<PAGE>
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,
1999 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 Blvd. Martinsville, VA. 24112
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(Address of principal executive offices, Zip Code)
(540) 632-2133
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(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 31, 1999.
Class Number
----- ------
Common Stock, no par value 3,816,649 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
--------------------
HOOKER FURNITURE CORPORATION
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
(Unaudited)
February 28, November 30,
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current assets
Cash, primarily interest-bearing deposits................................ $ 1,507 $ 3,625
Trade receivables, less allowances of $525 and $500...................... 23,628 23,346
Inventories.............................................................. 33,353 35,812
Prepaid expenses and other............................................... 2,793 1,637
--------- ---------
Total current assets............................................... 61,281 64,420
Property, plant and equipment, net........................................... 41,557 41,500
Investment in and advances to investee company............................... 2,302 2,371
Other assets................................................................. 2,951 2,942
--------- ---------
$ 108,091 $ 111,233
========= =========
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable.................................................. $ 1,580 $ 4,757
Accrued salaries, wages and benefits.................................... 2,840 4,464
Other accrued expenses.................................................. 3,750 3,406
--------- ---------
Total current liabilities........................................... 8,170 12,627
Long-term debt............................................................... 11,062 12,062
Deferred liabilities......................................................... 2,463 2,431
--------- ---------
Total liabilities................................................... 21,695 27,120
--------- ---------
Common stock held by ESOP.................................................... 10,213 10,213
Stockholders' Equity
Common stock, no par value, 10,000,000 shares authorized,
3,816,649 and 3,835,725 shares issued and outstanding.................... 2,423 2,435
Retained earnings ....................................................... 73,760 71,465
--------- ---------
Total stockholders' equity.......................................... 76,183 73,900
--------- ---------
$ 108,091 $ 111,233
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
HOOKER FURNITURE CORPORATION
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months
Ended
---------------------------
February 28, February 28,
1999 1998
------------ -------------
Net sales .......................................... $52,604 $50,573
Cost of sales ...................................... 38,843 39,138
------- -------
Gross profit .................................... 13,761 11,435
Selling, general and administrative expenses ....... 8,180 7,922
------- -------
Operating income ................................ 5,581 3,513
Other expenses, net ................................ 145 68
------- -------
Income before taxes ............................. 5,436 3,445
Income taxes ....................................... 2,050 1,292
------- -------
Net income ...................................... $ 3,386 $ 2,153
======= =======
Earnings per share:
Basic and diluted ................................ $ .88 $ .56
======= =======
Weighted average shares outstanding .............. 3,830 3,852
======= =======
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
HOOKER FURNITURE CORPORATION
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
February 28, February 28,
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers ......................... $ 52,489 $ 52,874
Cash paid to suppliers and employees ................. (49,828) (43,795)
Income taxes paid, net ............................... (1,321) (330)
Interest paid ........................................ (163) (182)
Interest received .................................... 15 22
-------- --------
Net cash provided by operating activities .......... 1,192 8,589
-------- --------
Cash flows from investing activities:
Purchase of property, plant and equipment ............ (1,206) (1,348)
-------- --------
Net cash used by investing activities .............. (1,206) (1,348)
-------- --------
Cash flows from financing activities:
Payments on long-term debt ........................... (1,000) (3,000)
Cash dividends paid .................................. (574) (538)
Purchase and retirement of common stock .............. (530) (500)
-------- --------
Net cash used by financing activities .............. (2,104) (4,038)
-------- --------
Net increase (decrease) in cash ...................... (2,118) 3,203
Cash at beginning of year ............................ 3,625 827
-------- --------
Cash at end of period .............................. $ 1,507 $ 4,030
======== ========
Reconciliation of net income to net cash provided
by operating activities:
Net income ........................................ $ 3,386 $ 2,153
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization ............... 1,149 1,165
Changes in assets and liabilities:
Trade receivables ........................ (283) 2,142
Inventories .............................. 2,459 6,218
Prepaid expenses and other assets ........ (1,095) (983)
Trade accounts payable ................... (3,176) (2,457)
Other accrued expenses ................... (1,280) 329
Deferred compensation .................... 32 22
-------- --------
Net cash provided by operating activities ........ $ 1,192 $ 8,589
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
HOOKER FURNITURE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)
1. Preparation of Interim Financial Statements
The 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 Hooker's recent
report on Form 10.
