SEC Filing | Hooker Furnishings

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the ----- Securities Exchange Act of 1934 For the quarterly period ended August 31, 2000 or ----- Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to . ---------- ---------- Commission file number 000-25349. HOOKER FURNITURE CORPORATION (Exact name of registrant as specified in its charter) Virginia 54-0251350 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 440 East Commonwealth Boulevard, Martinsville, VA. 24112 (Address of principal executive offices, Zip Code) (540) 632-2133 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 12, 2000. Class Number Common Stock, no par value 7,617,298 Shares

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS HOOKER FURNITURE CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (In thousands, including share data) (Unaudited) August 31, November 30, 2000 1999 Assets Current assets Cash, primarily interest-bearing deposits................................. $ 809 $ 157 Trade receivables, less allowances of $592 and $525....................... 29,953 26,599 Inventories............................................................... 44,007 37,051 Prepaid expenses and other................................................ 2,214 2,408 --------- ------ Total current assets................................................... 76,983 66,215 Property, plant and equipment, net........................................... 47,766 45,138 Other assets................................................................. 7,286 5,070 --------- ------ $132,035 $116,423 ========= ======== Liabilities and Stockholders' Equity Current liabilities Trade accounts payable.................................................... $ 2,057 $ 3,776 Accrued salaries, wages and benefits...................................... 5,701 5,387 Other accrued expenses.................................................... 4,330 2,495 --------- ------ Total current liabilities............................................... 12,088 11,658 Long-term debt............................................................... 12,500 7,000 Deferred liabilities......................................................... 2,293 2,402 --------- ------ Total liabilities......................................................... 26,881 21,060 -------- ------- Common stock held by ESOP.................................................... 10,129 10,129 Stockholders' Equity Common stock, no par value, 10,000 shares authorized, 7,617 shares issued and outstanding....................................... 2,418 2,418 Retained earnings ........................................................... 92,607 82,816 ------- ------- Total stockholders' equity................................................ 95,025 85,234 -------- ------- $132,035 $116,423 ======= ======= The accompanying notes are an integral part of the financial statements. 2

HOOKER FURNITURE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) Three Months Nine Months Ended August 31, Ended August 31, 2000 1999 2000 1999 Net sales............................................ $61,053 $54,356 $183,355 $166,327 Cost of sales........................................ 44,416 40,714 134,606 123,229 ------ ------- ------- -------- Gross profit.................................... 16,637 13,642 48,749 43,098 Selling and administrative expenses.................. 10,552 8,677 30,298 25,895 ------- ------ ------- ------- Operating income................................ 6,085 4,965 18,451 17,203 Other income (expense), net.......................... 152 3 47 (272) ------- --- ----- ------ Income before taxes............................. 6,237 4,968 18,498 16,931 Income taxes......................................... 2,108 1,886 6,766 6,383 ------ ------ ------ ------ Net income...................................... $ 4,129 $ 3,082 $ 11,732 $ 10,548 ====== ====== ======= ======= Earnings per share: Basic and diluted............................... $ .54 $ .40 $ 1.54 $ 1.38 ===== ===== ====== ====== Weighted average shares outstanding............. 7,617 7,627 7,617 7,640 ===== ====== ====== ====== The accompanying notes are an integral part of the financial statements. 3

HOOKER FURNITURE CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Nine Months Ended August 31, 2000 1999 Cash flows from operating activities: Cash received from customers............................................ $180,535 $163,593 Cash paid to suppliers and employees.................................... (166,538) (151,852) Income taxes paid, net.................................................. (6,579) (7,677) Interest paid, net...................................................... (494) (227) ------ ------ Net cash provided by operating activities.............................. 6,924 3,837 ------ ------ Cash flows from investing activities: Purchase of property, plant and equipment, net.......................... (9,030) (4,622) Acquisition of joint venture interest, net of cash acquired............ (801) ------ ------- Net cash absorbed by investing activities.............................. (9,831) (4,622) ------ ------- Cash flows from financing activities: Proceeds from long-term debt............................................ 15,500 4,738 Payments on long-term debt.............................................. (10,000) (4,300) Cash dividends paid..................................................... (1,941) (1,719) Purchase and retirement of common stock................................. (620) ------- ------- Net cash provided (absorbed) by financing activities................... 3,559 (1,901) ------- ------- Net increase (decrease) in cash............................................ 652 (2,686) Cash at beginning of year.................................................. 157 3,625 -------- ------- Cash at end of period...................................................... $ 809 $ 939 ======== ======= Reconciliation of net income to net cash provided by operating activities: Net income.............................................................. $11,732 $10,548 Depreciation and amortization......................................... 4,770 3,441 Loss on disposal of property, plant and equipment..................... 53 Changes in assets and liabilities, net of effects from acquisition: Trade receivables................................................... (3,354) (3,228) Inventories......................................................... (6,956) (1,012) Prepaid expenses and other assets................................... 316 (1,052) Trade accounts payable.............................................. (1,719) (3,046) Other accrued expenses.............................................. 1,996 (2,020) Deferred liabilities................................................ 86 206 -------- -------- Net cash provided by operating activities............................. $ 6,924 $ 3,837 ======== ======== Supplemental schedule of non-cash investing activities: On June 30, 2000, the Company purchased the remaining 50% interest in its joint venture for cash of $1,398 and the delivery of certain investment securities to the seller valued at $300. In addition, liabilities were assumed as follows: Fair market value of assets acquired (including cash of $597)......... $1,851 Cash and securities paid.............................................. (1,698) ------- Liabilities assumed................................................... $ 153 ====== The accompanying notes are an integral part of the financial statements. 4

