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HOOKER FURNISHINGS Corp - Quarter Report: 2004 February (Form 10-Q)

Form 10-Q

 

United States

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended February 29, 2004

 

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 incorporation or organization)   (IRS Employer Identification No.)

 

440 East Commonwealth Boulevard, Martinsville, VA 24112

(Address of principal executive offices, Zip Code)

 

(276) 632-0459

(Registrant’s telephone number, including area code)

 

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of April 5, 2004.

 

Common stock, no par value   14,475,300
(Class of common stock)   (Number of shares)

 



PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(In thousands, including share data)

 

    

February 29,

2004


   

November 30,

2003


 

Assets

                

Current assets

                

Cash and cash equivalents

   $ 16,408     $ 14,859  

Trade accounts receivable, less allowance for doubtful accounts of $1,128 and $991 on each date

     38,200       37,601  

Inventories

     45,586       42,442  

Prepaid expenses and other current assets

     4,363       3,924  
    


 


Total current assets

     104,557       98,826  

Property, plant and equipment, net

     52,359       53,582  

Goodwill

     2,396       2,396  

Intangible assets

     4,896       4,940  

Other assets

     7,211       7,355  
    


 


Total assets

   $ 171,419     $ 167,099  
    


 


Liabilities and Shareholders’ Equity

                

Current liabilities

                

Trade accounts payable

   $ 7,433     $ 6,945  

Accrued salaries, wages and benefits

     4,203       5,476  

Accrued income taxes

     2,097       308  

Other accrued expenses

     3,540       2,612  

Current maturities of long-term debt

     8,708       8,671  
    


 


Total current liabilities

     25,981       24,012  

Long-term debt, excluding current maturities

     20,425       22,166  

Deferred compensation

     2,914       3,094  

Other long-term liabilities

     1,564       1,563  
    


 


Total liabilities

     50,884       50,835  
    


 


Shareholders’ equity

                

Common stock, no par value, 20,000 shares authorized, 14,475 shares issued and outstanding on each date

     5,343       4,609  

Unearned ESOP shares, 2,825 and 2,870 shares on each date

     (17,654 )     (17,935 )

Retained earnings

     134,811       131,468  

Accumulated other comprehensive loss

     (1,965 )     (1,878 )
    


 


Total shareholders’ equity

     120,535       116,264  
    


 


Total liabilities and shareholders’ equity

   $ 171,419     $ 167,099  
    


 


 

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

 

2


HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

 

     Three Months Ended

    

February 29,

2004


  

February 28,

2003


Net sales

   $ 78,222    $ 74,475

Cost of sales

     57,810      53,953
    

  

Gross profit

     20,412      20,522

Selling and administrative expenses

     13,572      12,021
    

  

Operating income

     6,840      8,501

Other income, net

     168      190
    

  

Income before interest and income taxes

     7,008      8,691

Interest expense

     493      643
    

  

Income before income taxes

     6,515      8,048

Income taxes

     2,475      3,057
    

  

Net income

   $ 4,040    $ 4,991
    

  

Basic and diluted earnings per share

   $ .35    $ .44
    

  

Weighted average shares outstanding

     11,606      11,394
    

  

 

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

 

3


HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

     Three Months Ended

 
     February 29,
2004


    February 28,
2003


 

Cash flows from operating activities

                

Cash received from customers.

   $ 77,762     $ 76,683  

Cash paid to suppliers and employees

     (72,392 )     (68,189 )

Income taxes paid, net

     (501 )     (1,685 )

Interest paid, net

     (323 )     (797 )
    


 


Net cash provided by operating activities

     4,546       6,012  
    


 


Cash flows from investing activities

                

Purchase of property, plant and equipment

     (608 )     (922 )

Acquisition of Bradington-Young, net of cash acquired

             (20,416 )

Proceeds from the sale of property and equipment

     12          
    


 


Net cash used in investing activities

     (596 )     (21,338 )
    


 


Cash flows from financing activities

                

Proceeds from long-term debt

             30,500  

Payments on long-term debt

     (1,704 )     (10,776 )

Payment to terminate an interest rate swap agreement

             (3,001 )

Cash dividends paid

     (697 )     (570 )
    


 


Net cash (used in) provided by financing activities

     (2,401 )     16,153  
    


 


Net increase in cash and cash equivalents

     1,549       827  

Cash and cash equivalents at beginning of period

     14,859       2,316  
    


 


Cash and cash equivalents at end of period

   $ 16,408     $ 3,143  
    


 


