United
States
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
DC  20549
  Form
10-K
 Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
  For the
fiscal year ended February 3,
2008
 
 Commission
file number000-25349
  HOOKER
FURNITURE CORPORATION
 (Exact
name of registrant as specified in its charter)
 Virginia
                54-0251350(State or other
      jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification
Number)
 440
East Commonwealth Boulevard, Martinsville, VA  24112
 (Address
of principal executive offices, Zip Code)
 
 (276)
632-0459
 (Registrant’s
telephone number, including area code)
 
 Securities
registered pursuant to Section 12(b) of the Act:
  Title
      of Each Class
                Name
      of Each Exchangeon Which
      RegisteredCommon
      Stock, no par value
                NASDAQ
      Global Select Market
 Securities
registered pursuant to Section 12(g) of the Act:None
 
 Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes (  ) No (X)
 
 Indicate by
check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes (  ) No (X)
 
 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. (  )
 
 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.  (Check
one):
 Large
      accelerated Filer (   )
              Accelerated
      Filer (X)
 Non-accelerated
      Filer (   )
              Smaller
      reporting company
(   )
 (Do not
      check if a smaller reporting
company)
 
 Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act). Yes (   ) No (X)
 
 State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter: $190.4 million.
 
 Indicate the
number of shares outstanding of each of the registrant’s classes of common stock
as of April 14, 2008:
 
 Common
      stock, no par value
                11,517,737(Class
      of common stock)
                (Number
      of shares)
  Documents
incorporated by reference:  Portions of the registrant’s definitive
Proxy Statement for its Annual Meeting of Shareholders scheduled to be held June
30, 2008 are incorporated by reference into Part III.
 
 
 Hooker
Furniture Corporation
 
 TABLE
OF CONTENTS
 
 Part
      I
                
                PageItem
      1.
                Business
                3Item
      1A.
                Risk
      Factors
                11Item
      1B.
                Unresolved
      Staff Comments
                13Item
      2.
                Properties
                14Item
      3.
                Legal
      Proceedings
                14Item
      4.
                Submission
      of Matters to a Vote of Security Holders
                  Executive
      Officers of Hooker Furniture Corporation
                15
                  15Part
      IIItem
      5.
                Market
      for Registrant’s Common Equity, Related Shareholder
Mattersand
      Issuer Purchases of Equity Securities
                16Item
      6.
                Selected
      Financial Data
                18Item
      7.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                19Item
      7A.
                Quantitative
      and Qualitative Disclosures about Market Risk
                32Item
      8.
                Financial
      Statements and Supplementary Data
                33Item
      9.
                Changes
      in and Disagreements with Accountants on Accounting andFinancial
      Disclosure
                33Item
      9A.
                Controls
      and Procedures
                33Item
      9B.
                Other
      Information
                34Part
      IIIItem
      10.
                Directors,
      Executive Officers and Corporate Governance
                35Item
      11.
                Executive
      Compensation
                35Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Shareholder Matters
                35Item
      13.
                Certain
      Relationships and Related Transactions, and Director
      Independence
                35Item
      14.
                Principal
      Accountant Fees and Services
                35Part
      IVItem
      15.
                Exhibits
      and Financial Statement Schedules
                36Signatures
                38Index
      to Consolidated Financial Statements
                F-1
 
 2
 Hooker
Furniture Corporation
 Part
I
 ITEM
1.                     BUSINESS
 
 General
 
 Incorporated
in Virginia in 1924, Hooker Furniture Corporation (“Hooker”, “Hooker Furniture”
or the “Company”) is ranked in the top 10 of the nation’s largest publicly
traded furniture sources, based on 2006 shipments to U.S. retailers, according
to Furniture/Today, a
leading trade publication.  The 83-year old Company is a leading
resource for residential wood, metal and upholstered furniture.  Major
furniture categories include wall and entertainment units, and office, dining,
bedroom, accent, occasional, and leather and fabric upholstered furniture for
the home.  An extensive selection of designs and formats along with
finish and cover options in each of these product categories makes the Company a
comprehensive resource for retailers primarily targeting the upper-medium price
range.  The Company’s principal customers are retailers of residential
home furnishings who are broadly dispersed throughout North
America.  Customers include independent furniture stores, specialty
retailers, department stores, catalog merchants, interior designers and national
and regional chains.
 
 The Company
markets wood and metal furniture under the Hooker Furniture and Opus brand names
and markets upholstered furniture under the Bradington-Young and Sam Moore brand
names.  Furniture is designed and marketed as stand-alone products or
products within small multi-piece groups or broader collections offering a
unifying style, design theme and finish.  Examples of Hooker Furniture
collections include Preston Ridge, Waverly Place and
Casablanca.  Products also are marketed by product category, such as
The Great Entertainers, SmartWorks Home Office and Opus Designs by Hooker.
Hooker’s wood and metal furniture is typically designed for and marketed to the
upper-medium price range.  Under its Bradington-Young upholstery
brand, the Company offers a broad variety of residential leather and fabric
upholstered furniture and specializes in leather reclining and motion chairs,
sofas, club chairs and executive desk chairs. Under its Sam Moore upholstery
brand, the Company offers upscale occasional chairs with an emphasis on
fabric-to-frame customization in the upper-medium to high-end price
niches.  Domestically produced upholstered furniture is targeted at
the upper and upper-medium price ranges, while imported upholstered furniture is
targeted at the medium and upper-medium price ranges.  The Company is
a comprehensive resource for retailers, offering furniture collections and
products for virtually every room of the home.
 
