What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-06-09 compared with 2021-12-09 · 312 added, 327 removed, 399 unchanged (62% of the section changed)

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CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

Current assets

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Accrued salaries, wages and benefits

Income tax accrual

Customer deposits

4 unchanged sentences

Lease liabilities

Other long-term liabilities

Total long-term liabilities

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Cost of sales (See note 3)

Cost of sales

Selling and administrative expenses

Goodwill impairment charges

Trade name impairment charges

Intangible asset amortization

Operating (loss)/income

Operating income

Other income, net

Interest expense, net

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

(Loss)/earnings per share

Income before income taxes

Income tax expense

Earnings per share

Weighted average shares outstanding:

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HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net (loss)/income

Other comprehensive income (loss):

Amortization of actuarial loss

Other comprehensive income:

Amortization of actuarial (loss) / gain

Income tax effect on amortization

Adjustments to net periodic benefit cost

Total comprehensive (loss)/income

Total comprehensive income

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

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(In thousands)

Thirty-Nine Weeks Ended

Thirteen Weeks Ended

Operating Activities:

Net income/(loss)

Adjustments to reconcile net income to net cash

provided by operating activities:

Goodwill and intangible asset impairment charges

(used in) / provided by operating activities:

Depreciation and amortization

Deferred income tax expense/(benefit)

Deferred income tax expense

Noncash restricted stock and performance awards

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Income tax recoverable

Prepaid expenses and other current assets

Prepaid expenses and other assets

Trade accounts payable

5 unchanged sentences

Deferred compensation

Net cash provided by operating activities

Net cash (used in)/provided by operating activities

Investing Activities:

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Premiums paid on life insurance policies

Proceeds received on life insurance policies

Net cash (used in)/provided by investing activities

Net cash used in investing activities

Financing Activities:

Cash dividends paid

Payments for long-term debt

Cash used in financing activities

Net (decrease)/increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash and cash equivalents - beginning of year

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Supplemental disclosure of cash flow information:

Cash paid for income taxes

Cash paid/(refund) for income taxes

Cash paid for interest, net

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

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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Income (loss)

Balance at February 2, 2020

Balance at January 31, 2021

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

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Performance-based restricted stock units costs

Balance at November 1, 2020

Balance at May 2, 2021

Balance at January 30, 2022

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Performance-based restricted stock units costs

Balance at October 31, 2021

Balance at May 1, 2022

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

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

For the Thirty-Nine Weeks Ended October 31, 2021

For the Thirteen Weeks Ended May 1, 2022

Preparation of Interim Financial Statements

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

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2022 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 2, 2021, and the thirty-nine week period (also referred to as “nine months”, “nine-month period” or “year-to-date period”) that began February 1, 2021, which both ended October 31, 2021.

This report discusses our results of operations for these periods compared to the 2021 fiscal year thirteen-week period that began August 3, 2020, and the thirty-nine week period that began February 3, 2020, which both ended November 1, 2020;

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

The financial statements contained herein are being filed as part of a quarterly report on Form 10-Q covering the 2023 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began January 31, 2022 and ended May 1, 2022.

This report discusses our results of operations for this period compared to the 2022 fiscal year thirteen-week period that began February 1, 2021 and ended May 2, 2021;

and our financial condition as of May 1, 2022 compared to January 30, 2022.

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

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

the 2023 fiscal year and comparable terminology mean the fifty-two-week fiscal year that began January 31, 2022 and will end January 29, 2023;

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

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 $ 23.9 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’s results are included in the Domestic Upholstery segment’s results beginning with the fiscal 2023 first quarter.

Consequently, comparable prior-year information for Sunset West is not included in the financial statements presented in this report.

The acquisition is discussed in greater detail below in Note 3 Acquisition.

Recently Adopted Accounting Policies

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.

Cancellation Costs

The Home Meridian segment incurred cancellation costs of $ 2.6 million for raw materials related to its exit of the ready-to-assemble furniture category.

The amount was recorded in cost of sales in the fiscal 2022 third quarter.

Due to the increases in freight costs since these items were ordered, we determined that the additional cost needed to move these products stateside would have resulted in a substantially greater loss than the cost to cancel the orders at the factories.

No new accounting pronouncements have been adopted in the 2023 fiscal year.

We reviewed newly issued accounting pronouncements and concluded they are either not applicable to our business or are not expected to have a material effect on our consolidated financial statements as a result of future adoption.

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

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

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

The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Acquisition as of May 1, 2022.

The preliminary estimates of fair value of identifiable assets acquired and liabilities assumed are subject to revision, which may result in adjustments to the preliminary values presented below, when management’s appraisals and estimates are finalized.

Normal post-closing contingencies remain to be resolved, including the final working capital adjustment and any changes due to deviations from the seller’s representations and warranties at closing.

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

Fair value estimates of assets acquired and liabilities assumed

Purchase price consideration

Cash paid for assets acquired

Fair value of earnout

Total purchase price

Accounts receivable

Trade accounts receivable

Other accounts receivable allowances

Allowance for doubtful accounts

Prepaid expenses and other current assets

Property and equipment

Intangible assets

Customer deposits

Accounts payable

Accrued expenses

Total purchase price

Property and equipment were recorded at fair value and primarily consist of computer software and hardware and equipment.

Property and equipment will be amortized over their estimated useful lives.

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

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

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

Intangible assets, consist of two separately identified assets:

Sunset West customer relationships, which are definite-lived intangible assets with an aggregate fair value of $ 10.4 million.

The customer relationships are amortizable and will be amortized over a period of 10 years;

The Sunset West trade name, which is definite-lived intangible asset with fair value of $ 1.1 million.

The trade name is amortizable and will be amortized over a period of 12 years.

The total weighted average amortization period for these assets is 10.2 years.

We incurred approximately $ 414,000 in Acquisition-related costs in fiscal 2022.

These expenses were included in the “Selling and administrative expenses” line of our fiscal 2022 condensed consolidated statements of operations.

Sunset West’s results are included in the Domestic Upholstery segment’s results beginning with the fiscal 2023 first quarter, which include $ 7.9 million in net sales and $ 861 ,000 of operating income, including $ 282 ,000 in intangible amortization expense.

Accounts Receivable

Gross accounts receivable

Customer allowances

Allowance for doubtful accounts

Trade accounts receivable

Finished furniture

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Property, plant and equipment, net

Cloud Computing Hosting Arrangement

We are in the process of implementing a common Enterprise Resource Planning (ERP) system across all divisions and expect to go-live with this system in our legacy Hooker divisions and Sunset West in the second half of fiscal 2023, with other segments and divisions following thereafter.

Based on the provisions of ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software , we capitalize implementation costs incurred to develop internal-use software associated with hosting arrangements that are service contracts.

These costs are recorded on “Other noncurrent assets” line of our condensed consolidated balance sheets.

Amortization expense is expected to commence at system go-live in the second half of fiscal 2023.

