<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
----- Securities Exchange Act of 1934 For the quarterly period ended
August 31, 2000 or
----- Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to .
---------- ----------
Commission file number 000-25349.
HOOKER FURNITURE CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0251350
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
440 East Commonwealth Boulevard, Martinsville, VA. 24112
(Address of principal executive offices, Zip Code)
(540) 632-2133
(Registrant's telephone number,
including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 12, 2000.
Class Number
Common Stock, no par value 7,617,298 Shares
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOOKER FURNITURE CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, including share data)
<TABLE>
<CAPTION>
(Unaudited)
August 31, November 30,
2000 1999
<S> <C>
Assets
Current assets
Cash, primarily interest-bearing deposits................................. $ 809 $ 157
Trade receivables, less allowances of $592 and $525....................... 29,953 26,599
Inventories............................................................... 44,007 37,051
Prepaid expenses and other................................................ 2,214 2,408
--------- ------
Total current assets................................................... 76,983 66,215
Property, plant and equipment, net........................................... 47,766 45,138
Other assets................................................................. 7,286 5,070
--------- ------
$132,035 $116,423
========= ========
Liabilities and Stockholders' Equity
Current liabilities
Trade accounts payable.................................................... $ 2,057 $ 3,776
Accrued salaries, wages and benefits...................................... 5,701 5,387
Other accrued expenses.................................................... 4,330 2,495
--------- ------
Total current liabilities............................................... 12,088 11,658
Long-term debt............................................................... 12,500 7,000
Deferred liabilities......................................................... 2,293 2,402
--------- ------
Total liabilities......................................................... 26,881 21,060
-------- -------
Common stock held by ESOP.................................................... 10,129 10,129
Stockholders' Equity
Common stock, no par value, 10,000 shares authorized,
7,617 shares issued and outstanding....................................... 2,418 2,418
Retained earnings ........................................................... 92,607 82,816
------- -------
Total stockholders' equity................................................ 95,025 85,234
-------- -------
$132,035 $116,423
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
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HOOKER FURNITURE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended August 31, Ended August 31,
2000 1999 2000 1999
<S> <C>
Net sales............................................ $61,053 $54,356 $183,355 $166,327
Cost of sales........................................ 44,416 40,714 134,606 123,229
------ ------- ------- --------
Gross profit.................................... 16,637 13,642 48,749 43,098
Selling and administrative expenses.................. 10,552 8,677 30,298 25,895
------- ------ ------- -------
Operating income................................ 6,085 4,965 18,451 17,203
Other income (expense), net.......................... 152 3 47 (272)
------- --- ----- ------
Income before taxes............................. 6,237 4,968 18,498 16,931
Income taxes......................................... 2,108 1,886 6,766 6,383
------ ------ ------ ------
Net income...................................... $ 4,129 $ 3,082 $ 11,732 $ 10,548
====== ====== ======= =======
Earnings per share:
Basic and diluted............................... $ .54 $ .40 $ 1.54 $ 1.38
===== ===== ====== ======
Weighted average shares outstanding............. 7,617 7,627 7,617 7,640
===== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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HOOKER FURNITURE CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months
Ended August 31,
2000 1999
<S> <C>
Cash flows from operating activities:
Cash received from customers............................................ $180,535 $163,593
Cash paid to suppliers and employees.................................... (166,538) (151,852)
Income taxes paid, net.................................................. (6,579) (7,677)
Interest paid, net...................................................... (494) (227)
------ ------
Net cash provided by operating activities.............................. 6,924 3,837
------ ------
Cash flows from investing activities:
Purchase of property, plant and equipment, net.......................... (9,030) (4,622)
Acquisition of joint venture interest, net of cash acquired............ (801)
------ -------
Net cash absorbed by investing activities.............................. (9,831) (4,622)
------ -------
Cash flows from financing activities:
Proceeds from long-term debt............................................ 15,500 4,738
Payments on long-term debt.............................................. (10,000) (4,300)
Cash dividends paid..................................................... (1,941) (1,719)
Purchase and retirement of common stock................................. (620)
------- -------
Net cash provided (absorbed) by financing activities................... 3,559 (1,901)
------- -------
Net increase (decrease) in cash............................................ 652 (2,686)
Cash at beginning of year.................................................. 157 3,625
-------- -------
Cash at end of period...................................................... $ 809 $ 939
======== =======
Reconciliation of net income to net cash provided
by operating activities:
Net income.............................................................. $11,732 $10,548
Depreciation and amortization......................................... 4,770 3,441
Loss on disposal of property, plant and equipment..................... 53
Changes in assets and liabilities, net of effects from acquisition:
Trade receivables................................................... (3,354) (3,228)
Inventories......................................................... (6,956) (1,012)
Prepaid expenses and other assets................................... 316 (1,052)
Trade accounts payable.............................................. (1,719) (3,046)
Other accrued expenses.............................................. 1,996 (2,020)
Deferred liabilities................................................ 86 206
-------- --------
Net cash provided by operating activities............................. $ 6,924 $ 3,837
======== ========
Supplemental schedule of non-cash investing activities:
On June 30, 2000, the Company purchased the remaining 50% interest in its joint
venture for cash of $1,398 and the delivery of certain investment securities to
the seller valued at $300. In addition, liabilities were assumed as follows:
Fair market value of assets acquired (including cash of $597)......... $1,851
Cash and securities paid.............................................. (1,698)
-------
Liabilities assumed................................................... $ 153
======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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HOOKER FURNITURE CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in tables, in thousands)
1. Preparation of Interim Consolidated Financial Statements
The consolidated financial statements of Hooker Furniture Corporation and
Subsidiary (referred to as "Hooker" or the "Company") have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC"). In the opinion of management, these statements include all
adjustments necessary for a fair presentation of the results of all interim
periods reported herein. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures prepared in accordance with
generally accepted accounting principles are condensed or omitted pursuant to
SEC rules and regulations. However, management believes that the disclosures
made are adequate for a fair presentation of results of operations and financial
position. Operating results for the interim periods reported herein may not be
indicative of the results expected for the year. These financial statements
should be read in conjunction with the financial statements and accompanying
notes included in the Company's Annual Report on Form 10K for the fiscal year
ended November 30, 1999.
All share and per share data reflect the effect of a two-for-one stock split
distributed in the form of a stock dividend on January 31, 2000.
2. Inventories
<TABLE>
<CAPTION>
(Unaudited)
August 31, November 30,
2000 1999
---------- -----------
<S> <C>
Finished furniture............................................ $38,348 $31,673
Furniture in process.......................................... 2,355 1,665
Materials and supplies........................................ 13,435 13,244
------ ------
54,138 46,582
Reduction to LIFO basis....................................... 10,131 9,531
------ ------
$44,007 $37,051
====== ======
</TABLE>
3. Property, Plant and Equipment
<TABLE>
<CAPTION>
(Unaudited)
August 31, November 30,
2000 1999
-------- --------
<S> <C>
Buildings..................................................... $43,034 $40,047
Machinery and equipment....................................... 45,196 40,888
Office fixtures and equipment................................. 9,516 6,323
Construction in progress and other............................ 2,073 5,894
------ -------
Property, plant and equipment, at cost.................... 99,819 93,152
Less accumulated depreciation................................. 53,339 49,385
------ ------
46,480 43,767
Land.......................................................... 1,286 1,371
------ -------
$47,766 $45,138
====== ======
</TABLE>
5
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Notes to Financial Statements - Continued
4. Long-Term Debt
<TABLE>
<CAPTION>
(Unaudited)
August 31, November 30,
2000 1999
<S> <C>
Industrial revenue bonds due 2006............................. $ 7,000 $7,000
Revolving line of credit...................................... 5,500
------ -----
$12,500 $7,000
====== =====
</TABLE>
5. Acquisition
On June 30, 2000, the Company purchased the remaining 50% interest in its
Triwood joint venture for an aggregate consideration of $1.9 million. The
acquired entity formerly produced particleboard for furniture manufacturing.
During 1998, the joint venture was cited by the Environmental Protection Agency
("EPA") for a violation of certain regulations under the Clean Air Act
Amendments of 1990. The two joint venture members determined that the cost of
modification to the plant to come into compliance, together with other needed
capital improvements, would be prohibitive and the joint venture elected to
cease operations in November 1998. Effective June 1, 1999, the joint venture
entered into a lease for the land and building owned by the joint venture with a
third party lessee. The lease term is for two years with an option to purchase
for $2.7 million. The purchase price includes the assumption of the first
$100,000 of liability, if any, related to the 1998 EPA citation. Pursuant to an
indemnification agreement, the two joint venture members will share equally, any
liability in excess of $100,000. The Company is operating its imports business
as a wholly owned subsidiary, through the acquired entity. The financial
statements of the Company reflect the results of operations and financial
position of the wholly owned subsidiary on a consolidated basis as of and
subsequent to June 30, 2000. Inter-company transactions have been eliminated.
The joint venture has been accounted for under the equity method for periods
prior to June 30, 2000.
