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 February 28, 2002 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 Identification No.) incorporation or organization) 440 East Commonwealth Boulevard, Martinsville, VA 24112 (Address of principal executive offices, Zip Code) (276) 632-0459 (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 March 28, 2002. Common stock, no par value 7,277,052 (Class of common stock) (Number of shares)
PART I. FINANCIAL INFORMATION Item 1. Financial Statements HOOKER FURNITURE CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, including share data) (Unaudited) February 28, November 30, 2002 2001 Assets Current assets Cash, primarily interest-bearing deposits................................. $ 15,157 $ 7,926 Trade receivables, less allowances of $662 and $620....................... 31,291 29,430 Inventories............................................................... 27,639 33,522 Income tax recoverable.................................................... 1,359 Prepaid expenses and other................................................ 2,106 2,368 ------- ------- Total current assets................................................... 76,193 74,605 Property, plant, and equipment, net.......................................... 50,110 49,952 Other assets................................................................. 6,138 6,138 ------- ------- Total assets........................................................... $132,441 $130,695 ======= ======= Liabilities and Shareholders' Equity Current liabilities Trade accounts payable.................................................... $ 3,132 $ 4,088 Accrued salaries, wages, and benefits..................................... 4,837 4,789 Other accrued expenses.................................................... 4,294 3,374 Current maturities of long-term debt...................................... 2,771 2,730 ------- ------- Total current liabilities............................................... 15,034 14,981 Long-term debt............................................................... 23,505 24,181 Other long-term liabilities.................................................. 4,221 4,395 ------- ------- Total liabilities......................................................... 42,760 43,557 ------- ------- Common stock held by ESOP.................................................... 9,659 9,397 Shareholders' equity Common stock, no par value, 10,000 shares authorized, 7,277 and 7,617 shares issued and outstanding............................. 2,824 2,789 Unearned ESOP shares (1,639 and 1,761 shares)................................ (20,490) (20,793) Retained earnings ........................................................... 99,359 97,432 Accumulated other comprehensive loss ........................................ (1,671) (1,687) ------- ------- Total shareholders' equity.............................................. 80,022 77,741 ------- ------- Total liabilities and shareholders' equity............................ $132,441 $130,695 ======= ======= The accompanying notes are an integral part of the financial statements. 2
HOOKER FURNITURE CORPORATION CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share data) Three Months Ended February 28, February 28, 2002 2001 Net sales............................................ $60,929 $55,924 Cost of sales........................................ 45,528 42,324 ------ ------ Gross profit.................................... 15,401 13,600 Selling and administrative expenses.................. 9,849 9,461 ------ ------ Operating income................................ 5,552 4,139 Other income, net.................................... 167 305 Interest expense..................................... 511 505 ------ ------ Income before taxes............................. 5,208 3,939 Income taxes......................................... 1,979 1,496 ------ ------ Net income...................................... $ 3,229 $ 2,443 ====== ====== Earnings per share: Basic and diluted............................... $ 0.57 $ 0.42 ====== ====== Weighted average shares outstanding............. 5,621 5,857 ====== ====== The accompanying notes are an integral part of the financial statements. 3
HOOKER FURNITURE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended February 28, February 28, 2002 2001 Cash flows from operating activities: Cash received from customers............................................ $59,199 $58,867 Cash paid to suppliers and employees.................................... (47,853) (53,466) Income taxes paid, net.................................................. (7) (1,065) Interest paid, net...................................................... (445) (417) ------ ------ Net cash provided by operating activities.............................. 10,894 3,919 ------ ------ Cash flows from investing activities: Purchase of property, plant, and equipment, net of disposals............ (1,978) (2,615) ------ ------ Net cash absorbed by investing activities.............................. (1,978) (2,615) ------ ------ Cash flows from financing activities: Proceeds from long-term debt............................................ 2,500 Payments on long-term debt.............................................. (635) (2,477) Cash dividends paid..................................................... (563) (549) Purchase and retirement of common stock................................. (487) ------ ------ Net cash absorbed by financing activities.............................. (1,685) (526) ------ ------ Net increase in cash....................................................... 7,231 778 Cash at beginning of year.................................................. 7,926 1,243 ------ ------ Cash at end of period...................................................... $15,157 $ 2,021 ====== ====== Reconciliation of net income to net cash provided by operating activities: Net income.............................................................. $ 3,229 $ 2,443 Depreciation and amortization......................................... 1,816 1,730 Non-cash ESOP cost.................................................... 348 329 Loss on disposal of property.......................................... 4 Changes in assets and liabilities: Trade receivables................................................... (1,861) 2,661 Inventories......................................................... 5,883 3,779 Prepaid expenses and other assets................................... 1,621 (145) Trade accounts payable.............................................. (956) (3,657) Other accrued expenses.............................................. 994 (3,145) Other long-term liabilities......................................... (184) (76) ------ ------ Net cash provided by operating activities............................. $10,894 $ 3,919 ====== ====== The accompanying notes are an integral part of the financial statements. 4
HOOKER FURNITURE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in tables, in thousands unless otherwise indicated) 1. Preparation of Interim Financial Statements The consolidated financial statements of Hooker Furniture Corporation (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, 2001. 2. Inventories (Unaudited) February 28, November 30, 2002 2001 Finished furniture............................ $28,905 $33,481 Furniture in process.......................... 2,045 1,712 Materials and supplies........................ 8,320 9,685 ------ ------ Inventories at FIFO....................... 39,270 44,878 Reduction to LIFO basis....................... 11,631 11,356 ------ ------ Inventories............................... $27,639 $33,522 ====== ====== 3. Property, Plant, and Equipment (Unaudited) February 28, November 30, 2002 2001 Buildings..................................... $ 44,524 $ 44,314 Machinery and equipment....................... 46,811 46,231 Furniture and fixtures........................ 18,307 17,404 Other......................................... 3,590 3,291 ------- ------- Total depreciable property at cost........ 113,232 111,240 Accumulated depreciation...................... 64,408 62,574 ------- ------- Total depreciable property, net........... 48,824 48,666 Land.......................................... 1,286 1,286 ------- ------- Property, plant, and equipment, net....... $ 50,110 $ 49,952 ======= ======= 5
Notes to Consolidated Financial Statements - Continued 4. Long-Term Debt (Unaudited) February 28, November 30, 2002 2001 Term loan................................. $19,876 $20,511 Industrial revenue bonds ................. 6,400 6,400 ------ ------ Total debt outstanding................ 26,276 26,911 Less current maturities................... 2,771 2,730 ------ ------ Long-term debt........................ $23,505 $24,181 ====== ====== 5. Assets Held For Sale The Company owns an 189,000 square foot warehouse facility located in Martinsville, Virginia that is idle and presently held for sale or lease. This facility has a carrying value of $1.7 million, stated at the lower of carrying value, or fair value net of estimated selling expenses, and is classified in the balance sheets as "other assets." 6. Common Stock During the first quarter of 2002, the Company redeemed 27,000 shares from terminating ESOP participants at a total cost of $487,000, or $17.95 per share as required by the terms of the ESOP plan. Approximately 13,000 of the shares redeemed were from ESOP participants who terminated in connection with the Martinsville downsizing, which occurred in August 2001. 7. Other Comprehensive Income (Unaudited) Three Months Ended February 28, 2002 Portion of interest rate swaps' fair value reclassified to interest expense..................... $331 Loss on interest rate swaps.............................. 306 --- Other comprehensive income before tax................ 25 Income tax expense....................................... 9 --- Other comprehensive income, net of tax............... $ 16 === The amount reclassified to interest expense includes $25,000 related to the ineffective portion of the interest rate swap agreements. 6
