<PAGE>
As filed with the Securities and Exchange Commission on July 1, 1999
Registration No. 0-25349
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10/A
Post-Effective Amendment No. 1 to
Form 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934
HOOKER FURNITURE CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0251350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
440 EAST COMMONWEALTH BLVD.
MARTINSVILLE, VIRGINIA 24115
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (540) 632-2133
Securities to be registered pursuant to Section 12(b) of the Act: None
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
--------------------------------------------------------
(Title of class)
<PAGE>
ITEM 1. BUSINESS.
General
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Incorporated in Virginia in 1924, Hooker Furniture Corporation ("Hooker" or
the "Company") has become a leading manufacturer and importer of residential
furniture primarily targeted at the upper-medium price range. The Company
offers diversified product lines across many style and product categories within
this price range. Its product depth and extensive style selections make the
Company an important furniture resource for retailers in its price range and
allows the Company to respond more quickly to shifting consumer preferences.
The Company has established a broad distribution network that includes
independent furniture stores, department stores, specialty retailers, catalog
merchandisers and national and regional furniture chains. The Company emphasizes
continuous improvement in its manufacturing processes to enable it to continue
providing competitive advantages to its customers, such as quick delivery,
reduced inventory investment, high quality, and value.
Products and Styles
- -------------------
The Company's product lines cover most major design categories. The Company
believes that the diversity of its product lines enables it to anticipate and
respond quickly to changing consumer preferences and provides retailers an
important furniture resource in the upper-medium price range. The Company
intends to continue expanding its product styles with particular emphasis on
home office, entertainment centers, occasional furniture and bedroom. The
Company believes that its products represent good value and that the quality and
style of its furniture compare favorably with more premium-priced products.
The Company provides furniture products in a variety of materials, woods,
veneers, and finishes. Percentage of revenue provided by major design categories
for the last three fiscal years are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Desks/Home Office 22.2% 18.9% 17.5%
Wall Systems/Home Theater 21.5 22.2 26.6
Entertainment Centers 21.1 22.9 24.0
Imported lines 18.1 17.2 13.9
Bedroom 16.2 17.8 16.2
All others 0.9 1.0 1.8
----- ----- -----
100.0% 100.0% 100.0%
</TABLE>
These product lines cover most major design categories including European
traditional, transitional, American traditional, and country/casual designs.
The Company designs and develops new product styles semi-annually to
replace discontinued items or styles and, if desired, expand product lines. The
Company's product design process begins with marketing personnel identifying
customer needs and conceptualizing product ideas, which generally consist of a
group of related furniture pieces. A variety of sketches are produced, usually
by independent designers, from which prototype furniture pieces are built. The
Company invites key dealers and independent sale representatives to view and
critique the prototypes. From this input, changes in design are made and the
Company's engineering department prepares a sample for actual full-scale
production. The Company introduces its new product styles at the fall and
spring international furniture markets.
Distribution
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The Company has developed a broad domestic customer base and also sells to
a limited international market. The Company sells its furniture through
approximately 80 independent sales representatives to independent furniture
retailers, catalog merchandisers, and national and regional chain stores.
Representative customers include Federated Department Stores, Sears, Neiman
Marcus, Dillard's Department Stores, Nebraska Furniture Mart, and Haverty's.
The Company believes this broad network reduces its exposure to regional
recessions, and allows it to
1
<PAGE>
capitalize on emerging channels of distribution. The Company offers tailored
merchandising programs to address each channel of distribution.
The general marketing practice followed in the furniture industry is to
exhibit products at international and regional furniture markets. In the spring
and fall of each year, a nine-day furniture market is held in High Point, North
Carolina, which is attended by most buyers and is regarded by the industry as
the international market. The Company utilizes approximately 32,000 square feet
of showroom space at the High Point market to introduce new products, increase
sales of its existing products, and test ideas for future products.
The Company has sold to over 3,800 customers during the past fiscal year,
and approximately 2.3% of the Company's sales in 1998 were to international
customers. No single customer accounted for more than six percent of the
Company's sales in 1998. No material part of the Company's business is
dependent upon a single customer, the loss of which would have a material effect
on the business of the Company. The loss of several of the Company's major
customers could have a material impact on the business of the Company.
Manufacturing
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The Company's manufacturing strategy is to produce products which are on
the leading edge of changing consumer demand for the home, such as home theater,
home office and computer furniture, as well as traditional bedroom and
occasional products. The Company stresses strong customer relationships in
developing new products as well as improving existing ones. The Company
believes strongly in employee involvement with employee and management teams
working and communicating in all areas of manufacturing to improve production
and quality related issues, stressing quality improvement not quality control.
To meet customer expectations of just-in-time inventory delivery, the Company's
strategy has been to strike a balance between minimizing cutting size together
with increasing the frequency of cuttings on the one hand, and the efficiencies
gained from longer production runs on the other. In recent years, cutting sizes
have been reduced, frequencies of cuttings increased, and finished goods
inventory levels increased. The Company manufactures products using a flexible
plant philosophy structure with all plants capable of making and sharing product
lines according to customer demands and plant loads, which allows for quicker
delivery of high demand products. The Company is in constant contact with key
suppliers in forming partnerships which communicate both quality and delivery
issues which are imperative for both the Company and supplier to adjust to ever
changing customer requirements
The Company operates manufacturing facilities in North Carolina and
Virginia consisting of an aggregate of approximately 1.8 million square feet.
The Company considers its present equipment to be generally modern, adequate and
well maintained.
The Company schedules production of its various styles based upon actual
and anticipated orders. 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, the Company's backlog of unshipped
orders was $32.8 million at November 30, 1998 and $24.7 million at November 30,
1997. It is the Company's policy and industry practice to allow order
cancellation up to time of shipment, therefore customer orders are not firm
until shipped. Historically, however, 92% of all orders booked are ultimately
shipped. Backlogs are normally shipped within twelve months.
Imported Lines
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The Company imports finished furniture in a variety of styles and
materials, and markets the product under the Company name through its normal
distribution channels. Product lines include occasional tables, consoles, casual
dining, and accent pieces. The Company imports product from the Philippines,
China, Honduras, Mexico, Egypt and Indonesia from approximately 20 suppliers.
All transactions are in US dollars. Because of the large number and diverse
nature of foreign factories, the Company has flexibility in the placement of
product in any particular country and factory. The Company does not have a
concentration of product in any one country or factory. No one particular
supplier would adversely affect the production of imports should it fail to meet
a production schedule and thus production disruptions resulting from political
or economic instability in any one country are minimized.
2
<PAGE>
Raw Materials
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The principal materials used by the Company in manufacturing its products
include lumber, veneers, plywood, particleboard, hardware, glue, finishing
materials, glass products, and fasteners. The Company uses a variety of species
of lumber, including cherry, oak, ash, poplar, pine, and maple. The Company's
five largest suppliers accounted for approximately 14.9% of its purchases in
1998.
The Company believes that its sources of supply for these materials are
adequate and that it is not dependent on any one supplier.
Competition
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The Company is the seventeenth largest furniture manufacturer in North
America based on 1997 sales, according to Furniture/Today, a trade publication.
The furniture industry is highly competitive and includes a large number of
foreign and domestic manufacturers, none of which dominates the market. The
markets in which the Company competes include a large number of relatively small
manufacturers; however, certain competitors of the Company have substantially
greater sales volumes and financial resources than the Company. Competitive
factors in the upper-medium price range include style, price, quality, delivery,
design, service, and durability. The Company believes that its long-standing
customer relationships, customer responsiveness, consistent support of existing
diverse product lines that are high quality and good value, and experienced
management are competitive advantages.
Employees
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At November 30, 1998, the Company had approximately 2,000 employees. None
of the Company's employees are represented by a labor union. The Company
considers its relations with its employees to be good.
The Corporation sponsors the Hooker Furniture Corporation Employee Stock
Ownership Plan (the "ESOP") to provide retirement benefits for eligible
employees. The ESOP covers substantially all the Company employees. The ESOP
enables employees to share in the growth of the Company and to accumulate a
beneficial ownership interest in the Company's Common Stock.
Patents and Trademarks
- ----------------------
The trade name of the Company represents many years of continued business,
and the Company believes such name is well recognized and associated with
quality in the furniture industry. The Company owns a number of patents,
trademarks, and licenses, none of which is considered to be material to the
Company.
Governmental Regulations
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The Company is subject to federal, state, and local laws and regulations in
the areas of safety, health, and environmental pollution controls. Compliance
with these laws and regulations has not in the past had any material effect on
the Company's earnings, capital expenditures, or competitive position; however,
the effect of such compliance in the future cannot be predicted. Management
believes that the Company is in material compliance with applicable federal,
state, and local environmental regulations.
