What changed in this filing

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Item 9A. Controls and Procedures

2024-04-12 compared with 2023-04-14 · 176 added, 190 removed, 994 unchanged (27% 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.

We have integrated Sunset West into our overall internal control structure over financial reporting processes.

As previously disclosed, during the third quarter of fiscal 2024, we implemented a new Enterprise Resource Planning system at the legacy Hooker divisions and for consolidated reporting.

This new system resulted in changes to certain of our processes and procedures for internal control over financial reporting.

We assessed the control design during implementation and conducted post-implementation monitoring and testing to ensure the effectiveness of internal controls over financial reporting.

There were no other changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

OTHER INFORMATION

During the fourth quarter of fiscal 2024, no director or officer of the Company adopted, terminated or modified a ‘ Rule 10b5-1 trading arrangement ’ or ‘ non-Rule 10b5-1 trading arrangement ,’ as each term is defined in Item 408(a) of Regulation S-K.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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PRINCIPAL ACCOUNTING FEES AND SERVICES

Information relating to this item will be set forth under the caption “Proposal Two - Ratification of Selection of Independent Registered Public Accounting Firm” in the 2023 Proxy Statement and is incorporated herein by reference.

Information relating to this item will be set forth under the caption “Proposal Three - Ratification of Selection of Independent Registered Public Accounting Firm” in the 2024 Proxy Statement and is incorporated herein by reference.

Hooker Furnishings Corporation

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Consolidated Statements of Operations for the fifty-two-week periods ended January 28, 2024, January 29, 2023, and January 30, 2022

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 Comprehensive Income/(Loss) for the fifty-two-week periods ended January 28, 2024, January 29, 2023, and January 30, 2022

Consolidated Statements of Cash Flows for the fifty-two-week periods ended January 28, 2024, January 29, 2023, and January 30, 2022

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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-Q (SEC File No.

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

Amended and Restated Bylaws of the Company as amended September 5, 2023 (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q (SEC File No.

000-25349) filed on September 8, 2023)

Amended and Restated Articles of Incorporation of the Company (See Exhibit 3.1)

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Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

Hooker Furnishings Corporation Compensation Recoupment Policy, as amended and restated on September 5, 2023 (filed herewith)

The following financial statements from the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2024, formatted in Interactive Extensible Business Reporting Language (“IXBRL”):

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Christopher Beeler, Jr

Director (Board Chair)

April 12, 2024

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April 12, 2024

Williamson, Jr.

Director (Board Chair)

April 14, 2023

Williamson, Jr.

HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

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Consolidated Statements of Operations for the fifty-two-week periods ended January 28, 2024, January 29, 2023, and January 30, 2022

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 Comprehensive Income/(Loss) for the fifty-two-week periods ended January 28, 2024, January 29, 2023, and January 30, 2022

Consolidated Statements of Cash Flows for the fifty-two-week periods ended January 28, 2024, January 29, 2023, and January 30, 2022

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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 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).

We have audited the accompanying consolidated balance sheets of Hooker Furnishings Corporation and subsidiaries (the Company) as of January 28, 2024 and January 29, 2023, the related consolidated statements of operations, comprehensive income/(loss), cash flows, and shareholders’ equity for each of the years in the three-year period ended January 28, 2024, 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 28, 2024 and January 29, 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended January 28, 2024, 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.

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 28, 2024, 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 12, 2024 expressed an unqualified opinion 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.

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.

Sufficiency of audit evidence over the implementation of a cloud-based enterprise resource planning system

As discussed in Note 9 to the consolidated financial statements, the Company completed the implementation of a cloud-based Enterprise Resource Planning system for the legacy Hooker divisions and consolidated reporting (the ERP implementation) during 2023.

The ERP implementation impacted a high volume of transactions, all financial statement account balances, and certain disclosures.

We identified the evaluation of the sufficiency of audit evidence over the ERP implementation as a critical audit matter.

A high degree of complex auditor judgment and the involvement of information technology (IT) professionals with specialized skills and knowledge were required to evaluate program development, configurations, interfaces and access rights of certain IT applications.

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 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 applied auditor judgment to determine the nature and extent of procedures to be performed over the ERP implementation.

