What changed in this filing

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Item 9A. Controls and Procedures

2023-04-14 compared with 2022-04-15 · 284 added, 192 removed, 900 unchanged (35% of the section changed)

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Changes in Internal Control over Financial Reporting

On January 31, 2022, we closed on the acquisition of substantially all of the assets of Sunset HWM, LLC (“Sunset West").

As permitted by SEC guidance for newly acquired businesses, we excluded Sunset West’s operations from the scope of our Sarbanes-Oxley Section 404 report on internal controls over financial reporting for the year ending January 29, 2023.

We expect to complete the implementation of our internal control structure at Sunset West in fiscal 2024.

As previously discussed, during the fourth quarter of fiscal 2023 we implemented a new ERP system at Sunset West.

As mentioned above, we were not required to include Sunset West’s operations in the scope of our Sarbanes-Oxley Section 404 report on internal controls over financial reporting (ICFR) for the year ending January 29, 2023.

Consequently, this implementation did not result in material changes to our ICFR.

These system changes were not undertaken in response to any actual or perceived deficiencies in our ICFR.

There have been no changes in our internal control over financial reporting during the fiscal quarter ended January 29, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Documents filed as part of this report on Form 10-K:

(a) Documents filed as part of this report on Form 10-K:

(1) The following reports and financial statements are included in this report on Form 10-K:

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Consolidated Balance Sheets as of January 29, 2023 and January 30, 2022

Consolidated Statements of Operations for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020

Consolidated Statements of Comprehensive Income/(Loss) for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020

Consolidated Statements of Cash Flows for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020

Consolidated Statements of Shareholders’ Equity for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020

Consolidated Statements of Operations for the fifty-two-week periods ended January 29, 2023, January 30, 2022 and January 31, 2021

Consolidated Statements of Comprehensive (Loss) / Income for the fifty-two-week periods ended January 29, 2023, January 30, 2022 and January 31, 2021

Consolidated Statements of Cash Flows for the fifty-two-week periods ended January 29, 2023, January 30, 2022 and January 31, 2021

Consolidated Statements of Shareholders’ Equity for the fifty-two-week periods ended January 29, 2023, January 30, 2022 and January 31, 2021

Notes to Consolidated Financial Statements

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

(b) Exhibits:

Amended and Restated Articles of Incorporation of the Company, as amended September 16, 2021 (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q (SEC File No.

000-25349) for the quarter ended October 31, 2021)

Amended and Restated Bylaws of the Company as amended December 10, 2013 (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-K (SEC File No.

Amended and Restated Bylaws of the Company as amended December 10, 2013 (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q (SEC File No.

000-25349) for the fiscal year ended February 2, 2014)

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000-25349) filed on January 17, 2006)*

2015 Amendment and Restatement of the Hooker Furniture Corporation Stock Incentive Plan (incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement dated March 1, 2015 (SEC File No.

2020 Amendment and Restatement of the Hooker Furniture Corporation Stock Incentive Plan (incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement dated May 8, 2020 (SEC File No.

2010 Amended and Restated Hooker Furniture Corporation Supplemental Retirement Income Plan, dated as of June 8, 2010 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No.

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000-25349) filed on February 13, 2012)*

Employment Agreement, dated June 4, 2018, between Anne Jacobsen (now Anne Smith) and the Company (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No.

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

Employment Agreement, dated June 4, 2018, between Jeremy Hoff and the Company (incorporated by reference to Exhibit 10.3 of the Company’s Form 10-Q (SEC File No.

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

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

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

Employment Agreement, dated July 13, 2022, by and between Hooker Furnishings Corporation and Jeremy R.

Hoff (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (SEC File No.

000-25349) filed on July 18, 2022).*

Employment Agreement, dated July 13, 2022, by and between Hooker Furnishings Corporation and Paul A.

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

000-25349) filed on July 18, 2022).*

Employment Agreement, dated July 13, 2022, by and between Hooker Furnishings Corporation and Anne J.

Smith (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K (SEC File No.

000-25349) filed on July 18, 2022).*

Employment Agreement, dated July 13, 2022, by and between Hooker Furnishings Corporation and Tod R.

Phelps (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K (SEC File No.

000-25349) filed on July 18, 2022).*

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

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000-25349) filed on January 28, 2021)

Fourth Amendment to Second Amended and Restated Loan Agreement, dated as of July 26, 2022, between Bank of America, N.A.

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

000-25349) filed on July 28, 2022).

Security Agreement (Assignment of Life Insurance Policy as Collateral), dated July 26, 2022, by and between Hooker Furnishings Corporation and Bank of America, N.A.

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

000-25349) filed on July 28, 2022)

Asset Purchase Agreement dated January 31, 2022 by and among the Company, Sunset West, Wes Stewart, Heath Malone and Martin Jamroz (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K (SEC File No.

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Paulette Garafalo

/s/ Christopher L.

April 14, 2023

Christopher L.