2. Inventories
(Unaudited)
February 28, November 30,
1999 1998
----------- -----------
Finished furniture ....................... $28,771 $29,786
Furniture in process ..................... 1,515 1,664
Materials and supplies ................... 12,558 13,628
------- -------
42,844 45,078
Reduction to LIFO basis .................. 9,491 9,266
------- -------
$33,353 $35,812
======= =======
3. Property, Plant and Equipment
(Unaudited)
February November
28, 1999 30, 1998
---------- ----------
Buildings ................................ $ 32,621 $ 32,621
Machinery and equipment .................. 37,122 37,007
Office fixtures and equipment ............ 6,266 6,082
Construction in progress and other ....... 10,094 9,199
-------- --------
Property, plant and equipment, at cost 86,103 84,909
Less accumulated depreciation ............ (45,727) (44,590)
-------- --------
40,376 40,319
Land ..................................... 1,181 1,181
-------- --------
$ 41,557 $ 41,500
======== ========
4. Long-Term Debt
(Unaudited)
February November
28, 1999 30, 1998
-------- --------
Industrial revenue bonds due 2006 ........ $ 7,062 $ 7,062
Revolving line of credit ................. 4,000 5,000
------- -------
$11,062 $12,062
======= =======
5
<PAGE>
5. Investment in and Advances to Investee Company
The Company owns a 50% interest in a joint venture that produces particleboard
for 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 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. Company management is currently in
negotiation for sale of the property and anticipates that any shortfall between
the remaining carrying value of the joint venture investment, including any
fines levied by the EPA, and the sale of the facility and the equipment will not
be significant.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Comparison of First Quarter 1999 to First Quarter 1998.
- -------------------------------------------------------
Net sales for the first quarter of 1999 were 4% higher than first quarter 1998.
Net sales improved almost exclusively due to price increases.
Cost of sales as a percentage of net sales decreased to 73.8% in the first
quarter 1999 from 77.4% in the first quarter of 1998. Reducing 1999 sales to
1998 pricing yields a cost of goods sold percentage of approximately 77.1%.
Slight increases in cost of labor and raw materials were offset by production
efficiencies and changes in the mix of product produced.
Selling and administrative expenses decreased slightly to 15.6% in first
quarter 1999 from 15.7% in first quarter 1998.
Net income for the first quarter of 1999 increased 57% as compared to the first
quarter of 1998. The increase in net income is the result of increased prices
and stable costs.
Income taxes as a percentage of income before income taxes were at 37.7% in the
first quarter of 1999 and 37.5% in the first quarter of 1998.
Order Backlogs
- --------------
Management does not consider order backlogs to be an accurate indicator of
expected business. With the emphasis in recent years on inventory-on-demand,
dealers no longer find it necessary to place orders as far in advance as was
once the case. However, order backlogs increased to $35.8 million at the end of
first quarter 1999 compared to $27.2 million at the end of first quarter 1998.
Historically, 92% of all orders booked are ultimately shipped, and backlogs are
normally shipped within twelve months.
Liquidity and Sources of Capital
- --------------------------------
All working capital and cash requirements in the first quarter of 1999 were met
through cash generated from operations. Also, during the first quarter, the
Company made a voluntary reduction on its revolving line of credit of $1
million. Borrowings outstanding at February 28, 1999 and November 30, 1998 were
$11 million and $12 million, respectively, all of which were classified as long
term. The Company declared a quarterly dividend of $.15 per share ($574,000
aggregate) in December 1998, paid in February 1999.
The Company bought 19,080 shares of its common stock at a total price of
$529,000 ($27.75 per share) in the first quarter of 1999. The Company bought
back 29,351 shares at a total price of $775,000 ($26.40 per share) in all of
1998. The Company intends to continue buying back stock; however, the Company
will assess future buy-back opportunities on an ongoing basis and the purchases
made in the first quarter are not necessarily indicative of purchases expected
for the balance of the year.
Future cash needs will be financed by cash flow from operations and current
borrowing arrangements. The Company's current projections of future cash
requirements, however, may be affected by numerous factors, including changes in
customer payments on accounts receivable, consumer industry credit trends, sales
volume, operating costs fluctuations, and unplanned capital spending.
7
<PAGE>
Year 2000 Issue
- ---------------
The Company recognizes that the arrival of Year 2000 presents many challenges
for information systems, as well as other time-sensitive machinery and equipment
and other systems relied on for day-to-day operation of the business. In 1996
the Company embarked on a plan to identify, assess, and to modify or replace
equipment and systems that may be impaired following December 31, 1999. A task
force was created under the leadership of a corporate officer and comprised of
representatives from administration, information services, and manufacturing to
begin the identification and assessment phase of the project. Early assessments
determined that the Company would be required to modify or replace significant
portions of its Information Systems software so that computer systems would
continue to function properly in Year 2000 and beyond. The Company decided to
transition its operating systems from a non-compliant legacy mainframe to a
compliant client-server network environment. During 1997 and 1998 predominately
all of the required hardware was installed, tested, and Company employees
trained on its use and operation. Efforts have been underway since 1996 to
create new, or to transition existing operations software, to be Year 2000
compliant. As of February 28, 1999, certain critical operating systems had been
transitioned to this new environment and are fully integrated into the day-to-
day operation of the business. All other systems will be moved to the new
environment by the end of third quarter 1999.
The task force has communicated in writing with all suppliers of goods and
services to determine the extent to which the Company might be vulnerable to
third parties' failure to remediate their own Year 2000 issue. If no response is
received, a second request will be sent. By August 1, 1999, negative responses
as to the suppliers' readiness or non-response will cause the supplier to be
reviewed. The Company anticipates that non-compliant or unresponsive suppliers
that provide critical product or services will be terminated and other year 2000
compliant suppliers will be used. Additionally, manufacturing personnel at each
plant location have physically inventoried machinery, equipment, building
systems, and other software for Year 2000 compliance. Manufacturers of equipment
and software have been formally asked to respond to their products Year 2000
readiness. Equipment found lacking compliance will be modified or replaced prior
to December 31, 1999. Additionally, certain critical equipment to the
manufacture of product has been or will be tested by manufacturing personnel.