The capitalized implementation costs at May 1, 2022 and January 30, 2022 were as follows:

Capitalized Implementation Costs

Balance at January 30, 2022

Costs capitalized during the period

Balance at May 1, 2022

Fair Value Measurements

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

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

As of May 1, 2022 and January 30, 2022, 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 October 31, 2021 and January 31, 2021, were as follows:

Fair value at October 31, 2021

Our assets measured at fair value on a recurring basis at May 1, 2022 and January 30, 2022, were as follows:

Fair value at May 1, 2022

Fair value at January 30, 2022

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Intangible Assets

During the fiscal 2023 first quarter, we recorded both non-amortizable and amortizable intangible assets as a result of the Acquisition.

Details of these new intangible assets, as well as previously recorded intangible assets assigned to our Domestic Upholstery and Home Meridian segments, are shown in the following two tables:

January 30, 2022

October 31, 2021

Non-amortizable Intangible Assets

Beginning Balance

Impairment Charges

Net Book Value

Goodwill - Shenandoah Furniture

Domestic Upholstery

Goodwill - Sunset West

Domestic Upholstery

Total Goodwill

Trademarks and trade names - Home Meridian

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Balance at January 30, 2022

Balance at October 31, 2021

For the remainder of fiscal 2022, amortization expense is expected to be approximately $ 596 ,000.

We recognized sub-lease income of $ 266,000 for the three-month period and $ 561,000 for the nine-month period, both ended October 31, 2021.

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

The components of lease cost and supplemental cash flow information for leases for the three-months and nine-months ended October 31, 2021 and November 1, 2020 were:

Balance at May 1, 2022

For the remainder of fiscal 2023, amortization expense is expected to be approximately $ 2.6 million.

We recognized sublease income of $ 348,000 and $ 146,000 in the first quarters of fiscal 2023 and 2022, respectively.

The components of lease cost and supplemental cash flow information for leases in the first quarters of fiscal 2023 and 2022 were:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 31, 2021

November 1, 2020

October 31, 2021

November 1, 2020

Operating lease cost

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Operating cash outflows

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

October 31, 2021

The right-of-use assets and lease liabilities recorded on our condensed consolidated balance sheets as of May 1, 2022 and January 30, 2022 were as follows:

January 30, 2022

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Total operating lease liabilities

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.

The weighted-average remaining lease term is 8.0 years.

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The weighted-average discount rate is 1.91 %.

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on October 31, 2021:

Undiscounted Future Operating Lease Payments

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the condensed consolidated balance sheets on May 1, 2022:

Undiscounted Future

Operating Lease Payments

Remainder of 2023

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Present value of lease payments

As of October 31, 2021, 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.

As of May 1, 2022, the Company had an additional lease for a showroom in High Point, North Carolina.

This lease is expected to commence in the 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.

Long-Term Debt

As of October 31, 2021, we had an aggregate $ 27.9 million available under our $ 35 million revolving credit facility (the “Existing Revolver”) to fund working capital needs.

Standby letters of credit in the aggregate amount of $ 7.1 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of October 31, 2021.

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

Employee Benefit Plans

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

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

The two plans include:

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

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

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net periodic benefit costs

Interest cost

Actuarial loss

Consolidated net periodic benefit costs

The SRIP and SERP plans are unfunded plans.

In fiscal 2022, we paid $ 259,000 in the third quarter and $ 803,000 in the nine-month period and expect to pay a total of approximately $ 230,000 in benefit payments from our general assets during the remainder of fiscal 2022 to fund SRIP and SERP payments.

As of May 1, 2022, we had an aggregate $ 27.9 million available under our $ 35 million revolving credit facility (the “Existing Revolver”) to fund working capital needs.

There were no additional borrowings outstanding under the Existing Revolver as of May 1, 2022.

Earnings Per Share

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Net income/(loss)

Unvested participating restricted stock dividends

Net earnings allocated to unvested participating restricted stock

Earnings/(loss) available for common shareholders

Earnings available for common shareholders

Weighted average shares outstanding for basic earnings per share

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Weighted average shares outstanding for diluted earnings per share

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

* Due to the net loss recorded in the fiscal 2022 third quarter, approximately 164,000 potentially dilutive shares would have been antidilutive and are therefore excluded from the calculation above.

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

We recorded income tax benefit of $ 403 ,000 for the fiscal 2022 third quarter compared to $ 3.0 million income tax expense for the comparable prior year quarter.

The effective tax rates for the fiscal 2022 and 2021 third quarters were 24.8 % and 22.9 %, respectively.

For the fiscal 2022 nine-month period, we recorded income tax expense of $ 4.6 million, compared to income tax benefit of $ 6.3 million for the comparable prior year period, of which $ 10.7 million was recorded related to goodwill and trade name impairment charges.

The effective tax rates for the fiscal 2022 and 2021 nine-month periods were 22.5 % and 24.8 %, respectively.

Basic earnings per share

Diluted earnings per share

We recorded income tax expense of $ 991 ,000 for the fiscal 2023 first quarter compared to $ 2.8 million for the comparable prior year quarter.

The effective tax rates for the fiscal 2023 and 2022 first quarters were 23.7 % and 22.7 %, respectively.

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

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

Tax years ending February 3, 2019 through January 30, 2022 remain subject to examination by federal and state taxing authorities.

Segment Information

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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.

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

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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;

All Other , consisting of H Contract and Lifestyle Brands, a new business started in late fiscal 2019.

Domestic Upholstery, which includes the domestic upholstery manufacturing operations of Bradington-Young, Sam Moore, Shenandoah Furniture and newly acquired Sunset West;

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.

Changes to segment reporting for the fiscal 2023 first quarter

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

Before the fiscal 2023 first quarter, H Contract’s results included sales of seating products sourced from Sam Moore.

Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2023 first quarter Sam Moore’s results now include sales of seating products formerly included in H Contract’s results.

Fiscal 2022 results discussed below have been recast to reflect this change.

The Hooker Branded and Home Meridian segments are unchanged.

As discussed in Note 3 above, we acquired substantially all the assets of Sunset West on the first day of the 2023 fiscal year.

Based on our analysis and the requirements of ASC 280:

Segment Reporting , Sunset West’s results are included in the Domestic Upholstery segment.

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

Prior-year information has been recast to reflect the change discussed above.

