UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





Form
10-Q










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





For the
quarterly period ended November 1, 2009








Commission
file number 000-25349





HOOKER
FURNITURE CORPORATION


(Exact
name of registrant as specified in its charter)




Virginia
              54-0251350(State
      or other jurisdiction of incorporation or organization)
              (IRS
      employer identification no.)


440
East Commonwealth Boulevard, Martinsville, VA  24112


(Address
of principal executive offices, zip code)





(276)
632-0459


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x No
 ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).  Yes  ̈ No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.




Large
      accelerated Filer  ̈
              Accelerated
      filer xNon-accelerated
      Filer  ̈ (Do
      not check if a smaller reporting company)
              Smaller
      reporting company  ̈
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈ No
x





Indicate
the number of shares outstanding of each of the issuer’s classes of common stock
as ofDecember 9,
2009




Common
      stock, no par value
              10,771,912(Class of common
      stock)
              (Number
      of shares)


Table of Contents


TABLEOF
CONTENTS






PART
      I   Financial InformationItem
      1.
              Financial
      Statements
              3Item
      2.
              Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations
              13Item
      3.
              Quantitative and Qualitative
      Disclosures about Market Risk
              20Item
      4
              Controls and
      Procedures
              20PART
      II  Other InformationItem
      6.
              Exhibits
              20Signatures
              21






Table of Contents




PART
I.  FINANCIAL INFORMATION
 
 Item1.  Financial Statements
 
 HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (In
thousands, including share data)
 (Unaudited)
  November
      1,
              
              
              February
      1,2009
              
              
              2009AssetsCurrent
      AssetsCash and cash
      equivalents
              
              $
              34,730
              
              
              $
              11,804Accounts receivable, less allowance for doubtful accountsof
      $1,688 and $2,207
      on each date
              
              
              26,248
              
              
              
              30,261Inventories
              
              
              33,545
              
              
              
              60,248Prepaid expenses and other current assets
              
              
              6,103
              
              
              
              4,736Total
      current assets
              
              
              100,626
              
              
              
              107,049Property,
      plant, and equipment, net
              
              
              23,425
              
              
              
              24,596Intangible
      assets
              
              
              4,129
              
              
              
              4,805Cash surrender value of life insurance policies
              
              
              14,364
              
              
              
              13,513Other assets
              
              
              3,145
              
              
              
              3,504Total
      assets
              
              $
              145,689
              
              
              $
              153,467Liabilities
      and Shareholders' EquityCurrent
      LiabilitiesTrade acccounts payable
              
              $
              8,116
              
              
              $
              8,392Accrued salaries, wages and benefits
              
              
              2,847
              
              
              
              2,218Other
      accrued expenses
              
              
              2,713
              
              
              
              2,279Short-term
      borrowing
              
              
              111
              
              
              
              -Current
      maturities of long-term debt
              
              
              -
              
              
              
              2,899Total current liabilities
              
              
              13,787
              
              
              
              15,788Long-term
      debt, excluding current maturities
              
              
              -
              
              
              
              2,319Deferred
      compensation
              
              
              6,346
              
              
              
              5,606Other
      long-term liabilities
              
              
              16
              
              
              
              44Total liabilities
              
              
              20,149
              
              
              
              23,757Shareholders'
      equityCommon
      stock, no par value, 20,000 shares authorized,10,772 shares issued and
      oustanding on each date
              
              
              17,055
              
              
              
              16,995Retained
      earnings
              
              
              108,180
              
              
              
              112,450Accumulated
      other comprehensive income
              
              
              305
              
              
              
              265Total shareholders' equity
              
              
              125,540
              
              
              
              129,710Total
      liabilities and shareholders' equity
              
              $
              145,689
              
              
              $
              153,467
  The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
  3
 Table of Contents
 
 HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (In
thousands, except per share data)
 (Unaudited)
  Thirteen
      Weeks Ended
              
              
              Thirty-nine
      weeks endedNovember
      1,
              
              
              November
      2,
              
              
              November
      1,
              
              
              November
      2,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      Sales
              
              $
              52,605
              
              
              $
              68,996
              
              
              $
              150,646
              
              
              $
              204,651Cost
      of Sales
              
              
              39,928
              
              
              
              53,319
              
              
              
              117,047
              
              
              
              158,111Gross Profit
              
              
              12,677
              
              
              
              15,677
              
              
              
              33,599
              
              
              
              46,540Selling
      and administrative expenses
              
              
              10,894
              
              
              
              11,530
              
              
              
              32,329
              
              
              
              35,580Restructuring
      and asset impairment (credit) charge
              
              
              -
              
              
              
              (561
              )
              
              
              613
              
              
              
              (819
              )Operating
      income
              
              
              1,783
              
              
              
              4,708
              
              
              
              657
              
              
              
              11,779Other
      (expense) income, net
              
              
              (93
              )
              
              
              36
              
              
              
              (122
              )
              
              
              391Income before income taxes
              
              
              1,690
              
              
              
              4,744
              
              
              
              535
              
              
              
              12,170Income
      tax expense
              
              
              733
              
              
              
              1,794
              
              
              
              497
              
              
              
              4,541Net income
              
              $
              957
              
              
              $
              2,950
              
              
              $
              38
              
              
              $
              7,629Earnings
      per shareBasic
              
              $
              0.09
              
              
              $
              0.27
              
              
              $
              0.00
              
              
              $
              0.68Diluted
              
              $
              0.09
              
              
              $
              0.27
              
              
              $
              0.00
              
              
              $
              0.68Weighted
      average shares outstanding:Basic
              
              
              10,752
              
              
              
              10,761
              
              
              
              10,752
              
              
              
              11,176Diluted
              
              
              10,764
              
              
              
              10,767
              
              
              
              10,762
              
              
              
              11,182Cash
      dividends declared per share
              
              $
              0.10
              
              
              $
              0.10
              
              
              $
              0.30
              
              
              $
              0.30
  The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
 
 4
 Table of Contents
  HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In
thousands)
 (Unaudited)
  Thirty-nine
      Weeks EndedNovember
      1,
              
              
              November
      2,2009
              
              
              2008Cash
      flows from operating activitiesCash received from customers
              
              $
              154,522
              
              
              $
              205,466Cash paid to suppliers and employees
              
              
              (119,671
              )
              
              
              (199,035
              )Income taxes paid, net
              
              
              (1,728
              )
              
              
              (5,031
              )Interest (paid) received, net
              
              
              (262
              )
              
              
              270Net cash provided by operating
    activities
              
              $
              32,861
              
              
              $
              1,670Cash
      flows from investing activitiesAdditional payments related to the acquisition of Opus
    Designs
              
              
              -
              
              
              
              (181
              )Purchase of property, plant, and equipment
              
              
              (1,264
              )
              
              
              (1,755
              )Proceeds
      received on notes issued for the sale of property
              
              
              23
              
              
              
              -Proceeds from the sale of property and
    equipment
              
              
              10
              
              
              
              17Premiums paid on officers' life insurance
              
              
              (1,352
              )
              
              
              (1,284
              )Proceeds received on officers' life insurance
              
              
              986
              
              
              
              357Net cash used in investing activities
              
              
              (1,597
              )
              
              
              (2,846
              )Cash
      flows from financing activitiesPurchases and retirement of common stock
              
              
              -
              
              
              
              (14,097
              )Cash dividends paid
              
              
              (3,231
              )
              
              
              (3,382
              )Proceeds from short-term borrowings
              
              
              4,493
              
              
              
              -Payments on short-term borrowings
              
              
              (4,382
              )
              
              
              -Payments on long-term debt
              
              
              (5,218
              )
              
              
              (2,002
              )Net cash used in financing
      activities
              
              
              (8,338
              )
              
              
              (19,481
              )Net
      increase (decrease) in cash and cash equivalents
              
              $
              22,926
              
              
              $
              (20,657
              )Cash
      and cash equivalents at the beginning of the period
              
              
              11,804
              
              
              
              33,076Cash and cash equivalents at the end of the period
              
              $
              34,730
              
              
              $
              12,419Reconciliation
      of net income to net cash provided by operating
activities:Net
      income
              
              $
              38
              
              
              $
              7,629Depreciation
              
              
              2,377
              
              
              
              2,154Non-cash restricted stock awards
              
              
              61
              
              
              
              54Asset impairment charges
              
              
              613
              
              
              
              -Restructuring (credit)
              
              
              -
              
              
              
              (819
              )Loss on disposal of property
              
              
              115
              
              
              
              122Provision for doubtful accounts
              
              
              850
              
              
              
              1,475Deferred income tax benefit
              
              
              (107
              )
              
              
              (667
              )Changes in assets and liabilities, net of effect from
      acquisitions:Trade accounts receivable
              
              
              3,163
              
              
              
              (1,019
              )Inventories
              
              
              26,703
              
              
              
              (5,416
              )Prepaid expenses and other current assets
              
              
              (1,439
              )
              
              
              (122
              )Trade accounts payable
              
              
              (276
              )
              