Reconciliation of net income to net cash provided by operating activities:

                

Net income

   $ 4,040     $ 4,991  

Depreciation and amortization

     1,893       2,031  

Non-cash ESOP cost

     1,015       473  

Provision for doubtful accounts

     220       106  

(Gain) loss on disposal of property and equipment

     (11 )     4  

Changes in assets and liabilities, net of effects of acquisition:

                

Trade account receivables

     (819 )     1,913  

Inventories

     (3,144 )     868  

Prepaid expenses and other current assets

     (261 )     33  

Trade accounts payable

     488       (3,015 )

Accrued salaries, wages and benefits

     (1,273 )     (2,234 )

Accrued income taxes

     1,789       1,372  

Other accrued expenses

     788       (2,249 )

Other long-term liabilities

     (179 )     1,719  
    


 


Net cash provided by operating activities

   $ 4,546     $ 6,012  
    


 


 

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

 

4


HOOKER FURNITURE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in tables in thousands unless otherwise indicated)

For the Quarterly Period Ended February 29, 2004

 

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 accounting principles generally accepted in the United States of America 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 10-K for the fiscal year ended November 30, 2003.

 

2. Inventories

 

     February 29,
2004


   November 30,
2003


Finished furniture

   $ 42,934    $ 40,413

Furniture in process

     2,707      2,538

Materials and supplies

     11,319      10,668
    

  

Inventories at FIFO

     56,960      53,619

Reduction to LIFO basis

     11,374      11,177
    

  

Inventories

   $ 45,586    $ 42,442
    

  

 

3. Property, Plant and Equipment

 

     February 29,
2004


   November 30,
2003


Buildings

   $ 49,812    $ 49,738

Machinery and equipment

     48,487      48,506

Furniture and fixtures

     25,288      24,849

Other

     3,493      3,537
    

  

Total depreciable property at cost

     127,080      126,630

Less accumulated depreciation

     77,008      75,335
    

  

Total depreciable property, net

     50,072      51,295

Land

     2,287      2,287
    

  

Property, plant and equipment, net

   $ 52,359    $ 53,582
    

  

 

5


Notes to Unaudited Consolidated Financial Statements - Continued

 

4. Goodwill And Intangible Assets

 

     February 29,
2004


   November 30,
2003


Amortizable Intangible Assets

             

Non-compete agreement

   $ 700    $ 700

Less accumulated amortization

     204      160
    

  

Net carrying value

   $ 496    $ 540
    

  

Non-amortized Intangible Assets

             

Goodwill

   $ 2,396    $ 2,396

Trade names and trademarks

     4,400      4,400
    

  

Total

   $ 6,796    $ 6,796
    

  

 

5. Long-Term Debt

 

     February 29,
2004


   November 30,
2003


Term loan A

   $ 16,908    $ 17,387

Term loan B

     5,825      7,050

Industrial revenue bonds

     6,400      6,400
    

  

Total long-term debt outstanding

     29,133      30,837

Less current maturities

     8,708      8,671
    

  

Long-term debt, less current maturities

   $ 20,425    $ 22,166
    

  

 

No amounts were outstanding under the Company’s revolving credit line on February 29, 2004 and November 30, 2003.

 

6. Restructuring Accrual

 

     Severance and
Related Benefits


    Other

   Total

 

Balance at November 30, 2003

   $ 43     $ 50    $ 93  

Cash payments

     (10 )            (10 )
    


 

  


Balance at February 29, 2004

   $ 33     $ 50    $ 83  
    


 

  


 

7. Changes to Executive Compensation Arrangements

 

In December 2003, in connection with implementing provisions of the Sarbanes-Oxley Act of 2002, the Company modified certain executive compensation arrangements for certain executives of the Company. The modifications were accomplished through the termination of existing salary continuation agreements and split-dollar life insurance agreements and the adoption of a new life insurance program and a new supplemental executive retirement plan which cover each of these executives. In addition, each executive transferred to the Company his ownership interest in the life insurance policy or policies underlying his split-dollar life insurance agreement and each executive received a cash payment from the Company equal to the amount of premiums the executive had previously paid with respect to the life insurance policy or policies underlying his split-dollar life insurance agreement.

 

6


Notes to Unaudited Consolidated Financial Statements - Continued

 

The new life insurance program provides death benefit protection for each executive during employment and automatically terminates when the executive terminates employment with the Company for any reason other than death or when the executive attains age 65, whichever occurs first. The life insurance policies funding the new life insurance program are owned by the Company. The cash surrender value of those life insurance policies amounted to $1.0 million as of February 29, 2004.