April 14, 2023

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Consolidated Balance Sheets as of January 29, 2023 and January 30, 2022

Consolidated Statements of Operations for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020

Consolidated Statements of Comprehensive Income / (Loss) for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020

Consolidated Statements of Cash Flows for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020

Consolidated Statements of Shareholders’ Equity for the fifty-two-week periods ended January 30, 2022, January 31, 2021 and February 2, 2020

Consolidated Statements of Operations for the fifty-two-week periods ended January 29, 2023, January 30, 2022 and January 31, 2021

Consolidated Statements of Comprehensive (Loss) / Income for the fifty-two-week periods ended January 29, 2023, January 30, 2022 and January 31, 2021

Consolidated Statements of Cash Flows for the fifty-two-week periods ended January 29, 2023, January 30, 2022 and January 31, 2021

Consolidated Statements of Shareholders’ Equity for the fifty-two-week periods ended January 29, 2023, January 30, 2022 and January 31, 2021

Notes to Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

To the Shareholders and

Board of Directors

Hooker Furnishings Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Hooker Furnishings Corporation and subsidiaries (the Company) as of January 30, 2022 and January 31, 2021, the related consolidated statements of operations, comprehensive income/(loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended January 30, 2022, and the related notes collectively, the consolidated financial statements.

We have audited the accompanying consolidated balance sheets of Hooker Furnishings Corporation and subsidiaries (the Company) as of January 29, 2023 and January 30, 2022, the related consolidated statements of operations, comprehensive (loss)/income, shareholders’ equity, and cash flows for each of the years in the three-year period ended January 29, 2023, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 29, 2023 and January 30, 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended January 29, 2023, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of January 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 14, 2023 expressed an unqualified on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

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

Customer allowances for the Clubs channel of the Home Meridian segment

As discussed in Notes 2 and 5 to the consolidated financial statements, the customer allowances balance as of January 30, 2022 was $7.3 million, which included allowances related to the Clubs channel of the Home Meridian segment.

These allowances are for unprocessed claims received and anticipated future claims related to products sold in the Clubs channel.

Estimates of these anticipated future claims are based on historical experience with the Clubs channel customers.

We identified the evaluation of the customer allowances for the Clubs channel of the Home Meridian segment as a critical audit matter.

Subjective and challenging auditor judgment was required to evaluate the Company’s customer allowances estimate given the Company’s historical volatility of customer allowance claims in the Clubs channel.

Acquisition date fair value of customer relationships intangible asset

As discussed in Notes 1 and 4 to the consolidated financial statements, on January 31, 2022, the Company acquired substantially all assets of Sunset HWM, LLC for consideration of approximately $26.0 million.

As a result of the transaction, the Company acquired a customer relationships intangible asset with an acquisition date fair value of $10.4 million.

We identified the evaluation of the acquisition date fair value of the customer relationships intangible asset as a critical audit matter.

There was a high degree of auditor judgment in evaluating certain assumptions included in the discounted cash flow model used to estimate the acquisition date fair value of the customer relationships intangible asset.

Specifically, subjective and complex auditor judgment was required to evaluate the projected cash flows and discount rate assumptions.

Additionally, the evaluation of the discount rate assumption required specialized skills and knowledge.

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

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s process to estimate and record the customer allowances, including the assumption related to the use of historical experience with the Clubs channel customers.

We evaluated the estimated customer allowances by testing the completeness, accuracy and relevance of underlying historical customer allowances data used by management to develop the customer allowances and by performing sensitivity analyses to assess the impact of changes in certain assumptions on the determination of the customer allowances.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the acquisition date fair value of the customer relationships intangible asset.

This included controls related to the review of the projected cash flows and the discount rate.

We evaluated the reasonableness of the projected cash flows used by the Company by comparing them to cash flows of similar operating segments of the Company and to actual post-acquisition results.

We performed sensitivity analyses over the projected cash flows and discount rate to assess the impact of changes in those assumptions on the Company’s determined fair value.

We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s discount rate by comparing it to a discount rate that was independently developed using publicly available market data for comparable entities.

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

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 29, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 30, 2022 and January 31, 2021, the related consolidated statements of operations, comprehensive income/(loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended January 30, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated April 15, 2022 expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 29, 2023 and January 30, 2022, the related consolidated statements of operations, comprehensive (loss)/income, shareholders’ equity, and cash flows for each of the years in the three-year period ended January 29, 2023, and the related notes (collectively, the consolidated financial statements), and our report dated April 14, 2023 expressed an unqualified opinion on those consolidated financial statements.

The Company acquired Sunset HWM, LLC during 2022, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of January 29, 2023, Sunset HWM, LLC’s internal control over financial reporting associated with total assets of $39.1 million and total revenues of $27.0 million included in the consolidated financial statements of the Company as of and for the year ended January 29, 2023.

Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Sunset HWM, LLC.

Basis for Opinion

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Goodwill (See note 10)

Other assets (See note 9)

Total non-current assets

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Current liabilities

Current portion of long-term debt (See note 13)

Trade accounts payable

Accrued salaries, wages and benefits

Income tax accrual (See note 15)

Customer deposits

Current portion of lease liabilities (See note 10)

Current portion of operating lease liabilities (See note 12)

Other accrued expenses

Total current liabilities

Long term debt (See note 13)

Deferred compensation (See note 14)

Lease liabilities (See note 10)

Operating lease liabilities (See note 12)

Other long-term liabilities (See note 4)

Total long-term liabilities

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(In thousands, except per share data)

For the 52 Week Periods Ended January 30, 2022, January 31, 2021 and February 2, 2020

For the 52 Week Periods Ended January 29, 2023, January 30, 2022 and January 31, 2021