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Hooker Branded

$ 56,037 42.0 % $ 47,287 31.6 % $ 157,304 34.3 % $ 113,268 29.4 %

Home Meridian

46,230 34.6 % 73,727 49.3 % 217,964 47.5 % 202,560 52.6 %

Domestic Upholstery

27,972 21.0 % 25,350 16.9 % 74,996 16.3 % 59,640 15.6 %

3,189 2.4 % 3,323 2.2 % 8,543 1.9 % 9,353 2.4 %

$ 133,428 100 % $ 149,687 100.0 % $ 458,807 100.0 % $ 384,821 100.0 %

Gross Profit/(Loss)

Hooker Branded

$ 15,366 27.4 % $ 15,446 32.7 % $ 49,639 31.6 % $ 35,894 31.7 %

Home Meridian

( 1,807 ) - 3.9 % 11,169 15.1 % 17,935 8.2 % 28,489 14.1 %

Domestic Upholstery

5,353 19.1 % 5,751 22.7 % 14,879 19.8 % 11,555 19.4 %

1,095 34.3 % 1,117 33.6 % 2,853 33.4 % 3,199 34.2 %

$ 20,007 15.0 % $ 33,483 22.4 % $ 85,306 18.6 % $ 79,137 20.6 %

Operating (Loss)/Income

Operating Income/(Loss)

Hooker Branded

$ 6,669 11.9 % $ 7,686 16.3 % $ 25,040 15.9 % $ 15,108 13.3 %

Home Meridian

( 10,181 ) - 22.0 % 2,510 3.4 % ( 9,274 ) - 4.3 % ( 26,754 ) - 13.2 %

Domestic Upholstery

1,443 5.2 % 2,421 9.6 % 3,589 4.8 % ( 14,399 ) - 24.1 %

341 10.7 % 420 12.6 % 820 9.6 % 1,156 12.4 %

$ ( 1,728 ) - 1.3 % $ 13,037 8.7 % $ 20,175 4.4 % $ ( 24,889 ) - 6.5 %

Capital Expenditures

Hooker Branded

$ 306 $ 60 $ 427 $ 173

Home Meridian

2,501 27 4,956 137

Domestic Upholstery

344 82 1,233 332

$ 3,161 $ 169 $ 6,626 $ 642

& Amortization

Hooker Branded

$ 645 $ 444 $ 1,844 $ 1,338

Home Meridian

710 540 1,779 1,608

Domestic Upholstery

682 700 1,991 2,097

$ 2,040 $ 1,687 $ 5,623 $ 5,052

As of October 31,

As of January 30,

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Thirteen Weeks Ended

Thirty-Nine Weeks Ended

October 31, 2021

November 1, 2020

October 31, 2021

November 1, 2020

Subsequent Events

On December 7, 2021 , our board of directors declared a quarterly cash dividend of $ 0.20 per share, an increase of $ 0.02 per share or 11 % over the most recent dividend, which will be paid on December 31, 2021 to shareholders of record at December 17, 2021 .

On June 1, 2022 , our board of directors declared a quarterly cash dividend of $ 0.20 per share which will be paid on June 30, 2022 to shareholders of record at June 17, 2022 .

Share Repurchase Authorization

On June 6, 2022, our Board of Directors authorized the repurchase of up to $ 20 million of the Company’s common shares.

The authorization does not obligate us to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of our Board of Directors.

Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to our cash requirements for other purposes, compliance with the covenants under the loan agreement for our revolving credit facility and other factors we deem relevant.

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

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

References to the “ Acquisition ” refer to the recently completed acquisition of substantially all of the assets of Sunset West on January 31, 2022.

Forward-Looking Statements

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Those risks and uncertainties include but are not limited to:

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

risks associated with our reliance on offshore sourcing and the cost of imported goods, including fluctuation in the prices of purchased finished goods, customs issues, freight costs, including the price and availability of shipping containers, ocean vessels, ocean and domestic trucking, and warehousing costs and the risk that a disruption in our offshore suppliers or the transportation and handling industries, including labor stoppages, strikes, or slowdowns, could adversely affect our ability to timely fill customer orders;

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

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

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

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

the risks related to the recent Sunset West Acquisition including integration costs, maintaining Sunset West’s existing customer relationships, the loss of key employees from Sunset West, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies across the business which could adversely affect our internal control or information systems and the costs of bringing them into compliance and failure to realize benefits anticipated from the Acquisition;

changes in U.S.

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

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

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

disruptions and damage (including those due to weather) affecting our Virginia, Georgia, or North Carolina warehouses, our Virginia or North Carolina administrative facilities, our North Carolina and Las Vegas showrooms or our representative offices or warehouses in Vietnam and China;

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

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

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

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

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

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

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

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

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

For a discussion of risks and uncertainties that we face, see the Forward-Looking Statements detailed above and Item 1A, “Risk Factors” in our 2022 Annual Report.

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

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2022 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “third quarter” or “quarterly period”) that began August 2, 2021, and the thirty-nine week period (also referred to as “nine-months”, “nine-month period” or “year-to-date period”) that began February 1, 2021, which both ended October 31, 2021.

This report discusses our results of operations for these periods compared to the 2021 fiscal year thirteen-week period that began August 3, 2020 and the thirty-nine week period that began February 3, 2020, which both ended November 1, 2020;

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

Quarterly Reporting

This quarterly report on Form 10-Q includes our unaudited condensed consolidated financial statements for the 2023 fiscal year thirteen-week period (also referred to as “three months,” “three-month period,” “quarter,” “first quarter” or “quarterly period”) that began January 31, 2022 and ended May 1, 2022.

This report discusses our results of operations for this period compared to the 2022 fiscal year thirteen-week period that began February 1, 2021 and ended May 2, 2021;

and our financial condition as of May 1, 2022 compared to January 30, 2022.

References in this report to:

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

the 2023 fiscal year and comparable terminology mean the fiscal year that began January 31, 2022 and will end January 29, 2023;

the 2022 fiscal year and comparable terminology mean the fiscal year that began February 1, 2021 and ended January 30, 2022.

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

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

We also encourage users of this report to familiarize themselves with all of our recent public filings made with the SEC, especially our 2022 Annual Report.

Our 2022 Annual Report contains critical information regarding known risks and uncertainties that we face, critical accounting policies and information on commitments and contractual obligations that are not reflected in our condensed consolidated financial statements, as well as a more thorough and detailed discussion of our corporate strategy and new business initiatives.

Our 2022 Annual Report and other public filings made with the SEC are available, without charge, at www.sec.gov and at http://investors.hookerfurnishings.com.

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

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

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

Changes to segment reporting for the fiscal 2023 first quarter

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

Before the fiscal 2023 first quarter, H Contract’s results included sales of seating products sourced from Sam Moore.

Fiscal 2022 results discussed below have been recast to reflect this change.

The Hooker Branded and Home Meridian segments are unchanged.

As discussed in Note 3 above, we acquired substantially all the assets of Sunset West on the first day of the 2023 fiscal year.

Based on our analysis and the requirements of ASC 280:

Segment Reporting , Sunset West’s results are included in the Domestic Upholstery segment.

Orders and Backlog

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

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

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

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

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

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

It is our policy and industry practice to allow order cancellation for casegoods up to the time of shipment or, in the case of container direct orders, up until the time the container is booked with the ocean freight carrier;

therefore, customer orders for casegoods are not firm.

However, domestically produced upholstered products are predominantly custom-built and consequently, cannot be cancelled once the leather or fabric has been cut.

Additionally, our hospitality products are highly customized and are generally not cancellable.

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

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

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

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

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

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

At October 31, 2021, our backlog of unshipped orders was as follows:

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

however, due to the current supply chain issues including the lack and cost of shipping containers and vessel space and limited overseas vendor capacity, orders are not converting to shipments as quickly as would be expected compared to the pre-pandemic environment and we expect that to continue at some level through at least the fiscal 2023 second quarter.

The logistics challenges and production delays caused by Covid-related factory shutdowns in the second half of 2022 have slowed order fulfillment into the first quarter of fiscal 2023.

