becomes fully vested and the present value of that benefit is paid to each participant in a lump sum upon a change in control of the Company as defined in the plan. The SRIP is unfunded and all benefits are payable solely from our general assets. The plan liability is based on the aggregate actuarial present value of the vested benefits to which participating employees are currently entitled but based on the employees’ expected dates of separation or retirement. No employees have been added to the plan since 2008 and we do not expect to add additional employees in the future, due to changes in our compensation philosophy, which emphasizes more performance-based compensation measures in total management compensation. The SERP provides monthly payments to eight retirees or their designated beneficiaries based on a defined benefit formula as defined in the plan. The benefit is payable for the life of the retiree with the following forms available as a reduced monthly benefit: Ten-year Certain and Life; 50% or 100% Joint and Survivor Annuity. The SERP is unfunded and all benefits are payable solely from our general assets. The plan liability is based on the aggregate actuarial present value of the benefits to which retired employees are currently entitled. No employees have been added to the plan since 2006 and we do not expect to add additional employees in the future. F-21 Table of Contents Summarized SRIP and SERP information as of each fiscal year-end (the measurement date) is as follows: SRIP (Supplemental Retirement Income Plan) January 30, January 31, 2022 2021 Change in benefit obligation: Beginning projected benefit obligation $ 10,572 $ 10,256 Service cost 133 128 Interest cost 178 249 Benefits paid ( 904 ) ( 591 ) Actuarial (gain)/ loss ( 553 ) 530 Ending projected benefit obligation (funded status) $ 9,426 $ 10,572 Accumulated benefit obligation $ 9,277 $ 10,421 Discount rate used to value the ending benefit obligations: 1.75 % 1.75 % Amount recognized in the consolidated balance sheets: Current liabilities (Accrued salaries, wages and benefits line) $ 877 $ 877 Non-current liabilities (Deferred compensation line) 8,549 9,695 Total $ 9,426 $ 10,572 Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Net periodic benefit cost Service cost $ 133 $ 128 $ 104 Interest cost 178 249 351 Net loss 402 338 149 Net periodic benefit cost $ 713 $ 715 $ 604 Other changes recognized in accumulated other comprehensive income Net (gain) / loss arising during period ( 553 ) 530 716 Amortizations: Gain (loss) ( 402 ) ( 338 ) ( 149 ) Total recognized in other comprehensive loss (income) ( 955 ) 192 567 Total recognized in net periodic benefit cost and accumulated other comprehensive income $ ( 242 ) $ 907 $ 1,171 Assumptions used to determine net periodic benefit cost: Discount rate 1.75 % 2.50 % 3.75 % Increase in future compensation levels 4.00 % 4.00 % 4.00 % Estimated Future Benefit Payments: Fiscal 2023 $ 877 Fiscal 2024 957 Fiscal 2025 957 Fiscal 2026 957 Fiscal 2027 783 Fiscal 2028 through fiscal 2032 4,126 For the SRIP, the discount rate used to determine the fiscal 2022 net periodic cost was 1.75%, based on the Mercer yield curve and the plan’s expected benefit payments. At January 30, 2022, combining the Mercer yield curve and the plan's expected benefit payments resulted in a rate of 1.75 %. This rate was used to value the ending benefit obligations. F-22 Table of Contents At January 30, 2022, the actuarial gain related to the SRIP amounted to $ 553 ,000, net of tax of $ 237 ,000. At January 31, 2021, the actuarial losses related to the SRIP amounted to $ 530 ,000, net of tax of $ 338 ,000. The estimated actuarial gain that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the 2023 fiscal year is $ 83,310 . There is no expected prior service (cost) or credit amortization. SERP (Supplemental Executive Retirement Plan) January 30, January 31, 2022 2021 Change in benefit obligation: Beginning projected benefit obligation $ 1,681 $ 1,860 Service cost - - Interest cost 34 46 Benefits paid ( 145 ) ( 158 ) Actuarial (gain)/loss ( 39 ) ( 67 ) Ending projected benefit obligation (funded status) $ 1,531 $ 1,681 Accumulated benefit obligation $ 1,531 $ 1,681 Discount rate used to value the ending