              
              (2,414
              )Accrued salaries, wages, and benefits
              
              
              629
              
              
              
              603Accrued income taxes
              
              
              -
              
              
              
              177Other
      accrued expenses
              
              
              (644
              )
              
              
              (419
              )Deferred compensation
              
              
              577
              
              
              
              -Other long-term liabilities
              
              
              201
              
              
              
              332Net cash provided by operating activties
              
              $
              32,861
              
              
              $
              1,670
 
 The
accompanying notes are an integral part of the unaudited condensed consolidated
financial statements.
  5
 Table of Contents
  HOOKER FURNITURE CORPORATION AND SUBSIDIARIES
 NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollar
and share amounts in tables, except per share amounts, in thousands unless
otherwise indicated)
 (Unaudited)
 For the
Thirty-nine Weeks Ended November 1, 2009
  1.
              Preparation of Interim
      Financial Statements
 
 The
condensed consolidated financial statements of Hooker Furniture Corporation and
subsidiaries (referred to as “we,” “us,” “our,” “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 statement 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 U.S. generally accepted accounting principles
(“GAAP”) are condensed or omitted pursuant to SEC rules and
regulations.  However, we believe that the disclosures made are
adequate for a fair presentation of our 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 audited consolidated
financial statements and accompanying notes included in our annual report on
Form 10-K for the fiscal year ended February 1, 2009.
 
 The
financial statements contained herein are being filed as part of a quarterly
report on Form 10-Q covering the thirteen-week period (also referred to as
“three months,” “three-month period,” “quarter” or “quarterly period”) that
began August 3, 2009 and the thirty-nine week period (also referred to as “nine
months,” “nine-month period” or “first nine months”) that began February 2,
2009, both ending on November 1, 2009.  These financial
statements also include the thirteen-week period that began August 4, 2008 and
the thirty-nine week period that began February 4, 2008, both ending on November
2, 2008.
 
 References
to the 2010 fiscal year and comparable terminology in the notes to the condensed
consolidated financial statements mean the fiscal year that began February 2,
2009 and will end January 31, 2010.  References to the 2009 fiscal
year and comparable terminology in the notes to the condensed consolidated
financial statements mean the fiscal year that began February 4, 2008 and ended
February 1, 2009.
 
 We made a
change in accounting principle in fiscal 2009 to classify shipping and
warehousing costs associated with the distribution of finished products to our
customers, as well as certain supply chain and operations management
expenses,  as cost of sales (previously recorded in selling and
administrative expenses).  We believe this accounting principle is
preferable because the classification of these shipping and warehousing costs in
cost of sales better reflects the cost of producing, selling and distributing
our products.  The reclassification due to this change in accounting
principle amounted to $4.1 million for the 2009 third quarter and $12.9 million
for the 2009 nine-month period.
 
 2.            
Accounting
Pronouncements
  In May
2009, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards No. 165 Subsequent Events (“FAS
165”), which was subsequently codified in the subsequent events topic of the
accounting standards codification (ASC 855.) FAS 165 addresses accounting and
disclosure requirements related to subsequent events.  It requires
management to evaluate subsequent events through the date the financial
statements are either issued or available to be issued, depending on the
company’s expectation of whether it will widely distribute its financial
statements to its shareholders and other financial statement
users.  Companies are required to disclose the date through which
subsequent events have been evaluated.  This disclosure requirement is
effective for interim or annual financial periods ending after June 15, 2009 and
should be applied prospectively.  We adopted this disclosure
requirement in the fiscal year 2010 second quarter.
  In June
2009, the FASB issued Statement of Financial Accounting Standards No. 166 (“FAS
166”), “Accounting for Transfers of Financial Assets”, the objective of which is
to improve the relevance, representational faithfulness, and comparability of
the information that a reporting entity provides in its financial statements
about a transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets.  FAS 166 is
effective for annual reporting periods that begin after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter.  Early application is
prohibited.  This statement must be applied to transfers occurring on
or after the effective date.  We expect to adopt this standard during our
fiscal 2011 first quarter.  The adoption of this statement is not
expected to have a material impact on our financial position or results of
operations.
  In June
2009, the FASB issued FAS 167, “Amendments to FASB Interpretation No. 46(R)”,
the objective of which is to improve financial reporting by enterprises involved
with variable interest entities. FAS 167 is effective for annual reporting
periods that begin after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter.  Early application is not permitted.  We expect to
adopt this statement during our fiscal 2011 first quarter.  The
adoption of this statement is not expected to have a material impact on our
financial position or results of operations.
  In June
2009, the FASB issued FAS 162, “The Hierarchy of Generally Accepted Accounting
Principles”, which is commonly referred to as the “Accounting Standards
Codification” or “ASC”, and subsequently codified as ASC 105. The ASC has become
the sole source of authoritative U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied by nongovernmental entities. It
supersedes all existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
has become non-authoritative.  This update is effective for financial
statements issued for interim and annual periods ending after September 15,
2009.  Accordingly, we adopted this update during our fiscal 2010
third quarter.
  6
 Table of Contents
  3.
              Inventories
  November
      1,
              
              
              February
      1,2009
              
              
              2009Finished
      furniture
              
              $
              38,821
              
              
              $
              64,865Furniture
      in process
              
              
              899
              
              
              
              900Materials
      and supplies
              
              
              6,995
              
              
              
              8,207Inventories
      at FIFO
              
              
              46,715
              
              
              
              73,972Reduction
      to LIFO basis
              
              
              13,170
              
              
              
              13,724Inventories
              
              $
              33,545
              
              
              $
              60,248
  4.            
Property, Plant and
Equipment
  November
      1,
              
              
              February
      1,2009
              
              
              2009Buildings
      and land improvements
              
              $
              23,708
              
              
              $
              23,676Machinery
      and equipment
              
              
              4,312
              
              
              
              3,665Furniture
      and fixtures
              
              
              27,605
              
              
              
              26,656Other
              
              
              4,050
              
              
              
              3,886Total
      depreciable property at cost
              
              
              59,675
              
              
              
              57,883Less
      accumulated depreciation
              
              
              37,728
              
              
              
              35,695Total
      depreciable property, net
              
              
              21,947
              
              
              
              22,188Land
              
              
              1,357
              
              
              
              1,357Construction
      in progress
              
              
              121
              
              
              
              1,051Property,
      plant and equipment, net
              
              $
              23,425
              
              
              $
              24,596
  During
our fiscal 2010 second quarter, we decided to transition production from our
Bradington-Young Woodleaf, North Carolina frame manufacturing plant (a leased
facility) to Bradington-Young’s Cherryville, North Carolina facility by the end
of December 2009.  On July 17, 2009, we met with the Woodleaf
employees and announced our plans to sell the frame production operation,
including the associated machinery and equipment, as an on-going
business.  However, at November 1, 2009 we had not found and do not
anticipate finding a buyer for this operation. Consequently, during the 2010
fiscal third quarter, we recorded $132,000 for severance, the majority of which
we expect to pay during our fiscal 2010 fourth quarter and $48,000 in
accelerated depreciation for the write-down of fixed assets utilized at this
location. We anticipate recording an additional $32,000 in accelerated
depreciation during our fiscal 2010 fourth quarter.
  7
 Table of Contents
 
 5.             
Intangible
Assets
  November
      1,
              
              
              February
      1,2009
              
              
              2009Non-amortizable
      Intangible AssetsTrademarks
      and trade names - Bradington-Young
              
              $
              2,676
              
              
              $
              3,289Trademarks
      and trade names - Sam Moore
              
              
              396
              
              
              
              396Trademarks
      and trade names - Opus Designs
              
              
              1,057
              
              
              
              1,057Total
      trademarks and tradenames
              
              
              4,129
              
              
              
              4,742Amortizable
      Intangible AssetsNon-compete
      agreements
              
              
              -
              
              
              
              700Furniture
      designs
              
              
              100
              
              
              
              100Total
      amortizable intangible assets
              
              
              100
              
              
              
              800Less
      accumulated amortization
              
              
              100
              
              
              
              737Net
      carrying value
              
              
              -
              
              
              
              63Intangible
      assets
              
              $
              4,129
              
              
              $
              4,805
  6.            
Accounts Receivable and
Short-term Borrowing
  November
      1,
              
              
              February
      1,2009
              
              
              2009Trade
      accounts receivable
              
              $
              19,069
              
              
              $
              24,408Receivable
      from factor
              
              
              8,867
              
              
              
              8,060Allowance
      for doubtful accounts
              
              
              (1,688
              )
              
              
              (2,207
              )Accounts
      receivable
              
              $
              26,248
              
              
              $
              30,261Short-term
      borrowing
              
              $
              4,493
              
              
              $
              -Repayments
              
              
              4,382
              
              
              
              -Short-term
      borrowing
              
              $
              111
              
              
              $
              -
  We factor
substantially all of our upholstery division accounts receivable without
recourse.  Under the factoring agreement in effect until July 15,
2009, the factor owned the outstanding receivables until paid by our
customer.  During the second quarter of 2010, we became aware that the
factor was facing liquidity concerns. In response to that risk, we borrowed $4.5
million against uncollected receivables, the maximum amount available under the
factoring arrangement. The underlying receivables were collected in the ordinary
course of business and the debt was retired with the proceeds from the collected
accounts receivable. During fiscal Q3 2010, we borrowed $327,000, which was the
full amount at risk under the former factoring agreement. At November 1, 2009,
$111,000 remained uncollected.
 