 Transforming
the Company’s  Business Model
 
 Since 2003,
Hooker Furniture has transformed from a predominantly wood furniture
manufacturer to a product design, global sourcing, logistics and marketing
company for residential wood and upholstered furniture. Prior to 2003 nearly 70
percent of the Company’s net sales were derived from the sale of domestically
produced wood furniture; subsequently, sales of the Company’s better valued
imported wood furniture have rapidly overtaken sales of its domestically made
furniture.  Hooker systematically closed its domestic wood furniture
plants as its product mix increasingly shifted toward imported wood and metal
furniture.  During the 2008 fiscal year the Company completed the
transformation from a manufacturer to a marketer offering high-value wood, metal
and upholstered furniture sourced globally as well as domestically-produced
upholstered furniture.
 
 In March
2007, Hooker Furniture closed its Martinsville, Va. wood furniture production
facility, the last of its domestic wood furniture plants, marking the Company’s
exit from domestic wood furniture manufacturing.
 
 Also, on
January 26, 2007, the Company terminated its Employee Stock Ownership Plan
(“ESOP”). As of November 30, 2006, the ESOP, in which substantially all of the
Company’s employees participated, held 23.4% of Hooker Furniture’s outstanding
common stock, more than any other shareholder of the Company. The ESOP was
discontinued primarily because of the fundamental change in the Company’s
business model as a rising stock price and the Company’s diminishing employee
base caused the ESOP to become too costly in this competitive industry. The
annual costs of the ESOP averaged $3.4 million in the three fiscal years leading
up to the termination.  As a result of the ESOP termination, the
Company recorded an $18.4 million charge in the two-month transition period
ended January 28, 2007. While this non-cash, non-deductible charge to earnings
was significant, management believes that discontinuing the ESOP has better
positioned the Company to compete going forward by bringing future benefit costs
more in line with the industry, the Company’s new operating model and its
current workforce level.
 
 The Company’s
goal to expand its offerings to furniture retailers led to the acquisition of
the assets of Bradington-Young LLC in January 2003 and the assets of Sam Moore
Furniture LLC in April 2007. These acquisitions provided Hooker’s customers with
a broad array of upholstered seating options to complement its wood and metal
furniture offerings. Additionally, in December 2007, the Company acquired
certain assets of Opus Designs Furniture, LLC, a specialist in moderately-priced
youth bedroom furniture. The Opus acquisition provides the Company with expanded
product offerings in a previously under-developed niche.
 
 With the exit
from domestic wood furniture manufacturing, the addition of upholstery and
expanded bedroom offerings, and the termination of the ESOP, Hooker Furniture’s
transition to a design, marketing, logistics and global sourcing business model
focused on imported wood and metal and domestically produced and imported
upholstered home furnishings is now complete.  The Company believes
the costs of reorganization are behind it and that the Company has emerged
financially strong and well-positioned for continued success.
 
 3
 Strategy
and Mission
 
 The Company’s
mission is to “enrich the lives of the people we touch through innovative home
furnishings of exceptional value,” using the following strategy:
 
 ·
              To
      offer world-class style, quality and product value as a complete
      residential wood, metal and upholstered furniture resource through
      excellence in product design, global sourcing, manufacturing, logistics,
      sales, marketing and customer
service.
  ·
              To be
      an industry leader in sales growth and profitability performance,
      providing an outstanding investment for our shareholders and contributing
      to the well-being of our employees, customers, suppliers and community
      neighbors.
  ·
              To
      nurture the relationship-driven, team-oriented and integrity-minded
      corporate culture that has distinguished our Company for over 80
      years.
  The Company
sells one category of products, home furnishings, which accounts for all of the
Company’s net sales.  The percentages of net sales provided by each of
its major product sub-categories for the 53-week fiscal year that ended February
3, 2008, the 2007 two-month transition period that ended January 28, 2007 and
the twelve-month fiscal years that ended November 30, 2006 and 2005 are as
follows:
   (2
      mos.)2008
                
                2007
                
                2006
                
                2005Wood
      and metal furniture products
                
                
                75
                %
                
                
                80
                %
                
                
                82
                %
                
                
                82
                %Upholstered
      furniture products
                
                
                25
                %
                
                
                20
                %
                
                
                18
                %
                
                
                18
                %Total
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %
                
                
                100
                %
 Product
Design and Product Collections and Styles
 
 The Company’s
product lines cover most major style categories, including European and American
traditional, transitional, urban, country, casual and cottage
designs.  The Company offers furniture in a variety of materials, such
as various types of wood, metal, leather and fabric, as well as veneer and
rattan, often accented with marble, stone, slate, ceramic, glass, brass and/or
hand-painted finishes.  Products are designed to be attractive to
consumers both as individual furniture pieces and as pieces within whole-home
collections.  The Company believes its wide variety of product
categories, styles and finishes enables it to anticipate and respond quickly to
changing consumer preferences.  The Company offers retailers a
comprehensive furniture resource principally in the upper-medium price range and
additional products within both the upscale and medium price
ranges.  Based on sales and market acceptance, the Company believes
its products represent good value, and the style and quality of its furniture
compares favorably with more premium-priced products.
 