Cost of sales

Inventory valuation expense (See note 3)

Selling and administrative expenses

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Intangible asset amortization

Operating income/(loss)

Operating (loss)/income

Other income, net

Interest expense, net

Income/(loss) before income taxes

Income tax expense/(benefit)

Net income/(loss)

Earnings/(loss) per share:

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

(Loss)/earnings per share:

Weighted average shares outstanding:

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HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME / (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME

(In thousands)

For the 52 Week Periods Ended January 30, 2022, January 31, 2021 and February 2, 2020

Net Income/(Loss)

Other comprehensive income/(loss):

For the 52 Week Periods Ended January 29, 2023, January 30, 2022 and January 31, 2021

Net (Loss)/Income

Other comprehensive income:

Amortization of actuarial gain /(loss)

Income tax effect on amortization

Gain on pension plan settlement

Income tax effect on settlement

Adjustments to net periodic benefit cost

Total Comprehensive Income/(Loss)

Total Comprehensive (Loss)/Income

See accompanying Notes to Consolidated Financial Statements.

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(In thousands)

For the 52 Week Periods Ended January 30, 2022, January 31, 2021 and February 2, 2020

For the 52 Week Periods Ended January 29, 2023, January 30, 2022 and January 31, 2021

Operating Activities:

Net income/(loss)

Net (loss)/income

Adjustments to reconcile net income to net cash

provided by operating activities:

Inventory valuation expense

Goodwill and intangible asset impairment charges

Depreciation and amortization

Gain on pension settlement

Gain on disposal of assets

Loss/(Gain) on disposal of assets

Deferred income tax expense/(benefit)

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Customer deposits

Operating lease liabilities

Operating lease assets and liabilities

Other accrued expenses

Deferred compensation

Net cash provided by operating activities

Net cash (used in)/provided by operating activities

Investing Activities:

Purchases of property, plant and equipment

Proceeds received on notes receivable

Proceeds from sale of property and equipment

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Financing Activities:

Proceeds from long-term loans

Payments for long-term loans

Proceeds from revolving credit facility

Payments for revolving credit facility

Debt issuance cost

Purchase and retirement of common stock

Cash dividends paid

Payments for long-term debt

Net cash used in financing activities

Net increase in cash and cash equivalents

Net cash provided by/(used in) financing activities

Net (decrease)/increase in cash and cash equivalents

Cash and cash equivalents at the beginning of year

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Supplemental schedule of cash flow information:

Income taxes paid, net

Interest paid, net

Income taxes paid, net

Supplemental schedule of noncash investing activities:

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(In thousands, except per share data)

For the 52 Week Periods Ended January 30, 2022, January 31, 2021 and February 2, 2020

For the 52 Week Periods Ended January 29, 2023, January 30, 2022 and January 31, 2021

Comprehensive

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Balance at February 2, 2020

Gain on pension settlement, net of tax of $ 124

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

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Restricted stock compensation cost

Recognition of PSUs as equity-based awards

Balance at February 2, 2020

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

Performance-based restricted stock units cost

Balance at January 31, 2021

Unrealized gain on defined benefit plan, net of tax of $ 237

Cash dividends paid and accrued ($ 0.74 per share)

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Cash dividends paid and accrued ($ 0.82 per share)

Purchase and retirement of common stock

Restricted stock grants, net of forfeitures

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

For the Fifty-Two Weeks Ended January 30, 2022

NOTE 1 – RECENTLY ADOPTED ACCOUNTING STANDARDS

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No.

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

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

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

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

We adopted this guidance in the fiscal 2022 first quarter.

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

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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Home Meridian , a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins;

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

Domestic Upholstery , which includes the domestic upholstery manufacturing operations of Bradington-Young, HF Custom (formerly Sam Moore), Shenandoah Furniture and Sunset West;

All Other, consisting of H Contract and Lifestyle Brands.

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We regularly review and revise customer allowances based on unprocessed claims received and current and historical activity and any agreements made with specific customers.

In the Home Meridian segment, Clubs channel customers drive most of the customer allowance activity due to their consumer-facing product return policies.

We base anticipated future claims on historical experience with these customers.

Historically, in the Home Meridian segment, Clubs channel customers drove most of the customer allowance activity due to their consumer-facing product return policies.

We based anticipated future claims on historical experience with these customers.

We regularly review and revise accounts receivable for doubtful accounts based upon historical bad debts.

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

We believe the use of the LIFO method results in a better matching of costs and revenues.

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

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As interest rates are not explicitly stated or implicit in any of our leases, we utilized our incremental borrowing rate at the adoption date of February 4, 2019.

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

For leases without explicitly stated or implicit interest rates that commenced after the adoption date and before July 2022, we used our incremental borrowing rate which was one-month LIBOR at the lease commencement date plus 1.5 %.

When we entered into the new loan agreement, our incremental borrowing rate for unsecured term loan became the current BSBY rate plus 1.40 %.

We use this rate as the discount rate for leases commenced in July 2022 and thereafter.

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

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

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

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

Our amortizable intangible assets are related to the Shenandoah, Sunset West and Home Meridian acquisitions and includes customer relationships and trademarks.

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

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

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

For our outdoor furnishings, most orders require a 50% deposit upon order and the balance when production is started.

Cost of Sales

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and (ii) revenue and expenses during the reported periods.