benefit obligations: 2.10 % 2.10 % Amount recognized in the consolidated balance sheets: Current liabilities (Accrued salaries, wages and benefits line) $ 156 $ 156 Non-current liabilities (Deferred compensation line) 1,375 1,525 Total $ 1,531 $ 1,681 Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Net periodic benefit cost Service cost $ - $ - $ - Interest cost 34 46 67 Net gain - ( 5 ) Net periodic benefit cost $ 34 $ 46 $ 62 Other changes recognized in accumulated other comprehensive income Net (gain)/loss arising during period ( 39 ) ( 67 ) 168 Amortizations: Gain (Loss) - - 5 Total recognized in other comprehensive loss (income) ( 39 ) ( 67 ) 173 Total recognized in net periodic benefit cost and accumulated other comprehensive income $ ( 5 ) $ ( 21 ) $ 235 Assumptions used to determine net periodic benefit cost: Discount rate 2.80 % 2.60 % 3.90 % Increase in future compensation levels N/A N/A N/A Estimated Future Benefit Payments: Fiscal 2023 $ 155 Fiscal 2024 151 Fiscal 2025 145 Fiscal 2026 139 Fiscal 2027 133 Fiscal 2028 through fiscal 2032 553 For the SERP, the discount rate assumption used to measure the projected benefit obligations is set by reference to a certain hypothetical AA-rated corporate bond spot-rate yield curve constructed by our actuary, Aon (“Aon”) and the plan’s projected cash flows, rounded to the nearest 10 bps. At January 31, 2021, combining the Aon AA Above Median yield curve and the plan's expected benefit payments created a rate of 2.10%. This rate was used to value the ending benefit obligations. At January 30, 2022, combining the Aon AA Above Median yield curve and the plan's expected benefit payments created a rate of 2.80%. The change in the discount rate from 2.10% to 2.80% decreased liabilities. F-23 Table of Contents At January 30, 2022, the actuarial gain related to the SERP was $ 39 ,000. At January 31, 2021, the actuarial gain related to the SERP was $ 67 ,000. NOTE 13 – SHARE-BASED COMPENSATION Our Stock Incentive Plan permits incentive awards of restricted stock, restricted stock units, stock appreciation rights and performance grants to key employees. A maximum of 750,000 shares of the Company’s common stock is authorized for issuance under the Stock Incentive Plan. The Stock Incentive Plan also provides for annual restricted stock awards to non-employee directors. We have issued restricted stock awards to our non-employee directors since January 2006 and certain other management employees since 2014. We account for restricted stock awards as “non-vested equity shares” until the awards vest or are forfeited. Restricted stock awards to non-employee directors and certain other management employees vest if the director/employee remains on the board/employed through the specified vesting period for shares and may vest earlier upon certain events specified in the plan. For shares issued to non-employee directors during fiscal 2016 and after, there is a 12 -month service period. The fair value of each share of restricted stock is the market price of our common shares on the grant date. The weighted average grant-date fair values of restricted stock awards issued during fiscal 2022 were $ 37.20 and $ 40.00 , during fiscal 2021 were $ 13.92 , $ 19.20 and $ 29.34 , during fiscal 2020 were $ 29.77 , $ 29.21 and $ 19.87 , respectively. The restricted stock awards outstanding as of January 30, 2022 had an aggregate grant-date fair value of $ 1.7 million, after taking vested and forfeited restricted shares into account. As of January 30, 2022, we have recognized non-cash compensation expense of approximately $ 996,000 related to these non-vested awards and $ 2.6 million for awards that have vested. The remaining $ 692,000 of grant-date fair value for unvested restricted stock awards outstanding at January 30, 2022 will be recognized over the remaining vesting periods for these awards. The number of outstanding restricted shares increased due primarily to grants of restricted shares to a larger population of our non-executive employees as an incentive for retention and alignment of individual performance to our values. For each restricted stock issuance, the following table summarizes restricted stock activity, including the weighted average issue price of those