 The product
life cycle for furniture continues to shorten as consumers demand innovative new
features, functionality, style, finishes and fabrics that will enhance their
lifestyle while providing value and durability.  The Company believes
its distinctive product design, development and market-launch process provides
it with a competitive advantage.  Hooker designs and develops new
styles in each of its product categories semi-annually to replace discontinued
products and collections, and in some cases, to enter new product
categories.  The Company’s product design process begins with the
marketing team identifying customer needs and trends and conceptualizing product
ideas and features.  A variety of sketches are produced, usually by
independent designers, from which prototype furniture pieces are
built.  The Company invites some of its independent sales
representatives and a representative group of dealers to view and critique the
prototypes.  Based on this input, the Company may modify the
designs.  Then, the Company’s engineering department, or one or more
of the Company’s off-shore suppliers, prepares a sample for full-scale
production.  The Company generally introduces its new product styles
at the International Home Furnishings Market held each fall and spring in High
Point, North Carolina, and supports new product launches with promotions, public
relations, product brochures, websites and point-of-purchase consumer
materials.
 
 Rapid changes
in consumer electronics technology prompt continual product format updates in
the home entertainment and home office furniture categories.  In these
two categories, Hooker strives for innovation and is recognized as an industry
leader.
 
 This was a
year of transition for the Company’s entertainment furniture from domestic to
total import, as well as the continued transition to mostly console formats for
flat screen televisions. While this resulted in some deflation in price points,
margins increased in this category and several new product introductions sold
well at retail. With flat screen LCD and Plasma TV’s coming down in price,
consumers demanded taller consoles with more sophisticated design. These
consoles also offer a smaller footprint, making them more versatile in the home.
The Company had success with several new formats, some of which included room
for center channel speakers. The Company also launched a line of furniture that
is designed for the audio/video enthusiast, which includes extra depth for large
components, ventilated shelves and easy access for installation, in cleaner
styles that appeal to this consumer.
 
 4
 In the home
theater wall category, the Company offset price point deflation with larger wall
units 94” to 104” high that are styled for the atrium family rooms of new homes.
The Company introduced several new styles, including a sophisticated look with
hidden pocket doors or lift units that accommodate 55” televisions.
 
 With the
Company well established in the large executive office category, it has focused
its efforts on the growing market of younger consumers who want smaller, more
flexible office solutions.  The Company developed a new format for
this market, which is selling well at a variety of dealers. The Company also
developed another version of this smaller office for a national department store
chain.  During the past year, the Company did not neglect its core
executive business, developing a group that has the look of built in wall
cabinets that offers entertainment function, a bar unit as well as office
furniture.
 
 Bradington-Young
continues to expand its distribution channels with global sourcing of leather
seating in more moderate price points than the upper-end niche occupied by its
domestically produced seating.  In fiscal 2008, Bradington-Young
continued to expand its imported Seven Seas Seating line, originally launched in
late 2003 to round out its assortment and appeal to a broader customer base.
During fiscal 2008, Bradington-Young addressed the popular fabric/leather
collage stationary seating category with numerous successful
introductions.  These introductions, combined with executive seating
offerings, enabled Bradington-Young  to finish a very difficult year
with a slight increase in leather upholstered furniture sales.  2008
was also a difficult year for Bradington-Young’s domestic product
offerings.  Its Sectional Seating by Design Program and Designer
Direct Program, both introduced over the last year and a half, were bright spots
in an otherwise challenging year.
 
 Sam Moore’s
product offerings fill several niches in the occasional chair category, offering
exposed wood as well as fully upholstered seating.  Sam Moore’s
occasional seating covers multiple styles that include upholstered swivel
rockers, club chairs, wings, chaises, benches, ottomans, office chairs, settees,
dining chairs and barstools in 18th
Century, French, contemporary, shaker and mission styles.   Most
chair styles are available in a choice of either fabric or leather.
 
 Sam Moore has
a modern finishing facility that offers a choice of 25 different finishes on any
exposed wood chair selection.  Over one-half of the styles shipped are
custom ordered with the customer’s choice of leather, fabric and
finish.  Options include different color and size of nail trim,
bullion, fringe or contrasting pillows.  Since most orders are custom
made, Sam Moore customers may provide their own fabric (customer’s own material
“COM”) to be applied to a chair.  In fact, COM is the most popular
fabric application choice of customers.
 
 Sam Moore
imports three dozen seating styles from the Far East (principally China) in
leather for immediate shipment in a single color selection.  In
addition, Sam Moore expects to bring its customization expertise to Hooker’s
line of imported decorative dining and occasional seating.  Presently,
Hooker offers over three dozen decorative seating products, each in a single
fabric and finish.  In the near future, Sam Moore expects to customize
and expand this line by offering this seating in its wide range of fabrics and
leather, as well as its multiple finishes.  It is Sam Moore’s goal to
live up to its reputation as “America’s Premier Chair Specialist” by offering a
quality product from a complete selection of chairs in fresh leathers and
fabrics with exceptional wood finishes.
 