 

The new supplemental executive retirement plan provides for a monthly supplemental retirement benefit based on the executive’s final average monthly compensation as defined in the plan, payable for a 15-year period following the executive’s termination of employment, subject to a vesting schedule that may vary for each participant in the plan. In addition, the monthly retirement benefit for each participant in the plan, regardless of age, will become fully vested and the present value of all plan benefits will be paid to participants in a lump sum upon a change in control of the Company (as defined in the plan). The Company accounts for its obligation to each participant in the plan on an accrual basis. The aggregate accrued liability for all participants under the supplemental executive retirement plan amounted to $692,000 as of February 29, 2004.

 

8. Other Comprehensive Income

 

     Three Months Ended

     February 29,
2004


   February 28,
2003


Net income

   $ 4,040    $ 4,991
    

  

Loss on interest rate swaps

     464      1,280

Less amount of swaps’ fair value reclassified to interest expense

     324      422
    

  

Other comprehensive loss before tax

     140      858

Income tax benefit

     53      326
    

  

Other comprehensive loss, net of tax

     87      532
    

  

Comprehensive income

   $ 3,953    $ 4,459
    

  

 

The amount reclassified to interest expense includes a gain of $2,000 for the 2004 first quarter and a loss $98,000 for the 2003 first quarter related to the ineffective portion of the interest rate swap agreements.

 

7


Item 2. Management’s Discussion and Analysis

 

Overview

 

The Company’s operations during the 2004 first quarter were principally impacted by what have become recurring themes over the last 5 quarterly periods:

 

  Sales growth in the Company’s wood furniture operations highlighted by strong demand for imported wood furniture, partially offset by declining demand for domestically-produced wood furniture;

 

  Growth through acquisition: the Company celebrated the first anniversary of its purchase of leather seating specialist Bradington-Young on January 2, 2004;

 

  Higher in-bound freight and selling, warehousing and distribution costs to support strong growth for imports and upholstery;

 

  Capacity-related cost issues in the Company’s domestic wood furniture manufacturing operations; and,

 

  The employment of additional resources to comply with new regulatory mandates initiated by the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission and NASDAQ.

 

The U.S. economy shows continued signs of growth. The furniture industry and the Company appear to have been beneficiaries since the third quarter of 2003. However, since that time, sales growth for the Company’s imported products has been hampered by a lack of inventory availability, although order rates have remained strong. Expected growth in the Company’s upholstery operations was hampered by the winter weather during the 2004 first quarter, while incoming order rates for upholstery products have increased.

 

Results of Operations

 

The following table sets forth the percentage relationship to net sales of certain items included in the statements of income:

 

     For the Three Months Ended

 
     February 29,
2004


    February 28,
2003


 

Net sales

   100.0 %   100.0 %

Cost of sales

   73.9     72.4  
    

 

Gross profit

   26.1     27.6  

Selling and administrative expenses

   17.4     16.2  
    

 

Operating income

   8.7     11.4  

Other income, net

   0.3     0.3  
    

 

Income before interest and income taxes

   9.0     11.7  

Interest expense

   0.7     0.9  
    

 

Income before income taxes

   8.3     10.8  

Income taxes

   3.1     4.1  
    

 

Net income

   5.2 %   6.7 %
    

 

 

8


Management’s Discussion and Analysis - Continued

 

Net sales of $78.2 million for the first quarter ended February 29, 2004, increased $3.7 million, or 5.0%, from $74.5 million in the first quarter of 2003. The increase was due principally to higher unit volume in imported furniture products and having an additional month of Bradington-Young upholstery shipments compared to the prior year. Shipments of imported wood furniture increased $3.8 million, or 11.0%, to $38.6 million in the 2004 first quarter compared with $34.8 million in the same 2003 period. Shipments from leather upholstery specialist Bradington-Young accounted for $12.3 million in net sales during the 2004 three-month period compared to $8.7 million during the two months following its acquisition by the Company at the beginning of January 2003. First quarter 2004 shipments of the Company’s domestically produced wood furniture declined $3.7 million, or 11.9%, to $27.3 million from $31.0 million in the year earlier quarter. Average selling prices increased for imported wood and for upholstered furniture products, but declined for domestically manufactured wood furniture products. Overall, average selling prices declined due to the higher proportion of lower-priced imported products shipped.