 On July
15, 2009, subsequent to the initial borrowing of funds, we entered into a new
agreement with the factor whereby we retain ownership of receivables assigned to
the factor for collection, thereby substantially reducing the future credit risk
with the factor for receivables that are paid within the applicable terms of
payment.  On November 1, 2009, the parent company of the factor filed
for Chapter 11 bankruptcy protection; however the filing did not include the
factoring company.
  8
 Table of Contents
  7.            
Other Comprehensive
Income
 
 Thirteen
      Weeks Ended
              
              
              Thirty-Nine
      Weeks EndedNovember
      1,
              
              
              November
      2,
              
              
              November
      1,
              
              
              November
      2,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      income
              
              $
              957
              
              
              $
              2,950
              
              
              $
              38
              
              
              $
              7,629Loss
      on interest rate swap
              
              
              -
              
              
              
              (32
              )
              
              
              (26
              )
              
              
              (33
              )Portion
      of swap agreement's fair valuereclassified
      to interest expense
              
              
              -
              
              
              
              45
              
              
              
              118
              
              
              
              143Reclassification
      to income of cumulativebalance
      related to ineffective swap
              
              
              76
              
              
              
              
              
              
              
              76
              
              
              
              -Reclassification
      to income of unamortizedbalance
      of swap termination payment
              
              
              61
              
              
              
              
              
              
              
              61
              
              
              
              -Unrealized
      gain on interest rate swap
              
              
              137
              
              
              
              13
              
              
              
              229
              
              
              
              110Portion
      of accumulated acturial gain on SupplementalRetirement
      Income Plan reclassified to deferredcompensation
      expense
              
              
              (55
              )
              
              
              -
              
              
              
              (164
              )
              
              
              -Other
      comprehensive income before tax
              
              
              82
              
              
              
              13
              
              
              
              65
              
              
              
              110Income
      tax expense
              
              
              (31
              )
              
              
              (4
              )
              
              
              (25
              )
              
              
              (42
              )Other
      comprehensive income, net of tax
              
              
              51
              
              
              
              9
              
              
              
              40
              
              
              
              68Comprehensive
      net income
              
              $
              1,008
              
              
              $
              2,959
              
              
              $
              78
              
              
              $
              7,697
 
 8.            
Supplier
Commitments
 
 Since
2009, we have advanced payments to and provided financing guarantees for one of
our finished goods suppliers to facilitate the supplier’s purchase of raw
materials and other related items in order to help ensure timely delivery of
finished goods to us.  The balance of the advances and other
miscellaneous amounts to this supplier at November 1, 2009 was $85,000. In order
for the supplier to obtain additional bank financing, we issued a standby letter
of credit on July 14, 2008 as security in the amount of $600,000. In conjunction
with the issuance of the letter of credit, we entered into a security agreement
with the supplier and the supplier’s shareholders, which provides us with a
security interest in certain assets of the supplier and its shareholders. During
September 2009, prior to the expiration of the letter of credit, the supplier
ceased operations, defaulted on its bank notes and its lender drew on our
$600,000 letter of credit. Subsequently, we reimbursed our letter of credit
provider for the $600,000. Due to the location and nature of the pledged
collateral, we may incur substantial costs to obtain and foreclose on it. We are
currently assessing options to recover amounts owed to us, including negotiating
a repayment plan with the supplier. However, a repayment plan may not
materialize. Consequently, we recorded a charge of $300,000 during our fiscal
2010 third quarter to write down the value of the pledged collateral to our
estimate of its net realizable value and a charge of $85,000 to reserve against
the potential uncollectability of the outstanding advances and other
miscellaneous amounts due from the supplier.
 
 9.            
Earnings Per
Share
 
 We use
the two class method to compute basic earnings per share.  Under this
method we allocate earnings to common stock and participating securities
according to their participation rights in dividends declared and undistributed
earnings and divide the income available to each class by the weighted average
number of common shares for the period in each class.  Unvested restricted
stock grants to our non-employee directors are considered participating
securities because the shares have the right to receive non-forfeitable
dividends.  Because the participating shares have no obligation to share in
net losses, we do not allocate losses to our common stock in this
calculation.  Diluted earnings per share reflect the potential dilutive
effect of securities that could share in our earnings.  Restricted shares
awarded to non-employee members of the board of directors that have not yet
vested are considered when computing diluted earnings per share.  We use
the treasury stock method to determine the dilutive effect of unvested grants to
our non-employee directors. Unvested stock under a stock-based compensation
arrangement are considered options for purposes of computing diluted EPS and are
considered outstanding as of the grant date for purposes of computing diluted
EPS even though their exercise may be contingent upon vesting. Those stock-based
awards are included in the diluted EPS computation even if the employee may not
receive (or be able to sell) the stock until some future date. Unvested shares
reduce the number of shares to be added to outstanding common stock in computing
earnings per share.  As of November 1, 2009, there were approximately
twenty thousand shares of non-vested restricted stock outstanding.
  9
 Table of Contents
  Thirteen
      Weeks Ended
              
              
              Thirty-Nine
      Weeks EndedNovember
      1,
              
              
              November
      2,
              
              
              November
      1,
              
              
              November
      2,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      income
              
              $
              957
              
              
              $
              2,950
              
              
              $
              38
              
              
              $
              7,629Less:
      Unvested participating restricted stock dividends
              
              
              2
              
              
              
              -
              
              
              
              6Net
      earnings allocated to unvested participatingrestricted
      stock
              
              
              2
              
              
              
              
              
              
              
              -Earnings
      available for common shareholders
              
              
              953
              
              
              
              2,950
              
              
              
              32
              
              
              
              7,629Weighted
      average shares outstanding for basicearnings
      per share
              
              
              10,752
              
              
              
              10,761
              
              
              
              10,752
              
              
              
              11,176Dilutive
      effect of non-vested restricted stock awards
              
              
              12
              
              
              
              6
              
              
              
              10
              
              
              
              6Weighted
      average shares outstanding for dilutedearnings
      per share
              
              
              10,764
              
              
              
              10,767
              
              
              
              10,762
              
              
              
              11,182Basic
      earnings per share
              
              $
              0.09
              
              
              $
              0.27
              
              
              $
              -
              
              
              $
              0.68Diluted
      earnings per share
              
              $
              0.09
              
              
              $
              0.27
              
              
              $
              -
              
              
              $
              0.68
  10.           Share-Based
Compensation
 
 The
Hooker Furniture Corporation 2005 Stock Incentive Plan permits incentive awards
of restricted stock, restricted stock units, stock appreciation rights and
performance grants to key employees and non-employee directors.  We
have issued annual restricted stock awards to each non-employee member of the
board of directors since January 2006.  These shares will vest if the
director remains on the board through a 36-month service period or may vest
earlier in accordance with terms specified in the plan.  We account
for these awards as “non-vested equity shares.”  For each restricted
common stock issuance, the following table summarizes the actual number of
shares that have been issued/vested/forfeited, the weighted average issue price
of those shares on the grant date, the fair value of each grant on the grant
date, compensation expense recognized for the non-vested shares of each grant
and the remaining fair value of the non-vested shares of each grant as of
November 1, 2009:
  WholeNumber ofShares
              
              
              Grant-DateFair ValuePer Share
              
              
              AggregateGrant-DateFair-Value
              
              
              CompensationExpenseRecognized
              
              
              Grant-Date
      Fair ValueUnrecognized
      atNovember 1,
      2009Shares
      Issued on January 16, 2006Issued
              
              
              4,851
              
              
              $
              15.31
              
              
              $
              74Forfeited
              
              
              (784
              )
              
              
              15.31
              
              
              
              (12
              )Vested
              
              
              (4,067
              )
              
              
              15.31
              
              
              
              (62
              )
              
              $
              62Shares
      Issued on January 15, 2007
              
              
              4,875
              
              
              $
              15.23
              
              
              
              74
              
              
              
              70
              
              
              $
              4Shares
      Issued on January 15, 2008
              
              
              4,335
              
              
              $
              19.61
              
              
              
              85
              
              
              
              52
              
              
              
              33Shares
      Issued on January 15, 2009
              
              
              10,474
              
              
              $
              8.12
              
              
              
              85
              
              
              
              23
              
              
              
              62Shares
      outstanding at November
      1, 2009
              
              
              19,684
              
              
              
              
              
              
              $
              244
              
              
              $
              207
              
              
              $
              99
  10
 Table of Contents
  11.           Long Term Debt and Interest Rate
Swaps
 
 On August
11, 2009, we amended our credit agreement with Bank of America.  The
amendment included the following terms:
  ·
              upon
      execution of the amendment, we were required to repay in full the
      remaining balance of the term loans outstanding under the agreement ($3.8
      million, plus accrued interest);
 ·
              effective
      as of July 30, 2009, the Funded Debt to EBITDA Ratio under the credit
      agreement has been changed from 1.25:1.0 to 2.0:1.0;
  and
 ·
              effective
      as of July 30, 2009, the Debt Service Coverage Ratio under the credit
      agreement has been eliminated.
 