Regulations issued in December 1995 under the Clean Air Act Amendments of
1990 as part of the National Emission Standards for Hazardous Air Pollutants
program and negotiated into the Furniture Maximum Achievable Control Technology
Standard, requires the Company to reformulate certain furniture finishes and
institute process and administrative changes to reduce emissions of hazardous
air pollutants. The Company believes it is in compliance with these regulations
by its use of compliant coatings and by training its associates in work practice
standards. The Company cannot at this time estimate the future impact of these
standards on the Company's operations and capital expenditure requirements. See
"Item 8--Legal Proceedings."
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Forward-Looking Statements
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Certain statements made in this registration statement 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.
4
<PAGE>
ITEM 2. FINANCIAL INFORMATION.
SELECTED FINANCIAL DATA
The following selected financial data for each of the last five fiscal
years ended November 30, 1998 have been derived from the Company's audited
financial statements. The selected financial data should be read in conjunction
with the Financial Statements, including the Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended November 30,
---------------------------------------------------------------------------------------
(in thousands, except per share data)
1998 1997 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $205,308 $175,385 $161,202 $144,689 $138,158
Cost of goods sold 158,752 135,085 120,687 110,777 108,399
Selling and administrative expenses 29,643 24,692 23,160 20,522 19,090
Income from operations 16,913 15,608 17,355 13,390 10,669
Other income 607 600 577 874 382
Interest expense (561) (630) (227) (124) (523)
Income (loss) in investee company 68 (1) (202) (32) 3
Income before income taxes 17,027 15,577 17,503 14,108 10,531
Income taxes 6,241 5,530 6,715 4,939 3,907
Net income 10,786 10,047 10,788 9,169 6,624
Earnings Per Share Data:
Basic and diluted earnings per
share (1) 2.80 2.60 2.78 2.37 1.71
Weighted number of shares
outstanding (in thousands) 3,846 3,867 3,875 3,877 3,873
Balance Sheet Data:
Cash 3,625 827 1,997 2,543 3,078
Inventories 35,812 33,475 26,013 19,818 20,022
Working capital 51,793 47,153 37,555 33,840 35,098
Total assets 111,233 98,290 87,370 71,144 70,366
Long-term debt (including current
maturities) 12,062 9,985 7,228 1,000 8,500
Common stock--held by ESOP 10,213 10,044 9,230 6,740 5,051
Stockholders' equity 73,900 66,210 59,326 52,760 46,760
Cash dividends per share (1) 0.56 0.52 0.44 0.36 0.30
</TABLE>
(1) In 1994 the Company recorded a two-for-one stock split. All per share data
have been retroactively adjusted to effect the split.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data above and the Financial Statements and Notes thereto contained
elsewhere in this document.
Results of Operations
- ---------------------
The following table sets forth the percentage relationship to net sales of
certain items included in the Statements of Income:
<TABLE>
<CAPTION>
For the Year Ended November 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 77.3 77.0 74.9
----- ----- -----
Gross profit 22.7 23.0 25.1
Selling & administrative expenses 14.5 14.1 14.3
----- ----- -----
Operating income 8.2 8.9 10.8
Other income -net 0.4 0.4 0.2
Interest expense 0.3 0.4 0.1
----- ----- -----
Income before income taxes 8.3 8.9 10.9
Income taxes 3.0 3.2 4.2
----- ----- -----
Net income 5.3% 5.7% 6.7%
===== ===== =====
</TABLE>
General
Historically, American furniture companies, including Hooker, relied on
relatively short product lines and large, infrequent cuttings of suites of
furniture with similar design and finish characteristics. This sometimes lead
to out-of-stock inventory situations between cuttings and ultimately consumer
dissatisfaction. Recent years have seen a trend in the industry for more varied
product offerings and shorter production cycles, coupled with larger finished
goods inventories, working toward inventory-on-demand for Hooker's dealers. It
has been Hooker's policy in recent years that as demand for its product
increased and backlogs grew, additional manufacturing capacity was added by
purchasing existing furniture manufacturing plants and converting the production
to Hooker product.
During the latter part of 1995, the Company found itself in the position
that, due to increased demand for its products, delivery times to dealers were
lengthening. As a result, additional capacity was needed. In April of 1996, a
furniture manufacturing plant was purchased to provide this needed capacity.
This facility was producing lower-end tables inconsistent with Hooker's
offerings, but for which there was an existing market. Hooker continued to
produce and sell the existing product in 1996 and at the same time began
retooling the facility, retraining the workforce, and in the later part of 1996
began producing Hooker's product.
In 1997 the industry experienced a weak market for retail furniture sales.
Consumer discretionary purchases emphasized electronics and investing in a
rapidly expanding economy, and furniture sales suffered. Finding itself with
new additional capacity and a less than favorable sales environment, Hooker
implemented a smaller than normal price increase for its product in 1997 in an
attempt to gain market share and keep all manufacturing plants operating. The
Company believes that this modest price increase coupled with Hooker's pleasing
design increased the value of the Company's line compared to its competition.
This increase in value plus additional discounting in marketing programs
resulted in a $14 million, or 8.8% increase in net sales in 1997 compared to
1996.
The Company believes that the styling of its imported furniture together
with strong consumer demand for home computers and audio/video entertainment
systems has contributed to the growth of Hooker's product offerings in recent
years.
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<PAGE>
1998 Compared to 1997
Net sales increased $30 million or 17.1% in 1998 compared to 1997. The
increase was due principally to higher unit volume, particularly in three major
product lines: imported occasional furniture, home entertainment systems, and
home office furniture, and to a minor extent higher average selling prices.
Gross profit margin for 1998 decreased to 22.7% compared to 23.0% for 1997.
The decline was due primarily to the Company's decision to implement smaller
price increases to dealers in December of 1997 than had been implemented in
previous years.
Selling and administrative expenses rose from 14.1% of net sales in 1997 to
14.5% in 1998. The increase was primarily due to the Company's planned
investment upgrades in year-2000 compliant hardware, software, and network
technology.
As a result of the above, operating income dropped from 8.9% of net sales
in 1997 to 8.2% of net sales in 1998.
Interest expense dropped from 0.4% of net sales in 1997 to 0.3% in 1998.
During 1998 amounts outstanding under the Company's revolving line of credit
were reduced due to increased cash flows from operations. In the fourth quarter
of 1998, the Company purchased additional warehouse facilities to be used as a
central distribution center, increasing the revolving line of credit by $4
million. Also, in the fourth quarter, the Company renegotiated its Industrial
Development Revenue Bonds issued in 1996, securing a more favorable amortization
schedule and rate of interest.
The Company's effective tax rate was 35.5% of income before taxes in 1997
and 36.6% in 1998.
1997 Compared to 1996
Net sales increased $14 million or 8.8% in 1997 compared to 1996. The
increase was due primarily to higher unit volume, particularly in imported
occasional furniture, home entertainment systems, and home office furniture, and
to a lesser extent higher average selling prices.
Gross profit percentages decreased from 25.1% in 1996 to 23.0% in 1997.
Many of the costs of retooling and retraining the workforce for the plant
purchased in 1996 were not incurred and expensed until late 1996 and 1997. The
soft retail environment also caused finished furniture inventory to grow by $6.5
million and total inventories by $7.5 million. In an effort to expand market
share and sell furniture produced by the additional capacity, many dealer
programs were offered to encourage volume buying. Many of these programs
involved price concessions and further contributed to the deterioration of the
gross profit margin in 1997. Also, new product introductions in 1997 were
priced with lower than normal margins.
Selling and administrative expenses as a percentage of net sales were 14.1%
for 1997 and 14.3% for 1996. These expenses were lower in 1997 due primarily to
lower selling expenses resulting, in part, from lower commission rates paid to
independent sales representatives, which were phased in over a two-year period
and were fully realized in 1997.
As the result of the above, operating income decreased from 10.8% in 1996
to 8.9% of net sales in 1997.
Other income (net) increased from 0.2% in 1996 to 0.4% in 1997, primarily
due to lower losses on the Company's investment in a joint venture in 1997.
Interest expense increased from 0.1% of net sales in 1996 to 0.4% of net sales
in 1997. The increase was due to increased borrowings for the plant purchased
in April of 1996, together with funding the growth in finished goods inventory
during 1997.
The Company's effective income tax rate was 38.4% in 1996 and 35.5% in
1997. The decrease was primarily the result of a charitable donation of land to
a local municipality.
7
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Financial Condition, Liquidity and Capital Resources
- ----------------------------------------------------
As of November 30, 1998, assets totaled $111.2 million, up from $98.3
million in 1997 and $87.4 in 1996. Stockholders' equity at November 30, 1998,
was $73.9 million, rising from $66.2 million in 1997 and $59.3 million in 1996.
Cash generated from operating activities rose to $15.1 million during 1998
compared to $4.6 million in 1997 and $8.1 million in 1996. Cash flow from
operating activities increased from 1997 to 1998 primarily due to a reduction of
$7.3 million in the increase in accounts receivable and inventory.