6. Subsequent Event
In September 2000, the Company's Employee Stock Ownership Plan Trust (the
"ESOP") completed a tender offer for 1.8 million shares of the Company's common
stock at a price of $12.50 per share. In connection with the tender offer, the
Company borrowed $22.5 million under a 10-year term loan, at an effective
interest rate of approximately 7.4% per annum, and loaned the proceeds to the
ESOP. The ESOP will repay the loan to the Company over a 25-year period with
interest at 8.0% from dividends and employer contributions to the Plan.
6
<PAGE>
HOOKER FURNITURE CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Third Quarter 2000 Compared to Third Quarter 1999
Net sales increased $6.7 million or 12.3% for the three-month period ended
August 31, 2000 from the comparable 1999 period. The increase was due
principally to higher unit volume in imported furniture, home office furniture
and wall systems, partially offset by lower unit volume in bedroom furniture.
Average selling prices were lower during the 2000 period principally due to the
mix of products shipped (primarily increased imported furniture shipments).
Gross profit margin for the 2000 period increased to 27.3% compared to 25.1% in
the 1999 period. The increase was due principally to improved operating
efficiencies and the lower delivered cost of imported furniture as a percent of
sales, partially offset by higher raw material costs.
Selling and administrative expense rose $1.9 million to 17.3% of net sales in
the 2000 period compared to 16.0% in the 1999 period. The increase in expenses
was due principally to higher selling costs to support increased sales, fees
incurred in connection with the tender offer by the Company's Employee Stock
Ownership Plan Trust (the "ESOP Trust"), higher depreciation expense related to
system conversions placed in service in January and February 2000, and increased
warehousing and shipping costs.
As a result of the above, operating income increased to 10.0% of net sales
in the 2000 period from 9.1% in the comparable 1999 period.
The Company's effective tax rate decreased from 38.0% in the three-month 1999
period to 33.8% in the comparable 2000 period. The lower tax rate is attributed
principally to the recognition of operating loss carry forwards generated by the
Company's joint venture ("Triwood") in previous years. On June 30, 2000, the
Company purchased the remaining 50% interest in Triwood, the Company's former
particleboard facility that ceased operations in November 1998. On July 1, 2000,
the Company restructured its Import Division operations into Triwood, which is
being accounted for as a wholly owned subsidiary. As a result of this
restructuring, the Company began to absorb certain operating loss carry forwards
generated by Triwood in previous years. The Company expects to continue
absorbing additional loss carry forwards in the fourth quarter of 2000.
Results of Operations - Nine Months 2000 Compared to Nine Months 1999
Net sales increased $17.0 million or 10.2% for the nine-month period ended
August 31, 2000 from the comparable 1999 period. The increase was due
principally to higher unit volume in imported and home office furniture
partially offset by lower unit volume in bedroom furniture and entertainment
centers. Average selling prices were slightly lower during the 2000 period
principally due to the mix of products shipped (primarily increased imported
furniture shipments).
Gross profit margin for the 2000 period increased to 26.6% compared to 25.9% in
the 1999 period. Lower raw material costs as a percent of sales, improved
operating efficiencies and the lower delivered cost of imported furniture as a
percent of net sales were offset by higher employee benefits cost for
manufacturing employees (primarily medical claims) incurred in the 2000 period.
Medical claims continued to decline during the third quarter from levels
experienced during each of the first two quarters of 2000.
7
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Continued
Results of Operations - Nine Months 2000 Compared to Nine Months 1999 -
Continued
Selling and administrative expenses rose $4.4 million to 16.5% of net sales in
the 2000 period compared to 15.6% in the 1999 period. The increase in expenses
was due principally to higher selling costs to support increased sales, higher
warehousing and shipping costs resulting from the interim operation of dual
warehousing facilities, increased depreciation expense related to system
conversions placed in service in January and February 2000, and fees incurred in
connection with the tender offer by the Company's ESOP Trust.
In 1999, the Company began a 180,000 square foot addition to its central
distribution center (the "CDC") in Martinsville, Virginia. The Company
substantially completed the consolidation of finished inventory formerly kept in
three separate warehouses into the CDC in 1999, but continued to operate dual
facilities through March 2000. The Company opened the 180,000 square foot
addition to its central distribution center in February 2000 and closed the one
remaining dual facility in early April 2000. The closed facility is presently
leased.
As a result of the above, operating income decreased to 10.1% of net sales
in the 2000 period from 10.3% in the comparable 1999 period.
The Company's effective tax rate decreased from 37.7% in the nine-month 1999
period to 36.6% in the comparable 2000 period, principally due to the
recognition of operating loss carry forwards generated by Triwood in the third
quarter as discussed above.