 The other
terms of the credit agreement, including our $15 million revolving line of
credit, were unchanged.
 
 As of
November 1, 2009, we had an aggregate $13.3 million available under our
revolving credit facility to fund working capital needs.  Standby
letters of credit in the aggregate amount of $1.7 million, used to collateralize
certain insurance arrangements and for imported product purchases, were
outstanding under our revolving credit facility as of November 1,
2009.  There were no additional borrowings outstanding under the
revolving credit line on November 1, 2009.  Any principal outstanding
under the credit line is due March 1, 2011.
 
 From time
to time we have entered into swap agreements to hedge against the potential
impact of increases in interest rates on our floating-rate debt instruments.
 By using swap agreements to hedge exposures to changes in interest rates,
we expose ourselves to credit risk and market risk.  Credit risk is
the potential failure of the counterparty to perform under the terms of the swap
agreement.  We attempt to minimize this credit risk by entering into
transactions with high-quality counterparties.  Market risk is the
potential adverse effect on the value of the swap agreement that results from a
decline in interest rates.  The market risk associated with
interest-rate contracts is managed by establishing and monitoring parameters
that limit the types and degree of market risk that may be
undertaken.
 
 We are
party to an interest rate swap agreement that provided, in effect, for a fixed
interest rate of 4.1% through 2010 on our term loans. Prior to our fiscal 2010
third quarter, we accounted for our interest rate swap agreement as a cash flow
hedge and recognized the fair value of the agreement on the balance sheet in
shareholders’ equity under the caption “accumulated other comprehensive
income”.  The related gains or losses on this instrument were recorded
through comprehensive income and, accordingly, was included in accumulated other
comprehensive income on the balance sheet until recognized in net
income.  The gains or losses on this transaction were recognized in
net income in the periods in which interest expense on our term notes (the
related hedged item) was recognized in net income.
 
 In 2003,
we terminated a similar swap agreement, which in effect provided a fixed
interest rate of approximately 7.4% on our term loans.  We made a $3.0
million payment to terminate that former swap agreement, which through the
periods ended August 2, 2009 was being amortized over the remaining repayment
period of the loan, resulting in an effective fixed interest rate of
approximately 7.4% on the term loans. The unamortized balance of the termination
payment of $142,000 ($229,000 pretax) as of February 1, 2009 is reflected under
the caption “accumulated other comprehensive income” in the condensed
consolidated balance sheets.  In connection with the amendment of our
credit agreement with Bank of America, effective August 11, 2009, we repaid our
term loan in full, without penalty, during our fiscal 2010 third quarter.
Consequently, we wrote-off the remaining $61,000 unamortized balance of this
swap termination payment during the fiscal 2010 third quarter.
 
 In
addition, our interest rate swap related to this term loan no longer qualified
as an effective hedge and we recognized a charge of $130,000 to recognize in
income the cumulative balance under accumulated other comprehensive income
during the third quarter. Through the remainder of the term of this interest
rate swap, which terminates on September 1, 2010, all future changes in the
swap’s fair value will be charged against net income. We recognized an
additional charge of $22,000 against net income during the third quarter for the
change in the swap’s fair value after the date our term loans were
repaid.
 
 At
November 1, 2009 we were party to one derivative financial instrument, as
described in the following table:
 Notional
                
                
                InterestAgreement
                
                Amount
                
                
                Rate
                
                Expiration
      Date
                
                Fair
      ValueInterest
      rate swap
                
                $
                3,064
                
                
                
                3.09
                %
                September
      1, 2010
                
                $
                (54
                )
 11
 Table of Contents
  Fair
Value Disclosure of Derivative Instruments
 
 The
following table provides quantitative fair value disclosures regarding our
interest rate swap at November 1, 2009:
  Fair
      Value as of November 1, 2009Carrying
      Value and
                  
                  Quoted
      Prices in
                  
                  SignificantBalance
      Sheet Location
                  
                  Active
      Markets
                  
                  Other
                  
                  Significantas
      of November 1, 2009
                  
                  for
      Identical
                  
                  Observable
                  
                  UnobservableOther
      Accrued
                  
                  Instruments
                  
                  Inputs
                  
                  InputsExpenses
                  
                  (Level
      1)
                  
                  (Level
      2)
                  
                  (Level
      3)Interest
      rate swap
                  
                  $
                  (54
                  )
                  
                  
                  $
                  (54
                  )
   Thirteen
      Weeks Ended
                  
                  
                  Thirty-Nine
      Weeks EndedNovember
      1,
                  
                  
                  November
      2,
                  
                  
                  November
      1,
                  
                  
                  November
      2,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Interest
      rate swap:Loss
      recognized in other comprehensive income
                  
                  $
                  -
                  
                  
                  $
                  (32
                  )
                  
                  $
                  (26
                  )
                  
                  $
                  (33
                  )Loss
      reclassified from accumulated other comprehensiveincome
      into interest expense, net
                  
                  
                  -
                  
                  
                  
                  45
                  
                  
                  
                  118
                  
                  
                  
                  143Loss
      recognized in net income
                  
                  
                  (130
                  )
                  
                  
                  -
                  
                  
                  
                  (130
                  )
                  
                  
                  -Loss
      recognized in net income on changein
      fair value of derivative financial instrument
                  
                  
                  (22
                  )
                  
                  
                  -
                  
                  
                  
                  (22
                  )
                  
                  
                  -
  12.     Subsequent
Events
  Dividends
  At its
December 8, 2009 meeting, our board of directors declared a quarterly cash
dividend of $0.10 per share, payable on February 26, 2010 to shareholders of
record at February 12, 2010.
  Director Restricted Stock
Grants
  At its
December 8, 2009 meeting, our board of directors adopted a resolution changing
the manner in which directors’ fees are computed for purposes of determining
restricted stock awards from a calendar year basis to an annual basis that
begins on the first day immediately following our annual meeting of
shareholders.
 
 We have
evaluated events that occurred subsequent to November 1, 2009 through the
financial statement issuance date of December 9, 2009.
  12
 Table of Contents
  Item2.     Management’s Discussion and
Analysis of Financial Condition and Results of Operations
 
 This
quarterly report on Form 10-Q includes our unaudited condensed consolidated
financial statements for the thirteen-week period (also referred to as “three
months,” “three-month period,” “quarter” or “quarterly period”) that began
August 3, 2009 and the thirty-nine week period (also referred to as “nine
months,” or “nine-month period” or “first nine months”) that began February 2,
2009, both ending on November 1, 2009.  This report discusses our
results of operations for these periods compared to the fiscal year 2009
thirteen-week third quarter that began on August 4, 2008 and the thirty-nine
week period that began on February 4, 2008, both ending on November 2, 2008; and
our financial condition as of November 1, 2009.
 
 References
in this report to:
 
 ·
              the
      2010 fiscal year or comparable terminology refer to the fiscal year that
      began February 2, 2009 and will end January 31, 2010;
  and
 ·
              the
      2009 fiscal year or comparable terminology refers to the fiscal year that
      began February 4, 2008 and ended February 1,
  2009.
 
 In the
fiscal year 2009 fourth quarter, we reclassified shipping and warehousing costs
from selling and administrative expenses to cost of sales in our condensed
consolidated financial statements and accompanying
notes.  Accordingly, these costs have also been reclassified for prior
periods to conform to the new method of presentation.  We reclassified
$4.1 million for the fiscal 2009 third quarter and $12.9 million for the fiscal
2009 nine months.
 
 Overview
 
 We have
seen a growing consumer preference for lower-priced, high-quality imported
furniture products since 2001.  Led by the change in consumer demand,
from 2003 to 2008 we systematically increased our focus on high-quality imported
home furnishings with a coordinated exit from domestic wood furniture
manufacturing.  We closed our last domestic wood manufacturing plant
during the fiscal year 2008 first quarter and completed the sale of all wood
furniture manufacturing assets no longer needed in the business in December
2007.  As a result, we have replaced a domestic operating model for
wood furniture, which had high overhead and high fixed costs, with a low
overhead, variable cost import model.  We are now focused on imported
wood and metal furniture, as well as both domestically produced and imported
upholstered home furnishings.  Maintaining domestic upholstered
furniture manufacturing allows us to offer four to six week turnaround on orders
for custom leather and fabric upholstered seating and remains an important part
of our strategy.
 