HOOKER FURNITURE CORPORATION Item 2. Management's Discussion and Analysis Results of Operations Net sales of $60.9 million for the first quarter ended February 28, 2002, increased 8.9% from $55.9 million in the first quarter of 2001. Increased unit volume in imported product lines and home office furniture was partially offset by lower unit volume in bedroom furniture, entertainment centers, and wall systems. Average selling prices were lower during the 2002 period due to the mix of products shipped (primarily higher imported furniture shipments). The improvement in net sales reflected improved business conditions at retail and higher incoming order rates experienced since October 2001. Gross profit margin increased to 25.3% in the 2002 first quarter, compared to 24.3% in the 2001 period. Most of this improvement can be attributed to a decrease in the delivered cost of imported furniture as a percentage of sales volume. Also, the Company shipped more "higher margin" goods (principally imported products) as a percentage of total volume. In addition, raw material costs, principally lumber and wood products, decreased as a percentage of sales volume during the 2002 period. These positive factors were partially offset by an increase in overhead costs, primarily medical benefits, as a percentage of sales volume. The Company's six manufacturing facilities have been working normal 40-hour-per-week schedules since September 10, 2001. During the later part of the first quarter 2002, the Company began working selected overtime in some plants. Selling and administrative expenses increased $388,000 to $9.8 million for the 2002 first quarter from $9.5 million in the comparable 2001 period. The increase in expenses was due principally to higher selling expenses to support increased sales (principally sales commissions) and higher depreciation expense related to new technology placed in service during the past twelve months. These increases in expenses were partially offset by lower costs related to the Company's showroom. During the 2001 period, the Company incurred additional expenses related to the addition of 14,000 square feet to its High Point, NC showroom space. Selling and administrative expenses as a percentage of net sales decreased to 16.1% in the 2002 quarter from 16.9% in the 2001 period as a result of higher net sales in the 2002 period. As a result of the above, operating income increased to $5.6 million, or 9.1% of net sales, in the 2002 first quarter, from $4.1 million, or 7.4% of net sales, in the comparable 2001 period. Other income for the 2002 first quarter declined to $167,000 from $305,000 in the prior year quarter due to lower rental income. During the first quarter of 2001, the Company received rental income for land and a building that was sold on May 31, 2001 and for a warehouse facility under a lease agreement that terminated in August 2001. The warehouse facility, which is presently held for sale or lease, has a carrying value of $1.7 million stated at the lower of carrying value, or fair value net of estimated selling expenses. The Company's effective tax rate approximated 38.0% in each of the 2002 and 2001 quarters. Net income increased 32.2% to $3.2 million for first quarter 2002, compared to $2.4 million, in the comparable 2001 period. Earnings per share increased 35.7% to $.57 for the 2002 first quarter from $.42 in the year earlier period. 7
Management's Discussion and Analysis - Continued Financial Condition, Liquidity, and Capital Resources As of February 28, 2002, assets totaled $132.4 million, increasing from $130.7 million at November 30, 2001. Shareholders' equity at February 28, 2002, was $80.0 million, compared to $77.7 million at November 30, 2001. The Company's long-term debt, including current maturities, was $26.3 million at February 28, 2002, declining from $26.9 million at November 30, 2001. Working capital increased to $61.2 million as of February 28, 2002, from $59.6 million at the end of fiscal 2001, reflecting a $7.2 million increase in cash and a $1.9 million increase in trade receivables, partially offset by declines of $5.9 million in inventories and $1.6 million in other assets. During the first quarter ended February 28, 2002, cash generated from operations ($10.9 million) funded an increase in available cash ($7.2 million), capital expenditures ($2.0 million), repayment of long-term debt ($635,000), dividend payments ($563,000), and the purchase and retirement of common stock ($487,000). During the comparable 2001 period, cash generated from operations ($3.9 million) funded capital expenditures ($2.6 million), an increase in available cash ($778,000), and dividend payments ($549,000). Cash generated from operations of $10.9 million during the 2002 period increased $7.0 million from $3.9 million in the comparable 2001 period. The increase is due to lower payments to suppliers and employees, lower tax payments, and higher cash received from customers. Payments to suppliers and employees decreased $5.6 million, principally a reflection of higher current liabilities and lower inventory levels partially offset by higher cost of goods sold. Cash received from customers increased $332,000 as a result of higher