shares on the grant date, the fair value of each grant of restricted stock on the grant date, compensation expense recognized for the unvested shares of restricted stock for each grant and the remaining fair value of the unvested shares of restricted stock for each grant as of January 30, 2022: Whole Grant-Date Aggregate Compensation Grant-Date Fair Value Number of Fair Value Grant-Date Expense Unrecognized At Shares Per Share Fair Value Recognized January 30, 2022 Previous Awards (vested) $ 2,580 Restricted shares Issued on April 17, 2019 15,939 29.80 475 356 21 Forfeited ( 3,275 ) ( 98 ) Partial vested due to separation ( 415 ) Restricted shares Issued on May 8, 2019 1,027 29.21 30 27 3 Restricted shares Issued on April 7, 2020 23,484 13.92 327 167 108 Forfeited ( 3,718 ) ( 52 ) Restricted shares Issued on October 19, 2020 1,022 29.34 30 13 17 Restricted shares Issued on April 8, 2021 16,613 37.20 618 154 402 Forfeited ( 1,677 ) ( 62 ) Restricted shares Issued on June 3, 2021 12,000 40.00 480 279 141 Forfeited ( 1,500 ) ( 60 ) Awards outstanding at January 30, 2022: 59,500 $ 1,688 $ 996 $ 692 F-24 Table of Contents We have awarded time-based restricted stock units to certain senior executives since 2011. Each restricted stock unit, or “RSU”, entitles the executive to receive one share of the Company’s common stock if he remains continuously employed with the Company through the end of a three-year service period . The RSUs may be paid in shares of the Company’s common stock, cash or both, at the discretion of the Compensation Committee. The RSUs are accounted for as “non-vested stock grants.” Similar to the restricted stock grants issued to our non-employee directors, RSU compensation expense is recognized ratably over the applicable service period. However, unlike restricted stock grants, no shares are issued, or other payment made, until the end of the applicable service period (commonly referred to as “cliff vesting”) and grantees are not entitled to receive dividends on their RSUs during that time. The fair value of each RSU is the market price of a share of our common stock on the grant date, reduced by the present value of the dividends expected to be paid on a share of our common stock during the applicable service period, discounted at the appropriate risk-free rate. The following table presents RSU activities for the year ended January 30, 2022: Whole Grant-Date Aggregate Compensation Grant-Date Fair Value Number of Fair Value Grant-Date Expense Unrecognized At Units Per Unit Fair Value Recognized January 30, 2022 Previous Awards (vested) $ 1,062 RSUs Awarded on April 17, 2019 10,196 28.05 286 178 12 Forfeited ( 3,436 ) ( 96 ) Partial vested due to separation ( 2,549 ) RSUs Awarded on April 7, 2020 17,672 $ 12.01 212 76 50 Forfeited ( 7,183 ) ( 86 ) Partial vested due to separation ( 1,437 ) RSUs Awarded on April 8, 2021 8,186 35.05 287 61 160 Forfeited ( 1,882 ) ( 66 ) RSUs for retention Awarded on April 8, 2021 4,865 35.05 171 31 83 Forfeited ( 1,613 ) ( 57 ) Awards outstanding at January 30, 2022: 22,819 $ 651 $ 346 $ 305 We have issued Performance-based Restricted Stock Units (“PSUs”) to our named executive officers since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers. The payout or settlement of the PSUs will be made in shares of our common stock. PSUs awarded in fiscal 2019 and fiscal 2020 were forfeited as the performance targets were not met. The following table presents PSU activities for the year ended January 30, 2022: Whole Grant-Date Aggregate Compensation Grant-Date Fair Value Number of Fair Value Grant-Date Expense Unrecognized At Units Per Unit Fair Value Recognized January 30, 2022 Previous Awards (vested) - PSUs Awarded on April 7, 2020 69,075 13.92 962 409 128 Forfeited ( 30,532 ) ( 425 ) PSUs Awarded on April 8, 2021 20,243 37.20 753 204 409 Forfeited ( 3,764 ) ( 140 ) Awards outstanding at January 30, 2022: 55,022 $ 1,150 $ 613 $ 537 F-25 Table of Contents NOTE 14 – EARNINGS PER SHARE We refer you to the Earnings Per Share disclosure in Note 2-Summary of Significant Accounting Policies, above, for more detailed information concerning the calculation of earnings per share. All stock awards are designed to encourage retention and to provide an incentive