 Since the
fall of 2006, our business has been impacted by low levels of consumer
confidence and a weakening housing market.  By late 2008, this
malaise, exacerbated by weak credit markets, had spread to the broader U.S.
economy.  As a result, the residential home furnishings industry has
seen an unprecedented decline in demand for its
products.  Year-over-year declines in net sales have continued through
the fiscal year 2010 third quarter.
 
 Results
of operations for the fiscal 2010 third quarter and first nine months reflect
the continuing deterioration in the retail environment for home
furnishings.  Discretionary purchases of furniture, particularly at
the upper-middle price points where we compete, have been highly affected by low
consumer confidence.  Current economic factors, such as rising
unemployment and a difficult housing and mortgage market, have resulted in a
weak retail environment.  We believe however, that our business model
provides us with flexibility to respond to changing market conditions by
adjusting inventory purchases from suppliers.  We also believe that
the current economic downturn is temporary and upon economic recovery, we will
be well positioned to respond quickly to increased demand.
  The
following are the principal factors that impacted our results of operations
during the three and nine-month periods ended November 1, 2009:
 
 ·
              Net
      sales declined by $16.4 million, or 23.8%, to $52.6 million during the
      fiscal year 2010 third quarter compared to net sales of $69.0 million
      during the fiscal year 2009 third quarter.  For the first nine
      months of fiscal year 2010, sales declined $54.0 million, or 26.4% to
      $150.6 million, compared to $204.7 million in the first nine months of
      fiscal year 2009.  This decline reflects the continuing
      year-over-year declines in incoming order rates we have experienced in all
      operating units since the fiscal 2006 third quarter, resulting from the
      industry-wide slow down in business at retail. However, sales for the
      fiscal 2010 third quarter increased approximately 14% over the fiscal year
      2010 second quarter.
 ·
              Gross
      margins for the fiscal 2010 third quarter improved due primarily to lower
      freight costs on wood and metal furniture; however, gross margins in our
      upholstery units declined due to higher fixed costs as a percent of net
      sales.
 ·
              Selling
      and administrative expenses decreased in absolute terms compared to the
      fiscal year 2009 periods but increased as a percent of net sales due to
      the effect of the fixed nature of certain selling and administrative costs
      as a percent of the lower net sales reported in the fiscal 2010
      periods.
 ·
              Operating
      income for the fiscal year 2010 third quarter was $1.8 million, or 3.4% of
      net sales, compared to operating income of $4.7 million, or 6.8% of net
      sales, in the fiscal year 2009 third quarter principally due to lower net
      sales and  higher fixed operating and domestic upholstery
      overhead costs as a percent of net
sales.
 ·
              For
      the first nine months of fiscal year 2010, operating income was $657,000,
      or 0.4% of net sales, compared to operating income of $11.8 million, or
      5.7% of net sales, in the first nine months of fiscal year 2009
      principally due to lower net sales, higher fixed operating and domestic
      upholstery overhead costs as a percent of net sales and an impairment
      charge of $613,000 related to the Bradington-Young trade name in the
      fiscal year 2010 period compared to an $819,000 restructuring credit in
      the fiscal 2009 period.
  13
 Table of Contents
 
 Results
of Operations
 
 The
following table sets forth the percentage relationship to net sales of certain
items included in the consolidated statements of operations.
 
 Thirteen
      Weeks Ended
              
              
              Thirty-nine
      Weeks EndedNovember
      1,
              
              
              November
      2,
              
              
              November
      1,
              
              
              November
      2,2009
              
              
              2008
              
              
              2009
              
              
              2008Net
      sales
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of sales
              
              
              75.9
              
              
              
              77.3
              
              
              
              77.7
              
              
              
              77.3Gross
      profit
              
              
              24.1
              
              
              
              22.7
              
              
              
              22.3
              
              
              
              22.7Selling
      and administrative expenses
              
              
              20.7
              
              
              
              16.7
              
              
              
              21.5
              
              
              
              17.4Restructuring
      and asset impairment (credit) charge
              
              
              -
              
              
              
              (0.8
              )
              
              
              0.4
              
              
              
              (0.4
              )Operating
      income
              
              
              3.4
              
              
              
              6.8
              
              
              
              0.4
              
              
              
              5.7Other
      (expense) income, net
              
              
              (0.2
              )
              
              
              0.1
              
              
              
              (0.1
              )
              
              
              0.2Income
      before income taxes
              
              
              3.2
              
              
              
              6.9
              
              
              
              0.3
              
              
              
              5.9Income
      tax expense
              
              
              1.4
              
              
              
              2.6
              
              
              
              0.3
              
              
              
              2.2Net
      income
              
              
              1.8
              
              
              
              4.3
              
              
              
              -
              
              
              
              3.7
  Fiscal 2010 Third Quarter
Compared to Fiscal 2009 Third Quarter
 
 Net sales
for the fiscal year 2010 third quarter declined $16.4 million or 23.8% to $52.6
million compared to $69.0 million for the fiscal 2009 third quarter, principally
due to lower unit volume attributed to the continued industry-wide slow down in
business at retail.  Nearly every previously existing product line and
category reported lower unit sales in the 2010 third quarter compared to the
2009 third quarter.  These unit volume declines were partially offset
by sales of our new Envision product line, which was recently introduced to
address the needs of a younger consumer.
  Unit
volume decreased for Hooker wood and metal furniture and Sam Moore domestic
upholstered furniture compared to the fiscal 2009 third quarter.  Unit
volume increased for Bradington-Young domestic and imported leather upholstery
and Sam Moore imported upholstered furniture. Sales of imported upholstery
increased approximately 15.7% from the prior year quarter, while domestic
upholstery sales declined approximately 6.5% in the same period.
 
 Overall,
average selling prices were virtually unchanged during the fiscal year 2010
third quarter compared to the fiscal year 2009 third quarter, as discounting
largely offset selling price increases implemented in the fiscal 2009 third
quarter in response to cost increases for imported finished goods and raw
materials for domestically produced upholstery. Wood and metal furniture average
selling prices decreased slightly as a result of higher discounting and a higher
proportion of lower-priced youth and Envision furniture sold, while selling
prices of imported leather upholstery declined significantly due to heavier
discounting on slower-moving products and the mix of products
shipped.  The average selling prices for domestic leather upholstered
furniture decreased slightly mostly due to aggressive discounting.
 
 Overall,
gross profit margin increased to 24.1% of net sales in the fiscal year 2010
third quarter compared to 22.7% in the fiscal year 2009 third quarter, mainly as
a result of lower freight costs on wood and metal furniture, partially offset by
higher production costs as a percentage of net sales for domestically produced
upholstered products due to significantly lower unit volume.  While
gross margins for wood and metal furniture improved significantly in the fiscal
year 2010 third quarter compared to the fiscal 2009 third quarter, margins for
upholstered furniture declined due to higher fixed costs as a percent of sales
resulting from lower sales.
 
 Selling
and administrative expenses decreased to $10.9 million for the fiscal year 2010
third quarter, compared to $11.5 million for the fiscal year 2009 third
quarter.  The decrease in spending was principally due to lower
selling expenses attributed to lower sales volume as well as to ongoing cost
reduction initiatives undertaken in response to lower sales
volume.  However, selling and administrative expenses increased as a
percentage of net sales, from 16.7% for the fiscal year 2009 third quarter to
20.7% for the fiscal year 2010 third quarter due to lower net sales. The
decrease in selling and administrative expenses was partially offset by $521,000
in severance costs, a $385,000 charge to write down certain supplier-pledged
collateral to its net realizable value and $152,000 in increased sample expenses
in our upholstery division due to the extensive freshening of its product
offerings for the recent Fall International Home Furnishings
Market.
 
 As a
result, we realized operating income for the fiscal year 2010 third quarter of
$1.8 million, or 3.4% of net sales, compared to operating income of $4.7
million, or 6.8% of net sales, in the fiscal year 2009 third
quarter.
 
 Other
(expense) income, net amounted to a $93,000 expense for the fiscal year 2010
third quarter compared to income of $36,000 for the fiscal year 2009 third
quarter.  The increase in other expense is primarily due to charges
related to our current and former swap agreements. As described below, we
recognized $61,000 in interest expense in connection with writing off the
unamortized portion of a termination payment related to a previously terminated
swap agreement and a $69,000 charge in other expense to reclassify the balance
in accumulated other comprehensive income related to our existing interest rate
swap. These charges were partially offset by finance charge income and interest
income.
 
 14
 Table of Contents
 
 We
recorded income tax expense of $733,000 for the fiscal 2010 third quarter and
$1.8 million for the fiscal year 2009 third quarter.  The effective rate
increased to 43.4% for the fiscal year 2010 third quarter from 37.7% for the
fiscal year 2009 third quarter, primarily due to the establishment of a
valuation allowance against certain state loss carry forwards and credits,
favorable net permanent differences increasing as a percentage of pre-tax
income, and the effect of a federal tax penalty incurred for late filing.
 Due to a change in accounting method implemented after extending our
latest federal income tax return, our tax liability increased, which invalidated
our extension of time to file.
 