Significant items subject to such estimates and assumptions include useful lives of fixed and intangible assets;

Significant items subject to such estimates and assumptions include inventory reserves, useful lives of fixed and intangible assets;

allowance for doubtful accounts;

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

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

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

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

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

NOTE 3 – INVENTORY VALUATION CHARGES

We recorded inventory valuation charges of $ 28.8 million, $ 3.4 million and $ 523 ,000, respectively, in each of fiscal 2023, fiscal 2022 and fiscal 2021 for slow-moving and obsolete inventory.

During the fourth quarter of fiscal 2023, we recorded net inventory valuation charges of approximately $ 24.4 million to write down the value of ACH and PRI inventories and other excess inventories to market, including excess Samuel Lawrence Furniture brand inventories.

Management approved a plan to exit the Accentrics Home (ACH) e-commerce brand of the Home Meridian segment along with repositioning the Prime Resources International (PRI) brand as a direct-container only business model at the end of fiscal 2023.

Due to historically high freight costs on these inventories, high handling costs, current demand and industry discounting levels, as well as our current inventory levels, management determined that a viable and profitable market for these products didn’t exist and was unwilling to continue to incur additional lease, warehouse, labor and other costs to store and sell aging inventory below cost.

These inventory valuation charges were included as a separate line item below cost of goods sold in the Consolidated Statement of Operations.

NOTE 4 – ACQUISITION

On January 31, 2022, the first day of our 2023 fiscal year, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sunset HWM, LLC (“Sunset West”) and its three members to acquire substantially all 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.

In the fourth quarter of fiscal 2023, we received $ 639 ,000 from the seller for the final working capital adjustments.

Under the Asset Purchase Agreement, the Company also assumed specified liabilities of Sunset West.

In accordance with FASB Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), the Sunset 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 Sunset 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 fair values of the identifiable assets acquired and liabilities assumed in the Sunset Acquisition as of January 29, 2023.

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

Cash received from the seller for final working capital adjustment

Fair value of earnout

Total purchase price

Accounts receivable

Prepaid expenses and other current assets

Intangible assets

Customer deposits

Accounts payable

Accrued expenses

Total purchase price

Property was recorded at fair value and primarily consists of machinery 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 Sunset Acquisition-related costs of $ 414,000 in fiscal 2022 and $ 69,000 in fiscal 2023.

These expenses were included in the “Selling and administrative expenses” line of our fiscal 2022 and fiscal 2023 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 $ 27 million in net sales and $ 683 ,000 million of operating income, including $ 1.1 million in intangible amortization expense for the fiscal 2023.

Results of operations starting from the date of acquisition of Sunset West have been included in our Consolidated Financial Statements for the year ended January 29, 2023.

The Sunset West acquisition is not material to our Consolidated Financial Statements, and therefore, supplemental pro forma financial information for the year ended January 29, 2023 and the respective prior year periods related to the acquisition is not included herein.

NOTE 5 – DOUBTFUL ACCOUNTS AND CUSTOMER ALLOWANCES

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Reduction to LIFO basis

If the first-in, first-out (FIFO) method had been used in valuing all inventories, net income would have been $ 17.4 million in fiscal 2022, net loss would have been $ 11.1 million in fiscal 2021, and net income would have been $ 19.5 million in fiscal 2020.

We recorded LIFO expense of $ 7.4 million in fiscal 2022, LIFO income of $ 1.3 million in fiscal 2021, and LIFO expense of $ 3.1 million in fiscal 2020.

At January 30, 2022 and January 31, 2021, we had $ 8.9 million and $ 6.7 million, respectively, in consigned inventories, which are included in the “Finished furniture” line in the table above.

At January 30, 2022, we held $ 11.1 million in inventory outside of the United States, in Vietnam and China.

At January 31, 2021, we held $ 11.3 million in inventory outside of the United States, in Vietnam and China.

At January 29, 2023 and January 30, 2022 and January 31, 2021, we had $ 2.4 million and $ 8.9 million, respectively, in consigned inventories, which are included in the “Finished furniture” line in the table above.

At January 29, 2023 and January 30, 2022, we held $ 12.3 million and $ 11.1 million, respectively, in inventory outside of the United States, in Vietnam and China.

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

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Balance end of year

NOTE 9 – CLOUD COMPUTING HOSTING ARRANGEMENT

We are in the process of implementing a common Enterprise Resource Planning (ERP) system across all divisions.

The ERP system went live at Sunset West in December 2022 and is expected to go-live in our legacy Hooker divisions in fiscal 2024, with the Home Meridian segment following afterwards.

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

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

Amortization expense commenced as the system went live at Sunset West in the fourth quarter of fiscal 2023.

In addition, we recorded capitalized interest of $ 84,000 as we entered into new term loans in July 2022.

Implementation costs are amortized over ten years on a straight-line basis.

The capitalized implementation costs at January 29, 2023 and January 30, 2022 were as follows

Capitalized Implementation Costs

Capitalized interest expenses

Balance at January 30, 2022

Costs capitalized during the period

Accumulated amortization

Balance at January 29, 2023

NOTE 10 – INTANGIBLE ASSETS AND GOODWILL

1 unchanged sentence

Our non-amortizable intangible assets consist of:

Goodwill and trademarks and tradenames related to the Home Meridian and Shenandoah acquisitions;

Goodwill related to the Shenandoah and Sunset West acquisitions;

Trademarks and tradenames related to the acquisitions of Bradington-Young (acquired in 2002), Sam Moore (acquired in 2007) and Home Meridian (acquired in 2016).