for increasing shareholder value. We have issued restricted stock awards to non-employee members of the board of directors since 2006 and to certain non-executive employees since 2014. We have issued restricted stock units (“RSUs”) to certain senior executives since fiscal 2012 under the Company’s Stock Incentive Plan. Each RSU entitles an executive to receive one share of the Company’s common stock if the executive remains continuously employed with the Company through the end of a three-year service period. The RSUs may be paid in shares of our common stock, cash or both at the discretion of the Compensation Committee of our board of directors. We have issued Performance-based Restricted Stock Units (“PSUs”) to certain senior executives since fiscal 2019 under the Company’s Stock Incentive Plan. Each PSU entitles the executive officer to receive one share of our common stock based on the achievement of two specified performance conditions if the executive officer remains continuously employed through the end of the three-year performance period. One target is based on our annual average growth in our EPS over the performance period and the other target is based on EPS growth over the performance period compared to our peers. The payout or settlement of the PSUs will be made in shares of our common stock. We expect to continue to grant these types of awards annually in the future. The following table sets forth the number of outstanding restricted stock awards and RSUs and PSUs, net of forfeitures and vested shares, as of the fiscal period-end dates indicated: January 30, January 31, February 2, 2022 2021 2020 Restricted shares 59,500 54,747 45,946 RSUs and PSUs 77,841 140,911 73,060 137,341 195,658 119,006 All restricted shares, RSUs and PSUs awarded that have not yet vested are considered when computing diluted earnings per share. The following table sets forth the computation of basic and diluted earnings per share: Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Net income/(loss) $ 11,718 $ ( 10,426 ) $ 17,083 Less: Dividends on unvested restricted shares 46 36 25 Net earnings allocated to unvested restricted stock 61 - 60 Earnings available for common shareholders $ 11,611 $ ( 10,462 ) $ 16,998 Weighted average shares outstanding for basic earnings per share 11,852 11,822 11,784 Dilutive effect of unvested restricted stock awards 118 * 54 Weighted average shares outstanding for diluted earnings per share 11,970 11,822 11,838 Basic earnings/(loss) per share $ 0.99 $ ( 0.88 ) $ 1.44 Diluted earnings/(loss) per share $ 0.97 $ ( 0.88 ) $ 1.44 *Due to the fiscal 2021 net loss, approximately 119,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share. F-26 Table of Contents NOTE 15 – INCOME TAXES Our provision for income taxes was as follows for the periods indicated: Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Current expense Federal $ 650 $ 5,858 $ 2,312 Foreign 107 108 255 State 307 1,154 334 Total current expense 1,064 7,120 2,901 Deferred taxes Federal 1,980 ( 9,554 ) 1,645 State 344 ( 1,708 ) 298 Total deferred taxes 2,324 ( 11,262 ) 1,943 Income tax expense / (benefit) $ 3,388 $ ( 4,142 ) $ 4,844 Total tax expense for fiscal 2022 was $ 3.6 million, of which $ 3.4 million expense was allocated to continuing operations and $ 200 ,000 tax expense was allocated to other comprehensive income. Total tax benefit for fiscal 2021 was $ 4.2 million, of which $ 4.1 million benefit was allocated to continuing operations and $ 30 ,000 tax benefit was allocated to other comprehensive income. Total tax expense for fiscal 2020 was $ 4.5 million, of which $ 4.8 million expense was allocated to continuing operations and $ 300 ,000 tax benefit was allocated to other comprehensive income. The effective income tax rate differed from the federal statutory tax rate as follows for the period s indicated: Fifty-Two Weeks Ended January 30, January 31, February 2, 2022 2021 2020 Income taxes at statutory rate 21.0 % 21.0 % 21.0 % Increase (decrease) in tax rate resulting from: State taxes, net of federal benefit 3.4 3.0 2.4 Officer's life insurance - 1.3 1.7 - 1.1 Expiration of capital loss 2.0 0.0 0.0 Change in valuation allowance - 1.9 0.0 0.0 Consolidated Appropriation Act provisions 0.0 1.8 0.0 