 Fiscal
year 2010 third quarter net income was $957,000, or $0.09 per share, compared to
net income of $3.0 million, or $0.27 per share, in the fiscal year 2009 third
quarter.
 
 Fiscal 2010 First Nine
Months Compared to Fiscal 2009 First Nine Months
 
 Net sales
for the fiscal year 2010 first nine months declined $54.0 million, or 26.4%, to
$150.6 million compared to $204.7 million for the fiscal 2009 first nine months,
largely due to lower unit volume attributed to the continued industry-wide slow
down in business at retail.
 
 Unit
volume for the first nine months of fiscal year 2010 decreased compared to the
same 2009 period across almost all previously existing wood and upholstery
product categories.  These unit volume declines were partially offset
by sales of our new Envision product line, which was recently introduced to
address the needs of a younger consumer.
 
 Overall
average selling prices were essentially unchanged for the 2010 first nine months
compared to the 2009 first nine months. Selling price increases implemented in
September 2009 in response to higher costs for imported finished goods and raw
materials for domestically produced upholstery were offset by aggressive
discounting.
 
 Gross
profit margin decreased to 22.3% of net sales in the fiscal 2010 first nine
months compared to 22.7% in the fiscal 2009 first nine months, primarily as a
result of higher domestic upholstery production costs and discounting for
upholstered products as a percentage of sales, partially offset by lower freight
costs on wood and metal furniture.
 
 In the
first nine months of fiscal year 2010, selling and administrative expenses
decreased $3.3 million, or 9.1%, to $32.3 million compared with $35.6 million in
the fiscal year 2009 nine-month period.  The decreased spending is
largely due to lower selling expense attributed to lower sales volume, reduced
salaries and benefits due to staff reductions since last year, and lower bonuses
and severance payments than in the first nine months of fiscal year
2009.  As a percentage of net sales, selling and administrative
expenses increased to 21.5% in the fiscal 2010 first nine months from 17.4% in
the fiscal 2009 nine-month period, due primarily to lower net
sales.
 
 During
the 2010 first nine months, we recorded a charge of $613,000 related to
impairment of the Bradington-Young trade name, compared to an $819,000
restructuring credit in the first nine months of fiscal 2009 to reverse
previously accrued health care benefits for former manufacturing employees
terminated when our wood furniture plants were closed.
 
 As a
result of these factors, we realized operating income of $657,000, or 0.4% of
net sales, for the first nine months of fiscal 2010 compared to operating income
of $11.8 million, or 5.7% of net sales, in the first nine months of fiscal
2009.
 
 Other
(expense) income, net amounted to a $122,000 expense for the fiscal 2010
nine-month period, compared to income of $391,000, for the fiscal 2009
nine-month period.  This decrease was principally the result of a
decrease in interest rates earned on cash and cash equivalent balances and by
charges related to our former and current swap agreements.
 
 We
recorded income tax expense of $497,000 for the first nine months of fiscal 2010
compared to $4.5 million for the first nine months of 2009.  The effective
tax rate rose to 92.9% from 37.3%, respectively, for the same periods, primarily
due to the establishment of a valuation allowance against certain state loss
carry forwards and credits (increasing the rate by 55.9%), favorable net
permanent differences increasing as a percentage of pre-tax income (decreasing
the rate by 39.2%), and the effect of a federal tax penalty incurred for late
filing (increasing the rate by 18.7%).  Due to a change in accounting
method implemented after extending our latest federal income tax return, our tax
liability increased, which invalidated our extension of time to file.  It
should be noted that when pre-tax income is low, a relatively small change in
tax can create a large percentage change in the rate.
 
 We
recognized net income of $38,000, or less than one cent per share for the 2010
nine-month period compared to net income of $7.6 million, or $0.68 per share, in
the fiscal 2009 nine-month period.  As a percent of net sales, the
2010 nine-month income is essentially 0.0% compared to 2009 nine-month net
income of 3.7% of net sales.
  Woodleaf
Closing
  On July
16, 2009, we decided to transition production from our Bradington-Young
Woodleaf, North Carolina frame manufacturing plant (a leased facility) to
Bradington-Young’s Cherryville, North Carolina facility by the end of December
2009.  On July 17, 2009, we met with the Woodleaf employees and
announced our plans to sell the frame production operation, including the
associated machinery and equipment, as an on-going business.  However,
at November 1, 2009 we had not found and do not anticipate finding a buyer for
this operation. Consequently, during the 2010 fiscal third quarter, we accrued
$132,000 for severance, the majority of which we expect to pay during our fiscal
2010 fourth quarter and $48,000 in accelerated depreciation for the write-down
of fixed assets utilized at this location. We anticipate recording an additional
$32,000 in accelerated depreciation during our fiscal 2010 fourth
quarter.
 
 15
 Table of Contents
 
 We expect
that exiting the Woodleaf operation and moving frame production to Cherryville
will reduce fixed overhead costs by approximately $350,000 annually (or about
$0.02 to $0.03 per share after tax) following the completion of the transition
period beginning in fiscal 2011.
  Supplier
Commitments
 
 Since
2009, we have advanced payments to and provided financing guarantees for one of
our finished goods suppliers to facilitate the supplier’s purchase of raw
materials and other related items in order to help ensure timely delivery of
finished goods to us.  The balance of the advances and other
miscellaneous amounts to this supplier at November 1, 2009 was $85,000. In order
for the supplier to obtain additional bank financing, we issued a standby letter
of credit as security in the amount of $600,000. In conjunction with the
issuance of the letter of credit, we entered into a security agreement with the
supplier and the supplier’s shareholders, which provides us with a security
interest in certain assets of the supplier and its shareholders. During
September 2009, prior to the expiration of the letter of credit, the supplier
ceased operations, defaulted on its bank notes and its lender drew on our
$600,000 letter of credit. Subsequently, we reimbursed our letter of credit
provider for the $600,000. Due to the location and nature of the pledged
collateral, we may incur substantial costs to obtain and foreclose on it. We are
currently assessing options to recover amounts owed to us, including negotiating
a repayment plan with the supplier.  However, a repayment plan may not
materialize. Consequently, we recorded a charge of $300,000 during our fiscal
2010 third quarter to write down the value of the pledged collateral to our
estimate of its net realizable value and a charge of $85,000 to reserve against
the potential uncollectability of the outstanding advances and other
miscellaneous amounts due from the supplier.
 
 Outlook
 
 The year
over year declines in quarterly incoming orders, which began in the Fall of
2006, continued during the fiscal year 2010 third quarter. While business has
improved somewhat since the end of the second quarter, we believe that
additional growth may be slow, irregular, and easily derailed.  Our
outlook for the fourth quarter is one of continued cautious optimism. While we
expect general retail conditions to remain weak, we expect to see continued
typical seasonal improvement in our business during fourth quarter. We believe
that our product, inventory availability, and business model uniquely position
us to take advantage of any upturn in the economy.  That optimism,
however, is tempered by the uniqueness of the present economic situation. Thus,
we believe that continued attention to cost control is necessary.
 
 Our new
Envision product line, which was designed to address the needs of a younger,
less-affluent consumer, was introduced in April and debuted on retail sales
floors during the fiscal year 2010 third quarter.  While response to
this new line has been encouraging, we have not yet seen an overall rebound in
big-ticket consumer products such as furniture, so we remain cautious in our
planning and continue to take actions to address challenges to our
profitability.  Some of those actions include:
 
 ●
              deferring,
      reducing or eliminating certain spending
plans;
 ●
              continuing
      to refine the management of our supply chain, warehousing and distribution
      operations; and
 ●
              adjusting
      our inventory levels to reflect current business conditions and lower
      sales volumes.
 
 Our
domestic upholstery manufacturing operations have been particularly impacted by
the prolonged sales downturn due to higher fixed overhead costs as a percentage
of reduced net sales.  To mitigate the impact of these sales declines
we are:
  ●
              pursuing additional
      distribution channels and offering an array of new products and designs
      that we believe will generate additional sales growth;●
              taking
      actions to streamline our domestic  upholstery operations,
      improve efficiency and reduce overhead; and,●
              continuing
      to evaluate our manufacturing capacity utilization, work schedules and
      operating costs to better match costs to current sales volume
      levels.
  Due to
excess capacity resulting from continuing the industry-wide slowdown in sales,
which began in the Fall of 2006, our upholstery division reported an operating
loss of 6.8% of net sales for the fiscal 2010 third quarter as compared to an
operating loss of 3.0% of net sales for the comparable fiscal 2009 period. For
the first nine months of fiscal 2010, the division reported an operating loss of
10.6% of net sales as compared to an operating loss of 1.1% of net sales in the
comparable fiscal 2009 period. We have responded to this decline in performance
by intensifying our focus on cost reduction and sales growth initiatives for our
upholstery operations including reductions of  personnel, consolidating
manufacturing facilities, implementing Lean Manufacturing, and introducing
technological changes to reduce labor costs. In terms of sales growth, we have
focused on updating our upholstery lines with more contemporary offerings while
retaining our best selling traditionally-styled items. Consequently, we recently
introduced the Envision line to respond to the needs of a younger and less
affluent consumer. Additionally, our recently introduced Paris Flea Market
collection integrates stand-alone elements from all three Hooker brands
–including both upholstery and wood furniture- in a fresh and exciting way,
which we believe will represent a compelling value for consumers and ultimately
drive sales across the entire company.  We are encouraged by the response
to these product offerings at the recent Fall International Home Furnishings
Market. With continued emphasis on cost control and product development, coupled
with a continued improvement in business, we believe we can return our
upholstery division to profitability in fiscal 2011.
 