 In December
2007, the Company acquired certain assets of Opus Designs Furniture LLC, a
specialist in moderately priced youth bedroom furniture.  The
acquisition provides the Company with appealing designs sourced through superior
offshore vendors in the youth bedroom category.
 
 Sourcing
 
 Hooker
Furniture has the capability, resources, longstanding business relationships and
experience to efficiently and cost effectively source its wood, metal and
upholstered furniture.
 
 Imported
Products
 
 The Company
has sourced products from foreign manufacturers since 1988.  In the
past Hooker Furniture has imported both finished furniture, as well as furniture
that it assembles, in a variety of styles, materials and product lines. The
Company believes the best way to leverage its financial strength and
differentiate its import business from the industry is through innovative and
collaborative design, outstanding products, great value, consistent quality,
easy ordering, and world-class global logistics and distribution
systems.  Imported wood, metal and upholstered furniture accounted for
approximately 76% of net sales in fiscal 2008 and the 2007 two-month transition
period, 73% of net sales in fiscal 2006 and 62% of net sales in fiscal
2005.
 
 5
 The Company
imports products primarily from China, the Philippines, Mexico, Indonesia,
Vietnam, Honduras and Malaysia through direct relationships with factories and
with agents representing other factories.  Because of the large number
and diverse nature of the foreign factories from which the Company sources its
imported products, the Company has significant flexibility in the placement of
products in any particular factory or country.  Factories located in
China are an important resource for the Company.  In fiscal 2008,
imported products sourced from China accounted for approximately 87% of import
purchases; and the factory in China from which the Company directly sources the
most product accounted for approximately 38% of the Company’s worldwide
purchases of imported product.  A sudden disruption in the Company’s
supply chain from this factory, or from China in general, could significantly
impact the Company’s ability to fill customer orders for products manufactured
at that factory or in that country.  If such a disruption were to
occur, the Company believes that it would have sufficient inventory to
adequately meet demand for approximately three months.  Also, with the
broad spectrum of product the Company offers, the Company believes that, in some
cases, buyers could be offered similar product available from alternative
sources.  The Company believes that it could, most likely at higher
cost, source most of the products currently sourced in China from factories in
other countries and could produce certain upholstered products domestically at
its own factories.  However, supply disruptions and delays on selected
items could occur for up to six months.  If the Company were to be
unsuccessful in obtaining those products from other sources or at a comparable
cost, then a sudden disruption in the Company’s supply chain from its largest
import furniture supplier, or from China in general, could have a short-term
material adverse effect on the Company’s results of operations. Given the
capacity available in China and other low-cost producing countries, the Company
believes the risks from these potential supply disruptions are
manageable.
 
 The Company’s
imported furniture business is subject to the usual risks inherent in importing
products manufactured abroad, including, but not limited to, supply disruptions
and delays, currency exchange rate fluctuations, economic and political
fluctuations and instability, as well as the laws, policies, and actions of
foreign governments and the United States affecting trade, including
tariffs.
 
 For imported
products, the Company generally negotiates firm pricing with its foreign
suppliers in U.S. Dollars, typically for a term of at least one
year.  The Company accepts the exposure to exchange rate movements
beyond these negotiated periods without using derivative financial instruments
to manage this risk.  Since the Company transacts its imported product
purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar
could increase the price the Company pays for imported products beyond the
negotiated periods.  The Company generally expects to reflect
substantially all of the effects of any price increases from suppliers in the
prices it charges for imported products.  These price changes could
adversely impact sales volume and profit margin during affected periods.
Conversely, a relative increase in the value of the U.S. Dollar could decrease
the cost of imported products and favorably impact net sales and profit margins
during affected periods.  See also “Item 7A. Quantitative and
Qualitative Disclosures about Market Risk.”
 
 Manufacturing and Raw
Materials
 
 At February
3, 2008, the Company operated approximately 639,000 square feet of manufacturing
and supply plant capacity in North Carolina and Virginia for its domestic
upholstered furniture production.  The Company considers its machinery
and equipment generally to be modern and well-maintained.
 
 The Company
believes there is a viable future for domestically produced upholstery, which
has been less affected by import competition over the last five years than wood
furniture production.  Domestic seating companies with strong niches
and an upper-medium to high-end price point have been the least impacted by
lower cost imports.  In addition, domestic upholstery manufacturers
have two key competitive advantages to imported upholstery
manufacturers:
 
 ·
              Offering
      customized cover-to-frame and fabric-to-frame combinations to the upscale
      consumer and interior design trade;
and
 ·
              Offering
      quick four to six-week product
delivery.
 
 Due to these
competitive advantages, the Company remains committed to maintaining domestic
production of upholstered furniture.
 
 Bradington-Young’s
strategy for its two upholstered furniture production facilities and two
upholstered furniture supply plants is to be a comprehensive leather resource
for retailers positioned in the upper and upper-medium price
ranges.  Bradington-Young offers a comprehensive selection of
approximately 250 leather covers for domestically produced upholstered
furniture.  The motion category comprises approximately 44% of
Bradington-Young’s domestic production.  The upholstery manufacturing
process begins with the cutting of leather or fabric and the cutting and
precision machining of frames.  Precision frames are important for
motion furniture to operate properly and to provide durable service over the
life of the products.  Finally, the cut leather or fabric upholstery,
frames, foam and other materials are assembled to build reclining chairs,
executive seating, stationary seating and multiple seat reclining
furniture.
 