We involved IT professionals with specialized skills and knowledge, who assisted in:

obtaining an understanding of the relevant IT systems

evaluating the design and testing the operating effectiveness of general IT controls, including controls related to program development

evaluating the design and testing the operating effectiveness of certain IT application controls, including inspecting and evaluating configurations, interfaces, and access rights of certain IT applications.

We evaluated the sufficiency of audit evidence obtained by assessing the results of procedures performed, including the appropriateness of the nature and extent of the audit effort.

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 28, 2024, 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 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.

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 28, 2024 and January 29, 2023, the related consolidated statements of operations, comprehensive income/(loss), cash flows, and shareholders’ equity for each of the years in the three-year period ended January 28, 2024, and the related notes (collectively, the consolidated financial statements), and our report dated April 12, 2024 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Goodwill (See note 10)

Other assets (See note 9)

Total non-current assets

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Retained earnings

Accumulated other comprehensive loss

Accumulated other comprehensive income

Total shareholders’ equity

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Cost of sales

Inventory valuation expense (See note 3)

Inventory write downs

Selling and administrative expenses

Goodwill impairment charges

Trade name impairment charges

Intangible asset amortization

Operating (loss)/income

Operating income / (loss)

Other income, net

Interest expense, net

(Loss)/income before income taxes

Income tax (benefit)/expense

Net (loss)/income

(Loss)/earnings per share:

Income / (Loss) before income taxes

Income tax expense / (benefit)

Net income / (loss)

Earnings / (Loss) per share:

Weighted average shares outstanding:

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HOOKER FURNISHINGS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) / INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(In thousands)

For the 52 Week Periods Ended January 28, 2024, January 29, 2023, and January 30, 2022

Net (Loss)/Income

Net Income/(Loss)

Other comprehensive income:

Amortization of actuarial gain /(loss)

Income tax effect on amortization

Actuarial adjustments

Income tax effect on adjustments

Adjustments to net periodic benefit cost

Total Comprehensive (Loss)/Income

Total Comprehensive Income/(Loss)

See accompanying Notes to Consolidated Financial Statements.

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Operating Activities:

Net (loss)/income

Net income/(loss)

Adjustments to reconcile net income to net cash

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Inventory valuation expense

Goodwill and intangible asset impairment charges

Depreciation and amortization

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Income tax recoverable

Prepaid expenses and other current assets

Prepaid expenses and other assets

Trade accounts payable

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Customer deposits

Operating lease assets and liabilities

Operating lease liabilities

Other accrued expenses

Deferred compensation

Net cash (used in)/provided by operating activities

Net cash provided by/(used in) operating activities

Investing Activities:

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Financing Activities:

Proceeds from long-term loans

Purchase and retirement of common stock

Cash dividends paid

Payments for long-term loans

Proceeds from long-term loans

Proceeds from revolving credit facility

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Debt issuance cost

Purchase and retirement of common stock

Cash dividends paid

Net cash provided by/(used in) financing activities

Net (decrease)/increase in cash and cash equivalents

Net cash (used in)/provided by financing activities

Net increase/(decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of year

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Supplemental schedule of noncash investing activities:

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

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

Increase in property and equipment through accrued purchases

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Income / (Loss)

Balance at February 2, 2020

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

Balance at January 31, 2021

Actuarial adjustments on defined benefit plan, net of tax of $ 237

Cash dividends paid and accrued ($ 0.74 per share)

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Balance at January 30, 2022

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

Actuarial adjustments on defined benefit plan, net of tax of $ 288

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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Balance at January 29, 2023

Unrealized gain on defined benefit plan, net of tax of $ 288

Actuarial adjustments on defined benefit plan, net of tax of $ 41

Cash dividends paid and accrued ($ 0.89 per share)

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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 28, 2024

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Hooker Furnishings Corporation and subsidiaries (the “Company,” “we,” “us” and “our”) design, import, manufacture and market residential household furniture, hospitality and contract furniture for sale to wholesale and retail merchandisers located principally in North America.