At May 1, 2022, our backlog of unshipped orders was as follows:

Order Backlog

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Reporting Segment

October 31, 2021

January 30, 2022

November 1, 2020

Hooker Branded

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Domestic Upholstery

At the end of the fiscal 2022 third quarter, order backlog increased $82.8 million, or 33.3%, as compared to the end of fiscal 2021 and increased $89 million, or 36.8%, as compared to the prior-year nine months end, due to increased incoming orders in all three reportable segments as well as longer delivery times resulting from the supply chain disruptions in the Home Meridian and, to a lesser degree, Hooker Branded segments and production delays in the Domestic Upholstery segment.

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

however, due to the current supply chain issues including the lack and cost of shipping containers and vessel space and limited overseas vendor capacity, orders are not converting to shipments as quickly as could be expected compared to the pre-pandemic environment and we expect that to continue at some level through the fiscal 2023 second quarter.

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

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

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

We also encourage users of this report to familiarize themselves with all of our recent public filings made with the SEC, especially our 2021 Annual Report.

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

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

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

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

We are ranked among the nation’s top five largest publicly traded furniture sources, based on 2020 shipments to U.S.

retailers, according to a 2021 survey by a leading trade publication.

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

At the end of fiscal 2023 first quarter, order backlog decreased by $27.5 million or 8.9% as compared to the fiscal 2022 year-end and increased by $2.1 million or 0.8% as compared to the prior year first quarter end.

Order backlog increases in the Hooker Branded and Domestic Upholstery segments were due to continued supply chain disruptions and production delays.

Order backlog decreased in the Home Meridian segment due to our exit from the Clubs channel and adjustments to programmed orders by large customers.

Executive Summary-Results of Operations

Consolidated net sales for the fiscal 2022 third quarter decreased as compared to the prior year period due to significantly reduced shipments in the Home Meridian segment as the result of temporary COVID-related factory closures in Vietnam and Malaysia.

Consolidated gross profit and margin decreased in the fiscal 2022 third quarter as compared to the prior year period due primarily to the sales volume decline and to a lesser extent higher freight costs, inventory cancellation costs and higher than expected customer chargebacks in the Home Meridian segment.

Consolidated operating loss for the fiscal 2022 third quarter was $1.7 million, compared to a $13.0 million operating income in the prior year period.

Consolidated net loss for the quarter was $1.2 million or ($0.10) per diluted share, as compared to net income of $10.1 million or $0.84 per diluted share in the prior year quarter.

For the fiscal 2022 nine-month period, consolidated net sales increased by $74.0 million, or 19.2%, compared to the prior year period, as all three reportable segments had sales increases.

Consolidated gross profit increased due to increases in the Hooker Branded and Domestic Upholstery segments, partially offset by decreased gross profit and margin in the Home Meridian segment.

Consolidated operating income was $20.2 million for the fiscal 2022 nine-month period compared to a $24.9 million operating loss in the prior year period.

Consolidated net income was $15.7 million or $1.30 per diluted share for the fiscal 2022 nine-month period, as compared to net loss of $19.0 million or ($1.61) per diluted share in the prior year period.

Our fiscal 2022 third quarter and nine months performance are discussed in greater detail below under “Review” and “Results of Operations.”

Despite favorable demand for home furnishings and our strong order backlog, we were challenged by ongoing supply chain disruptions, the COVID lockdown and slower than expected reopenings in Vietnam and Malaysia, and industry-wide inflationary pressures.

Fiscal 2022 third quarter consolidated net sales decreased by 10.9% compared to prior year period.

Sales volume decline and increased product costs led to an operating loss of $1.7 million.

The Hooker Branded segment’s net sales increased by $8.7 million, or 18.5%, as compared to the prior year quarter, which was attributable to increased sales volume and lower discounting driven by higher demand, as well as inventory availability.

All the net sales increases were in our Casegoods non-container business, which comprised 80% of revenue in this segment.

Because we source product on a consistent weekly basis and ship product to our U.S.

warehouses, Hooker Branded is better able to mitigate supply chain constraints and keep its best sellers in stock.

However, higher ocean freight and product cost inflation significantly impacted this segment’s gross margin and offset the gains from sales increases in the third quarter.

Despite these adverse factors, this segment reported $6.7 million operating income or an 11.9% operating margin.

Incoming orders decreased slightly by 1.9% as compared to prior year period when business dramatically rebounded.

Backlog remained historically high and nearly doubled as compared to the prior year third quarter end when backlog was already at a high level.

Home Meridian segment’s net sales decreased by $27.5 million, or 37.3%, as compared to the prior year third quarter and this segment reported a $10.2 million operating loss.

Despite the disappointing financial results, we believe the challenges are short-term as discussed below:

During the quarter, container direct sales, which typically comprise the majority of revenue in this segment, decreased by over 50% compared to the prior year third quarter, driven by sales volume loss due to the temporary COVID lockdowns in Vietnam and Malaysia.

As a result, sales with major furniture chains and large independent accounts decreased by over 50% compared to the prior year quarter, which counted for two thirds of total sales decrease in this segment.

Additionally, e-commerce sales decreased by 25% due to inventory unavailability and price increases due primarily to increased freight costs.

Clubs sales decreased due to lower volume and higher than expected chargebacks which negatively impacted net sales and operating income by $1.9 million in that channel.

Hospitality sales also decreased during the quarter as this business has not yet recovered from the COVID crisis.

Higher freight costs adversely impacted gross margin by 800 bps in the quarter and were the primary driver of increased product costs.

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

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

To help drive improved future profitability, eliminate low-margin categories and avoid unnecessary costs, we exited the Ready-To-Assemble (“RTA) furniture category and incurred cancellation costs of $2.6 million for raw materials related to this exit.

Although these costs increased segment cost of goods sold by 580 bps and resulted in a gross loss in the quarter, we estimate we avoided roughly $10 million in additional product and freight costs related to these orders by taking this action.

Furthermore, this action allows us to focus resources on more profitable business opportunities to drive long-term growth.

The Home Meridian segment finished the quarter with a backlog 12% higher than the prior year third quarter end, and more than doubled as compared to pre-pandemic levels.

The Domestic Upholstery segment’s net sales increased by $2.6 million, or 10.3%, in the fiscal 2022 third quarter compared to the prior year period as all three divisions of the segment reported over or close to 10% sales increases.

However, material cost inflation for nearly all the raw materials and higher freight surcharges on the materials increased product costs by 340 bps and offset the gains from increased sales.

Other manufacturing constraints adversely impacted our profitability, including wage inflation and the domestic driver and truck shortage which adversely impacted the delivery of finished products.

Despite increased material costs, this segment reported operating income of $1.4 million, or 5.2% operating margin for the third quarter.

Although we are encouraged by historically high backlog at the end of the fiscal 2022 third quarter at all three divisions, production levels were adversely impacted by manufacturing capacities, inconsistent deliveries of materials due to supply disruption with our suppliers, and labor inefficiencies at the Sam Moore division.

We have implemented price increases and surcharges with major accounts to improve margin and filled key positions to improve labor productivity.