Investing activities consumed $11.5 million in cash during 1998 compared to
$6.2 million during 1997 and $13.1 million in 1996. Cash absorbed by investing
activities in all three years was due to capital expenditures as the Company
continued to invest in property, plant, and equipment for furniture
manufacturing capacity and distribution. The Company had committed
approximately $1.8 million for the purchase of property, plant, and equipment as
of November 30, 1998. During the fourth quarter of 1998, the Company purchased a
400,000 square foot distribution warehouse for consolidation and shipment of its
finished furniture. In the first half of 1999, the Company will be
consolidating finished inventory presently kept in three separate warehouses
into the new central distribution center. One of the existing warehouses is
under lease, which expires in April of 1999, one facility is presently offered
for sale or lease, and the final facility will be converted to additional
manufacturing needs. Management anticipates that the consolidation will provide
improved inventory control, less handling, and improved efficiency for the
distribution of its product. The Company used $0.8 million for financing
activities in 1998 compared with providing cash from financing activities in the
amount of $0.4 million in 1997 and $4.5 million in 1996. The major financing
applications of cash in 1996 were for additional manufacturing plant acquisition
and the acquisition of additional finished goods warehousing, totaling $8.5
million.
In 1996, the Company incurred $7.2 million of additional debt comprised of
Industrial Development Revenue Bonds for the purchase, expansion, and retooling
of an additional furniture manufacturing facility. During 1997, the Company
incurred additional debt through its revolving line of credit for working
capital needs primarily as a result of a $7.5 million increase in inventories.
During 1998, total long-term debt increased $2.1 million, primarily to fund the
purchase of additional warehouse capacity during the fourth quarter.
At November 30, 1998, the Company had $3 million available under its
reducing revolving line of credit and additional lines of credit of $15 million
to fund working capital needs as necessary. The Company believes it has the
financial resources needed to meet business requirements in the foreseeable
future, including capital expenditures for the expansion of manufacturing
capacity, working capital requirements, and the Company's dividend program (see
"Item 9--Market Price and Dividends on the Registrant's Common Equity and
Related Stockholder Matters").
Recent Accounting Pronouncements
- --------------------------------
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Reporting Comprehensive Income", effective for periods beginning after December
15, 1997, establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from investments
by owners and distributions to owners. Among other disclosures, SFAS 130
requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements.
Statements of Financial Accounting Standards No. 132 ("SFAS 132"),
"Employers' Disclosures about Pensions and Other Postretirement Benefits",
effective for periods beginning after December 15, 1997, revises employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of those plans.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments,"
("SFAS 133"), effective for fiscal years beginning after June 15, 1999. SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair market value. Under certain
circumstances, a portion of the derivative's gain or loss is initially reported
as a component of other comprehensive income and subsequently reclassified into
income
8
<PAGE>
when the transaction affects earnings. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. The Company anticipates that the adoption of SFAS 133 will not have an
effect on the Company's financial position or results of operations.
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 taskforce 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 November 30, 1998, 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 taskforce 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 noncompliant 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 November 30,
1998, approximately $2 million has been expended. It is management's estimate
that additional cost for compliance will not exceed $1 million. 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.
9
<PAGE>
ITEM 3. PROPERTIES.
Set forth below is certain information with respect to the Company's
principal properties. The Company believes that all these properties are well
maintained and in good condition. The Company believes its manufacturing
facilities are being efficiently utilized. The Company estimates that its
facilities are currently being operated at approximately 95% capacity, on a one-
shift basis. Each manufacturing facility is flexible in regard to product lines
manufactured, allowing the Company to shift products between plants according to
customer sales and delivery demands. All Company plants are equipped with
automatic sprinkler systems and modern fire and spark detection systems, which
the Company believes are adequate. All facilities set forth below are active and
operational.
<TABLE>
<CAPTION>
Approximate
Facility Size
Location Primary Use (Square Feet) Owned or Leased
-------- ----------- ------------- ---------------
<S> <C> <C> <C>
Martinsville, VA Corporate Headquarters 32,000 Owned
Martinsville, VA Manufacturing 760,000 Owned
Martinsville, VA Distribution 400,000 Owned
Martinsville, VA Distribution 189,200 Owned
Martinsville, VA Import Division 125,000 Leased (1)
Martinsville, VA Plywood Production 146,000 Owned
Kernersville, NC Manufacturing 115,000 Owned
Roanoke, VA Manufacturing 265,000 Owned
Pleasant Garden, NC Manufacturing 300,000 Owned
Maiden, NC Manufacturing 200,000 Owned
High Point, NC Showroom 32,000 Leased (2)
</TABLE>
(1) Lease expires April 30, 1999.
(2) Lease expires April 30, 2000.
10
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of January 29, 1999, by
each stockholder known by the Company to be the beneficial owner of more than 5%
of its outstanding Common Stock, by each director and director nominee, by each
of the Named Executive Officers (as defined in Item 6, "Executive Compensation")
and by all directors and executive officers as a group:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name Beneficial Ownership Of Class
---- --------------------- --------
<S> <C> <C>
J. Clyde Hooker, Jr. (1)..................................................... 761,166 (2)(3) 19.9%
Paul B. Toms, Jr. (1)........................................................ 588,676 (4)(5) 15.4%
Mabel H. Toms (1)............................................................ 564,024 (3)(5)(6) 14.7%
Hooker Furniture Corporation Employee Stock Ownership Plan (7)............... 282,185 (8) 7.4%
A. Frank Hooker, Jr. (1)..................................................... 201,721 (9) 5.3%
W. Christopher Beeler, Jr. (1)............................................... 41,200 (10) 1.1%
Irving M. Groves, Jr. (1).................................................... 11,564 (11) *
L. Dudley Walker (1)......................................................... 5,000 *
E. Larry Ryder (1)........................................................... 4,000 (12) *
Douglas C. Williams (1)...................................................... 2,788 *
Henry P. Long, Jr. (1)....................................................... 2,000 (13) *
Judge John D. Hooker (1)..................................................... 892 *
John L. Gregory, III (1)..................................................... 400 *
All directors and executive officers as a group (12 persons)................. 1,267,407 (14) 33.1%
</TABLE>
* Less than one percent.
(1) The business address for such persons is c/o Hooker Furniture Corporation,
440 East Commonwealth Blvd., Martinsville, Virginia 24115.
(2) Mr. J. Clyde Hooker, Jr. has sole voting and disposition power with respect
to 309,686 shares and shared voting and disposition power with respect to
451,480 shares. Shares beneficially owned by Mr. Hooker do not include
131,456 shares beneficially owned by members of his family; Mr. Hooker
disclaims beneficial ownership of such shares. Mr. Hooker also shares
voting and disposition power with respect to 282,185 shares held by the
Hooker Furniture Corporation Employee Stock Ownership Plan (the "ESOP")
(see footnote (8) below).
(3) Mr. J. Clyde Hooker, Jr. and Mrs. Mabel H. Toms share voting and
disposition power with respect to 352,000 shares held by family trusts.
Such shares are included in the shares beneficially owned by Mr. Hooker and
Mrs. Toms.
(4) Mr. Toms has sole voting and disposition power with respect to 23,701
shares and shared voting and disposition power with respect to 564,975
shares. Shares beneficially owned by Mr. Toms do not include 1,468 shares
beneficially owned by his wife; Mr. Toms disclaims beneficial ownership of
such shares.
(5) Mrs. Mabel H. Toms and her adult children, one of whom is Mr. Toms, share
voting and disposition power with respect to 99,480 shares held by a family
trust (the "Toms Family Trust"). In addition, pursuant to a revocable power
of attorney, Mr. Toms has shared voting and disposition power with respect
to all 564,024 shares (which include the 99,480 shares held by the Toms
Family Trust) beneficially owned by Mrs. Toms.
(6) Mrs. Toms has sole voting and disposition power with respect to 112,544
shares and shared voting and disposition power with respect to 451,480
shares.
(7) BB&T Corp. serves as trustee (the "ESOP Trustee") of the ESOP. The
business address for the ESOP Trustee is BB&T Corp., Trust Investment
Department, P.O. Box 29542, Raleigh, North Carolina 27626-0542.
(8) The ESOP Trustee has sole voting and disposition power with respect to
shares owned by the ESOP. The Trustee may dispose of and, except with
respect to certain fundamental corporate transactions, vote ESOP shares
only at the direction of a committee appointed by the Company. During
fiscal 1998 such committee
11
<PAGE>
consisted of the following officers of the Company: J. Clyde Hooker, Jr.,
E. Larry Ryder and Jack R. Palmer (Vice President - Human Resources).
(9) Mr. A. Frank Hooker, Jr. has sole voting and disposition power with respect
to 151,000 shares and shared voting and disposition power with respect to
52,721 shares.
(10) Mr. Beeler has sole voting and disposition power with respect to 1,200
shares and shared voting and disposition power with respect to 40,000
shares.