HOOKER FURNITURE CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in tables, in thousands) 1. Preparation of Interim Consolidated Financial Statements The consolidated financial statements of Hooker Furniture Corporation and Subsidiary (referred to as "Hooker" or the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles are condensed or omitted pursuant to SEC rules and regulations. However, management believes that the disclosures made are adequate for a fair presentation of results of operations and financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. These financial statements should be read in conjunction with the financial statements and accompanying notes included in the Company's Annual Report on Form 10K for the fiscal year ended November 30, 1999. All share and per share data reflect the effect of a two-for-one stock split distributed in the form of a stock dividend on January 31, 2000. 2. Inventories (Unaudited) August 31, November 30, 2000 1999 ---------- ----------- Finished furniture............................................ $38,348 $31,673 Furniture in process.......................................... 2,355 1,665 Materials and supplies........................................ 13,435 13,244 ------ ------ 54,138 46,582 Reduction to LIFO basis....................................... 10,131 9,531 ------ ------ $44,007 $37,051 ====== ====== 3. Property, Plant and Equipment (Unaudited) August 31, November 30, 2000 1999 -------- -------- Buildings..................................................... $43,034 $40,047 Machinery and equipment....................................... 45,196 40,888 Office fixtures and equipment................................. 9,516 6,323 Construction in progress and other............................ 2,073 5,894 ------ ------- Property, plant and equipment, at cost.................... 99,819 93,152 Less accumulated depreciation................................. 53,339 49,385 ------ ------ 46,480 43,767 Land.......................................................... 1,286 1,371 ------ ------- $47,766 $45,138 ====== ====== 5

Notes to Financial Statements - Continued 4. Long-Term Debt (Unaudited) August 31, November 30, 2000 1999 Industrial revenue bonds due 2006............................. $ 7,000 $7,000 Revolving line of credit...................................... 5,500 ------ ----- $12,500 $7,000 ====== ===== 5. Acquisition On June 30, 2000, the Company purchased the remaining 50% interest in its Triwood joint venture for an aggregate consideration of $1.9 million. The acquired entity formerly produced particleboard for furniture manufacturing. During 1998, the joint venture was cited by the Environmental Protection Agency ("EPA") for a violation of certain regulations under the Clean Air Act Amendments of 1990. The two joint venture members determined that the cost of modification to the plant to come into compliance, together with other needed capital improvements, would be prohibitive and the joint venture elected to cease operations in November 1998. Effective June 1, 1999, the joint venture entered into a lease for the land and building owned by the joint venture with a third party lessee. The lease term is for two years with an option to purchase for $2.7 million. The purchase price includes the assumption of the first $100,000 of liability, if any, related to the 1998 EPA citation. Pursuant to an indemnification agreement, the two joint venture members will share equally, any liability in excess of $100,000. The Company is operating its imports business as a wholly owned subsidiary, through the acquired entity. The financial statements of the Company reflect the results of operations and financial position of the wholly owned subsidiary on a consolidated basis as of and subsequent to June 30, 2000. Inter-company transactions have been eliminated. The joint venture has been accounted for under the equity method for periods prior to June 30, 2000. 6. Subsequent Event In September 2000, the Company's Employee Stock Ownership Plan Trust (the "ESOP") completed a tender offer for 1.8 million shares of the Company's common stock at a price of $12.50 per share. In connection with the tender offer, the Company borrowed $22.5 million under a 10-year term loan, at an effective interest rate of approximately 7.4% per annum, and loaned the proceeds to the ESOP. The ESOP will repay the loan to the Company over a 25-year period with interest at 8.0% from dividends and employer contributions to the Plan. 6