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

All Other’s net sales decreased by $134,000, or 4.0%, in the fiscal 2022 third quarter as compared to the prior year period, due to a 5.6% sales decrease at H Contract.

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

However, as vaccination rates have increased, especially among the senior population, H Contract’s incoming orders have increased for three consecutive quarters in fiscal 2022 and finished the quarter with backlog 150% higher than prior year third quarter end.

Despite the sales decrease, All Other still reported a 10.7% operating margin for the quarter.

Cash and cash equivalents stood at $57.2 million at fiscal 2022 third quarter-end, down $8.6 million compared to the balance at the fiscal 2021 year-end due primarily to $7.7 million increase in inventory.

During the first nine months of fiscal 2022, we used cash on hand and $5 million generated from operations to pay $6.6 million of capital expenditures including $4.4 million in our newly opened Georgia distribution center, $6.4 million in cash dividends to our shareholders, and $2.6 million on our new common, cloud-based ERP platform.

In addition to our cash balance, we have an aggregate of $27.9 million available under our existing revolver to fund working capital needs.

Consolidated net sales for the fiscal 2023 first quarter decreased by $15.5 million, or 9.5%, as compared to the prior year quarter due to decreased net sales in the Home Meridian and Hooker Branded segments, partially offset by strong sales in the Domestic Upholstery segment and the addition of Sunset West results therein.

Consolidated gross profit and margin decreased due to decreases in the Home Meridian and Hooker Branded segments, partially offset by increased gross profit and margin in the Domestic Upholstery segment.

Consolidated operating income was $3.9 million or 2.7% of net sales as compared to a $12.2 million or 7.5% of net sales in the prior year period.

Consolidated net income was $3.2 million or $0.26 per diluted share for the fiscal 2023 first quarter, as compared to $9.4 million or $0.78 per diluted share in the prior year quarter.

Our fiscal 2023 first quarter performance is discussed in greater detail below under “Review” and “Results of Operations.”

Despite continued supply chain disruptions, inventory availability challenges, rising inflation and volatile interest rates, we are pleased to have started fiscal 2023 with very strong order backlogs, a leaner product portfolio as we began exiting the unprofitable Clubs channel and RTA category in the prior fiscal year, and the acquisition of Sunset West, which enables us to immediately gain market share in the growing outdoor furniture category.

Consolidated net sales and profitability decreased as compared to the prior year quarter but were better than management’s expectations given current economic conditions.

The Hooker Branded segment ’ s net sales decreased by $9.1 million, or 17.7%, as compared to the prior year period, due to inventory unavailability.

The unexpected COVID-related lockdown at our suppliers in Vietnam last summer and their slow re-openings caused low inventory receipts in our U.S.

warehouses in the second half of fiscal 2022 and the fiscal 2023 first quarter.

At the end of the first quarter, inventory levels had more than doubled as compared to fiscal 2022 year-end and a record amount of inventory was in transit from Asia, the majority of which we have orders for and expect to ship in the second and third quarters of fiscal 2023.

Additionally, a large percentage of these shipments carry the price increases we implemented in July 2021 to mitigate excess freight costs and product inflation and a significant portion also carry the price increases implemented in January 2022 to address additional freight and product inflation.

This segment reported $4.1 million operating income and a 9.8% operating margin.

Incoming orders decreased by 12.9% as compared to prior year quarter when business dramatically rebounded and the demand for home furnishings was exceptionally strong.

However, quarter-end backlog was 11% higher than at fiscal 2022 year-end and 87% higher than the end of the fiscal 2021 first quarter end and has remained at historical highs.

The Home Meridian segment ’ s net sales decreased by $22.3 million, or 26.4%, as compared to the prior year period.

Sales with major furniture chains and mass merchants decreased due to continued lower direct container sales impacted by the temporary COVID lockdown and slow re-opening in Vietnam and Malaysia and the difficulties in securing shipping containers and vessel space.

About 30% of the sales decrease was due to our exit of the unprofitable Clubs channel.

E-commerce sales decreased substantially due largely to decreased demand because of price increases in response to excess freight costs and inventory unavailability.

These decreases were partially offset by the launch of the Pulaski Upholstery division which is targeted at medium price points not currently serviced by other divisions, sales under a 2020 licensing arrangement with Scott Brothers Global which had been delayed by pandemic-related disruptions in vendor factories in Asia and container and ocean vessel space shortages driven by the demand surge after the height of the initial Covid crisis, and a small sales increase in the hospitality business.

Most shipments carried price increases and freight surcharges, which helped offset the impact of higher freight costs, however, profitability was negatively impacted by higher than expected demurrage expense and transition and start-up costs at the new Georgia warehouse.

In addition, we are experiencing labor shortages and higher than expected training costs at the Georgia warehouse.

Due to these factors, this segment reported an operating loss, which while disappointing, was in line with our expectations for the quarter.

Backlog at quarter-end was about 50% higher as compared to pre-pandemic levels in early 2020.

The Domestic Upholstery segment ’ s net sales increased by $15.8 million, or 62.2%, as compared to the prior year quarter due to organic sales growth at Bradington Young, Sam Moore and Shenandoah, as well as the addition of Sunset West sales.

However, material cost inflation for nearly all raw materials and higher freight surcharges on these materials increased product costs for three divisions and partially offset the gains from increased sales.

A large portion of shipments carried the price increases we implemented in July of 2021 to offset inflation on raw material costs.

We began to recognize the benefits as the segment reported operating income higher than prior year quarter even without the current year addition of Sunset West’s income.

Other manufacturing constraints adversely impacted our profitability including the domestic driver and truck shortage which adversely impacted the delivery of raw materials for production and the delivery of our finished products, and varying degrees of raw material shortages.

Incoming orders decreased by 5.4% as compared to the prior year quarter due to current lead times and historically high backlogs.

At the end of fiscal 2023 first quarter, backlog was 18% higher than at fiscal 2022 year-end and 80% higher than the fiscal 2022 first quarter end.

Cash and cash equivalents stood at $10.1 million at fiscal 2023 first quarter-end, down $59.3 million as compared to the balance at the fiscal 2022 year-end due to $30.1 million increase in inventory and $26 million spent for the Acquisition.

At quarter-end, inventories stood at $107.7 million and included a record $40 million in transit to our domestic warehouses.

We also paid $2.4 million in cash dividends to our shareholders.

In addition to our cash balance, we had an aggregate of $27.9 million available under our existing revolver to fund working capital needs at quarter-end.

We believe we have the financial resources to fund our business operations for the foreseeable future, including weathering an extended impact of COVID-19 pandemic as well as the logistics issues, cost increases and production capacity constraints which are currently impacting our industry.

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Cost of sales

Selling and administrative expenses

Goodwill impairment charges

Trade name impairment charges

Intangible asset amortization

Operating income/(loss)

Interest expense, net

Income/(Loss) before income taxes

Operating income

Other income, net

Income before income taxes

Income tax expense

Net income/(loss)

Fiscal 2022 Third Quarter and Nine Months Compared to Fiscal 2021 Third Quarter and Nine Months

Fiscal 2023 First Quarter Compared to Fiscal 2022 First Quarter

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FY23 Q1 % Increase

FY22 YTD % Increase

Average Selling Price ("ASP")

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FY22 YTD % Increase

Hooker Branded

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Domestic Upholstery *

Consolidated net sales decreased in the fiscal 2022 third quarter due to the sales decline in Home Meridian segment but increased in the first nine months as compared to the prior year periods.