(11) Mr. Groves has sole voting and disposition power with respect to 8,864
shares and shared voting and disposition power with respect to 2,700
shares. Shares beneficially owned by Mr. Groves do not include 5,700 shares
beneficially owned by his wife; Mr. Groves disclaims beneficial ownership
of such shares.
(12) Mr. Ryder also shares voting and disposition power with respect to 282,185
shares held by the ESOP (see footnote (8) above).
(13) Mr. Long has sole voting and disposition power with respect to 1,400 shares
and shared voting and disposition power with respect to 600 shares.
(14) Messrs. J. Clyde Hooker, Jr. and E. Larry Ryder, each of whom is an
executive officer and a director, also share voting and disposition power
with respect to 282,185 shares held by the ESOP (see footnote (8) above).
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The Company's executive officers and directors, their ages as of January
31, 1999 and the year each joined the Company or its Board are as follows:
<TABLE>
<CAPTION>
Year Joined
Name Age Position Company
---- --- -------- -----------
<S> <C> <C> <C>
J. Clyde Hooker, Jr. 78 Chairman and Chief Executive Officer, and 1946
Director*
A. Frank Hooker, Jr. 69 President and Chief Operating Officer, and 1956
Director*
Paul B. Toms, Jr. 44 Executive Vice President - Marketing, and 1983
Director*
Henry P. Long, Jr. 47 Senior Vice President - Merchandising and 1983
Design, and Director*
E. Larry Ryder 51 Senior Vice President - Finance and 1977
Administration, Assistant Secretary, and
Director*
Douglas C. Williams 51 Senior Vice President - Manufacturing, and 1971
Director*
W. Christopher Beeler, Jr. 47 Director* 1994
John L. Gregory, III 51 Director* 1988
Irving M. Groves, Jr. 69 Director* 1964
Judge John D. Hooker 89 Director* 1982
Mabel H. Toms 73 Director* 1977
L. Dudley Walker 68 Director* 1995
</TABLE>
* All of the Company's directors serve one-year terms.
12
<PAGE>
J. Clyde Hooker, Jr. has been Chairman of the Board since 1987 and Chief
Executive Officer since 1966. He was President from 1960 to 1987. Prior to 1960,
Mr. Hooker held various positions in sales and marketing. Mr. Hooker joined the
Company in 1946 and has been a Director since 1947. He is the first cousin of A.
Frank Hooker, Jr., the uncle of Paul B. Toms, Jr. and the brother of Mabel H.
Toms.
A. Frank Hooker, Jr. has been Chief Operating Officer and President since
1987. He was Executive Vice President from 1968 to 1987 and Vice President from
1959 to 1968. Mr. Hooker joined the Company in 1956 and has been a Director
since 1958. Mr. Hooker is the first cousin of J. Clyde Hooker, Jr., the first
cousin once removed of Paul B. Toms, Jr. and the first cousin of Mabel H. Toms.
Paul B. Toms, Jr. has been Executive Vice President - Marketing since 1994.
Mr. Toms was Senior Vice President - Sales & Marketing from 1993 to 1994 and
Vice President - Sales from 1987 to 1993. Mr. Toms joined the Company in 1983
and has been a Director since 1993. Mr. Toms serves on the Board of Directors of
Piedmont Trust Bank (a subsidiary of MainStreet Financial Corporation). Mr. Toms
is the nephew of J. Clyde Hooker, Jr., the first cousin once removed of A. Frank
Hooker, Jr. and the son of Mabel H. Toms.
Henry P. Long, Jr. has been Senior Vice President - Merchandising and
Design since 1994. He was Vice President - Sales from 1987 to 1994. Mr. Long
joined the Company in 1983 and has been a Director since 1993.
E. Larry Ryder has been Senior Vice President - Finance and Administration
since 1987 and Assistant Secretary since 1990. He was Treasurer from 1989 to
1998 and Vice President - Finance and Administration from 1983 to 1987. Prior to
1983, Mr. Ryder served in various financial capacities. Mr. Ryder joined the
Company in 1977 and has been a Director since 1987.
Douglas C. Williams was elected Senior Vice President - Manufacturing in
1987. He was Vice President - Manufacturing from 1986 to 1987. Prior to 1986,
he held various positions in production. Mr. Williams joined the Company in 1971
and has been a Director since 1987.
W. Christopher Beeler, Jr. has been a Director since 1994. He is the
President and Chief Executive Officer of Virginia Mirror Company and Virginia
Glass Products Corporation, both of which manufacture and fabricate glass
products. Mr. Beeler is a director of MainStreet Financial Corporation.
John L. Gregory, III has been a Director since 1988. He is a partner in,
and is a director of, the law firm of Young, Haskins, Mann, Gregory & Smith,
P.C.
Irving M. Groves, Jr. has been a Director since 1964. He is the retired
Chief Executive Officer, President and Chairman of Piedmont BankGroup (a
predecessor to MainStreet Financial Corporation).
Judge John D. Hooker has been a Director since 1982. He is a retired
Virginia state circuit court judge. Judge Hooker is the second cousin of A.
Frank Hooker, Jr. and J. Clyde Hooker, Jr.
Mabel H. Toms has been a Director since 1977. She is a private investor.
Mrs. Toms is the sister of J. Clyde Hooker, Jr., the first cousin of A. Frank
Hooker, Jr. and the mother of Paul B. Toms, Jr.
L. Dudley Walker has been a Director since 1995. He is Chairman of the
Board of VF Knitwear, Inc. (formerly Bassett-Walker, Inc.) a wholly-owned
subsidiary of VF Corporation. Mr. Walker is the retired President and Chief
Executive Officer of Bassett-Walker, Inc., a manufacturer of knitted fleecewear.
He is a director of VF Corporation and Crestar Financial Corporation (a wholly-
owned subsidiary of SunTrust Banks, Inc.).
13
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
Summary Compensation Table
- --------------------------
The following table sets forth, for the years ended November 30, 1998, 1997
and 1996, the compensation for services in all capacities to the Company of
those persons who at November 30, 1998 were the Company's Chief Executive
Officer and the next four most highly compensated executive officers of the
Company for the year ended November 30, 1998 (collectively, the "Named Executive
Officers").
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
---------------------------------------------------
All Other
Name and Principal Position Year Salary ($)(1) Bonus ($) Compensation ($)(2)
- --------------------------- ---- ------------- --------- -------------------
<S> <C> <C> <C> <C>
J. Clyde Hooker, Jr. 1998 $154,000 $ 73,497 $27,393
Chairman and Chief Executive 1997 112,000 133,305 31,710
Officer 1996 112,000 139,479 26,937
A. Frank Hooker, Jr. 1998 $185,200 $110,246 $ 6,700
President and Chief Operating 1997 130,000 177,740 6,204
Officer 1996 130,750 232,465 6,244
Paul B. Toms, Jr. 1998 $145,600 $102,896 $32,749
Executive Vice 1997 106,000 124,418 36,066
President-Marketing 1996 100,750 111,583 32,293
E. Larry Ryder 1998 $131,200 $ 73,497 $22,062
Senior Vice President- 1997 102,400 88,870 24,799
Finance & Administration 1996 98,350 92,986 21,606
Douglas C. Williams 1998 $163,600 $102,896 $17,443
Senior Vice 1997 124,000 124,418 19,240
President-Manufacturing 1996 118,750 130,180 15,493
</TABLE>
(1) Includes for each Named Executive Officer compensation for services as a
director in the amount of $4,000 in both 1998 and 1997. Also includes
director compensation of $4,000 for Mr. J. Clyde Hooker, Jr. and $4,750 for
each of Messrs. A. Frank Hooker, Jr., Toms, Ryder and Williams in 1996.
See "-Compensation of Directors."
(2) All Other Compensation listed for the Named Executive Officers (excluding
Mr. A. Frank Hooker, Jr.) includes the present value of the benefit to the
executive officer of the Company's contribution toward premiums for split-
dollar life insurance under a program offered to all officers and plant
managers. The Company is entitled to recover the premiums from any amounts
paid to the insurer on such split-dollar life policies and has retained a
collateral interest in each policy to the extent of the premiums paid with
respect to such policy. All Other Compensation also includes for all the
Named Executive Officers employer contributions to the Company's 401(k) Plan
and ESOP.