11 unchanged sentences

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

Based on our internal analyses at January 30, 2022, the fair values of our non-amortizable trademarks and trade names exceeded their carrying values and we concluded that Shenandoah goodwill in the Domestic Upholstery segment is not impaired.

During the fiscal 2023, we recorded both non-amortizable and amortizable intangible assets because of the Sunset Acquisition.

Based on our internal analyses at January 29, 2023, the fair values of our non-amortizable trademarks and trade names exceeded their carrying values and we concluded that Shenandoah and Sunset West goodwill in the Domestic Upholstery segment is not impaired.

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

Fifty-Two Weeks Ended

January 30, 2022

January 31, 2021

Non-amortizable Intangible Assets

Beginning Balance

Impairment Charges

Net Book Value

Beginning Balance

Impairment Charges

Net Book Value

Domestic Upholstery

Home Meridian

Total Goodwill

Trademarks and trade names - Home Meridian

Trademarks and trade names

Home Meridian

Trademarks and trade names - Bradington-Young

Domestic Upholstery

Trademarks and trade names - Sam Moore

Home Meridian

Domestic Upholstery

Total Trademarks and trade names

Total non-amortizable assets

Bradington-Young

Balance at February, 2020

Impairment Charges

Balance at January 31, 2021

Balance at January 30, 2022

Balance at January 29, 2023

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

In fiscal 2023, we wrote off $ 12,500 representing the remaining value of the Right2Home trade name in the Home Meridian segment due to the decision to exit of the ACH business unit in the fourth quarter of fiscal 2023.

The carrying amounts and changes therein of those amortizable intangible assets were as follows:

28 unchanged sentences

January 30, 2022

February 2, 2020

January 31, 2021

Operating lease cost

11 unchanged sentences

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.

Weighted-average remaining lease term is 8.3 years.

We used our incremental borrowing rate which is LIBOR plus 1.5 % at the adoption date.

For leases that commenced before July 2022, we used our incremental borrowing rate which was LIBOR plus 1.5% .

When we entered into the new loan agreement our incremental borrowing rate for unsecured term loan became the current BSBY rate plus 1.40 % .

We use this rate as discount rate for leases commenced in July 2022 and thereafter.

The weighted-average discount rate is 4.00 %.

The weighted-average remaining lease term is 8.0 years.

The following table reconciles the undiscounted future lease payments for operating leases to the operating lease liabilities recorded in the consolidated balance sheet at January 29, 2023:

Undiscounted Future

Operating Lease Payments

Undiscounted Future Operating Lease Payments

2029 and thereafter

2 unchanged sentences

Present value of lease payments

As of January 30, 2022, the Company had an additional lease for a showroom in High Point, North Carolina.

This lease is expected to commence in Fall of calendar 2022 with an initial lease term of 10 years and estimated future minimum rental commitments of approximately $ 23.7 million.

As of January 29, 2023, the Company had an additional lease for a showroom in Atlanta, Georgia.

This lease is expected to commence in May of calendar 2023 with an initial lease term of 3 years and estimated future minimum rental commitments of approximately $ 1.0 million.

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

NOTE 13 – LONG-TERM DEBT

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

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

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

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

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

On July 26, 2022, we entered into the Fourth Amendment to the Second Amended and Restated Loan Agreement (the “Amendment”) with Bank of America, N.A.

(“BofA”) to replenish cash used to make the Sunset Acquisition.

The Second Amended and Restated Loan Agreement dated as of September 29, 2017, had previously been amended by a First Amendment to Second Amended and Restated Loan Agreement dated as of January 31, 2019, a Second Amendment to Second Amended and Restated Loan Agreement dated as of November 4, 2020, and a Third Amendment to Second Amended and Restated Loan Agreement dated as of January 27, 2021 (as so amended, the “Existing Loan Agreement”).

Details of the individual credit facilities provided for in the Amendment are as follows:

Unsecured Revolving Credit Facility.

Under the Amendment, the expiration date of the existing $ 35 million Unsecured Revolving Credit Facility (the “Existing Revolver”) was extended to July 26, 2027.

Any amounts outstanding will bear interest at a rate per annum, equal to the then current Bloomberg Short-Term Bank Yield Index (“BSBY”) (adjusted periodically) plus 1.00 %.

The interest rate will be adjusted on a monthly basis.

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

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

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

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

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

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

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

2022 Secured Term Loan.

The Amendment provided us with a $ 18 million term loan (the “Secured Term Loan”), which was disbursed to us on July 26, 2022.

We are required to pay monthly interest only payments at a rate per annum equal to the then current BSBY rate (adjusted periodically) plus 0.90 % on the outstanding balance until the principal is paid in full.

The interest rate will be adjusted on a monthly basis.

On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest.

The Secured Term Loan is secured by certain company-owned life insurance policies under a Security Agreement (Assignment of Life Insurance Policy as Collateral) dated July 26, 2022, by and between the Company and BofA;

2022 Unsecured Term Loan.

The Amendment provided us with a $ 7 million unsecured term loan (the “Unsecured Term Loan”), which was disbursed to us on July 26, 2022.