The Hooker Branded segment’s net sales increased significantly in the fiscal 2022 third quarter and nine months, as compared to the respective prior year periods, due to both increased unit volume and ASP, driven by increased demand.

Hooker Upholstery unit volume decreased during the third quarter due to inventory unavailability issues.

The Home Meridian segment’s net sales decreased in the fiscal 2022 third quarter driven by a 46% decrease in unit volume as the result of COVID lockdown in Vietnam which led to much lower shipments.

For the nine-month period, net sales increased with major furniture chains and retail stores as the result of strong demand, partially offset by decreased net sales in hospitality business, e-commerce and the club businesses, and higher than expected chargebacks from a clubs channel customer.

The ASP increase was attributable to price increases to mitigate higher freight costs;

however, the increases were not sufficient to cover the excess freight costs.

The Domestic Upholstery segment’s net sales increased in the fiscal 2022 third quarter and nine months as all three divisions of the segment reported increased net sales for both periods.

ASP increased at all three divisions in response to the inflation of material costs, with Sam Moore ASP increasing the most in order to improve profitability in this division.

However, Sam Moore unit volume decreased during the third quarter due to labor inefficiencies.

All Other’s net sales decreased in the fiscal 2022 third quarter and nine-month period due to reduced unit volume at H Contract, as this division has not yet recovered from the impact of reduced capital spending by the senior living industry as a result of COVID crisis.

ASP increased in response to increased product costs;

however, it was not sufficient to offset the volume loss.

Gross Profit/(Loss) and Margin

*Sunset West is excluded from Domestic Upholstery in the Unit Volume and ASP portions of the table above since it was not a part of our fiscal 2022 first quarter results.

Consequently, we believe including their fiscal 2023 first quarter results would skew Domestic Upholstery results and reduce the usefulness of those portions of the table.

Consolidated net sales decreased in the fiscal 2023 first quarter due to sales declines in the Home Meridian and Hooker Branded segments, partially offset by increased net sales in the Domestic Upholstery segment.

The Hooker Branded segment’s net sales decreased in the fiscal 2023 first quarter compared to the prior year quarter.

The prior year quarter’s sales were up nearly 90% as compared to the fiscal 2021 first quarter due to a demand surge after the initial COVID crisis.

Fiscal 2023 first quarter sales decreased due to inventory unavailability at the Hooker Casegoods division.

The temporary factory shutdown in Vietnam during the summer of last year resulted in low inventory receipts in the second half of fiscal 2022 and this quarter.

The decrease was partially offset by increased net sales at Hooker Upholstery due to quicker inventory turns at this division.

ASP increased due to a large percentage of shipments carrying price increases we implemented last year in response to higher freight costs and product cost inflation.

However, it was not sufficient to offset the sales decreases driven by significant volume loss.

The Home Meridian segment’s net sales decreased in the fiscal 2023 first quarter compared to the prior year quarter.

The prior year quarter’s sales were up nearly 50% as compared to the fiscal 2021 first quarter due to a demand surge after the initial COVID crisis.

Fiscal 2023 first quarter sales decreased primarily due to lower sales in the major furniture chains and mass merchant channels due to continued supply chain disruptions, the exit of the unprofitable Clubs channel, as well as lower sales in the e-commerce channel, partially offset by the addition of Pulaski Upholstery division.

ASP increased in all divisions partially mitigating higher freight costs;

however, the increases were not sufficient to cover the volume loss.

The Domestic Upholstery segment’s net sales increased significantly in the fiscal 2023 first quarter due to strong sales at Bradington Young, Sam Moore and Shenandoah as well as the addition of Sunset West’s sales.

Both Bradington Young and Sam Moore net sales increased by over 30% while Shenandoah sales increased by 25%.

ASP increased at three divisions as a large portion of products sold carried price increases we implemented last year in response to the inflation of raw material costs.

Additionally, prior-year sales were negatively affected by a foam shortage which is no longer a significant issue.

All Other’s net sales increased in the fiscal 2023 first quarter due to increased unit volume at H Contract, as this division is gradually recovering from the impact of reduced capital spending by the senior living industry during the COVID pandemic.

Gross Profit and Margin

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For the fiscal 2022 third quarter, consolidated gross profit and margin both decreased as compared to the prior year quarter.

For the fiscal 2022 nine-month period, consolidated gross profit increased due to the sales increase while margin decreased.

The Hooker Branded segment’s gross profit and margin both decreased in the fiscal 2022 third quarter driven by higher freight costs, product cost inflation, and higher demurrage and drayage expenses due to supply chain interruptions.

For the nine-month period, gross profit increased due primarily to the net sales increase while gross margin decreased slightly.

The Home Meridian segment’s gross profit and margin decreased significantly in the fiscal 2022 third quarter and nine-month period, due to sales volume loss, excess ocean freight costs, higher than expected customer chargebacks and order cancellation costs.

The Domestic Upholstery segment’s gross profit and margin decreased in the fiscal 2022 third quarter due primarily to raw material cost inflation, which offset the effect of increased sales.

Gross profit and margin increased in the nine-month period due to net sales increases and production efficiencies from operating near full capacity due to historic levels of backlog.

All Other’s gross profit decreased in the fiscal 2022 third quarter and nine-month period due principally to H Contract net sales declines, while gross margin still maintained a high level.

Consolidated gross profit and margin both decreased in the fiscal 2023 first quarter as compared to the prior year quarter.

The Hooker Branded segment’s gross profit and margin both decreased in the fiscal 2023 first quarter due to decreased net sales, higher warehousing labor costs due to increased headcounts and wage levels, and higher demurrage and drayage expenses due to continued supply chain interruptions.

The Home Meridian segment’s gross profit and margin decreased in the fiscal 2023 first quarter due to sales volume loss, transition and start-up costs at the new Georgia warehouse, higher warehousing labor costs, and higher demurrage expenses due to supply chain disruptions which have adversely impacted product flow to our warehouses.

Ocean freight costs still negatively impacted margin in this segment but improved as compared to prior year quarter.

The Domestic Upholstery segment’s gross profit and margin increased in the fiscal 2023 first quarter due to the addition of Sunset West and increased gross profit at the other three divisions driven by increased net sales.

The increases were partially offset by increased material costs which were higher at the three divisions.

Direct labor improved due to production efficiencies at Sam Moore.

Additionally, prior-year gross profit was negatively affected by production inefficiencies from a foam shortage which is no longer a significant issue.

Selling and Administrative Expenses (S&A)

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Consolidated selling and administrative (“S&A”) expenses increased in absolute terms and as a percentage of net sales in the fiscal 2022 third quarter.

For fiscal 2022 nine-month period, S&A expenses increased in absolute terms but decreased as a percentage of net sales.