<TABLE>
<CAPTION>
All Other Compensation For Fiscal Year 1998
-------------------------------------------
Split-Dollar Life Matching 401(k) ESOP
Name Insurance ($) Contribution ($) Contribution ($)
---- ------------- ---------------- ----------------
<S> <C> <C> <C>
J. Clyde Hooker, Jr. $20,693 $5,000 $1,700
A. Frank Hooker, Jr. - 5,000 1,700
Paul B. Toms, Jr. 26,049 5,000 1,700
E. Larry Ryder 15,362 5,000 1,700
Douglas C. Williams 10,743 5,000 1,700
</TABLE>
14
<PAGE>
Deferred Compensation
- ---------------------
Messrs. A. Frank Hooker, Jr., Toms, Ryder, Williams and Long have each
entered into a deferred compensation agreement with the Company. Pursuant to
these agreements each such executive officer, or his beneficiary, will be
entitled to receive additional compensation in the form of ten annual payments
of $40,000 upon his retirement, death, or disability. The full retirement
benefit vests at age 60 and a reduced retirement benefit vests after age 55. The
death and disability benefits vest immediately, however, the disability benefit
would not be paid until the executive officer reached the age of 60.
Compensation of Directors
- -------------------------
Directors receive an annual retainer fee of $1,000 and $750 for each
meeting attended, including committee participation or special assignments. In
1998, Messrs. Beeler, Gregory and Walker each received $5,500 for services as
directors of the Company. Each of the other directors received $4,000 for
services in 1998.
Board Interlocks and Insider Participation
- ------------------------------------------
Messrs. J. Clyde Hooker, Jr., A. Frank Hooker, Jr., Toms, Long, Ryder and
Williams are each an officer and a director of the Company and each participates
in the deliberations of the Company's Board of Directors concerning executive
officer compensation.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Board of Directors, at a meeting held December 30, 1997, approved the
purchase by the Company of 20,000 shares of the Company's Common Stock from Mr.
A. Frank Hooker, Jr., the Company's President and Chief Operating Officer. The
shares were purchased at $25 per share for an aggregate purchase price of
$500,000. The sale was consummated January 2, 1998. This purchase was made in
accordance with the Board's policy to purchase the Company's Common Stock from
time to time at prices attractive to the Company.
ITEM 8. LEGAL PROCEEDINGS.
In 1998 a manufacturing joint venture between the Company and Bassett
Furniture Industries, in which the Company owns a 50% interest, was cited by the
Environmental Protection Agency ("EPA") for violations of certain regulations
under the Clean Air Act Amendments of 1990. The members of the joint venture
determined that the costs to bring the plant into compliance, together with
costs for other needed capital improvements, would be prohibitive. Thus, the
joint venture ceased operations in November 1998. No final action has been
taken by the EPA in this matter, including the assessment of any fines against
the joint venture. The joint venture intends to sell the property. Company
management anticipates that any shortfall between the remaining carrying value
of the joint venture investment ($2.4 million at November 30, 1998), including
any fines that might be levied by the EPA, and proceeds from the sale of the
joint venture facility and equipment will not have a material adverse effect on
the Company's financial condition or annual results of operations but it could
have a material adverse effect on the Company's results of operations for any
particular fiscal quarter.
15
<PAGE>
ITEM 9. MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
There is no established public trading market for the Company's Common
Stock. As of January 29, 1999 there were approximately 700 beneficial
stockholders. As of the same date approximately 2,277,057 shares of the
Company's Common Stock could be sold pursuant to Rule 144. The Company currently
has no plan to list the Common Stock on an exchange, quotation system or other
public trading market.
The Company pays quarterly dividends on its Common Stock on or about the
last day of February, May, August and November, when declared by the Board of
Directors, to stockholders of record approximately two weeks earlier. Although
the Company presently intends to declare cash dividends at historical levels on
a quarterly basis for the foreseeable future, the determination as to the
payment and the amount of any future dividends will be made by the Board of
Directors from time to time and will depend on the Company's then current
financial condition, capital requirements, results of operations and any other
factors then deemed relevant by the Board of Directors. The following table sets
forth the dividends per share paid by the Company with respect to its Common
Stock during the Company's two most recent fiscal years:
<TABLE>
<CAPTION>
1998 Dividends Per Share
- ---- -------------------
<S> <C>
First Quarter.................................................................... $0.14
Second Quarter................................................................... 0.14
Third Quarter.................................................................... 0.14
Fourth Quarter................................................................... 0.14
1997
- ----
First Quarter.................................................................... $0.13
Second Quarter................................................................... 0.13
Third Quarter.................................................................... 0.13
Fourth Quarter................................................................... 0.13
</TABLE>
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, no par value. As of January 29, 1999, there were 3,826,649
shares of Common Stock issued and outstanding.
The following is a discussion of the material terms of the Company's Common
Stock. For additional information regarding the terms of the Company's Common
Stock you may refer to the provisions of the Company's Amended and Restated
Articles of Incorporation, as amended (the "Articles"), and Bylaws, copies of
which have been filed as exhibits to the registration statement.
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. Holders of Common Stock do not have
cumulative voting rights, and therefore holders of a majority of the shares
voting for the election of directors can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any
directors.
16
<PAGE>
Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities.
The Common Stock has no preemptive or conversion rights and is not subject
to further call for assessments by the Company. The Common Stock currently
outstanding is validly issued, fully paid and nonassessable.
The Company's Articles require, in addition to any vote required by law or
the Articles, subject to certain exceptions, that certain fundamental corporate
transactions ("business combinations") between the Company (including any
subsidiary of the Company) and any beneficial holder of more than 10% of the
Company's outstanding voting stock (an "interested stockholder") or an affiliate
or associate of such interested stockholder be approved by the holders of at
least 75% of the then outstanding shares of the voting stock of the Company.
"Business combinations" include (i) mergers and consolidations, (ii) statutory
share exchanges, (iii) dispositions of all or a substantial part of corporate
assets, (iv) any issuance or transfer by the Company of any securities of the
Company having a fair market value equal to or greater than 10% of the aggregate
fair market value of the outstanding voting stock of the Company, (v) any
liquidation or dissolution of the Company, or (vi) any reclassification,
(including reverse stock splits), recapitalization or merger or consolidation of
the Company with any of its subsidiaries, that increases by more than 5% the
percentage of any securities of the Company beneficially owned by an interested
stockholder.
The exceptions to the 75% stockholder approval requirement require either
that (i) the business combination be approved by a majority of the Company's
"continuing directors" or (ii) the business combination satisfy certain fair-
price and procedural requirements. In general, the fair-price requirements
provide that in a two-step acquisition transaction, the interested stockholder
must pay the stockholders of the Company in the second step either the same
amount of cash or the same amount and type of consideration paid to acquire the
Company's shares in the first step. A "continuing director" includes any
director who (a) was a member of the Board before December 28, 1987 (the date
the Company's Amended and Restated Articles of Incorporation were adopted), (b)
is unaffiliated with the interested stockholder and was a director prior to the
time the interested stockholder became an interested stockholder, or (c) any
successor of a continuing director who is unaffiliated with the interested
stockholder and is recommended to succeed a continuing director by a majority of
continuing directors then on the Board.
These provisions are designed to deter certain types of takeovers of the
Company. The Company's Articles require the affirmative vote of 75% of the
voting shares of the Company to amend or repeal these interested stockholder
provisions.
The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina.
The Virginia Stock Corporation Act contains provisions governing
"Affiliated Transactions." These provisions, with several exceptions discussed
below, generally require approval of certain material transactions between a
Virginia corporation and any beneficial holder of more than 10% of any class of
its outstanding voting shares (an "Interested Shareholder") by a majority of
disinterested directors and by the holders of at least two-thirds of the
remaining voting shares. Affiliated Transactions subject to this approval
requirement include mergers, share exchanges, material dispositions of corporate
assets not in the ordinary course of business, any dissolution of the
corporation proposed by or on behalf of an Interested Shareholder, or any
reclassification, including reverse stock splits, recapitalization or merger of
the corporation with its subsidiaries, which increases the percentage of voting
shares owned beneficially by an Interested Shareholder by more than 5%.
For three years following the time that an Interested Shareholder becomes
an owner of 10% of the outstanding voting shares, a Virginia corporation cannot
engage in an Affiliated Transaction with such Interested Shareholder without the
approval of two-thirds of the voting shares other than those shares beneficially
owned by the Interested Shareholder, and the approval of a majority of the
Disinterested Directors. "Disinterested Director" means, with respect to a
particular Interested Shareholder, a member of the Company's Board of Directors
who was
17
<PAGE>
. a member on the date on which an Interested Shareholder became an
Interested Shareholder or
. recommended for election by, or was elected to fill a vacancy and
received the affirmative vote of, a majority of the Disinterested
Directors then on the Board.
After the expiration of the three-year period, the statute requires approval of
Affiliated Transactions by two-thirds of the voting shares other than those
beneficially owned by the Interested Shareholder.
The principal exceptions to the special voting requirements apply to
transactions proposed after the three-year period has expired and require either
that the transaction be approved by a majority of the Company's Disinterested
Directors or that the transaction satisfy the fair-price requirements of the
statute. In general, the fair-price requirement provides that in a two-step
acquisition transaction, the Interested Shareholder must pay the shareholders in
the second step either the same amount of cash or the same amount and type of
consideration paid to acquire the Company's shares in the first step.