sales, partially offset by higher trade receivables. Tax payments decreased $1.1 million due the timing of amounts due in each respective period. Investing activities consumed $2.0 million during the 2002 period compared to $2.6 million in the comparable 2001 period. Expenditures in each year were incurred principally for plant, equipment, and other assets to maintain and enhance the Company's facilities and business operating systems. The Company used cash of $1.7 million for financing activities in the 2002 period compared to $526,000 in the 2001 period. During the 2002 quarter, the Company repaid $635,000 of long-term debt, paid dividends of $563,000, and redeemed 27,000 shares of common stock from terminating ESOP participants at a total cost of $487,000, or $17.95 per share, as required by the terms of the ESOP plan. During the 2001 period, the Company paid dividends of $549,000. In 2001, the Company's Board of Directors authorized the repurchase of up to an aggregate of $5.2 million of the Company's common stock. Repurchases may be made from time to time in the open market, or in privately negotiated transactions, at prevailing market prices that the Company deems appropriate. Through February 28, 2002, the Company has repurchased 286,000 shares at a total cost of $2.4 million or an average of $8.47 per share. Based on the market value of the common stock as of March 28, 2002, the remaining $2.8 million of the authorization would allow the Company to repurchase approximately 2.7% of the 7.3 million shares outstanding, or 4.0% of the Company's outstanding shares excluding the 2.3 million shares held by the ESOP. On February 28, 2002, the Company had $9.6 million available under its revolving line of credit and $12.9 million available under additional lines of credit to fund working capital needs. The Company believes it has the financial resources (including available cash, cash flow from operations, and lines of credit) needed to meet business requirements for the foreseeable future including capital expenditures, working capital, purchases under the stock repurchase program, and dividends on the Company's 8
Management's Discussion and Analysis - Continued Financial Condition, Liquidity, and Capital Resources - Continued common stock. Cash flow from operations is highly dependent on order rates and the Company's operating performance. 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. Those risks and uncertainties include the cyclical nature of the furniture industry, domestic and international competition in the furniture industry, general economic or business conditions, both domestically and internationally, fluctuations in the price of lumber, which is the most significant raw material used by the Company, supply disruptions or delays affecting imported products, adverse political acts or developments in the international markets from which the Company imports products, fluctuations in foreign currency exchange rates affecting the price of the Company's imported products, and capital costs. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates, which could impact its results of operations and financial condition. The Company manages its exposure to these risks through its normal operating and financing activities and through the use of interest rate swap agreements with respect to interest rates. The Company's obligations under its lines of credit, industrial revenue bonds, and term loan bear interest at variable rates. The Company has entered into interest rate swap agreements that, in effect, fix the rate of interest on the industrial revenue bonds at 4.7% through 2006 and on the term loan at 7.4% through 2010. There were no other material derivative instrument transactions during any of the periods presented. As of February 28, 2002, $6.4 million was outstanding under the Company's industrial revenue bonds and $19.9 million was outstanding under the term loan. No balance was outstanding under the Company's lines of credit as of February 28, 2002. A 10% fluctuation in market interest rates would not have a material impact on the Company's results of operations or financial condition. For imported products, the Company generally negotiates firm pricing with its foreign suppliers, for periods typically of up to one year. The Company accepts the exposure to exchange rate movements beyond these negotiated periods without using derivative financial instruments to manage this risk. Since the Company transacts its purchases of import products in U.S. Dollars, a decline in the relative value of the U.S. Dollar could increase the cost of the products the Company imports. As a result, a weakening U.S. Dollar exchange rate could adversely impact sales volume and profit margins during such periods. 9
HOOKER FURNITURE CORPORATION PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None. (b) Reports on Form 8-K None. SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOOKER FURNITURE CORPORATION Date: April 10, 2002 By: /s/ R. Gary Armbrister ----------------------------------- R. Gary Armbrister Chief Accounting Officer (Principal Accounting Officer) 10