We are required to pay monthly principal payments of $ 116,667 and monthly interest payments at a rate per annum equal to the then current BSBY (adjusted periodically) plus 1.40 % on the outstanding balance until paid in full.

The interest rate will be adjusted monthly.

On July 26, 2027, the entire outstanding indebtedness is due in full, including all principal and interest.

We may prepay any outstanding principal amounts borrowed under either the Secured Term Loan or the Unsecured Term Loan at any time, without penalty provided that any payment is accompanied by all accrued interest owed.

As of January 29, 2023, $ 6.3 million was outstanding under the Unsecured Term Loan, and $ 18 million was outstanding under the Secured Term Loan.

We incurred $ 37,500 in debt issuance costs in connection with our term loans.

As of January 29, 2023, unamortized loan costs of $ 33,750 were netted against the carrying value of our term loans on our condensed consolidated balance sheets.

Principal payments on the term loans are as follows:

Principal payments

Total principal payments

The carrying amount of the term loans approximates their fair value at January 29, 2023.

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

Maintain a ratio of funded debt to EBITDA not exceeding:

2.50:1.0 through July 30, 2023;

2.25:1.0 through July 30, 2024;

2.00:1.00 thereafter.

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

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

They also limit our right to incur other indebtedness, make certain investments and create liens upon our assets, subject to certain exceptions, among other restrictions.

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

We were in compliance with each of these financial covenants at January 30, 2022.

As of January 30, 2022, we had an aggregate $ 27.9 million available under the Existing Revolver to fund working capital needs.

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

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

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

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

We were in compliance with each of these financial covenants at January 29, 2023 and expect to remain in compliance with existing covenants for the foreseeable future.

While we generally fund short-term and long-term cash requirements with cash from operating activities, during fiscal 2023, at various times we borrowed and repaid amounts totaling $ 36.2 million on our revolving line of credit.

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

As of January 29, 2023, we had $ 26.4 million available under our $35 million Existing Revolver to fund working capital needs.

Standby letters of credit in the aggregate amount of $ 8.6 million, used to collateralize certain insurance arrangements and for imported product purchases, were outstanding under the Existing Revolver as of January 29, 2023 There were no additional borrowings outstanding under the Existing Revolver as of January 29, 2023.

NOTE 14 – EMPLOYEE BENEFIT PLANS

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Summarized SRIP and SERP information as of each fiscal year-end (the measurement date) is as follows:

(Supplemental Retirement Income Plan)

SRIP (Supplemental Retirement Income Plan)

Change in benefit obligation:

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Total recognized in other comprehensive loss (income)

Total recognized in net periodic benefit cost and

accumulated other comprehensive income

Total recognized in net periodic benefit cost and accumulated other comprehensive income

Assumptions used to determine net periodic benefit cost:

6 unchanged sentences

This rate was used to value the ending benefit obligations.

At January 29, 2023, the actuarial gain related to the SRIP amounted to $ 1 million, net of tax of $ 288 ,000.

At January 30, 2022, the actuarial gain related to the SRIP amounted to $ 553 ,000, net of tax of $ 229 ,000.

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

The estimated actuarial gain that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the 2024 fiscal year is $ 279,203 .

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

(Supplemental Executive Retirement Plan)

SERP (Supplemental Executive Retirement Plan)

Change in benefit obligation:

17 unchanged sentences

Total recognized in other comprehensive loss (income)

Total recognized in net periodic benefit cost and

accumulated other comprehensive income

Total recognized in net periodic benefit cost and accumulated other comprehensive income

Assumptions used to determine net periodic benefit cost:

7 unchanged sentences

At January 30, 2022, combining the Aon AA Above Median yield curve and the plan's expected benefit payments created a rate of 2.80%.

This rate used to determine the fiscal 2023 net periodic cost.

The change in the discount rate from 2.80% to 4.70% decreased liabilities.

10 unchanged sentences

The fair value of each share of restricted stock is the market price of our common shares on the grant date.

The weighted average grant-date fair values of restricted stock awards issued during fiscal 2022 were $ 37.20 and $ 40.00 , during fiscal 2021 were $ 13.92 , $ 19.20 and $ 29.34 , during fiscal 2020 were $ 29.77 , $ 29.21 and $ 19.87 , respectively.

The weighted average grant-date fair values of restricted stock awards issued during fiscal 2023 were $ 22.19 , $ 18.26 , $ 16.65 and $ 13.41 , during fiscal 2022 was $ 37.20 , during fiscal 2021 were $ 13.92 and $ 29.34 , respectively.

The restricted stock awards outstanding as of January 29, 2023 had an aggregate grant-date fair value of $ 2.6 million, after taking vested and forfeited restricted shares into account.

As of January 30, 2022, we have recognized non-cash compensation expense of approximately $ 996,000 related to these non-vested awards and $ 2.6 million for awards that have vested.

The remaining $ 692,000 of grant-date fair value for unvested restricted stock awards outstanding at January 30, 2022 will be recognized over the remaining vesting periods for these awards.

As of January 29, 2023, we have recognized non-cash compensation expense of approximately $ 1.2 million related to these non-vested awards.

During fiscal 2023, 23,239 shares vested with an average grant date fair value of $ 799,000 .