None of the foregoing limitations and special voting requirements applies
to an Interested Shareholder whose acquisition of shares making such person an
Interested Shareholder was approved by a majority of the Company's Disinterested
Directors.
These provisions are designed to deter certain types of takeovers of
Virginia corporations. The statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or by-laws providing that the Affiliated Transactions provisions
shall not apply to the corporation. The Company has not "opted out" of the
Affiliated Transactions provisions.
Virginia law also generally provides that shares of a Virginia corporation
acquired in a transaction that would cause the acquiring person's voting
strength to meet or exceed any of three thresholds (20%, 33-1/3% or 50%) have no
voting rights with respect to such shares unless granted by a majority vote of
shares not owned by the acquiring person or any officer or employee-director of
the corporation. This provision empowers an acquiring person to require the
Virginia corporation to hold a special meeting of shareholders to consider the
matter within 50 days of its request. The Board of Directors of a Virginia
corporation can opt out of this provision at any time before four days after
receipt of a control share acquisition notice.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 10 of the Virginia Stock Corporation Act (the "VSCA") allows, in
general, for indemnification, in certain circumstances, by a corporation of any
person threatened with or made a party to any action, suit or proceeding by
reason of the fact that he or she is, or was, a director, officer, employee or
agent of such corporation. Indemnification is also authorized with respect to a
criminal action or proceeding where the person had no reasonable cause to
believe that his or her conduct was unlawful. Article 9 of the VSCA provides
limitations on damages payable by officers and directors, except in cases of
willful misconduct or knowing violation of criminal law or any federal or state
securities law.
Article IV of the Company's Amended and Restated Articles of Incorporation
provides for mandatory indemnification of any individual who is, was or is
threatened to be made a party to any proceeding (including any proceeding by or
on behalf of the Company) because such individual is or was a director or
officer of the Company or because such individual was serving the Company or any
other legal entity in any capacity at the request of the Company while a
director or officer of the Company, against all liabilities and reasonable
expenses incurred in the proceeding, except such liabilities and expenses as are
incurred because of such director's or officer's willful misconduct or knowing
violation of the criminal law.
Article IV of the Company's Amended and Restated Articles of Incorporation
also provide that in every instance permitted under the VSCA in effect from time
to time, the liability of a director or officer of the Company
18
<PAGE>
to the Company or its stockholders arising out of a single transaction,
occurrence or course of conduct shall be limited to one dollar.
The Company maintains a standard policy of officers' and directors'
liability insurance.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
For the information required by this Item, refer to the Index to Financial
Statements appearing on page F-1 of the registration statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
FINANCIAL STATEMENTS
For the information required by this Item, refer to the Index to Financial
Statements appearing on page F-1 of the registration statement.
EXHIBITS
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company*
3.2 Articles of Amendment to Amended and Restated Articles of
Incorporation of the Company*
3.3 Amended and Restated Bylaws of the Company*
4.1 Amended and Restated Articles of Incorporation of the Company
(See Exhibit 3.1)
4.2 Articles of Amendment to Amended and Restated Articles of
Incorporation of the Company (See Exhibit 3.2)
4.3 Bylaws of the Company (See Exhibit 3.3)
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments evidencing
long term debt less than 10% of the Company's total assets have been omitted
and will be furnished to the Securities and Exchange Commission upon
request.
10.1 Lease, dated March 14, 1994, between Fred B. Caffey, as lessor,
and the Company, as lessee*
10.2 Lease, dated November 1, 1994, between Southern Furniture
Exposition Building, Inc. and the Company*
10.3 Form of Salary Continuation Agreement*
10.4 Form of Split Dollar Agreement*
27.1 Financial Data Schedule*
* Previously filed.
19
<PAGE>
HOOKER FURNITURE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Financial Statements
- --------------------
<S> <C>
Report of Independent Certified Public Accountants................................................ F-2
Balance Sheets as of November 30, 1998 and 1997................................................... F-3
Statements of Income for the fiscal years ended November 30, 1998, 1997 and 1996.................. F-4
Statements of Cash Flows for the fiscal years ended November 30, 1998, 1997 and 1996.............. F-5
Statements of Stockholders' Equity for the fiscal years ended November 30, 1998, 1997 and 1996.... F-6
Summary of Significant Accounting Policies........................................................ F-7
Notes to Financial Statements..................................................................... F-8 to F-12
Financial Statement Schedule
- ----------------------------
Schedule II-Valuation and Qualifying Accounts for the fiscal years ended November 30, 1998, 1997
and 1996....................................................................................... S-1
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Hooker Furniture Corporation
Martinsville, Virginia
We have audited the accompanying balance sheets of Hooker Furniture Corporation
as of November 30, 1998 and 1997 and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended November 30, 1998. We have also audited the schedule listed in the
accompanying index. These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hooker Furniture Corporation at
November 30, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended November 30, 1998 in conformity
with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Richmond, Virginia
December 15, 1998
F-2
<PAGE>
Balance Sheets Hooker Furniture Corporation
<TABLE>
<CAPTION>
November 30, 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
- ------------------------------------------------------------------------------------------------
Current Assets
Cash, primarily interest-bearing deposits................ $ 3,624,920 $ 826,543
Trade receivables, less allowance of $500,000............ 23,345,761 22,976,701
Inventories (Note 1)..................................... 35,812,460 33,474,733
Prepaid expenses and other............................... 1,637,196 1,328,078
------------ ------------
Total Current Assets.............................. 64,420,337 58,606,055
Property, plant and equipment, net (Note 2)................ 41,500,124 34,913,861
Other Assets
Investment in and advances to investee company (Note 7).. 2,371,409 2,303,828
Miscellaneous............................................ 2,941,474 2,465,925
------------ ------------
$111,233,344 $ 98,289,669
============ ============
- ------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------
Current Liabilities
Trade accounts payable..................................... $ 4,757,043 $ 4,175,171
Accrued salaries, wages, and benefits...................... 4,464,435 4,098,620
Other accrued expenses (Note 4)............................ 3,405,769 1,579,263
Current maturities of long-term debt (Note 3).............. - 1,600,000
------------ ------------
Total Current Liabilities........................... 12,627,247 11,453,054
Long-term debt, less current maturities (Note 3)............. 12,061,592 8,384,620
Deferred compensation (Note 4)............................... 1,865,865 1,602,035
Deferred income taxes (Note 6)............................... 565,607 595,907
------------ ------------
Total Liabilities................................... 27,120,311 22,035,616
------------ ------------
Commitments (Note 4)
Common Stock - held by ESOP (Note 5)......................... 10,213,287 10,044,006
Stockholders' Equity
Common stock - no par value
Authorized 10,000,000 shares; issued
3,835,729 shares (3,865,080 in 1997)..................... 2,434,983 2,453,632
Retained earnings.......................................... 71,464,763 63,756,415
------------ ------------
Total Stockholders' Equity.......................... 73,899,746 66,210,047
------------ ------------
$111,233,344 $ 98,289,669
============ ============
- ------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Summary of Significant Accounting Policies and Notes to
Financial Statements
F-3
<PAGE>
Statement of Income Hooker Furniture Corporation
<TABLE>
<CAPTION>
Year ended November 30, 1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES.................................................... $205,307,641 $175,385,497 $161,201,507
COSTS AND EXPENSES
Cost of goods sold......................................... 158,751,682 135,084,924 120,686,628
Selling expenses........................................... 16,626,677 13,052,392 13,075,741
Administrative expenses.................................... 13,016,684 11,640,329 10,084,276
------------ ------------ ------------
188,395,043 159,777,645 143,846,645
------------ ------------ ------------
INCOME FROM OPERATIONS................................ 16,912,598 15,607,852 17,354,862
------------ ------------ ------------
OTHER INCOME AND EXPENSES
Other income............................................... 607,510 599,504 577,153
Interest expense........................................... (560,563) (630,107) (227,301)
Proportionate share of income (loss) in investee company... 67,581 (647) (201,538)
------------ ------------ ------------
114,528 (31,250) 148,314
------------ ------------ ------------
INCOME BEFORE INCOME TAXES............................ 17,027,126 15,576,602 17,503,176
------------ ------------ ------------
INCOME TAXES (Note 6)
Federal.................................................... 5,483,000 5,009,000 5,744,000
State...................................................... 758,000 521,000 971,000
------------ ------------ ------------
6,241,000 5,530,000 6,715,000
------------ ------------ ------------
NET INCOME............................................ $ 10,786,126 $ 10,046,602 $ 10,788,176
============ ============ ============
EARNINGS PER SHARE DATA
Basic and diluted earnings per share....................... $2.80 $2.60 $2.78
============ ============ ============
Weighted average number of shares outstanding.............. 3,846,011 3,866,850 3,875,220
============ ============ ============