 Sam Moore’s
strategy for its upholstery production facility is to be a complete source of
fashionable upholstered chairs for all rooms of the home and other upholstered
accent pieces, such as decorative upholstered headboards.  Sam Moore
offers a diverse range of approximately 300 different styles of upholstered
products in over 800 fabric choices and over 100 leather choices. Sam Moore
produces 95% of its products domestically at its single, large manufacturing
facility in Bedford, Va.
 
 6
 Significant
materials used in manufacturing upholstered furniture products include leather
or fabric, foam, wooden frames and metal mechanisms.  Most of the
leather is imported from Italy, South America and China.  Leather is
purchased as full hides, which  Bradington-Young and Sam Moore then
cut and sew, and as pre-cut and sewn hides processed by the vendor to pattern
specifications.
 
 Costs for
leather and leather products from Asia have increased significantly due to
higher labor and freight costs, changes in foreign tax incentives and increased
costs for premium leather hides sourced from Europe.  The costs for
these products have also been affected by the weaker U.S. dollar. As a result,
Bradington-Young dealer prices were increased at the Fall International
Furniture Market in High Point, N.C., and will be increased again at the Spring
market. These increases could affect demand, although the Company believes the
impact will be less significant for Bradington-Young, with its upper-medium
price position, compared to the more promotional end of the leather
market.
 
 The Company
believes that its sources for raw materials are adequate and that it is not
dependent on any one supplier.  The Company’s five largest suppliers
accounted for approximately 29% of its raw materials supply purchases for its
domestic upholstered furniture manufacturing operations in fiscal
2008.
 
 Distribution
 
 The general
marketing practice followed in the furniture industry is to exhibit products at
international and regional furniture markets attended by buyers for furniture
retailers.  In the spring and fall of each year, the world’s largest
furniture market is held in High Point, N. C.  The Company utilizes
94,000 square feet of showroom space in High Point to introduce new products and
collections; increase sales of existing products; and design and test innovative
features, products and marketing programs.
 
 The Company
sells its furniture through over 100 independent sales representatives to
retailers of residential home furnishings, who are broadly dispersed throughout
North America, including:
 
 ·
              independent
      furniture retailers such as Furnitureland South of Jamestown/High Point,
      N.C., Louis Shanks of Texas, Baer’s Furniture of South Florida, and
      Berkshire Hathaway-owned companies Star Furniture, Jordan’s Furniture,
      Nebraska Furniture Mart and R.C.
Willey;
  ·
              department
      stores such as Macy’s and
Dillard’s;
  ·
              regional
      chain stores such as Raymour & Flanigan, Robb & Stucky and
      Haverty’s;
  ·
              national
      chain stores such as Z Gallerie;
and
  ·
              catalog
      merchandisers such as Frontgate and the Horchow Collection, a unit of
      Neiman Marcus.
  The Company
sold to over 4,900 customers during fiscal 2008.  No single customer
accounted for more than 3% of the Company’s net sales in 2008.  No
significant part of the Company’s business is dependent upon a single customer,
the loss of which would have a material effect on the business of the
Company.  However, the loss of several of the Company’s major
customers could have a material impact on the business of the
Company.  In addition to the Company’s broad domestic customer base,
approximately 3% of the Company’s net sales in 2008 were to international
customers.
 
 The Company
believes this broad network of retailers and independent sales representatives
reduces its exposure to regional recessions and allows it to capitalize on
emerging trends in channels of distribution.
 
 The Company
offers tailored merchandising programs, such as its SmartLiving ShowPlace
in-store galleries, Seven Seas Treasures boutiques and home entertainment and
SmartWorks Home Office galleries, to address each channel of
distribution.  These galleries are currently dedicated principally to
furniture groups and whole-home collections under the Hooker and
Bradington-Young brands, with plans to increase the number of galleries that
carry the Company’s Sam Moore and Opus brands.  These galleries
typically comprise 3,500 to 8,000 square feet of retail space.  The
mission of the SmartLiving program is to develop progressive partnerships with
retailers by providing a merchandising and marketing plan to drive increased
sales and profitability and positively impact consumers’ purchase decisions,
satisfaction and loyalty through an enhanced shopping experience.
 
 Since 2003,
an important development for imported furniture products has been the offering
of the Seven Seas Treasures retail boutique program to
dealers.  Currently, over 300 dealers dedicate space in their stores
to display the Company’s Seven Seas Treasuresline of imported upscale
and casual dining room furniture, metal beds, occasional tables and functional
accents, including hand-painted furniture, carved writing desks, tables and
chests.  In the home entertainment and home office categories, in
which Hooker is recognized as an industry leader, the Company has well-developed
product specialty gallery programs supported by semi-annual national sales
promotions, a special Website dealer locator and point-of-purchase collateral
materials. Currently, there are approximately 325 dealers that have Home
Entertainment by Hooker galleries and approximately 245 dealers that have
SmartWorks Home Office galleries in their retail stores.  In addition,
over 1,500 retailers offer Bradington-Young leather upholstery products and over
1,500 retailers offer Sam Moore Furniture occasional seating
products.
 