Financial Condition, Liquidity and Capital Resources
As of August 31, 2000, assets totaled $132.0 million, up from $116.4 million at
November 30, 1999. Stockholders' equity at August 31, 2000, was $95.0 million,
rising from $85.2 million at November 30, 1999. During the nine-month period
ended August 31, 2000, cash generated from operations of $6.9 million and net
borrowings from the Company's revolving credit line of $5.5 million funded
capital expenditures amounting to $9.0 million, dividend payments totaling $1.9
million, a net cash expenditure of $801,000 in connection with the acquisition
of Triwood and an increase in available cash of $652,000. During the comparable
1999 period, cash generated from operations of $3.8 million, available cash of
$2.7 million and net borrowings from the Company's revolving credit line of
$438,000 funded $4.6 million in capital expenditures, dividend payments of $1.7
million and purchases of the Company's common stock totaling $620,000.
Cash generated from operations of $6.9 million during the 2000 period increased
from $3.8 million in the comparable 1999 period. During the 2000 period, higher
cash received from customers, resulting from increased sales, and lower tax
payments were partially offset by higher payments to suppliers and employees and
higher interest payments, as compared with the 1999 period.
Investing activities consumed $9.8 million during the 2000 period compared to
$4.6 million in the comparable 1999 period. Capital expenditures were higher in
the 2000 period as the Company completed the addition to the CDC and completed
its construction of raw lumber grading, storage and drying facilities at the
Maiden, North Carolina plant, which were placed in service in April 2000. On
June 30, 2000, the Company purchased the remaining 50% interest in Triwood for a
cash outlay of $801,000, net of cash received in the purchase.
8
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Continued
Financial Condition, Liquidity and Capital Resources - Continued
The Company generated cash of $3.6 million from financing activities in the 2000
period compared to utilizing $1.9 million for financing activities in the 1999
period. During the 2000 period, net borrowings of $5.5 million helped to fund
investing activities of $9.8 million, make dividend payments of $1.9 million and
increase available cash by $652,000. During the 1999 period, cash from
operations and available cash funded dividend payments of $1.7 million,
purchases of over 44,000 shares of the Company's common stock at an average
price of $14.04 per share ($620,000 aggregate) and net repayments of $438,000
against the revolving line of credit. In June 2000, the Company's Board of
Directors declared a quarterly dividend of $.085 per share that was paid in
August 2000.
At August 31, 2000, the Company had $2.5 million available under its revolving
line of credit and $13.0 million of availability under additional lines of
credit to fund working capital needs. The Company believes it has the financial
resources needed to meet business requirements for the foreseeable future.
In September 2000, the Company's Employee Stock Ownership Plan Trust (the
"ESOP") completed a tender offer for 1.8 million shares of the Company's common
stock at a price of $12.50 per share. In order to finance the tender offer, the
Company borrowed $22.5 million under a 10-year term loan, at an effective
interest rate of approximately 7.4% per annum, and loaned the proceeds to the
ESOP. The ESOP will repay the loan to the Company over a 25-year period with
interest at 8.0% from dividends and employer contributions to the Plan.
Forward-Looking Statements
Certain statements made in this report are not based on historical facts, but
are forward-looking statements. These statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy. These statements
reflect the Company's reasonable judgment with respect to future events and are
subject to risks and uncertainties that could cause actual results to differ
materially from those in the forward-looking statements. Such risks and
uncertainties include the cyclical nature of the furniture industry,
fluctuations in the price of lumber which is the most significant raw material
used by the Company, competition in the furniture industry, capital costs and
general economic or business conditions, either nationally or internationally.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
The Company's obligations under its lines of credit and industrial revenue bonds
bear interest at variable rates. The Company has entered into an interest rate
swap agreement that, in effect fixes the rate of interest on the industrial
revenue bonds at 4.71% through 2006. At August 31, 2000, the Company had $5.5
million outstanding under its lines of credit. In connection with the tender
offer, during September 2000 the Company borrowed $22.5 million under a 10-year
term loan, bearing interest at a floating rate of the one-month LIBOR plus
0.375% per annum. In connection with that loan, the Company entered into a
floating to fixed interest rate swap at a fixed rate of approximately 7.4% for
the entire principal amount of the loan through September 2010, the scheduled
maturity date of the loan. A 10% fluctuation in market interest rates would not
have a material impact on the Company's results of operations or financial
condition.
9
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HOOKER FURNITURE CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. 1 Financial Data Schedule for the nine months ended
August 31, 2000. *
(b) Reports on Form 8-K
None.
* Filed herewith.
10
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOOKER FURNITURE CORPORATION
Date: October 12, 2000 By: /s/ E. Larry Ryder
-------------------------
E. Larry Ryder
Senior Vice President - Finance and
Administration
(Principal Financial and Accounting
Officer)
11