Other - 0.8 0.9 - 0.2 Effective income tax rate 22.4 % 28.4 % 22.1 % The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities for the period indicated were: January 30, January 31, 2022 2021 Assets Intangible assets $ 7,212 $ 8,057 Deferred compensation 2,807 2,765 Allowance for bad debts 2,079 2,235 Employee benefits 643 848 Loss and credit carryover 88 411 Accrued liabilities 320 511 Deferred rent 618 444 Other 194 369 Total deferred tax assets 13,961 15,640 Valuation allowance ( 88 ) ( 411 ) 13,873 15,229 Liabilities Property, plant and equipment 1,361 775 Inventories 900 281 Total deferred tax liabilities 2,261 1,056 Net deferred tax assets $ 11,612 $ 14,173 F-27 Table of Contents At January 30, 2022 and January 31, 2021 our net deferred asset was $ 11.6 and $ 14.2 million, respectively. The decrease in the valuation allowance of $ 323,000 was primarily due to the expiration of a capital loss carryforward. We expect to fully realize the benefit of the deferred tax assets, with the exception of the foreign tax credit carry forward, in future periods when the amounts become deductible. The foreign tax credit carry forward is $ 88,000 and expires beginning in fiscal 2029. Current accounting standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also addresses de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. We do not have unrecognized tax benefits as of January 30, 2022. Tax years ending February 3, 2019 through January 30, 2022 remain subject to examination by federal and state taxing authorities. NOTE 16 – SEGMENT INFORMATION As a public entity, we are required to present disaggregated information by segment using the management approach. The objective of this approach is to allow users of our financial statements to see our business through the eyes of management based upon the way management reviews performance and makes decisions. The management approach requires segment information to be reported based on how management internally evaluates the operating performance of the company’s business units or segments. The objective of this approach is to meet the basic principles of segment reporting as outlined in ASC 280 Segments (“ASC 280”), which are to allow the users of our financial statements to: ■ better understand our performance; ■ better assess our prospects for future net cash flows; and ■ make more informed judgments about us as a whole. We define our segments as those operations our chief operating decision maker (“CODM”) regularly reviews to analyze performance and allocate resources. We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM. We continually monitor our reportable segments for changes in facts and circumstances to determine whether changes in the identification or aggregation of operating segments are necessary. In the fourth quarter of fiscal 2020, we updated our reportable segments as follows: Domestic upholstery producers Bradington-Young, Sam Moore and Shenandoah Furniture were moved from All other and aggregated into a new reportable segment called “Domestic Upholstery.” All Other now consists of H Contract and Lifestyle Brands. Lifestyle Brands is a business in its start-up phase targeted at the interior designer channel. The Hooker Branded and Home Meridian segments were unchanged. (Fiscal 2020 results shown below have been recast based on the re-composition of our operating segments during the 2020 fourth quarter.) Therefore, for financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses: ■ Hooker Branded , consisting of the operations of our imported Hooker Casegoods and Hooker Upholstery businesses; ■ Home Meridian , a business acquired at the beginning of fiscal 2017, is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins; ■ Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, Sam Moore and Shenandoah Furniture; and ■ All Other , consisting of H Contract and Lifestyle Brands, a new business started in late fiscal 2019. Neither of these operating segments were individually reportable; therefore, we combined them in “All Other” in accordance with ASC 280. F-28 Table of Contents 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. Fifty-Two Weeks Ended January 30, 2022 January 31, 2021 February 2, 2020 % Net % Net % Net Net Sales