 7
 In fiscal
2008, the Company expanded its distribution channels by hiring a senior
executive charged with developing a private label/limited distribution program
targeting large national retailers.  The Company anticipates this
program will increase sales to large national accounts.
 
 Warehousing, Inventory and
Supply Chain Management
 
 During fiscal
year 2008, Hooker Furniture continued to refine its supply chain and sourcing
operations via systems enhancements and personnel additions both in the U.S. and
China.  Investments made in a new Global Purchasing System and a
web-based Global Sourcing Management System, coupled with planned upgrades to
current demand and inventory planning platforms, have helped the Company drive
down inventories, reduce lead times and improve order fulfillment
rates.
  The Company
distributes furniture to retailers from its distribution centers and warehouses
in Virginia and North Carolina, as well as directly from Asia and Latin America
via its Container Direct Program. In 2004, the Company entered into a
warehousing and distribution arrangement in China with its largest supplier of
imported products.  The warehouse and distribution facilities are
owned by the supplier and operated by that supplier and a third party
utilizing a global warehouse management system that updates daily the
Company’s central inventory management and order processing
systems.  Under the Container Direct Program, the Company offers
directly to retailers in the U.S. a focused mix of over 400 of its best selling
items sourced from this supplier.  By doing so, the Company achieved
an approximately 97% in-stock percentage at this facility during fiscal 2008.
The program features an internet-based product ordering system and a delivery
notification system that is easy to use and available to the Company’s
pre-registered dealers.  In addition, the Company also ships
containers directly from a variety of other suppliers in Asia and Honduras. The
Company is committed to exploring ways to continually improve its distinctive,
value-added Container Direct Program through additional warehouses at key
vendors, product consolidation and routing strategies aimed at shortening
delivery times and providing significant cost savings for
retailers.
  In January
2008, the Company opened a West Coast distribution center in Carson, California.
The Company anticipates that the 80,000-square-foot warehouse, which became
fully operational in February 2008, will stock 550 of the Company's best-selling
products for quick shipment to customers in California, Arizona, New Mexico,
Nevada, Oregon and Washington.  While delivery times and costs will
vary from customer to customer, the Company expects that, on average, it can
remove approximately ten days of delivery time and reduce inland freight costs
by 6-10% for the products processed through this facility, providing 80% of the
Company’s products to its West Coast dealers more quickly and at lower inventory
costs.
  Seven Seas
Seating, Bradington-Young’s line of imported upholstered furniture has
experienced rapid growth since its introduction in the 2003 fourth quarter.
Seven Seas Seating continued to experience net sales growth in fiscal 2008,
increasing by $1.1 million, or 8.6%, to $14.2 million compared to $13.1 million
in fiscal 2006.  Unlike domestic upholstered production, these
products are purchased based on a forecast of product demand and shipped out of
inventory from 109,000 square feet of leased warehouse space in Cherryville,
N.C.  Seven Seas Seating may also be purchased under the Container
Direct Program, and a container order can include any of the product produced at
a given plant.
  Sam Moore
imports and warehouses for immediate order fulfillment thirty-four styles of
leather club and desk chairs.  Twenty-nine styles come from one factory in
China.  Five styles come from one factory in the Philippines.  For
inventory, Supply Chain personnel order mixed containers from each country based
on rate of sale.  Orders are shipped from Sam Moore's facility in Bedford,
Va.  All styles can be ordered and shipped directly in full container
quantities to any Sam Moore account.
  In 2006, Hooker Furniture’s import
distribution operations were certified as a full participant in the U.S.
Department of Homeland Security, Customs Trade Partnership Against Terrorism
(C-TPAT) program.  C-TPAT is a joint government-business initiative
designed to ensure proper security procedures are in place to protect the flow
of global trade. Through C-TPAT, U.S. Customs and Border Protection has joined
with importers, carriers, brokers, warehousemen and manufacturers to provide the
highest level of security while facilitating the movement of goods entering the
United States.  To qualify for membership in C-TPAT, participating
companies must conduct a detailed self-assessment of supply chain security using
the C-TPAT security guidelines created by Customs and the trade community.
Companies must also complete and submit a supply chain security profile
questionnaire to Customs and implement a program to enhance security throughout
the supply chain in accordance with the C-TPAT guidelines. Upon C-TPAT
certification, members receive expedited handling and processing of their goods
into the United States.
  The Company
schedules purchases of imported furniture and production of domestically
manufactured upholstered furniture based upon actual and anticipated orders and
product acceptance at furniture markets.  The Company strives to
provide imported and domestically produced furniture on-demand for its
dealers.  During fiscal year 2008, the Company shipped 75% of all wood
and metal furniture orders and 62% of all upholstery orders within 30 days of
order receipt.  It is the Company’s policy and industry practice to
allow order cancellation for wood and metal furniture up to the time of
shipment; therefore, customer orders for wood and metal furniture are not
firm.  However, domestically produced upholstered product orders are
predominantly custom-built and shipped within six weeks after the order is
received and consequently, cannot be cancelled once the leather or fabric is
cut.
  8
 The Company’s
backlog of unshipped orders for all of its products amounted to $31.3 million or
approximately five weeks of sales as of February 3, 2008.  For the
last three years, over 92% of all orders booked were ultimately
shipped.  Management considers orders and backlogs to be one helpful
indicator of sales for the upcoming 30-day period, but because of the Company’s
quick delivery and its cancellation policy, management does not consider order
backlogs to be a reliable indicator of expected long-term business.
 