 

Gross profit margin declined to 26.1% in the 2004 first quarter compared to 27.6% in the 2003 first quarterly period. Margins were depressed during the 2004 quarter principally due to higher inbound freight costs as a percentage of net sales of imported wood furniture and production inefficiencies created by low capacity utilization at Hooker’s domestic wood furniture facilities and weather-related downtime at Bradington-Young’s upholstery factories. In addition, margins for the Company’s domestically produced wood furniture were negatively impacted by aggressive pricing and heavier promotional discounting in order to compete with lower-priced imports. Also, labor costs as a percentage of sales volume increased for upholstery products. The Company’s upholstery operations worked overtime to make up for weather-related downtime as it strived to meet more demanding production schedules created by higher incoming order rates.

 

Selling and administrative expenses increased to 17.4% of net sales in the 2004 first quarter from 16.2% in the same 2003 period. The increase is principally due to: 1) higher selling, warehousing and distribution costs to support higher import sales; 2) increased bad debt expense related to several isolated credit issues; 3) increased leather upholstery product swatching costs, incurred to provide leather product samples to Bradington-Young’s expanding dealer base; and, 4) higher legal and professional expenses incurred to comply with the corporate governance mandates brought about by the Sarbanes-Oxley Act of 2002. The dollar amounts of these expenses increased $1.6 million during the 2004 quarter, mainly due to having an additional month of expenses for Bradington-Young compared to the prior year and the increased expenses enumerated previously.

 

As a result of the above, operating income as a percentage of net sales declined to 8.7% in the 2004 quarterly period, compared to 11.4% for the 2003 first quarter. However, operating margins increased from 7.8% in the fourth quarter of 2003, an improvement that the Company expects to build upon if sales volume increases as anticipated during the upcoming quarter.

 

Interest expense decreased $150,000 to $493,000 during the first quarter of 2004 from $643,000 in the 2003 period due to lower debt levels.

 

The Company’s effective tax rate approximated 38.0% in the 2004 and 2003 first quarters.

 

First quarter 2004 net income decreased to $4.0 million, or $0.35 per share, compared to $5.0 million, or $0.44 per share in the comparable 2003 period.

 

9


Management’s Discussion and Analysis - Continued

 

Outlook

 

The Company expects performance in the second quarter to be positively impacted by three factors. First, inventory levels of imported products have not been sufficient to capitalize on the greater-than-anticipated increase of incoming orders. While the Company adjusted inventory purchase rates upward late last summer in response to the increased demand, import inventory receipts did not increase enough to begin shipping backlog until February 2004. The Company expects continued strong receipt of imported wood furniture through the second quarter, which should allow improved shipments and return backlogs to normal levels by the end of the second quarter.

 

Secondly, while the Company was able to increase planned work schedules for domestic wood manufacturing beginning in January 2004, the full impact of that change will not be realized until the second quarter. Since increasing work schedules the Company has experienced lower production costs as a percentage of net sales in its domestic wood manufacturing operations. Profitability should benefit from these improvements during the upcoming quarter.

 

Finally, the Company believes the outlook for increased upholstered furniture sales in the near term is bright. As the Company continues to increase upholstery production and realize the benefits of integrating the Hooker Furniture and Bradington-Young sales forces, it expects to see increased sales and profits from Bradington-Young. In the intermediate term, the Company believes that the infrastructure is in place to meet anticipated increased demand with additions to the Bradington-Young labor force.

 

The Company has an optimistic outlook as it enters the second quarter. Retail is continuing to recover. Incoming order rates are strong. The Company expects net sales to increase 8% to 12% in the 2004 second quarter compared to last year’s second quarter as it expects to ship a large portion of its imported product order backlog and better capitalize on the brisk incoming order rate.

 

Although the Company expects margins to improve on sales of its manufactured products during the second quarter of 2004 compared to the 2004 first quarter, margins on sales of imported goods will likely remain flat. Additionally, the Company expects higher selling and administrative expenses for the 2004 second quarter compared to the same 2003 period in order to support the increased sales growth and fund regulatory compliance under the Sarbanes-Oxley Act of 2002.

 

Financial Condition, Liquidity and Capital Resources

 

Balance Sheet and Working Capital

 

As of February 29, 2004, assets totaled $171.4 million, increasing from $167.1 million at November 30, 2003 principally as a result of increased purchases of imported products inventory. Shareholders’ equity at February 29, 2004 was $120.5 million, compared to $116.3 million at November 30, 2003. The Company’s long-term debt, including current maturities, was $29.1 million at February 29, 2004, decreasing from $30.8 million at November 30, 2003 as a result of scheduled debt amortization.