The principal cost associated with the Year 2000 compliance has been the
purchase of computer hardware together with software costs. As of February 28,
1999, approximately $2.1 million has been expended. It is management's estimate
that additional cost for compliance will not exceed $800,000. Funding for the
Year 2000 compliance project has been provided by cash generated from
operations. Project expenditures are being capitalized or expensed as
appropriate and are not expected to have a material effect on the results of
operations.
The Company cannot fully assess the risks of the Year 2000 problems due to
numerous uncertainties surrounding the issue. However, the Company has five
separate manufacturing locations, in two states and five separate communities
each able to produce most products in the Company's line. Additionally, for most
processes each plant has multiple machines from many manufacturers purchased
over a long period of time. This flexibility also offers redundancy of
operations within and between manufacturing locations so that in the event of a
shutdown, product could be moved to other functional plant locations. The
Company is also not dependent on any single supplier for raw materials or
imported furniture. The Company has not developed a contingency plan in the
event that the changes in its operating systems are not ready by December 31,
1999, but expects to have such a plan by August 1, 1999.
The failure to correct a material Year 2000 problem could result in the
interruption or a failure of certain normal business activities or operations,
which could materially and adversely affect the Company's results of operations,
liquidity, and financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Year 2000 problems will have
a material impact on the Company's results of operations, liquidity, or
financial condition.
8
<PAGE>
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 for lumber which is the most significant raw material
used by the Company, competition in the furniture industry, capital costs and
general economic conditions.
9
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings
-----------------
Based upon performance tests conducted in November 1998, the U.S. Environmental
Protection Agency ("EPA") issued the Company a Notice of Violation in March 1999
for the failure of two boilers at the Company's Martinsville facility to meet
particulate emission limitations under the Clean Air Act. The Company made
adjustments to one non-compliant boiler and conducted a second performance test
in February 1999. The results of that second performance test indicated that the
boiler was in compliance with its particulate limitations. The Company has
forwarded those results to EPA. The Company has analyzed the operations of the
second non-compliant boiler and has formulated a plan to bring that boiler into
compliance with its particulate emission limitations. No final action has been
taken by EPA in this matter, including the assessment of fines against the
Company. Company management anticipates that costs incurred by the Company in
connection with bringing both boilers into compliance, including any fines that
might be levied by EPA, will not have a material adverse affect on the Company's
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On March 30, 1999, the Company held its Annual Meeting of Stockholders. At the
meeting, the following business was transacted:
Messrs. J. C. Hooker, Jr., A. F. Hooker, Jr. Toms, Long, Ryder,
Williams, Beeler, Groves, Walker and Gregory were elected to serve as directors
of the Company for a term of one year. The votes for the election of Directors
were as follows:
FOR WITHHELD
Mr. J.C. Hooker, Jr. 3,105,508 19,500
Mr. A. F. Hooker, Jr. 3,105,508 19,500
Mr. Toms 3,105,508 19,500
Mr. Long 3,105,508 19,500
Mr. Ryder 3,105,508 19,500
Mr. Williams 3,105,508 19,500
Mr. Beeler 3,105,508 19,500
Mr. Gregory 3,104,176 20,832
Mr. Groves 3,105,508 19,500
Mr. Walker 3,105,508 19,500
The stockholders also ratified the selection of BDO Seidman, LLP as the
Company's independent auditors. 3,124,408 votes were cast in favor of the
ratification; and 600 abstained.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
Exhibit 27. 1 Financial Data Schedule for the quarter ended February 28,
1999.*
(b) Reports on Form 8-K
-------------------
None.
* Filed herewith.
10
<PAGE>
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: April 14, 1999 By: /s/ E. Larry Ryder
--------------------------
E. Larry Ryder
Senior Vice President - Finance
and Administration
(Principal Financial and Accounting
Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 1,507
<SECURITIES> 0
<RECEIVABLES> 24,153
<ALLOWANCES> 525
<INVENTORY> 33,353
<CURRENT-ASSETS> 61,281
<PP&E> 87,284
<DEPRECIATION> 45,727
<TOTAL-ASSETS> 108,091
<CURRENT-LIABILITIES> 8,170
<BONDS> 11,062
10,213<F1>
0
<COMMON> 2,423
<OTHER-SE> 73,760
<TOTAL-LIABILITY-AND-EQUITY> 108,091
<SALES> 52,604
<TOTAL-REVENUES> 52,604
<CGS> 38,843
<TOTAL-COSTS> 47,023
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25
<INTEREST-EXPENSE> 163
<INCOME-PRETAX> 5,436
<INCOME-TAX> 2,050
<INCOME-CONTINUING> 3,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,386
<EPS-PRIMARY> .88
<EPS-DILUTED> .88
<FN>
<F1>Represents Common Stock held by ESOP
</FN>
</TABLE>