 Competition
 
 The furniture
industry is highly competitive and includes a large number of foreign and
domestic manufacturers and importers, none of which dominates the
market.  While the markets in which the Company competes include a
large number of relatively small and medium-sized manufacturers, certain
competitors of the Company have substantially greater sales volumes and
financial resources than the Company.  U.S. imports of furniture
produced overseas, such as from China, have grown rapidly in recent years, and
overseas companies have increased both their presence through wholesale
distributors based in the United States and their shipments directly to U.S.
retailers during that period.
 
 The primary
competitive factors for home furnishings in the Company’s price points include
price, style, availability, service, quality and durability.  The
Company believes that its design capabilities, ability to import and/or
manufacture upholstered furniture, product value, longstanding customer and
supplier relationships, significant distribution and inventory capabilities,
ease of ordering, financial strength, experienced management and customer
support are significant competitive advantages.
 
 In November
2004 and January 2005, the U.S. Department of Commerce found that certain
Chinese furniture manufacturers were dumping products into the U.S. market and
imposed tariffs on Chinese companies for wood bedroom products exported to the
U.S.  The tariff  rates were approved in a subsequent action
by the International Trade Commission, based on measured damage to the U.S.
furniture manufacturing industry caused by illegal dumping.  Tariffs
on imported bedroom furniture have not and are not expected to have a material
adverse effect on the Company’s results of operations.
 
 Employees
 
 As of
February 3, 2008, the Company had approximately 950 employees.  None
of the Company’s employees are represented by a labor union.  The
Company considers its relations with its employees to be good.
 
 Patents
and Trademarks
 
 The Hooker
Furniture, Bradington-Young and Sam Moore trade names represent many years of
continued business.  The Company believes these trade names are
well-recognized and associated with quality and service in the furniture
industry.  The Company also owns a number of patents and trademarks,
none of which is considered to be material to the Company.
 
 Hooker, the
“H” logo, Bradington-Young, the “B-Y” logo, Sam Moore, Sam Moore Furniture
Industries, Sam Moore Furniture, LLC, America’s Premier Chair Specialist, Opus
Designs, Furnishings by Opus Designs, Forever Young, Alexander Taylor, Belle
Vista, Casablanca, North Hampton, Summerglen, Vineyard, Chatham, Brookhaven,
Belle Grove, Villa Grande, Villa Florence, Fairview, Mirabel,  Preston
Ridge, Sectional Sofas by Design, Seven Seas, Seven Seas Seating,
SmartKids-Youth Furniture for Life,  SmartLiving ShowPlace, SmartWorks
Home Office, The Great Entertainers,  Wexford Square and Waverly Place
are trademarks of Hooker Furniture Corporation.
 
 Governmental
Regulations
 
 The Company
is subject to federal, state, and local laws and regulations in the areas of
safety, health, environmental pollution controls and
imports.  Compliance with these laws and regulations has not in the
past had any material effect on the Company’s earnings, capital expenditures, or
competitive position; however, the effect of compliance in the future cannot be
predicted.  Management believes that the Company is in material
compliance with applicable federal, state and local safety, health,
environmental and imports regulations.
 
 Compliance
with regulations promulgated under the Sarbanes-Oxley Act of 2002 related to the
documentation and testing of internal control over financial reporting and other
corporate governance matters has had a significant impact on the Company’s
results of operations in ensuing years.
 
 9
 Additional
Information
 
 You may visit the Company online atwww.hookerfurniture.com,www.bradington-young.com,www.sammoore.comandwww.opusdesigns.net.The Company makes available,
free of charge through its website, its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and other documents as soon
as practical after filing or furnishing the material to the Securities and
Exchange Commission.    A free copy of the Company’s Form
10-K may also be obtained by contacting Robert W. Sherwood, Vice President -
Credit, Secretary and Treasurer at the corporate offices of the
Company.
 
 Forward-Looking
Statements
 
 Certain
statements made in this report, including under “Item 1 - Business” and “Item 7
- 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 the Company’s 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:
 