 

Working capital increased to $78.6 million as of February 29, 2004, from $74.8 million at the end of fiscal 2003, reflecting the net effect of a $5.7 million increase in current assets partially offset by a $2.0 million increase in current liabilities. The increase in current assets includes increases of $3.1 million in inventories, $1.5 million in cash, and $1.1 million in trade accounts receivable and other assets. The increase in current liabilities is due to an increase of $1.8 million in accrued income taxes not yet due to

 

10


Management’s Discussion and Analysis - Continued

 

be paid and $1.4 million in trade accounts payable and other accrued expenses, partially offset by a decrease of $1.2 million in accrued salaries, wages and benefits.

 

Cash Flows – Operating, Investing and Financing Activities

 

During the three months ended February 29, 2004, cash generated from operations ($4.5 million), funded the repayment of long-term debt ($1.7 million), an increase in available cash ($1.5 million), dividend payments ($697,000) and capital expenditures (net, $596,000).

 

During the three months ended February 28, 2003, proceeds from borrowings ($30.5 million) and cash generated from operations ($6.0 million) funded the acquisition of Bradington-Young ($20.4 million, net of cash acquired), repayment of long-term debt ($10.8 million, including the repayment of $4.1 million of debt assumed in the Bradington-Young acquisition), a payment to terminate an interest rate swap agreement ($3.0 million), capital expenditures ($922,000), an increase in available cash ($827,000), and dividend payments ($570,000).

 

Cash generated from operations of $4.5 million during the 2004 period decreased $1.5 million from $6.0 million in the 2003 period. The decrease was due to higher payments to suppliers and employees, partially offset by lower interest and income tax payments and higher payments received from customers. Payments to suppliers and employees increased $4.2 million, principally to fund increased purchases of imports, an additional month of Bradington-Young upholstery production and operating costs compared to the prior year, and higher selling and administrative expenses. Cash received from customers increased $1.1 million as a result of higher sales of imported wood furniture and having an additional month of Bradington-Young upholstery shipments compared to the prior year. Tax payments decreased $1.2 million due to lower levels of taxable income and differences in the timing of required payments due in each respective period.

 

Investing activities used $596,000, net during the 2004 period compared to $21.3 million in the 2003 quarter. The Company acquired Bradington-Young in January 2003 for a cash payment of $20.4 million (net of cash acquired). Purchases of plant, equipment and other assets to maintain and enhance the Company’s facilities and business operating systems declined $314,000 to $608,000 in the 2004 first quarter compared with $922,000 in the 2003 period.

 

The Company used cash of $2.4 million for financing activities in the 2004 period compared to generating cash of $16.2 million from financing activities in the 2003 first quarter. During the 2004 quarter, the Company repaid long-term debt in the amount of $1.7 million and paid cash dividends of $697,000. During the 2003 period, the Company borrowed $25.0 million in bank debt to finance the purchase of Bradington-Young and $5.5 million under its revolving credit line. Also during the 2003 quarter, the Company repaid $6.7 million under its revolving credit line and term loan, repaid $4.1 million of debt assumed in the Bradington-Young acquisition, paid $3.0 million to terminate an interest rate swap agreement and paid dividends of $570,000.

 

Swap Agreements

 

The aggregate fair market value of the Company’s swap agreements decreases when interest rates decline and increases when interest rates rise. Interest rates declined during the 2004 first quarter. The aggregate decrease in the fair market value of the effective portion of the agreements of $2.0 million after tax ($3.2 million pretax) as of February 29, 2004, and $1.9 million after tax ($3.0 million pretax) as of November 30,

 

11


Management’s Discussion and Analysis - Continued

 

2003, is reflected under the caption “accumulated other comprehensive loss” in the consolidated balance sheets.

 

Debt Covenant Compliance

 

The credit facility for the Company’s revolving credit line and Term Loans A and B contains, among other things, financial covenants as to minimum tangible net worth, debt service coverage, the ratio of funded debt to earnings before interest, taxes, depreciation, and amortization, and maximum capital expenditures. The Company was in compliance with these covenants as of February 29, 2004.

 

Liquidity and Capital Expenditures

 

As of February 29, 2004, the Company had $13.7 million available under its revolving credit line to fund working capital needs, and $26.1 million available under additional committed and uncommitted lines of credit, to support the issuance of letters of credit. The Company believes it has the financial resources (including available cash, expected 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 common stock. Cash flow from operations is highly dependent on order rates and the Company’s operating performance. The Company expects to spend an aggregate of $3.0 to $4.0 million in capital expenditures during fiscal 2004 to maintain and enhance its facilities and operating systems.