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 Financial
Condition, Liquidity and Capital Resources
 
 Balance Sheet and Working
Capital
 
 As of
November 1, 2009, assets totaled $145.7 million, decreasing from $153.5 million
at February 1, 2009, principally due to decreases in inventories, and accounts
receivable, partially offset by increases in cash and cash equivalents.
Shareholders’ equity at November 1, 2009 decreased to $125.5 million, compared
to $129.7 million at February 1, 2009, due primarily to lower net income for the
first nine months of fiscal year 2010.  We have no long-term debt,
including current maturities, at November 1, 2009, as compared to $5.2 million
at February 1, 2009, as a result of scheduled debt repayments and the early
repayment of our term loans in August 2009.
 
 Net
working capital (current assets less current liabilities) decreased by $4.4
million, or 4.8%, to $86.8 million as of November 1, 2009, from $91.3 million at
the end of fiscal 2009, as a result of decreases of $6.4 million in current
assets and $2.0 million in current liabilities.  Our working capital
ratio (the relationship between our current assets and current liabilities)
improved to 7.3:1 at November 1, 2009 compared to 6.8:1 at February 1,
2009.
 
 The
decrease in current assets was principally due to decreases of $26.7 million in
inventories and $4.0 million in accounts receivable, partially offset by
increases of $22.9 million in cash and cash equivalents, primarily due to lower
inventory purchases due to lower sales, and $1.4 million in prepaid expenses and
other current assets.  Accounts receivable decreased primarily due to
lower sales.
 
 Consolidated
inventories decreased 44.3%, to $33.5 million as of November 1, 2009, from $60.2
million at February 1, 2009, mainly due to lower imported wood and metal
furniture inventories, resulting from reduced purchases of finished goods
inventory in response to lower incoming order rates.  Upholstery
inventories have declined 25.7% since February 1, 2009, also in response to
lower incoming order rates.
 
 The
decrease of $2.0 million in current liabilities was primarily attributable to
the repayment of our outstanding term loan during the third quarter of fiscal
year 2010.
 
 Cash Flows – Operating,
Investing and Financing Activities
 
 During
the nine months ended November 1, 2009, cash generated from operations ($32.9
million), short-term borrowing against our factored receivables ($4.5 million)
and proceeds received on certain life insurance policies ($986,000) funded an
increase in cash and cash equivalents ($22.9 million), principal payments on
long-term debt ($5.2 million), payment of cash dividends ($3.2 million),
repayment of borrowing against our factored receivables as they were collected
by our agent ($4.4 million),  premiums paid on life insurance policies
($1.4 million) and capital expenditures to maintain and enhance our business
operating systems and facilities ($1.3 million).
 
 During
the nine months ended November 2, 2008, cash generated from operations ($1.7
million), expenditures of $20.7 million of cash and cash equivalents and
proceeds received on certain life insurance policies ($357,000) funded the
purchase and retirement of common stock ($14.1 million), payment of cash
dividends ($3.4 million), scheduled principal payments on long-term debt ($2.0
million), capital expenditures to maintain and enhance the Company’s business
operating systems and facilities ($1.8 million), premiums paid on life insurance
policies ($1.3 million), and additional expenditures in connection with the
acquisition of the Opus Designs youth bedroom line ($181,000).
 
 We used
$1.6 million of cash for investing activities during the first nine months of
fiscal year 2010 compared to $2.8 million during the nine-month period ended
November 2, 2008.  During the fiscal year 2010 nine-month period, we
used $1.3 million to purchase property, plant and equipment, paid premiums of
$1.4 million and received proceeds of $986,000 from company-owned life
insurance.  In the fiscal year 2009 nine-month period, we used $1.8
million to purchase property, plant and equipment and paid premiums of $1.3
million and received proceeds of $357,000 from company-owned life
insurance.
 
 We used
$8.3 million of cash for financing activities during the first nine months of
fiscal year 2010 compared to $19.5 million in the nine-month period ended
November 2, 2008.  During the first nine months of fiscal year 2010, we
received $4.5 million from short-term borrowing against our factored accounts
receivable, made payments of $5.2 million on our term loans, repaid $4.4 million
of the loan against our factored receivables as the receivables were collected
by our agent and paid cash dividends of $3.2 million.  During the first
nine months of fiscal year 2009, we used $14.1 million to purchase and retire
common stock, paid cash dividends of $3.4 million and made scheduled principal
payments of $2.0 million on our term loans.
 
 Amendment of Credit
Agreement and Repayment of Term Loans
 
 On August
11, 2009, we amended our credit agreement with Bank of America.  The
amendment included the following terms:
  ·
              upon
      execution of the amendment, we were required to repay in full the
      remaining balance of the term loans outstanding under the agreement ($3.8
      million, plus accrued interest);
 ·
              effective
      as of July 30, 2009, the Funded Debt to EBITDA Ratio under the credit
      agreement has been changed from 1.25:1.0 to 2.0:1.0;
  and
 ·
              effective
      as of July 30, 2009, the Debt Service Coverage Ratio under the credit
      agreement has been eliminated.
 
 The other
terms of the credit agreement, including our $15 million revolving line of
credit, were unchanged.  A copy of the amendment was included as
Exhibit 10.1 to our Form 8-K, filed with the SEC on August 13,
2009.
  17
 Table of Contents
 
 Swap
Agreements
 
 From time
to time we have entered into swap agreements to hedge against the potential
impact of increases in interest rates on our floating-rate debt instruments.
 By using swap agreements to hedge exposures to changes in interest rates,
we expose ourselves to credit risk and market risk.  Credit risk is
the potential failure of the counterparty to perform under the terms of the swap
agreement.  We attempt to minimize this credit risk by entering into
transactions with high-quality counterparties.  Market risk is the
potential adverse effect on the value of the swap agreement that results from a
change in interest rates.  The market risk associated with
interest-rate contracts is managed by establishing and monitoring parameters
that limit the types and degree of market risk that may be
undertaken.
 
 We are
party to an interest rate swap agreement that provided, in effect, for a fixed
interest rate of 4.1% through 2010 on our term loans. Prior to our fiscal 2010
third quarter, we accounted for our interest rate swap agreement as a cash flow
hedge and recognized the fair value of the agreement on the balance sheet in
shareholders’ equity under the caption “accumulated other comprehensive
income”.  The related gains or losses on this instrument were recorded
through comprehensive income and, accordingly, were included in accumulated
other comprehensive income on the balance sheet until recognized in net
income.  The gains or losses on this transaction were recognized in
net income in the periods in which interest expense on our term notes (the
related hedged item) was recognized in net income.
 
 In 2003,
we terminated a similar swap agreement, which in effect provided a fixed
interest rate of approximately 7.4% on our term loans.  We made a $3.0
million payment to terminate that former swap agreement, which through the
periods ended August 2, 2009 was being amortized over the remaining repayment
period of the loans, resulting in an effective fixed interest rate of
approximately 7.4% on the term loans. The unamortized balance of the termination
payment of $142,000 ($229,000 pretax) as of February 1, 2009 is reflected under
the caption “accumulated other comprehensive income” in the condensed
consolidated balance sheets.  In connection with the amendment of our
credit agreement with Bank of America, effective August 11, 2009, we repaid our
term loans in full, without penalty, during our fiscal 2010 third quarter.
Consequently, we wrote-off the remaining $61,000 unamortized balance of this
swap termination payment during the fiscal 2010 third quarter.
 
 In
addition, our interest rate swap related to this term loan no longer qualified
as an effective hedge and we recognized a charge of $130,000 to recognize in
income the cumulative balance under accumulated other comprehensive income
during the third quarter. Through the remainder of the term of this interest
rate swap which terminates on September 1, 2010 all future changes in the swap’s
fair value will be charged against net income. We recognized an additional
charge of $22,000 against net income during the third quarter for the change in
the swap’s fair value after the date our term loans were repaid.
 
 Debt Covenant
Compliance
 
 The
credit agreement for our revolving credit facility, as amended, includes, among
other requirements, financial covenants as to minimum tangible net worth, the
ratio of funded debt to earnings before interest, taxes, depreciation and
amortization, and maximum capital expenditures.  We were in compliance
with these covenants as of November 1, 2009.
 