HOOKER FURNITURE CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - Third Quarter 2000 Compared to Third Quarter 1999 Net sales increased $6.7 million or 12.3% for the three-month period ended August 31, 2000 from the comparable 1999 period. The increase was due principally to higher unit volume in imported furniture, home office furniture and wall systems, partially offset by lower unit volume in bedroom furniture. Average selling prices were lower during the 2000 period principally due to the mix of products shipped (primarily increased imported furniture shipments). Gross profit margin for the 2000 period increased to 27.3% compared to 25.1% in the 1999 period. The increase was due principally to improved operating efficiencies and the lower delivered cost of imported furniture as a percent of sales, partially offset by higher raw material costs. Selling and administrative expense rose $1.9 million to 17.3% of net sales in the 2000 period compared to 16.0% in the 1999 period. The increase in expenses was due principally to higher selling costs to support increased sales, fees incurred in connection with the tender offer by the Company's Employee Stock Ownership Plan Trust (the "ESOP Trust"), higher depreciation expense related to system conversions placed in service in January and February 2000, and increased warehousing and shipping costs. As a result of the above, operating income increased to 10.0% of net sales in the 2000 period from 9.1% in the comparable 1999 period. The Company's effective tax rate decreased from 38.0% in the three-month 1999 period to 33.8% in the comparable 2000 period. The lower tax rate is attributed principally to the recognition of operating loss carry forwards generated by the Company's joint venture ("Triwood") in previous years. On June 30, 2000, the Company purchased the remaining 50% interest in Triwood, the Company's former particleboard facility that ceased operations in November 1998. On July 1, 2000, the Company restructured its Import Division operations into Triwood, which is being accounted for as a wholly owned subsidiary. As a result of this restructuring, the Company began to absorb certain operating loss carry forwards generated by Triwood in previous years. The Company expects to continue absorbing additional loss carry forwards in the fourth quarter of 2000. Results of Operations - Nine Months 2000 Compared to Nine Months 1999 Net sales increased $17.0 million or 10.2% for the nine-month period ended August 31, 2000 from the comparable 1999 period. The increase was due principally to higher unit volume in imported and home office furniture partially offset by lower unit volume in bedroom furniture and entertainment centers. Average selling prices were slightly lower during the 2000 period principally due to the mix of products shipped (primarily increased imported furniture shipments). Gross profit margin for the 2000 period increased to 26.6% compared to 25.9% in the 1999 period. Lower raw material costs as a percent of sales, improved operating efficiencies and the lower delivered cost of imported furniture as a percent of net sales were offset by higher employee benefits cost for manufacturing employees (primarily medical claims) incurred in the 2000 period. Medical claims continued to decline during the third quarter from levels experienced during each of the first two quarters of 2000. 7

Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued Results of Operations - Nine Months 2000 Compared to Nine Months 1999 - Continued Selling and administrative expenses rose $4.4 million to 16.5% of net sales in the 2000 period compared to 15.6% in the 1999 period. The increase in expenses was due principally to higher selling costs to support increased sales, higher warehousing and shipping costs resulting from the interim operation of dual warehousing facilities, increased depreciation expense related to system conversions placed in service in January and February 2000, and fees incurred in connection with the tender offer by the Company's ESOP Trust. In 1999, the Company began a 180,000 square foot addition to its central distribution center (the "CDC") in Martinsville, Virginia. The Company substantially completed the consolidation of finished inventory formerly kept in three separate warehouses into the CDC in 1999, but continued to operate dual facilities through March 2000. The Company opened the 180,000 square foot addition to its central distribution center in February 2000 and closed the one remaining dual facility in early April 2000. The closed facility is presently leased. As a result of the above, operating income decreased to 10.1% of net sales in the 2000 period from 10.3% in the comparable 1999 period. The Company's effective tax rate decreased from 37.7% in the nine-month 1999 period to 36.6% in the comparable 2000 period, principally due to the recognition of operating loss carry forwards generated by Triwood in the third quarter as discussed above. Financial Condition, Liquidity and Capital Resources As of August 31, 2000, assets totaled $132.0 million, up from $116.4 million at November 30, 1999. Stockholders' equity at August 31, 2000, was $95.0 million, rising from $85.2 million at November 30, 1999. During the nine-month period ended August 31, 2000, cash generated from operations of $6.9 million and net borrowings from the Company's revolving credit line of $5.5 million funded capital expenditures amounting to $9.0 million, dividend payments totaling $1.9 million, a net cash expenditure of $801,000 in connection with the acquisition of Triwood and an increase in available cash of $652,000. During the comparable 1999 period, cash generated from operations of $3.8 million, available cash of $2.7 million and net borrowings from the Company's revolving credit line of $438,000 funded $4.6 million in capital expenditures, dividend payments of $1.7 million and purchases of the Company's common stock totaling $620,000. Cash generated from operations of $6.9 million during the 2000 period increased from $3.8 million in the comparable 1999 period. During the 2000 period, higher cash received from customers, resulting from increased sales, and lower tax payments were partially offset by higher payments to suppliers and employees and higher interest payments, as compared with the 1999 period. Investing activities consumed $9.8 million during the 2000 period compared to $4.6 million in the comparable 1999 period. Capital expenditures were higher in the 2000 period as the Company completed the addition to the CDC and completed its construction of raw lumber grading, storage and drying facilities at the Maiden, North Carolina plant, which were placed in service in April 2000. On June 30, 2000, the Company purchased the remaining 50% interest in Triwood for a cash outlay of $801,000, net of cash received in the purchase. 8

Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued Financial Condition, Liquidity and Capital Resources - Continued The Company generated cash of $3.6 million from financing activities in the 2000 period compared to utilizing $1.9 million for financing activities in the 1999 period. During the 2000 period, net borrowings of $5.5 million helped to fund investing activities of $9.8 million, make dividend payments of $1.9 million and increase available cash by $652,000. During the 1999 period, cash from operations and available cash funded dividend payments of $1.7 million, purchases of over 44,000 shares of the Company's common stock at an average price of $14.04 per share ($620,000 aggregate) and net repayments of $438,000 against the revolving line of credit. In June 2000, the Company's Board of Directors declared a quarterly dividend of $.085 per share that was paid in August 2000. At August 31, 2000, the Company had $2.5 million available under its revolving line of credit and $13.0 million of availability under additional lines of credit to fund working capital needs. The Company believes it has the financial resources needed to meet business requirements for the foreseeable future. In September 2000, the Company's Employee Stock Ownership Plan Trust (the "ESOP") completed a tender offer for 1.8 million shares of the Company's common stock at a price of $12.50 per share. In order to finance the tender offer, the Company borrowed $22.5 million under a 10-year term loan, at an effective interest rate of approximately 7.4% per annum, and loaned the proceeds to the ESOP. The ESOP will repay the loan to the Company over a 25-year period with interest at 8.0% from dividends and employer contributions to the Plan. Forward-Looking Statements Certain statements made in this report are not based on historical facts, but are forward-looking statements. These statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect the Company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include the cyclical nature of the furniture industry, fluctuations in the price of lumber which is the most significant raw material used by the Company, competition in the furniture industry, capital costs and general economic or business conditions, either nationally or internationally. Item 3. Quantitative And Qualitative Disclosures About Market Risk The Company's obligations under its lines of credit and industrial revenue bonds bear interest at variable rates. The Company has entered into an interest rate swap agreement that, in effect fixes the rate of interest on the industrial revenue bonds at 4.71% through 2006. At August 31, 2000, the Company had $5.5 million outstanding under its lines of credit. In connection with the tender offer, during September 2000 the Company borrowed $22.5 million under a 10-year term loan, bearing interest at a floating rate of the one-month LIBOR plus 0.375% per annum. In connection with that loan, the Company entered into a floating to fixed interest rate swap at a fixed rate of approximately 7.4% for the entire principal amount of the loan through September 2010, the scheduled maturity date of the loan. A 10% fluctuation in market interest rates would not have a material impact on the Company's results of operations or financial condition. 9

HOOKER FURNITURE CORPORATION PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27. 1 Financial Data Schedule for the nine months ended August 31, 2000. * (b) Reports on Form 8-K None. * Filed herewith. 10

SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOOKER FURNITURE CORPORATION Date: October 12, 2000 By: /s/ E. Larry Ryder ------------------------- E. Larry Ryder Senior Vice President - Finance and Administration (Principal Financial and Accounting Officer) 11

5 1,000 9-MOS NOV-30-2000 DEC-01-1999 AUG-31-2000 809 0 30,545 592 44,007 76,983 101,105 53,339 132,035 12,088 12,500 10,129 0 2,418 92,607 132,035 183,355 183,355 134,606 164,904 (47) 0 0 18,498 6,766 11,732 0 0 0 11,732 1.54 1.54 Represents Common Stock held by ESOP