Hooker Furnishings Corporation and subsidiaries (the “Company,” “we,” “us” and “our”) design, import, manufacture and market residential household furniture, hospitality and contract furniture, lighting, accessories, and home décor for sale to wholesale and retail merchandisers located principally in North America.

Consolidation

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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.

Neither of these operating segments were individually reportable;

All Other, consisting of H Contract, BOBO Intriguing Objects, and Lifestyle Brands.

None of these operating segments were individually reportable;

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

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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, 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.

Our amortizable intangible assets are related to the Shenandoah, Sunset West and Home Meridian acquisitions, as well as the rebranding of Sam Moore product line, and includes customer relationships and trademarks.

Our indefinite lived assets include goodwill related to the Shenandoah, Sunset West and BOBO acquisitions, as well as the Bradington-Young, Home Meridian and BOBO tradenames.

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

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

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

In accordance with ASC 350, Intangibles—Goodwill and Other, our goodwill, trademarks and trade names are tested for impairment annually as of the first day of our fourth quarter or more frequently if events or changes in circumstances indicate that the asset might be impaired.

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

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Cash Surrender Value of Life Insurance Policies

We own seventy-four life insurance policies on certain of our current and former executives and other key employees.

We own seventy-three life insurance policies on certain of our current and former executives and other key employees.

These policies had a carrying value of $ 28.5 million at January 28, 2024 and have a face value of approximately $ 56 million as of that date.

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Actual results could differ from our estimates.

Recently Issued Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures”.

The new guidance requires enhanced reportable segment disclosures to include significant segment expenses.

ASU 2023-07 is effective for annual and interim periods beginning after December 15, 2023 (our fiscal 2025).

We are currently evaluating the impact that the adoption of this new guidance will have on our Consolidated Financial Statements and will add necessary disclosures upon adoption.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures”.

The new guidance requires enhanced effective tax rate reconciliation and income taxes paid disclosures.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024 (our fiscal 2026).

We are currently evaluating the impact that the adoption of this new guidance will have on our Consolidated Financial Statements and will add necessary disclosures upon adoption.

We reviewed all other newly issued accounting pronouncements and concluded that 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.

NOTE 2 - FISCAL YEAR

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In some years, generally once every six years, the fourth quarter will be fourteen weeks long and the fiscal year will consist of fifty-three weeks.

The 2019 fiscal year that ended on February 3, 2019 was a 53-week fiscal year.

Our quarterly periods are based on thirteen-week “reporting periods,” which end on Sundays.

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2024 fiscal year and comparable terminology mean the fiscal year that began January 30, 2023 and ended January 28, 2024;

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

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.

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.

NOTE 3 – EXIT AND RESTRUCTURING CHARGES

We recorded inventory valuation charges of $ 1.8 million, $ 28.8 million, and $ 3.4 million, respectively, in each of fiscal 2024, fiscal 2023, and fiscal 2022 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.

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) 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.

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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.

These expenses were recorded as a component of selling and administrative expenses in our fiscal 2022 and fiscal 2023 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 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.

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Non-cash charges to cost and expenses

Less uncollectible receivables written off, net of recoveries

Increase / (decrease) in allowance, net of recoveries

Balance at end of year

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Less allowances applied

Less uncollectible receivables written off, net of recoveries

Increase / (decrease) in allowance, net of recoveries

Balance at end of year

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Reduction to LIFO basis

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.

At January 28, 2024 and January 29, 2023, we had $ 198,000 and $ 2.4 million, respectively, in consigned inventories, which are included in the “Finished furniture” line in the table above.

At January 28, 2024, we held $ 4.1 million in inventory in Vietnam.

At January 29, 2023, we held $ 12.3 million in inventory in Vietnam and China.

NOTE 8 – PROPERTY, PLANT AND EQUIPMENT

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Property, plant and equipment, net

Depreciation expense for fiscal 2023, 2022 and 2021 was $ 5.3 million, $ 5.4 million and $ 4.4 million, respectively.

Depreciation expenses for fiscal 2024, 2023, and 2022 were $ 4.9 million, $ 5.3 million, and $ 5.4 million, respectively.

Capitalized Software Costs

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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.

The ERP system went live at Sunset West in December 2022 and in the legacy Hooker divisions and for consolidated reporting in early September 2023.