The Hooker Branded segment’s S&A expenses increased in absolute terms in the fiscal 2022 third quarter driven by increased selling costs as the result of higher net sales, increased expenses incurred as part of our ERP project, and increased salaries and wages, partially offset by decreased bonus accruals on lower profits.

For the fiscal 2022 nine-month period, S&A expenses increased in absolute terms due to the factors discussed above, offset by lower bad debt expenses due to the absence of a customer write-off in the current year.

S&A expenses decreased as a percentage of net sales in the fiscal 2022 third quarter and nine-month period in the segment due to increased net sales.

The Home Meridian segment’s S&A expenses decreased in absolute terms in the fiscal 2022 third quarter due to lower selling costs on decreased sales, partially offset by increased severance expenses due to personnel changes and increased professional service expenses.

S&A expense increased as a percentage of net sales in the fiscal 2022 third quarter due to decreased sales.

For the fiscal 2022 nine-month period, S&A expenses decreased slightly in absolute terms, with lower selling costs, professional service expenses and advertising supply expenses, nearly offset by increased severance expenses, the absence of employee furloughs in the current year period, and increased market expenses and other spending as business returned to more normal levels.

S&A expenses decreased as a percentage of net sales in the nine-month period in the segment due to higher net sales.

The Domestic Upholstery segment’s S&A expenses increased in absolute terms in the fiscal 2022 third quarter and nine-month period due to increased selling expenses on higher net sales, increased salaries and wages due to the absence of a number of employees furloughed when factories were temporarily shut down in the prior year period, and increased depreciation expenses due to the accelerated depreciation of our existing ERP system due to the expected implementation of an upgraded cloud-based ERP solution in fiscal 2023.

All Other S&A expenses increased in absolute terms in the fiscal 2022 third quarter and stayed essentially flat in the nine-month period due to increased market expenses, advertising supply expenses and other spending, offset by decreased selling expenses.

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

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

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

Consolidated selling and administrative (“S&A”) expenses increased in absolute terms and as a percentage of net sales in the fiscal 2023 first quarter.

The Hooker Branded segment’s S&A expenses increased in absolute terms and as a percentage of net sales in the fiscal 2023 first quarter driven by increased salaries and wages due to increased head count and salary inflation, higher bonus accruals due to the reversal of unearned executive bonuses in the prior year period, and higher showroom, sample and travel expenses due to the postponement of High Point Furniture Market in the prior year period.

These increases were partially offset by lower selling costs on decreased net sales.

S&A expenses increased as a percentage of net sales in the fiscal 2023 first quarter also due to decreased net sales.

The Home Meridian segment’s S&A expenses increased slightly in absolute terms in the fiscal 2023 first quarter due to bonus accruals on better-than-expected performance, higher depreciation expenses on additions of property and equipment at the new Georgia warehouse, and higher showroom, travel and advertising supply expenses due to the postponement of High Point Furniture Market in the prior year period.

The increases were nearly offset by lower salaries and wages due to personnel changes and lower selling costs on decreased sales.

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

The Domestic Upholstery segment’s S&A expenses increased in absolute terms and stayed essentially flat as a percentage of net sales in the fiscal 2023 first quarter.

The increases were attributable to the addition of Sunset West’s S&A expenses, as well as higher selling costs on increased net sales and higher salaries and wages at Bradington Young, Sam Moore and Shenandoah.

All Other S&A expenses increased slightly in absolute terms and as a percentage of net sales in the fiscal 2023 first quarter due to increased selling costs and higher travel expenses.

Intangible Asset Amortization

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Intangible asset amortization

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

Operating (Loss)/Profit and Margin

Intangible asset amortization expense was higher in fiscal 2023 first quarter due to Acquisition-related amortization expense.

Operating Profit/(Loss) and Margin

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Hooker Branded

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Domestic Upholstery

We recognized an operating loss in the fiscal 2022 third quarter due to the factors discussed above.

Operating profit and margin decreased as compared to the prior year quarter due to the factors discussed above.

Sunset West operating profit of $861,000, net of $282,000 in intangible asset amortization expense on Acquisition-related intangibles, is included in the Domestic Upholstery segment’s results.

Interest Expense, net

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Consolidated interest expense, net

Consolidated interest expense decreased in both the third quarter and nine months of fiscal 2022 due to the payoff of our term loans in fiscal 2021 fourth quarter.

Consolidated interest expense consisted of fees on the revolving credit facility in both periods.

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Consolidated income tax (benefit)/expense

Consolidated income tax expense

Effective Tax Rate

We recorded income tax benefit of $403,000 for the fiscal 2022 third quarter compared to $3.0 million income tax expense for the comparable prior year quarter.

The effective tax rates for the fiscal 2022 and 2021 third quarters were 24.8% and 22.9%, respectively.

For the fiscal 2022 nine-month period, we recorded income tax expense of $4.6 million, compared to income tax benefit of $6.3 million for the comparable prior year period, of which $10.7 million was recorded related to goodwill and trade name impairment charges.

The effective tax rates for the fiscal 2022 and 2021 nine-month periods were 22.5% and 24.8%, respectively.

Net (Loss)/Income

We recorded income tax expense of $991,000 for the fiscal 2023 first quarter compared to $2.8 million for the comparable prior year quarter.

The effective tax rates for the fiscal 2023 and 2022 first quarters were 23.7% and 22.7%, respectively.

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Net (loss)/income Consolidated

Diluted earnings/(loss) per share

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

To address the potential human impact of the virus, many of our administrative staff are telecommuting for at least part of their work-week.

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

Domestic travel for our employees has been limited and international travel is mostly non-existent.

Consolidated Net Income

Diluted earnings per share

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

To address the potential human impact of the virus, many of our administrative staff continue to telecommute for at least part of the work week.

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

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

We are encouraging vaccinations and requiring the wearing of masks for unvaccinated employees.

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

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

Consumer and retail demand remain historically strong, with the Company experiencing consolidated backlogs nearly triple compared to pre-pandemic level.

However, we expect varying degrees of continued supply chain turbulence and product and raw materials cost inflation to impact our net sales and income in the short term, at least through the second quarter of fiscal 2023.

We expect that our Hooker Branded and Domestic Upholstery segments will continue to be less challenged than Home Meridian primarily due to more than 70% of Home Meridian’s business historically being direct container versus domestic warehouse distribution.

In addition, higher freight costs have a greater impact as a percentage on the Home Meridian’s lower price points.

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

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

We believe we have mitigated these dynamics as much as possible through surcharges and price increases, but these increases can trail price increases received from logistics partners and suppliers for up to ninety days and up to one hundred eighty days for some backlog orders.

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

We believe we are utilizing all available levers to help mitigate these headwinds, and we remain optimistic about our long-term position as we work our way through these transitory disruptions.

Our strong balance sheet and variable cost business model give us confidence that we can weather this current industry-wide challenge and will allow us to take advantage of the healthy consumer demand environment and long-term positive economic indicators and demographic trends for home-related industries.

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

Additionally, potential adverse effects of new COVID-19 variants on the US and global economies remain uncertain.