Sales Sales Sales Hooker Branded $ 200,692 33.8 % $ 162,442 30.1 % $ 161,990 26.4 % Home Meridian 278,902 47.0 % 282,423 52.3 % 340,630 55.8 % Domestic Upholstery 102,283 17.2 % 83,678 15.5 % 95,670 15.7 % All Other 11,735 2.0 % 11,538 2.1 % 12,534 2.1 % Consolidated $ 593,612 100 % $ 540,081 100 % $ 610,824 100 % Gross Profit Hooker Branded $ 63,146 31.5 % $ 51,832 31.9 % $ 51,462 31.8 % Home Meridian 15,213 5.5 % 39,832 14.1 % 36,936 10.8 % Domestic Upholstery 19,471 19.0 % 17,121 20.5 % 21,120 22.1 % All Other 3,872 33.0 % 3,963 34.4 % 4,440 35.4 % Consolidated $ 101,702 17.1 % $ 112,748 20.9 % $ 113,958 18.7 % Operating Income/(Loss) Hooker Branded $ 30,667 15.3 % $ 22,827 14.1 % $ 21,512 13.3 % Home Meridian ( 21,260 ) - 7.6 % ( 26,071 ) - 9.2 % ( 7,169 ) - 2.1 % Domestic Upholstery 4,304 4.2 % ( 12,418 ) - 14.8 % 6,637 6.9 % All Other 1,132 9.6 % 1,298 11.3 % 1,727 13.8 % Consolidated $ 14,843 2.5 % $ ( 14,364 ) - 2.7 % $ 22,707 3.7 % Capital Expenditures Hooker Branded $ 558 $ 377 $ 690 Home Meridian 4,829 347 496 Domestic Upholstery 1,295 475 3,914 All Other 10 11 29 Consolidated $ 6,692 $ 1,210 $ 5,129 Depreciation & Amortization Hooker Branded $ 2,530 $ 1,809 $ 1,930 Home Meridian 2,594 2,160 2,218 Domestic Upholstery 2,678 2,797 2,938 All Other 12 12 14 Consolidated $ 7,814 $ 6,778 $ 7,100 As of January 30, As of January 31, 2022 %Total 2021 %Total Assets Assets Assets Hooker Branded $ 170,968 48.8 % $ 174,475 53.5 % Home Meridian 130,890 37.4 % 100,497 30.9 % Domestic Upholstery 47,232 13.5 % 49,370 15.2 % All Other 1,126 0.3 % 1,204 0.4 % Consolidated Assets $ 350,216 100 % $ 325,546 100 % Consolidated Goodwill and Intangibles 24,343 26,727 Total Consolidated Assets $ 374,559 $ 352,273 F-29 Table of Contents Sales by product type are as follows: Net Sales (in thousands) Fiscal 2022 2021 2020 Casegoods $ 348,548 59 % $ 329,906 61 % $ 397,192 65 % Upholstery 245,064 41 % 210,175 39 % 213,632 35 % $ 593,612 100 % $ 540,081 100 % $ 610,824 100 % No significant long-lived assets were held outside the United States at either January 30, 2022 or January 31, 2021. International customers accounted for 2.0 % of consolidated invoiced sales in fiscal 2022 and 2021, and 1.6 % in fiscal 2020. We define international sales as sales outside of the United States and Canada. NOTE 17 – COMMITMENTS, CONTINGENCIES AND OFF-BALANCE SHEET ARRANGEMENTS Commitments and Off-Balance Sheet Arrangements We lease office space, warehousing facilities, showroom space and office equipment under leases expiring over the next five years. Rent expense, was $ 10.1 million in fiscal 2022, $ 10.7 million in fiscal 2021, and $ 11.2 million in fiscal 2020. Future minimum annual commitments under leases and operating agreements are $ 9.5 million in fiscal 2023, $8.2 million in fiscal 2024, $ 8.2 million in fiscal 2025, $ 8.3 million in fiscal 2026 and $ 7.8 million in fiscal 2027. We had letters of credit outstanding totaling $ 7.1 million on January 30, 2022. We utilize letters of credit to collateralize certain imported inventory purchases and certain insurance arrangements. In the ordinary course of our business, we may become involved in legal proceedings involving contractual and employment relationships, product liability claims, intellectual property rights and a variety of other matters. We do not believe that any pending legal proceedings will have a material impact on our financial position or results of operations. Our business is subject to a number of significant risks and uncertainties, including our reliance on offshore sourcing, any of which can adversely affect our business, results of operations, financial condition or future prospects. NOTE 18 – CONCENTRATIONS OF RISK Imported Products Sourcing We source imported products through multiple vendors, located in nine countries. Because of the large number and diverse nature of the foreign factories from which we can source our imported products, we have some flexibility in the placement of products in any particular factory or country. Factories located in Vietnam and China are a critical resource for Hooker Furnishings. In fiscal 2022, imported products sourced from Vietnam and China accounted for 88 % of our import purchases and our top five suppliers