 Liquidity, Financial
Resources and Capital Expenditures
 
 As of
November 1, 2009, we had an aggregate $13.3 million available under our
revolving credit facility to fund working capital needs.  Standby
letters of credit in the aggregate amount of $1.7 million, used to collateralize
certain insurance arrangements and for imported product purchases, were
outstanding under our revolving credit facility as of November 1,
2009.  There were no additional borrowings outstanding under the
revolving credit line on November 1, 2009.  Any principal outstanding
under the credit line is due March 1, 2011.
 
 We
believe that we have the financial resources (including available cash and cash
equivalents, expected cash flow from operations, and lines of credit) needed to
meet business requirements for the foreseeable future, including capital
expenditures, working capital and repayments of outstanding
debt.  Cash flow from operations is highly dependent on incoming order
rates and our operating performance.  We expect to spend an additional
$100,000 to $300,000 in capital expenditures during the remainder of fiscal year
2010 to maintain and enhance our operating systems and facilities.
 
 During
the three months that ended November 1, 2009, we repaid in full the remaining
$3.8 million outstanding under our term loans, in connection with the amendment
of our credit agreement, see “Amendment of Credit Agreement and Repayment of
Term Loans” above.
 
 Accounting
Pronouncements
  During
the fiscal year 2010 third quarter, we adopted one new accounting pronouncement,
which did not have a material impact on our financial position or results of
operations.  See “Note 2 – Accounting Pronouncements” to the condensed
consolidated financial statements included in this report.
 
 18
 Table of Contents
 
 Forward-Looking
Statements
 
 Certain
statements made in this report, including under  “Item 2 -
Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” are not based on historical facts, but are forward-looking
statements.  These statements reflect our reasonable judgment with
respect to future events and typically can be identified by the use of
forward-looking terminology such as “believes,” “expects,” “projects,”
“intends,” “plans,” “may,” “will,” “should,” “would,” “could”  or
“anticipates,” or the negative thereof, or other variations thereon, or
comparable terminology, or by discussions of
strategy.  Forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those in
the forward-looking statements.  Those risks and uncertainties include
but are not limited to:
 
 ·
              current
      economic conditions and instability in the financial and credit markets
      including their potential impact on our (i) sales and operating costs and
      access to financing, (ii) customers and suppliers and their ability to
      obtain financing or generate the cash necessary to conduct their
      business;
  ·
              general
      economic or business conditions, both domestically and
      internationally;
  ·
              price
      competition in the furniture
industry;
  ·
              changes
      in domestic and international monetary policies and fluctuations in
      foreign currency exchange rates affecting the price of our imported
      products and raw materials;
  ·
              the
      cyclical nature of the furniture industry, which is particularly sensitive
      to changes in consumer confidence, the amount of consumers’ income
      available for discretionary purchases, and the availability and terms of
      consumer credit;
  ·
              risks
      associated with the cost of imported goods, including fluctuations in the
      prices of purchased finished goods and transportation and warehousing
      costs;
  ·
              supply,
      transportation and distribution disruptions, particularly those affecting
      imported products;
  ·
              adverse
      political acts or developments in, or affecting, the international markets
      from which we import products, including duties or tariffs imposed on
      those products;
  ·
              risks
      associated with domestic manufacturing operations, including fluctuations
      in capacity utilization and the prices of key raw materials,
      transportation and warehousing costs, domestic labor costs and
      environmental compliance and remediation
costs;
  ·
              our
      ability to successfully implement our business plan to increase sales and
      improve financial performance;
  ·
              achieving
      and managing growth and change, and the risks associated with
      acquisitions, restructurings, strategic alliances and international
      operations;
  ·
              risks
      associated with distribution through retailers, such as non-binding
      dealership arrangements;
  ·
              capital
      requirements and costs;
  ·
              competition
      from non-traditional outlets, such as catalog and internet retailers and
      home improvement centers;
  ·
              changes
      in consumer preferences, including increased demand for lower quality,
      lower priced furniture due to declines in consumer confidence and/or
      discretionary income available for furniture purchases and the
      availability of consumer credit;
and
  ·
              higher
      than expected costs associated with product quality and safety, including
      regulatory compliance costs related to the sale of consumer products and
      costs related to defective
products.
  Any
forward looking statement that we make speaks only as of the date of that
statement, and we undertake no obligation, except as required by law, to update
any forward-looking statements whether as a result of new information, future
events, or otherwise.
 
 19
 Table of Contents
 
 Item 3.    Quantitative and Qualitative
Disclosures about Market Risk
 
 We are
exposed to market risk from changes in interest rates and foreign currency
exchange rates, which could impact our results of operations and financial
condition.  We manage our exposure to these risks through our normal
operating and financing activities and, in some cases, through the use of
interest rate swap agreements.
 
 Our
obligations under our revolving line of credit bear interest at variable
rates.  We have entered into interest rate swap agreements that, in
effect, fixed the rate of interest on our former term loans.  The
notional principal value of the swap agreements was equal to the outstanding
principal balance of the term loans. In August 2009, we repaid in full the
outstanding balance of our term loans. As a result, changes in the fair value of
our outstanding interest rate swap will now be reflected in net income. A
fluctuation in market interest rates of one percentage point (or 100 basis
points) would not have a material impact on our results of operations or
financial condition.  For additional discussion regarding our swap
agreement see “Swap Agreements” in Management’s Discussion and Analysis in our
annual report on Form 10-K for the year ended February 1, 2009 and in this
quarterly report and Note 11, Interest Rate Swaps (Derivative Financial
Instruments) to the condensed consolidated financial statements included in this
report.
 
 For
imported products, we generally negotiate firm pricing denominated in U.S.
Dollars with our foreign suppliers, for periods typically of six months to one
year.  We accept the exposure to exchange rate movements beyond these
negotiated periods without using derivative financial instruments to manage this
risk.  The majority of our imports are purchased from
China.  The Chinese currency, formerly pegged to the U.S. Dollar, now
floats within a limited range in relation to the U.S. Dollar, resulting in
additional exposure to foreign currency exchange rate fluctuations.
 
 Since we
transact our imported product purchases in U.S. Dollars, a relative decline in
the value of the U.S. Dollar could increase the price we pay for imported
products beyond the negotiated periods.  We generally expect to
reflect substantially all of the impact of any price increases from suppliers in
the prices we charge for imported products.  However, these changes
could adversely impact sales volume and profit margin during affected
periods.
 
 Item4.    Controls and Procedures
 
 Evaluation
of Disclosure Controls and Procedures
 
 Our
management, with the participation of our principal executive officer and
principal financial officer, evaluated the effectiveness of our disclosure
controls and procedures as of the end of the fiscal quarter ended November 1,
2009.  Based on this evaluation, our principal executive officer and
principal financial officer have concluded that our disclosure controls and
procedures are effective to provide reasonable assurance that information
required to be disclosed in the reports that we file or submit under the
Securities Exchange Act of 1934, as amended, is accumulated and communicated to
the Company’s management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure and are effective to provide reasonable assurance that such
information is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission rules and
forms.
 
 Changes
in Internal Controls
 
 There
have been no changes in our internal control over financial reporting during the
quarter ended November 1, 2009, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
 
 PART
II.  OTHER INFORMATION
 
 Item 6.    Exhibits
  3.1
                
                Amended
      and Restated Articles of Incorporation of the Company, as amended March
      28, 2003 (incorporated by reference to Exhibit 3.1 of the Company’s Form
      10-Q (SEC File No. 000-25349) for the quarter ended February 28,
      2003)3.2
                
                Amended
      and Restated Bylaws of the Company (incorporated by reference to Exhibit
      3.2 to the Company’s Form 10-Q (SEC File No. 000-25349) for the quarter
      ended August 31, 2006)4.1
                
                Amended
      and Restated Articles of Incorporation of the Company (See Exhibit
      3.1)4.2
                
                Amended
      and Restated Bylaws of the Company (See Exhibit 3.2)10.1
                
                Fourth
      Amendment to Credit Agreement, dated as of August 10, 2009, between the
      Company and Bank of America N.A. (incorporated by reference to Exhibit
      10.1 of the Company’s Form 8-K (SEC File No. 000-25349) filed with the SEC
      on August 13, 200910.2*
                
                Voluntary Separation Agreement and General Release by
      and between Sekar Sundararajan and Hooker Furniture Corporation dated
      October 28, 2009.31.1*
                
                Rule 13a-14(a) Certification of the Company’s principal
      executive officer31.2*
                
                Rule 13a-14(a) Certification of the Company’s principal
      financial officer32.1*
                
                Rule 13a-14(b) Certification of the Company’s principal
      executive officer and principal financial officer pursuant to 18 U.S.C.
      Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
      of 2002
 ____________
 *Filed
herewith
  20
 Table of Contents
 
 SIGNATURE
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
   HOOKER FURNITURE
      CORPORATIONDate:
      December 9, 2009
                By:
                /s/ E.
      Larry
      RyderE.
      Larry RyderExecutive
      Vice President – Finance and
                  Administration
      and Chief Financial Officer
  
  
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