We expect the new ERP system to go live in the Home Meridian segment during fiscal 2026.

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.

These costs are recorded in other noncurrent assets of our consolidated balance sheets.

We amortize on a straight-line basis over 10 -years term as the system went live at Sunset West and the legacy Hooker divisions.

The amortization expenses are recorded as a component of selling and administrative expenses in our consolidated statements of operations.

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

Implementation costs of $ 5.1 million and interest expense of $ 273,000 were capitalized in fiscal 2024.

Implementation costs of $ 5.4 million and interest expense of $ 84,000 were capitalized in fiscal 2023.

Implementation costs of $ 3.2 million were capitalized in fiscal 2022.

The capitalized implementation costs at January 28, 2024 and January 29, 2023 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

January 28, 2024

January 29, 2023

Gross carrying

Implementation Costs

Interest Expenses

NOTE 10 – INTANGIBLE ASSETS AND GOODWILL

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Our non-amortizable intangible assets consist of:

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).

We review goodwill annually for impairment or more frequently if events or circumstances indicate that it might be impaired.

In accordance with ASU 2017-04, Intangibles — Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment , we perform our annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

Management judgment is a significant factor in the goodwill impairment evaluation process.

The computations require management to make estimates and assumptions, the most critical of which are potential future cash flows and the appropriate discount rate.

In conjunction with our evaluation of the cash flows generated by the Home Meridian, Bradington-Young and Sam Moore reporting units, we evaluated the carrying value of trademarks and trade names using the relief from royalty method, which values the trademark/trade name by estimating the savings achieved by ownership of the trademark/trade name when compared to licensing the mark/name from an independent owner.

The inputs used in the trademark/trade name analyses are considered Level 3 fair value measurements.

The adverse economic effects brought on by the COVID-19 pandemic, including reductions in our sales, earnings and market value, as well as other changing market dynamics, required that we perform a valuation of our intangible assets in the 2021 first quarter.

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

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

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

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

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:

Non-amortizable Intangible Assets

Trademarks and trade names

Home Meridian

Domestic Upholstery

Home Meridian

Domestic Upholstery

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

Goodwill related to the Shenandoah (acquired 2017), Sunset West (acquired 2022) and BOBO (acquired 2023) acquisitions;

Trademarks and tradenames related to the acquisitions of Bradington-Young (acquired 2002), Home Meridian (acquired 2016), and BOBO Intriguing Objects (acquired 2023).

We review goodwill and other intangible assets annually for impairment or more frequently if events or circumstances indicate that it might be impaired.

Based on our internal analyses, at January 28, 2024, we concluded our non-amortizable trademarks and trade names are not impaired and Shenandoah, Sunset West and BOBO goodwill is not impaired.

During fiscal 2024, we recorded $ 500,000 in trademarks with indefinite lives and $ 84,000 in goodwill as a result of the BOBO acquisition.

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:

Amortizable Intangible Assets

Relationships

Balance at January 30, 2022

Balance at January 29, 2023

During the fiscal 2024 first quarter, we announced the rebranding of the Sam Moore product line to “HF Custom”.

As a result, we reassessed the characteristics of the Sam Moore trade name and the roll-out process, and determined it qualified for amortization;

consequently, we began amortizing the Sam Moore trade name over a 24 -month period using the straight-line method beginning mid-April 2023.

Details of our intangible assets were as follows:

January 28, 2024

January 29, 2023

carrying amount

Intangible assets with indefinite lives:

Domestic Upholstery - Shenandoah *

Domestic Upholstery - Sunset West

All Other - BOBO Intriguing Objects

Trademarks and Trade names *

Intangible assets with definite lives:

Customer Relations

Trademarks and Trade names

Intangible assets, net

The amounts are net of impairment charges of $ 16.4 million related to Shenandoah goodwill and $ 4.8 million related to certain Home Meridian segment trade names, which were recorded in fiscal 2021.

The estimated amortization expense associated with our amortizable intangible assets is expected to be as follows:

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

See “Leases” under Note 1 for a discussion of our accounting policies and elections under Topic 842.