</TABLE>
See accompanying Summary of Significant Accounting Policies and Notes to
Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
Statements of Cash Flows Hooker Furniture Corporation
Year ended November 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Cash received from customers..................................... $ 205,376,331 $ 173,397,676 $ 160,627,239
Cash paid to suppliers and employees............................. (183,744,913) (162,882,466) (145,822,728)
Income taxes paid................................................ (6,038,139) (5,310,122) (6,605,631)
Interest paid.................................................... (560,453) (630,107) (221,859)
Interest and dividends received.................................. 101,534 57,803 88,908
------------- ------------- -------------
Net cash provided by operating activities......................... 15,134,360 4,632,784 8,065,929
------------- ------------- -------------
Cash flows from investing activities
Purchase of property and equipment............................... (11,485,808) (6,211,526) (13,107,957)
------------- ------------- -------------
Net cash absorbed by investing activities......................... (11,485,808) (6,211,526) (13,107,957)
------------- ------------- -------------
Cash flows from financing activities
Proceeds from long-term debt..................................... 6,876,972 6,756,855 18,227,765
Payments on long-term debt....................................... (4,800,000) (4,000,000) (12,000,000)
Cash dividends paid.............................................. (2,152,265) (2,010,791) (1,705,079)
Purchase and retirement of common stock.......................... (774,882) (337,616) (27,200)
------------- ------------- -------------
Net cash provided (absorbed) by financing activities............. (850,175) 408,448 4,495,486
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH................................... 2,798,377 (1,170,294) (546,542)
CASH AT BEGINNING OF YEAR......................................... 826,543 1,996,837 2,543,379
------------- ------------- -------------
CASH AT END OF YEAR............................................... $ 3,624,920 $ 826,543 $ 1,996,837
============= ============= =============
Reconciliation of net income to net cash provided by operating
activities
Net income........................................................ $ 10,786,126 $ 10,046,602 $ 10,788,176
Depreciation and amortization.................................... 4,899,545 4,769,938 3,782,774
Increase in trade receivables.................................... (369,059) (2,536,337) (1,062,513)
Increase in inventories.......................................... (2,337,728) (7,462,195) (6,194,981)
Increase in prepaid expenses and other assets.................... (852,249) (660,129) (189,767)
Increase (decrease) in trade accounts payable.................... 581,872 (330,382) 854,179
Increase (decrease) in other accrued expenses.................... 2,192,323 (104,613) 424,481
Increase in deferred compensation................................ 263,830 303,313 89,635
Increase (decrease) in deferred income taxes..................... (30,300) 606,587 (426,055)
------------- ------------- -------------
Net cash provided by operating activities......................... $ 15,134,360 $ 4,632,784 $ 8,065,929
============= ============= =============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Summary of Significant Accounting Policies and Notes to
Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
Statements of Stockholders' Equity Hooker Furniture Corporation
- -----------------------------------------------------------------------------------------------------------------------------------
Common Stock Retained
----------------------
Shares Amount Earnings
------ ------ --------
<S> <C> <C> <C>
Balance at November 30, 1995 3,875,380 $ 2,460,224 $ 50,299,274
Net income 10,788,176
Cash dividends on common stock ($0.44 per share) (1,705,079)
Increase in fair value of shares held by ESOP (2,489,569)
Purchase and retirement of common stock (800) (512) (26,688)
------------- ------------- -------------
Balance at November 30, 1996 3,874,580 2,459,712 56,866,114
Net income 10,046,602
Cash dividends on common stock ($0.52 per share) (2,010,791)
Increase in fair value of shares held by ESOP (813,973)
Purchase and retirement of common stock (9,500) (6,080) (331,537)
------------- ------------- -------------
Balance at November 30, 1997 3,865,080 2,453,632 63,756,415
Net income 10,786,126
Cash dividends on common stock ($0.56 per share) (2,152,265)
Increase in fair value of shares held by ESOP (169,281)
Purchase and retirement of common stock (29,351) (18,649) (756,232)
------------- ------------- -------------
Balance at November 30, 1998 3,835,729 $ 2,434,983 $ 71,464,763
============= ============= =============
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Summary of Significant Accounting Policies and Notes to
Financial Statements
F-6
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Corporation manufactures and imports household and office furniture for sale
to wholesale and retail merchandisers located primarily throughout North
America.
The Corporation operates predominantly in one business segment. Substantially
all revenues result from the sale of residential furniture products.
Substantially all of the Corporation's trade accounts receivable are due from
retailers in this market, which consists of a large number of entities with a
broad geographical dispersion.
INVENTORIES
Inventories are stated at the lower of cost, using the last-in, first-out (LIFO)
method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, less allowances for
depreciation. Provision for depreciation has been computed (generally by the
declining balance method) at annual rates that will amortize the cost of the
depreciable assets over their estimated useful lives as follows: buildings (15
to 40 years), machinery and equipment (8 to 20 years), furniture and fixtures (5
to 10 years), and other (3 to 30 years).
INVESTMENT IN INVESTEE COMPANY
The Corporation accounts for its investment in its investee company under the
equity method of accounting.
INCOME TAXES
Deferred income taxes reflect the future tax consequences of differences between
the tax basis of assets and liabilities and their financial reporting amounts at
each year end.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation's financial instruments' (consisting of cash, accounts
receivable, accounts payable, and accrued salaries) carrying values approximate
fair value because of the short-term nature of those instruments.
The fair value of the Corporation's industrial development revenue bonds and
reducing revolving line of credit is estimated based on the quoted market rates
for similar debt with remaining maturity. At November 30, 1998, the carrying
value of the industrial revenue bonds and reducing revolving line of credit
approximated fair value.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reported period. Actual
results could differ from those estimates.
REVENUE RECOGNITION
Sales are recognized when products are shipped to customers. Substantially all
of the Corporation's trade accounts receivable are from customers in the retail
furniture industry. Management periodically performs credit evaluations of its
customers and generally does not require collateral. The Corporation uses
credit insurance to minimize the risk on certain accounts.
LONG LIVED ASSETS
Long-lived assets, such as property and equipment, are evaluated for impairment
when events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable through the estimated undiscounted future cash
flows from the use of those assets. When any such impairment exists, the
related assets will be written down to fair value. No impairment losses have
been necessary through November 30, 1998.
F-7
<PAGE>
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
EARNINGS PER SHARE
For the year ended November 30, 1998, the Corporation adopted Statement of
Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS
128 is effective for financial statements issued after December 15, 1997. SFAS
128 provides for the calculation of basic and diluted earnings per share. Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilutive effect of
securities that could share in earnings of an entity. At November 30, 1998,
there were no securities which had a dilutive effect. Earnings per share has
been computed based upon the weighted average number of common shares
outstanding during the year (3,846,011 shares -1998, 3,866,850 shares - 1997,
and 3,875,220 shares - 1996). Allocated shares in the ESOP are included in the
calculation of basic and diluted earnings per share.
ADVERTISING COSTS
Advertising costs are expensed when incurred. The Corporation charged
$4,083,850, $3,381,830 and $2,532,511 to advertising expense during the years
ended November 30, 1998, 1997 and 1996, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income", effective for periods beginning after December 15, 1997,
establishes standards for reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
Statements of Financial Accounting Standards No. 132 (SFAS 132), "Employers'
Disclosures about Pensions and Other Postretirement Benefits", effective for
periods beginning after December 15, 1997, revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments,"
("SFAS 133"), effective for fiscal years beginning after June 15, 1999. SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities and measure those instruments at fair market value. Under certain
circumstances, a portion of the derivative's gain or loss is initially reported
as a component of other comprehensive income and subsequently reclassified into
income when the transaction affects earnings. For a derivative not designated as
a hedging instrument, the gain or loss is recognized in income in the period of
change. The Company anticipates that the adoption of SFAS 133 will not have an
effect on the Company's financial position or results of operations.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - INVENTORIES
The components of inventories are summarized as follows:
November 30
------------------------
1998 1997
----------- -----------
Finished furniture............ $29,786,567 $26,715,151
Furniture in process.......... 1,663,518 2,314,137
Materials and supplies........ 13,628,203 12,826,714
----------- -----------
45,078,288 41,856,002
Reduction to LIFO basis....... 9,265,828 8,381,269
----------- -----------
$35,812,460 $33,474,733
=========== ===========
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 1 - INVENTORIES (continued)
If the first-in, first-out (FIFO) method had been used in valuing all
inventories, net income would have been $11,356,666, $10,756,602, and
$10,782,647 for the years ended November 30, 1998,1997, and 1996, respectively.