The remaining $ 1.4 million of grant-date fair value for unvested restricted stock awards outstanding at January 29, 2023 will be recognized over the remaining vesting periods for these awards.

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

For each restricted stock issuance, the following table summarizes restricted stock activity, including the weighted average issue price of those shares on the grant date, the fair value of each grant of restricted stock on the grant date, compensation expense recognized for the unvested shares of restricted stock for each grant and the remaining fair value of the unvested shares of restricted stock for each grant as of January 29, 2023:

Grant-Date Fair Value

Unrecognized At

January 29, 2023

Previous Awards (vested)

Restricted shares Issued on April 7, 2020

Partial vested due to separation

Restricted shares Issued on May 8, 2019

Restricted shares Issued on April 7, 2020

Restricted shares Issued on October 19, 2020

Restricted shares Issued on April 8, 2021

Restricted shares Issued on January 31, 2022

Restricted shares Issued on April 11, 2022

Restricted shares Issued on June 8, 2022

Restricted shares Issued on October 12, 2022

Awards outstanding at January 29, 2023:

6 unchanged sentences

The following table presents RSU activities for the year ended January 29, 2023:

Grant-Date Fair Value

Unrecognized At

January 29, 2023

Previous Awards (vested)

RSUs Awarded on April 7, 2020

1 unchanged sentence

RSUs Awarded on April 8, 2021

Partial vested due to separation

RSUs Awarded on April 8, 2021

RSUs for retention Awarded on April 8, 2021

RSUs for retention Awarded on April 11, 2022

Awards outstanding at January 29, 2023:

3 unchanged sentences

The payout or settlement of the PSUs will be made in shares of our common stock.

PSUs awarded in fiscal 2019 and fiscal 2020 were forfeited as the performance targets were not met.

PSUs awarded in fiscal 2021 were forfeited as the performance targets were not met.

The following table presents PSU activities for the year ended January 29, 2023:

Grant-Date Fair Value

Unrecognized At

January 29, 2023

Previous Awards (vested)

PSUs Awarded on April 8, 2021

19 unchanged sentences

Fifty-Two Weeks Ended

Net income/(loss)

Net (loss)/income

Dividends on unvested restricted shares

1 unchanged sentence

Earnings available for common shareholders

Weighted average shares outstanding for basic

earnings per share

Weighted average shares outstanding for basic earnings per share

Dilutive effect of unvested restricted stock awards

Weighted average shares outstanding for diluted

earnings per share

Basic earnings/(loss) per share

Diluted earnings/(loss) per share

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

Weighted average shares outstanding for diluted earnings per share

Basic (loss)/earnings per share

Diluted (loss)/earnings per share

* Due to net loss in fiscal 2023 and fiscal 2021, approximately 117,000 and 119,000 shares would have been antidilutive and are therefore excluded from the calculation of earnings per share, respectively.

NOTE 17 – INCOME TAXES

5 unchanged sentences

Total deferred taxes

Income tax expense / (benefit)

Income tax (benefit)/expense

Total tax benefit for fiscal 2023 was $ 1.5 million, of which $ 1.8 million benefit was allocated to continuing operations and $ 288 ,000 tax expense was allocated to other comprehensive income.

Total tax expense for fiscal 2022 was $ 3.6 million, of which $ 3.4 million expense was allocated to continuing operations and $ 237 ,000 tax expense was allocated to other comprehensive income.

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

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

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

22 unchanged sentences

At January 29, 2023 and January 30, 2022 our net deferred asset was $ 14.5 and $ 11.6 million, respectively.

The decrease in the valuation allowance of $ 323,000 was primarily due to the expiration of a capital loss carryforward.

The increase in the valuation allowance of $ 12,000 was due to additional foreign tax credit carry forward.

We expect to fully realize the benefit of the deferred tax assets, with the exception of the foreign tax credit carry forward, in future periods when the amounts become deductible.

14 unchanged sentences

We measure the results of our segments using, among other measures, each segment’s net sales, gross profit and operating income, as determined by the information regularly reviewed by the CODM.

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

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

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

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

The Hooker Branded and Home Meridian segments were unchanged.

(Fiscal 2020 results shown below have been recast based on the re-composition of our operating segments during the 2020 fourth quarter.) Therefore, for financial reporting purposes, we are organized into three reportable segments and “All Other”, which includes the remainder of our businesses:

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

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

Home Meridian , a business acquired at the beginning of fiscal 2017, is a stand-alone, mostly autonomous business that serves a different type or class of customer than do our other operating segments and at much lower margins;

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

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

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

1 unchanged sentence

therefore, we combined them in “All Other” in accordance with ASC 280.

Changes to segment reporting for fiscal 2023

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 HF Custom.

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

Fiscal 2022 and fiscal 2021 results discussed below have been recast to reflect this change.

The Hooker Branded and Home Meridian segments are unchanged.

As discussed in Note 4 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 on a prospective basis.