We have a sub-lease at one of our warehouses and we recognized sub-lease income of $ 146,000 , $ 445,000 , and $ 890,000 in fiscal 2024, fiscal 2023, and fiscal 2022, respectively.

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Operating cash outflows

During the fiscal 2024 second quarter, we reduced our footprint by 200,000 square feet in the Georgia warehouse.

During the third quarter, we entered into an agreement to further reduce our footprint by 200,000 square feet by early calendar 2024.

These modifications resulted in an approximate $ 13 million decrease in the lease right-of-use assets and liabilities.

The right-of-use assets and lease liabilities recorded on our Consolidated Balance Sheets as of January 28, 2024 and January 29, 2023 were:

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Total operating lease liabilities

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 5.15 %.

1 unchanged sentence

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 28, 2024:

Undiscounted Future Operating Lease Payments

Undiscounted Future

Operating Lease Payments

2030 and thereafter

2 unchanged sentences

Present value of lease payments

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

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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.

As of January 28, 2024, unamortized loan costs of $ 26,250 were netted against the carrying value of our term loans on our 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 carrying amount of the term loans approximated their fair value at January 28, 2024.

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

1 unchanged sentence

2.25:1.0 through July 30, 2024;

2.00:1.00 thereafter.

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We were in compliance with each of these financial covenants at January 28, 2024 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 28, 2024, we had $ 28.3 million available under our $35 million Existing Revolver to fund working capital needs.

41 unchanged sentences

Interest cost

Net (gain)/loss

Net periodic benefit cost

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Amortizations:

Total recognized in other comprehensive loss (income)

Total recognized in other comprehensive income

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

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This rate was used to value the ending benefit obligations.

At January 28, 2024, the actuarial gain related to the SRIP amounted to $ 150,000 , net of tax $ 41,000 .

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.

The estimated actuarial gain that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the 2025 fiscal year is $ 236,188 .

19 unchanged sentences

Amortizations:

Total recognized in other comprehensive loss (income)

Total recognized in other comprehensive income

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

8 unchanged sentences

At January 29, 2023, combining the Aon AA Above Median yield curve and the plan's expected benefit payments created a rate of 4.70%.

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

This rate was used to determine the fiscal 2024 net periodic cost.

The change in the discount rate from 4.70% to 4.90% decreased liabilities.

At January 29, 2023, the actuarial gain related to the SERP was $ 119 ,000.

At January 28, 2024, the actuarial loss related to the SERP was $ 29 ,000.

At January 29, 2023, the actuarial gain related to the SERP was $ 119 ,000.

8 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 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 weighted average grant-date fair values of unvested restricted stock awards issued during fiscal 2024 were $ 18.73 , $ 15.10 , $ 17.65 and $ 21.22 , during fiscal 2023 were $ 22.19 and $ 18.26 , and during fiscal 2022 was $ 37.20 .

The restricted stock awards outstanding as of January 28, 2024 had an aggregate grant-date fair value of $ 3.6 million, after taking vested and forfeited restricted shares into account.

8 unchanged sentences

Restricted shares Issued on April 8, 2021

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 April 10, 2023

Restricted shares Issued on May 5, 2023

Restricted shares Issued on June 9, 2023

Restricted shares Issued on October 12, 2022

Restricted shares Issued on July 24, 2023

Awards outstanding at January 28, 2024:

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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

RSUs Awarded on April 11, 2022

RSUs Awarded on April 10, 2023

Awards outstanding at January 28, 2024:

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

During fiscal 2024, we purchased and retired 620,634 shares of our common stock (at an average price of $ 18.79 per share) under the $ 20 million share repurchase authorization approved by our board of directors in fiscal 2023 and the additional $ 5 million share repurchase authorization approved by our board of directors in the second quarter of this year.

These repurchases reduced our total outstanding shares and, consequently, reduced the weighted outstanding shares used in our calculation of earnings per share for fiscal 2024 shown below.

The share repurchase program was completed during the fiscal 2024 third quarter.

The following table sets forth the computation of basic and diluted earnings per share:

Fifty-Two Weeks Ended

Net (loss)/income

Net income/(loss)

Dividends on unvested restricted shares

4 unchanged sentences

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.