in those countries accounted for 42 % of our fiscal 2022 import purchases. A disruption in our supply chain from Vietnam, China or Malaysia could significantly impact our ability to fill customer orders for products manufactured at that factory or in that country. Raw Materials Sourcing for Domestic Upholstery Manufacturing Our five largest domestic upholstery suppliers accounted for 32 % of our raw materials supply purchases for domestic upholstered furniture manufacturing operations in fiscal 2022. One supplier accounted for 9.2 % of our raw material purchases in fiscal 2022. Should disruptions with these suppliers occur, we believe we could successfully source these products from other suppliers without significant disruption to our operations. Concentration of Sales and Accounts Receivable One customer accounted for 8 % of our consolidated sales in fiscal 2022. Our top five customers accounted for 26% of our fiscal 2022 consolidated sales . The loss of any one or more of these customers could adversely affect our earnings, financial condition and liquidity. At January 30, 2022, 25% of our consolidated accounts receivable is concentrated in our top five customers. F-30 Table of Contents NOTE 19- RELATED PARTY TRANSACTIONS We lease the four properties utilized in Shenandoah’s operations. One of our employees has an ownership interest in the entities that own these properties. The leases commenced on September 29, 2017 with an option to renew each for an additional seven years . All four leases include annual rent escalation clauses with respect to minimum lease payments after the initial 84 -month term of the lease is completed. In addition to monthly lease payments, we also incur expenses for property taxes, routine repairs and maintenance and other operating expenses. We paid $ 784,000 in lease payments to these entities during fiscal 2022. NOTE 20- SUBSEQUENT EVENTS Cash Dividend On March 1, 2022 , our Board of Directors declared a quarterly cash dividend of $ 0.20 per share, payable on March 31, 2022 to shareholders of record at March 17, 2022 . Sunset West Acquisition On January 31, 2022, the first day of our 2023 fiscal year, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sunset HWM, LLC (“Sunset West”) and its three members (the “Sunset West Members”) to acquire substantially all of the assets of Sunset West (the “Sunset Acquisition”). Simultaneously, we closed on the transaction by paying $ 23.5 million in cash and $ 2 million subject to an escrow arrangement and possible earn-out payments to the Sunset West Members up to an aggregate of $ 4 million with the closing cash consideration subject to adjustment for customary working capital estimates. Under the Asset Purchase Agreement, the Company also assumed specified liabilities of Sunset West. Sunset West is a leading West Coast-based manufacturer of outdoor furniture with its headquarters in Vista, California. The transaction enables us to immediately gain market share in the growing outdoor furniture segment of the industry with one of the most respected brands in the category. Fair Value Estimates of Assets Acquired and Liabilities Assumed The consideration and components of our initial fair value allocation of the purchase price paid at closing and in the subsequent Net Working Capital Adjustment consisted of the following: Purchase price consideration Cash paid for assets acquired $ 23,500 Net working capital excess to working capital target 411 Escrow Fee ( 1 ) Earnout 4,000 Total purchase price $ 27,910 Fair value estimates of assets acquired and liabilities assumed: Net working capital $ 578 Fixed assets 101 Intangible assets 8,170 Goodwill 19,061 Total purchase price $ 27,910 Substantially all of these amounts are subject to subsequent adjustment as we continue to gather information during the measurement period. Certain intangible assets were acquired as part of this transaction. Trademarks, trade names and customer relationships have been assigned preliminary fair values subject to additional analysis during the measurement period. While we are still analyzing Sunset West’s operations and the requirements of ASC 280: Segment Reporting , we anticipate Sunset West will be included in the Domestic Upholstery segment. F-31