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

3 unchanged sentences

January 30, 2022

February 2, 2020

January 31, 2021

Hooker Branded

6 unchanged sentences

$ 583,102 100 % $ 593,612 100 % $ 540,081 96 %

Gross Profit/(Loss)

Hooker Branded

6 unchanged sentences

$ 93,294 16.0 % $ 101,702 17.1 % $ 112,748 20.9 %

Operating Income/(Loss)

Operating (Loss)/Income

Hooker Branded

14 unchanged sentences

$ 4,199 $ 6,692 $ 1,210

& Amortization

Depreciation & Amortization

Hooker Branded

5 unchanged sentences

$ 8,829 $ 7,814 $ 6,778

As of January 30,

As of January 31,

Hooker Branded

2 unchanged sentences

Consolidated Assets

Consolidated Goodwill

and Intangibles

Consolidated Goodwill and Intangibles

Total Consolidated Assets

2 unchanged sentences

No significant long-lived assets were held outside the United States at either January 29, 2023 or January 30, 2022.

International customers accounted for 2.0 % of consolidated invoiced sales in fiscal 2022 and 2021, and 1.6 % in fiscal 2020.

International customers accounted for less than 2 % of consolidated invoiced sales in fiscal 2023, 2022 and 2021.

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

3 unchanged sentences

Rent expense, was $ 11.5 million in fiscal 2023, $ 10.1 million in fiscal 2022, and $ 10.7 million in fiscal 2021.

Future minimum annual commitments under leases and operating agreements are $ 9.5 million in fiscal 2023, $8.2 million in fiscal 2024, $ 8.2 million in fiscal 2025, $ 8.3 million in fiscal 2026 and $ 7.8 million in fiscal 2027.

Future minimum annual commitments under leases, operating agreements, interest and principal payments on term loans and deferred compensation payments are $ 13.7 million in fiscal 2024, $ 13.8 million in fiscal 2025, $ 13.8 million in fiscal 2026, $ 13.6 million in fiscal 2027 and $ 29.1 million in fiscal 2028.

We had letters of credit outstanding totaling $ 8.6 million on January 29, 2023.

9 unchanged sentences

In fiscal 2023, imported products sourced from Vietnam and China accounted for 91 % of our import purchases and our top five suppliers in those countries accounted for 50 % of our fiscal 2023 import purchases.

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

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

Raw Materials Sourcing for Domestic Upholstery Manufacturing

3 unchanged sentences

Concentration of Sales and Accounts Receivable

One customer accounted for 8 % of our consolidated sales in fiscal 2022.

One customer accounted for approximately 6 % of our consolidated sales in fiscal 2023.

Our top five customers accounted for 22% of our fiscal 2023 consolidated sales .

7 unchanged sentences

In addition to monthly lease payments, we also incur expenses for property taxes, routine repairs and maintenance and other operating expenses.

We paid $ 784,000 in lease payments to these entities during fiscal 2022.

The total amount of the lease expenses and other expenses do not have a material effect on our consolidated financial statements.

NOTE 22 – SUBSEQUENT EVENTS

1 unchanged sentence

On March 3, 2023 , our Board of Directors declared a quarterly cash dividend of $ 0.22 per share, payable on March 31, 2023 to shareholders of record at March 17, 2023 .

Sunset West Acquisition

On January 31, 2022, the first day of our 2023 fiscal year, we entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sunset HWM, LLC (“Sunset West”) and its three members (the “Sunset West Members”) to acquire substantially all of the assets of Sunset West (the “Sunset Acquisition”).

Simultaneously, we closed on the transaction by paying $ 23.5 million in cash and $ 2 million subject to an escrow arrangement and possible earn-out payments to the Sunset West Members up to an aggregate of $ 4 million with the closing cash consideration subject to adjustment for customary working capital estimates.

Under the Asset Purchase Agreement, the Company also assumed specified liabilities of Sunset West.

Sunset West is a leading West Coast-based manufacturer of outdoor furniture with its headquarters in Vista, California.

The transaction enables us to immediately gain market share in the growing outdoor furniture segment of the industry with one of the most respected brands in the category.

Fair Value Estimates of Assets Acquired and Liabilities Assumed

The consideration and components of our initial fair value allocation of the purchase price paid at closing and in the subsequent Net Working Capital Adjustment consisted of the following:

Purchase price consideration

Cash paid for assets acquired

Net working capital excess to working capital target

Total purchase price

Fair value estimates of assets acquired and liabilities assumed:

Net working capital

Intangible assets

Total purchase price

Substantially all of these amounts are subject to subsequent adjustment as we continue to gather information during the measurement period.

Certain intangible assets were acquired as part of this transaction.

Trademarks, trade names and customer relationships have been assigned preliminary fair values subject to additional analysis during the measurement period.

While we are still analyzing Sunset West’s operations and the requirements of ASC 280:

Segment Reporting , we anticipate Sunset West will be included in the Domestic Upholstery segment.

HMI Inventory Valuation Losses

On March 14, 2023, we announced that we had approved a plan to exit the ACH e-commerce brand of our HMI operating segment along with repositioning the PRI business unit as a direct-container only business model.

Concurrent with that exit, we recorded a $ 24.4 million non-cash charge related to the exit, which was recorded in the fourth fiscal quarter of the recently ended 2023 fiscal year on both ACH and PRI inventories and other excess inventories along with severance of about $ 250,000 , most of which was recorded in the fiscal 2023 fourth quarter.

In addition to these actions, we expect to reduce the physical footprints at our Savannah, Ga warehouse and High Point, NC administrative office over the course of the current 2024 fiscal year with a concurrent reduction in lease, warehouse, and related expenses.

See Note 3 above for additional information.

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

What changed 10-K

Item 9A. Controls and Procedures