 

Dividends and Stock Repurchase Program

 

At its March 30, 2004 meeting, the Board of Directors of Hooker Furniture Corporation declared a cash dividend of $0.06 per share, payable on May 28, 2004 to shareholders of record May 14, 2004.

 

In 2001, the Company’s Board of Directors authorized the repurchase of up to an aggregate $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. No shares of common stock were purchased by the Company during the 2004 first quarter. Through February 29, 2004, the Company had repurchased approximately 584,000 shares at a total cost of $2.5 million or an average of $4.29 per share. Based on the market value of the common stock as of February 27, 2004 the remaining $2.7 million of the authorization would allow the Company to repurchase approximately 0.7% of the 14.5 million shares outstanding, or 1.0% of the Company’s outstanding shares excluding the 4.2 million shares held by the ESOP.

 

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,” “would,” 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 but are not limited to: 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 key raw materials, including lumber and leather; supply disruptions or delays affecting imported products; adverse political acts or developments

 

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Management’s Discussion and Analysis - Continued

 

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 loans, all bear interest at variable rates. The Company’s outstanding debt (including current maturities) as of February 29, 2004, amounted to $6.4 million under the industrial revenue bonds, $16.9 million under Term Loan A and $5.8 million under Term Loan B. As of February 29, 2004, no balance was outstanding under the Company’s revolving credit line. 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 Term Loan A at 4.1% through 2010. A fluctuation in market interest rates of one percentage point (or 100 basis points) 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 imported products when the Company renegotiates pricing. As a result, a weakening U.S. Dollar exchange rate could adversely impact sales volume and profit margins during such periods. However, the Company generally expects to reflect substantially all of the effect of any price changes from suppliers in the price it charges for its imported products. Because the majority of the Company’s imports are purchased from countries such as China, whose currencies are presently pegged to the U.S. Dollar, most of the Company’s exposure to foreign currency fluctuation is negated.

 

Item 4. Controls and Procedures

 

Based on their most recent review, which was made as of the end of the Company’s fiscal quarter ended February 29, 2004, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

 

Except for the corrective measures discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2003, there have been no changes in the Company’s internal control over financial reporting for the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 5. Other Information

 

Set forth below is the Company’s income before interest and taxes, or EBIT, and income before interest, taxes, depreciation and amortization, or EBITDA, for the three-month periods ended February 29, 2004 and February 28, 2003. This information has been derived from the Company’s consolidated financial statements. For each period presented, EBIT and EBITDA have been reconciled to the Company’s net income. The Company provides these non-GAAP measures because it believes they are widely accepted financial indicators of the Company’s liquidity. This information should be read in conjunction with the Financial Statements, including the related Notes, and Management’s Discussion and Analysis included elsewhere in this quarterly report on Form 10-Q and in the Company’s annual report on Form 10-K for the year ended November 30, 2003.

 

     For the Three Months Ended

     February 29,
2004


   February 28,
2003


Net income

   $ 4,040    $ 4,991

Income taxes

     2,475      3,057

Interest expense

     493      643
    

  

Income before interest and income taxes

     7,008      8,691

Depreciation and amortization

     1,893      2,031
    

  

Income before interest, income taxes, depreciation, and amortization

   $ 8,901    $ 10,722
    

  

 

Item 6. Exhibits and Reports on Form 8-K

 

  (a) Exhibits

 

10.1*    Form of Executive Life Insurance Agreement dated December 31, 2003, between the Company and certain of its executive officers**
10.2*    Form of Benefit Termination Agreement dated December 31, 2003, between the Company and certain of its executive officers**
10.3*    Supplemental Retirement Income Plan effective as of December 1, 2003**
31.1*    Rule 13a-14(a) Certification of the Company’s principal executive officer
31.2*    Rule 13a-14(a) Certification of the Company’s principal financial officer
32.1*    Rule 13a-14(b) Certification of the Company’s principal executive officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*    Rule 13a-14(b) Certification of the Company’s principal financial officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

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  (b) Reports on Form 8-K

 

Form 8-K, dated December 23, 2003 and furnished to the SEC on December 30, 2003, reporting the Company’s results of operations for fiscal year 2003 and the fourth quarter of fiscal year 2003


* Filed herewith

 

** Management contract or compensatory plan

 

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 5, 2004

     

By:

 

/s/ R. Gary Armbrister

             
               

     R. Gary Armbrister

     Chief Accounting Officer

     (Principal Accounting Officer)

 

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