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

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

We believe we are well positioned to help consumers enhance their homes with comfortable, stylish and quality home furnishings and will continue to focus on items under our control such as developing relevant new products to meet consumer needs, operational improvements, managing overhead and costs, and executing our strategic growth initiatives.

We remain optimistic as we manage through the current challenging environment.

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

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

We are seeing a leveling off of demand, with order rates down from the dramatic but unsustainable levels we experienced in the last 18 months.

Upon receipt of the inventory currently in transit from Asia, we expect to be in a near-optimum shipping position throughout the fiscal second quarter and believe we will see the full benefit of Asian production levels being at 100% capacity.

With a record $40 million of inventory in transit to our warehouses, our cash levels have dropped temporarily which necessitated the draw on our revolving credit facility discussed below.

A very high percentage of the inventory in transit is sold, so we expect to quickly convert the inventory to shipments and expect our cash balances to begin to improve by the end of the fiscal 2023 second quarter.

We are monitoring inflationary pressures in the economy, including higher interest rates, and believe those are currently affecting consumers more at the lower price points than at the upper medium and upper price points.

On the import side of our business, we continue to experience near-record ocean freight rates and a strained global supply chain including scarcity of ocean vessel space, port congestion and a strained domestic transportation system.

On the domestic side, we continue to see inflation in and scarcity of many raw materials and a strained domestic transportation system.

We continue to manage these issues with surcharges, selective price increases where possible, and the resourcing of raw materials when and where possible.

These current headwinds, including the persistent supply chain issues that have plagued the post-COVID crisis recovery, belie many reasons for optimism, including the housing market, strong levels of employment and having multiple generational segments of the US population in prime household formation and furniture purchasing years.

We believe our variable cost business model will allow us to adjust to changing economic conditions, and we continue to focus on multiple strategic initiatives to spur organic growth and increase market share.

These initiatives include our recent entry into the outdoor furniture market with the purchase of Sunset West, expanding our reach into the interior design market, Home Meridian’s launch of the Pulaski Upholstery division (targeted at medium price points not currently serviced by other divisions), and HMI’s focus on growth in profitable channels of distribution.

Financial Condition, Liquidity and Capital Resources

Cash Flows – Operating, Investing and Financing Activities

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Net cash provided by operating activities

Net cash (used in)/provided by investing activities

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Net cash (used in)/provided by operating activities

Net cash used in investing activities

Cash used in financing activities

Net (decrease)/increase in cash and cash equivalents

During the nine months ended October 31, 2021, we used a portion of the existing cash and cash equivalents on hand and $5 million generated from operations to pay $6.6 million of capital expenditures to enhance our business systems and facilities, including $4.4 million in our newly opened Georgia distribution center, $6.4 million in cash dividends, $2.6 million on our new common, cloud-based ERP platform and $533,000 in life insurance premiums on Company-owned life insurance policies.

In comparison, during the nine months ended November 1, 2020, we used a portion of the $67.6 million cash generated from operations and $1.5 million life insurance proceeds to pay $5.7 million in cash dividends, $4.8 million in principal and interest payments on our term loans, $642,000 to enhance our business systems and facilities, and $519,000 in life insurance premiums on Company-owned life insurance policies.

Net decrease in cash and cash equivalents

During the three months ended May 1, 2022, we used a portion of the existing cash and cash equivalents on hand to build up inventory levels, fund the Acquisition, pay $2.4 million in cash dividends, $830,000 capital expenditures to enhance our business systems and facilities, and $118,000 in life insurance premiums on Company-owned life insurance policies.

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

Liquidity, Financial Resources and Capital Expenditures

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

We were in compliance with each of these financial covenants at October 31, 2021 and expect to remain in compliance with existing covenants for the foreseeable future.

We were in compliance with each of these financial covenants at May 1, 2022 and expect to remain in compliance with existing covenants for the foreseeable future.

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

As of October 31, 2021, we had $27.9 million available under our 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 October 31, 2021.

There were no additional borrowings outstanding under the revolving credit facility as of October 31, 2021.

As of May 1, 2022, we had $27.9 million available under our 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 May 1, 2022.

There were no additional borrowings outstanding under the revolving credit facility as of May 1, 2022.

Early in the fiscal 2023 second quarter, we drew $8 million from the Existing Revolver to cover working capital needs driven by finished goods inventory purchases from our Asian suppliers.

Currently, we have a record $40 million in transit to our domestic warehouses.

These purchases required payment when loaded onto ocean vessels in Asia and take approximately 8 weeks to reach our domestic warehouses.

We expect to ship most of these products during the fiscal 2023 second and third quarters and to receive payment within 60-days of shipment, on average.

We repaid $4 million of the $8 million draw in mid-May 2022 and expect to repay the $4 million balance in the fiscal 2023 second quarter.

Share Repurchase Authorization

On June 6, 2022, our Board of Directors authorized the repurchase of up to $20 million of the Company’s common shares.

Expected Term Loan Proceeds

In order to replenish cash used to make the Sunset West acquisition, we are in the process of securing a $25 million term loan with our lender Bank of America, N.A.

which we expect to close in thirty to sixty days from the date of this report.

Although there can be no assurance that we will be able to close this term loan, if closed, proceeds will be used to replenish cash used to make the Sunset West acquisition.

Considering current and expected sources of liquidity and projected working capital needs, this loan is not needed to support current working capital requirements.

Capital Expenditures

We expect to spend approximately $500,000 in capital expenditures over the remainder of fiscal 2022 to maintain and enhance our operating systems and facilities.

Enterprise Resource Planning

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

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

We expect to spend approximately $5 million in capital expenditures over the remainder of fiscal 2023 to maintain and enhance our operating systems and facilities.

We expect about $2.5 million of this amount will be spent on showroom renovations for both the legacy Hooker divisions and the Home Meridian segment.

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

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

The majority of current Home Meridian sales are container direct, proprietary products which are typically at lower margins than are warehouse sales, since sales from our warehouse require less inventory investment and risk by customers and, therefore, command higher margins.

The Portfolio program is designed to broaden and strengthen Home Meridian’s customer base and improve average margins over time.

Enterprise Resource Planning Project

During calendar 2021, our Board of Directors approved an upgrade to our current ERP system and implementation efforts began shortly thereafter.

We expect to implement the ERP upgrade in our legacy Hooker divisions and Sunset West in the second half of fiscal 2023, with the Home Meridian segment following afterwards.

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

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

We spent approximately $2.6 million on this project in the first nine months of fiscal 2022 and expect to spend approximately $1 million in the last quarter of fiscal 2022.

On December 7, 2021, our board of directors declared a quarterly cash dividend of $0.20 per share, an increase of $0.02 per share or 11% over the most recent dividend, which will be paid on December 31, 2021 to shareholders of record at December 17, 2021.

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

In addition to the capital expenditures discussed in the section immediately above, we anticipate spending approximately $3 million over the remainder of the year, with a significant amount of time invested by our associates.

On June 1, 2022, our board of directors declared a quarterly cash dividend of $0.20 per share which will be paid on June 30, 2022 to shareholders of record at June 17, 2022.

Critical Accounting Policies

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

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

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

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

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2022 Annual Report.

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What changed 10-Q

Item 1. Financial Statements