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are summarized as follows:
<TABLE>
<CAPTION>
November 30
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Buildings............................................................ $ 32,621,398 $ 29,800,626
Machinery and equipment.............................................. 37,006,631 35,052,887
Furniture and fixtures............................................... 6,082,256 5,116,142
Other................................................................ 9,198,863 4,014,362
------------ ------------
84,909,148 73,984,017
Accumulated depreciation............................................. (44,590,267) (39,965,352)
------------ ------------
40,318,881 34,018,665
Land................................................................. 1,181,243 895,196
------------ ------------
$ 41,500,124 $ 34,913,861
============ ============
</TABLE>
NOTE 3 - LONG TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
November 30
---------------------------
1998 1997
------------ ----------
<S> <C> <C>
Industrial development revenue bonds issued in 1996, secured by
a letter of credit of $10,240,000 from NationsBank N.A., maturing
annually from 2004 through 2006 with a variable interest rate
(3.3% at November 30, 1998)........................................ $ 7,061,592 $6,984,620
Reducing revolving line of credit to bank, with a maximum of
$8,000,000 at November 30, 1998, variable rate (5.9%
at November 30, 1998) unsecured, interest payable
monthly............................................................ 5,000,000 3,000,000
------------ ----------
12,061,592 9,984,620
Less current maturities.............................................. - 1,600,000
------------ ----------
$ 12,061,592 $8,384,620
============ ==========
</TABLE>
During fiscal 1998, the Corporation entered into an interest rate swap agreement
with NationsBank N.A., which effectively provides a fixed interest rate of 4.71%
on the industrial development revenue bonds through 2006.
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 3 - LONG TERM DEBT (continued)
Maturities of long-term debt during the next five years are $2,440,000 in 2001
and $2,560,000 in 2002.
The debt instruments contain, among other things, certain restrictions as to
minimum tangible net worth, net equity ratio, current ratio, and debt coverage
ratio. The Corporation was in compliance with these restrictions as of November
30, 1998.
The Corporation has available additional lines of credit of $15 million to fund
its working capital needs as necessary, all of which was unused at November 30,
1998.
NOTE 4 - EMPLOYEE BENEFIT PLANS
Deferred Compensation Agreements
The Corporation maintains several individual deferred compensation agreements
for certain employees. These are unfunded agreements with all benefits paid out
of the general assets of the Corporation when the employee retires. The amount
of benefits to be paid is specified in each individual agreement.
The following table sets forth the financial status and amounts recognized for
the deferred compensation plan:
<TABLE>
<CAPTION>
November 30
-----------------------
<S> <C> <C>
1998 1997
---------- ----------
Projected benefit obligation, including vested
benefits of $725,000 at November 30, 1998............... $2,082,830 $1,791,501
Unrecognized net loss from past experience................ (573,626) (386,259)
Unrecognized prior service cost........................... (72,478) (93,138)
Unrecognized net obligation............................... (19,702) (23,768)
Additional liability...................................... 529,049 403,907
---------- ----------
Accrued liability included in balance sheet............... $1,946,073 $1,692,243
========== ==========
</TABLE>
Pursuant to SFAS 87, Employer's Accounting for Pensions, the Corporation
recorded an additional liability in the amount of $529,049 at November 30, 1998
(1997-$403,907). In addition, the Corporation has an intangible asset in the
amount of $137,473 at November 30, 1998, which is being amortized on a straight-
line basis over 15 years. The current obligation of $80,208 (1997-$90,208) has
been included in other accrued expenses in the balance sheet.
The net periodic cost included the following components:
<TABLE>
<CAPTION>
Year Ended November 30
----------------------------
<S> <C> <C> <C>
1998 1997 1996
-------- -------- --------
Service cost - benefits earned during the period..... $ 35,150 $ 25,782 $ 41,608
Interest cost on projected benefit obligations....... 138,762 128,630 105,151
Net amortization and deferral........................ 44,984 33,873 24,726
-------- -------- --------
Net periodic cost included in statements of income... $218,896 $188,285 $171,485
======== ======== ========
</TABLE>
The weighted average discount rate and rate of compensation increase used in
determining the actuarial present value of the projected benefit obligation was
7.0 percent (7.5 percent in 1997), and 5.0 percent respectively.
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 4 - EMPLOYEE BENEFIT PLANS (continued)
Employee Savings Plan
The Corporation sponsors the Employee's Savings Plan (the Plan). The Plan is a
qualified savings plan (a 401(k) plan) that is designed to permit employees of
the Corporation to meet their savings goals and share in the Corporation's
profits as a way of providing them with funds for retirement. The Plan covers
substantially all employees. A participant in the Plan may contribute an amount
not less than 1%, nor more than 16% of their compensation. The Corporation will
contribute 50% of the amount contributed by the participant, up to 6% of their
compensation, as a matching contribution. Contributions to the Plan by the
Corporation amounted to $571,000 in 1998, $549,000 in 1997, and $515,000 in
1996.
NOTE 5 - COMMON STOCK - HELD BY ESOP
Employee Stock Ownership Plan
The Corporation sponsors an Employee Stock Ownership Plan (ESOP) which is
designed to provide retirement benefits for eligible employees by allowing them
to share on a noncontributory basis in the growth of the Corporation, and allow
them to accumulate a beneficial ownership interest in the common stock of the
Corporation. The ESOP covers substantially all employees. Shares contributed to
the ESOP are valued at fair market value as determined by an independent
appraisal. Dividends paid on shares held by the ESOP are charged to retained
earnings. ESOP participants may elect to receive distributions of vested account
balances in cash or shares of common stock. During specified time periods, a
participant can elect to have the Corporation repurchase distributed shares of
common stock at their appraised market value. The estimated fair value of the
shares held in the ESOP, representing the maximum potential repurchase
obligation, is classified outside of stockholders' equity. At November 30,
1998, 282,135 shares were allocated to participants. Contributions to the ESOP
are at the discretion of the Board of Directors and amounted to $725,000 in
1998, $359,000 in 1997, and $353,000 in 1996.
NOTE 6 - INCOME TAXES
Deferred income tax assets (liabilities) are as follows:
November 30
-------------------------
1998 1997
----------- -----------
Assets
Deferred compensation............. $ 740,000 $ 643,000
Inventory......................... 94,000 127,000
Advertising allowance............. - 175,000
Investment in investee............ 134,000 160,000
----------- -----------
968,000 1,105,000
----------- -----------
Liabilities
Property.......................... (1,302,000) (1,346,000)
Allowance for bad debts........... (162,000) (256,000)
Other............................. (70,000) (99,000)
----------- -----------
(1,534,000) (1,701,000)
----------- -----------
Net deferred tax asset (liability).. $ (566,000) $ (596,000)
=========== ===========
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 6 - INCOME TAXES (continued)
The effective tax rate on income before taxes differed from the federal
statutory tax rate. The following summary reconciles taxes at the federal
statutory rate with the effective rate:
<TABLE>
<CAPTION>
Year Ended November 30
-----------------------------------------------------------------
1998 1997 1996
-------------------- --------------------- --------------------
Amount Percent Amount Percent Amount Percent
---------- -------- ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Income taxes at statutory rate $5,789,000 34.0% $5,296,000 34.0% $5,951,000 34.0%
Increase in taxes resulting from:
State taxes, net of federal income
tax benefit 426,000 2.5 390,000 2.5 600,000 3.5
Charitable contribution of land - - (252,000) (1.6) - -
Other 26,000 .1 96,000 .6 164,000 .9
---------- ------- ---------- ------- ---------- -------
$6,241,000 36.6% $5,530,000 35.5% $6,715,000 38.4%
========== ======= ========== ======= ========== =======
</TABLE>
NOTE 7 - 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.
F-12
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Additions
-----------------------------
Balance at Charged to Balance at
Beginning of Costs and Charged to End of
Year Description Period Expenses Other Accounts Deductions (1) Period
---- ----------- ------ -------- -------------- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
1998 Allowance for Doubtful Accounts $500 $287 - $287 $500
1997 Allowance for Doubtful Accounts 500 353 - 353 500
1996 Allowance for Doubtful Accounts 500 404 - 404 500
</TABLE>
(1) Net bad debts
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this post-effective amendment to be
signed on its behalf by the undersigned, thereunto duly authorized.
HOOKER FURNITURE CORPORATION
Date: June 30, 1999 /s/ E. Larry Ryder
--------------------------------------------------
E. Larry Ryder
Senior Vice President - Finance and Administration
SP-1
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company*
3.2 Articles of Amendment to Amended and Restated Articles of Incorporation
of the Company*
3.3 Amended and Restated Bylaws of the Company*
4.1 Amended and Restated Articles of Incorporation of the Company (See
Exhibit 3.1)
4.2 Articles of Amendment to Amended and Restated Articles of Incorporation
of the Company (See Exhibit 3.2)
4.3 Bylaws of the Company (See Exhibit 3.3)
10.1 Lease, dated March 14, 1994, between Fred B. Caffey, as lessor, and the
Company, as lessee*
10.2 Lease, dated November 1, 1994, between Southern Furniture Exposition
Building, Inc. and the Company*
10.3 Form of Salary Continuation Agreement*
10.4 Form of Split Dollar Agreement*
27.1 Financial Data Schedule*
* Previously filed.
EI-1