Basic earnings/(loss) per share

Diluted earnings/(loss) per share

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

NOTE 17 – INCOME TAXES

6 unchanged sentences

Income tax (benefit)/expense

Total tax expense for fiscal 2024 was $ 2.6 million, of which $ 2.6 million expense was allocated to continuing operations and $ 41 ,000 tax benefit was allocated to other comprehensive income.

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.

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

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

Fifty-Two Weeks Ended

5 unchanged sentences

Change in valuation allowance

Consolidated Appropriation Act provisions

Effective income tax rate

12 unchanged sentences

Net deferred tax assets

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

At January 28, 2024 and January 29, 2023 our net deferred tax asset was $ 12.0 million and $ 14.5 million, respectively.

The increase in the valuation allowance of $ 7,000 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.

The foreign tax credit carry forward is $ 100,000 and expires beginning in fiscal 2029.

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

We have federal and state net operating loss carry forwards of $ 22.7 million and $ 14.4 million, respectively, which have various expiration dates beginning in fiscal 2039 through fiscal 2044, with some having an indefinite carry forward period.

We have foreign tax credit carry forwards of $ 147,000 which expire beginning in fiscal 2029 through fiscal 2034.

We also have charitable contribution carry forwards of $ 3.2 million, which expire in fiscal 2028 and fiscal 2029.

Current accounting standards prescribe a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

1 unchanged sentence

We do not have unrecognized tax benefits as of January 28, 2024.

Tax years ending February 2, 2020 through January 29, 2023 remain subject to examination by federal and state taxing authorities.

Tax years ending January 31, 2021 through January 28, 2024 remain subject to examination by federal and state taxing authorities.

NOTE 18 – SEGMENT INFORMATION

11 unchanged sentences

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, 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.

Neither of these operating segments were individually reportable;

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, BOBO Intriguing Objects, and Lifestyle Brands.

None of these operating segments were individually reportable;

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

1 unchanged sentence

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.

Before the fiscal 2024 third quarter, H Contract’s results included sales of products sourced from the Hooker Branded and Domestic Upholstery segments.

Due to a change in the way management internally evaluates operating performance, beginning with fiscal 2024 third quarter, Hooker Branded and Domestic Upholstery segments’ results now include sales of products formerly included in H Contract’s results.

Fiscal 2024 and fiscal 2023 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 Home Meridian segment is unchanged.

During the second quarter of fiscal 2024, we acquired substantially all the assets of BOBO Intriguing Objects.

Based on the requirements of ASC 280:

Segment Reporting, BOBO’s results are included in All Other on a prospective basis.

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

21 unchanged sentences

$ 108,692 25.1 % $ 93,294 16.0 % $ 101,702 17.1 %

Operating (Loss)/Income

Operating Income/(Loss)

Hooker Branded

22 unchanged sentences

$ 8,956 $ 8,829 $ 7,814

As of January 28,

As of January 29,

Hooker Branded

11 unchanged sentences

Commitments and Off-Balance Sheet Arrangements

We lease office space, warehousing facilities, showroom space and office equipment under leases expiring over the next five years.

Rent expense, was $ 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, 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 $ 6.7 million on January 28, 2024.

5 unchanged sentences

Imported Products Sourcing

We source imported products through multiple vendors, located in nine countries.

We source imported products through multiple vendors, located in ten countries.

Because of the large number and diverse nature of the foreign factories from which we can source our imported products, we have some flexibility in the placement of products in any particular factory or country.

Factories located in Vietnam and China are a critical resource for Hooker Furnishings.

In fiscal 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 or China could significantly impact our ability to fill customer orders for products manufactured at that factory or in that country.

Factories located in Vietnam are a critical resource for Hooker Furnishings.

In fiscal 2024, imported products sourced from Vietnam accounted for 88 % of our import purchases and our top five suppliers accounted for 60 % of our fiscal 2024 import purchases.

A disruption in our supply chain from Vietnam 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

17 unchanged sentences

On March 4, 2024 , our Board of Directors declared a quarterly cash dividend of $ 0.23 per share, payable on March 29, 2024 to shareholders of record at March 18, 2024 .

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