 ·
              general
      economic or business conditions, both domestically and
      internationally;
  ·
              price
      competition in the furniture
industry;
  ·
              adverse
      political acts or developments in, or affecting, the international markets
      from which the Company imports products, including duties or tariffs
      imposed on products imported by the
Company;
  ·
              changes
      in domestic and international monetary policies and fluctuations in
      foreign currency exchange rates affecting the price of the Company’s
      imported products;
  ·
              the
      cyclical nature of the furniture
industry;
  ·
              risks
      associated with the cost of imported goods, including fluctuation in the
      prices of purchased finished goods and transportation and warehousing
      costs;
  ·
              supply,
      transportation and distribution disruptions, particularly those affecting
      imported products;
  ·
              risks
      associated with domestic manufacturing operations, including fluctuations
      in the prices of key raw materials, transportation and warehousing costs,
      domestic labor costs and environmental compliance and remediation
      costs;
  ·
              the
      Company’s ability to successfully implement its business plan to increase
      Sam Moore Furniture’s and Opus Designs’ sales and improve their financial
      performance;
  ·
              achieving
      and managing growth and change, and the risks associated with
      acquisitions, restructurings, strategic alliances and international
      operations;
  ·
              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;
  ·
              risks
      associated with distribution through retailers, such as non-binding
      dealership arrangements;
  ·
              capital
      requirements and costs;
  ·
              competition
      from non-traditional outlets, such as catalogs, internet and home
      improvement centers; and
  ·
              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.
  Any forward
looking statement that the Company makes speaks only as of the date of that
statement, and the Company undertakes no obligation to update any
forward-looking statements whether as a result of new information, future
events, or otherwise.
  10
 ITEM
1A.                  
RISK FACTORS
  The Company’s
business is subject to a variety of risks. The risk factors detailed below
should be considered in conjunction with the other information contained in this
annual report on Form 10-K. If any of these risks actually materialize, the
Company’s business, financial condition, and future prospects could be
negatively impacted. These risks are not the only ones the Company faces. There
may be additional risks that are presently unknown to the Company or that it
currently believes to be immaterial that could affect its business.
  The
Company may lose market share due to competition, which would decrease future
sales and earnings.
  The furniture
industry is very competitive and fragmented. The Company competes with many
domestic and foreign manufacturers. Some competitors have greater financial
resources than the Company and often offer extensively advertised,
well-recognized, branded products. Competition from foreign producers has
increased dramatically in the past few years. The Company may not be able to
meet price competition or otherwise respond to competitive pressures,
including increases in supplier and production costs. Also, due to the large
number of competitors and their wide range of product offerings, the Company may
not be able to continue to differentiate its products (through styling, finish
and other construction techniques) from those of its competitors. In addition,
large retail furniture dealers have the ability and could at any time begin to
obtain offshore sourcing on their own. As a result, the Company is continually
subject to the risk of losing market share, which may lower sales and
earnings.
  An
economic downturn could result in a decrease in sales and
earnings.
  The furniture
industry is subject to cyclical variations in the general economy and to
uncertainty regarding future economic prospects. Home furnishings are generally
considered a postponeable purchase by most consumers. Economic downturns could
affect consumer spending habits by decreasing the overall demand for home
furnishings. These events could also impact retailers, the Company’s primary
customers, possibly resulting in a decrease in the Company’s sales and
earnings.  Changes in interest rates, consumer confidence, new housing
starts, existing home sales, and geopolitical factors are particularly
significant economic indicators for the Company.
  Failure
to anticipate or timely respond to changes in fashion and consumer tastes could
adversely impact the Company’s business and decrease sales and
earnings.
  Furniture is
a styled product and is subject to rapidly changing fashion trends and consumer
tastes. If the Company fails to anticipate or timely respond to these changes it
may lose market share or be faced with the decision of whether to sell excess
inventory at reduced prices. This could result in lower sales and
earnings.
  A
loss of several large customers through business consolidations, failures or
other reasons could result in a decrease in future sales and
earnings.
  The loss of
several of the Company’s major customers through business consolidations
or failures or otherwise, could materially adversely affect the sales
and earnings of the Company.  Lost sales may be difficult to
replace.  Amounts owed to the Company by a customer whose business
fails may become uncollectible.
  The
Company’s ability to grow sales and earnings depends on the successful execution
of its business strategies.
  Since 2003,
the Company has transitioned from manufacturing most of its products to sourcing
most of its products from offshore suppliers.  As a result, the
Company is now primarily a design, sourcing, marketing and logistics
company.  The Company’s ability to maintain and grow sales and
earnings depends on the continued correct selection and successful execution and
refinement of its overall business strategies and business systems for
designing, marketing, sourcing, distributing and servicing its products. The
Company must also make good decisions about product mix and inventory
availability targets.  Since the Company has exited domestic
manufacturing of wood furniture and is now completely dependent on offshore
suppliers for wood and metal furniture products, the Company must continue to
enhance relationships and business systems that allow it to continue to work
more efficiently and effectively with its global sourcing
suppliers.  The Company also must continue to evaluate the appropriate
mix between domestic manufacturing and foreign sourcing for upholstered
products.  All of these factors affect the Company’s ability to grow
sales and earnings.
 
 11
 The
Company depends on suppliers in China for a high proportion of its imported
furniture products, and a disruption in supply from China or from the Company’s
most significant Chinese supplier could adversely affect the Company’s ability
to timely fill customer orders for these products and the costs of these
products to the Company.
  In fiscal
2008, imported products sourced from China accounted for approximately 87% of
the Company’s import purchases; and the factory in China from which the Company
directly sources the largest portion of its import products accounted for
approximately 38% of the Company’s worldwide purchases of imported
products.  A sudden disruption in the Company’s supply chain from this
factory, or from China in general, could significantly impact the Company’s
ability to fill customer orders for products manufactured at that factory or in
that country.  If such a disruption were to occur, the Company
believes that it would have sufficient inventory to adequately meet demand for
approximately three months.  The Company believes that it could, most
likely at higher cost, source most of the products currently sourced in China
from factories in other countries and could produce certain upholstered products
domestically at its own factories.  However, supply disruptions and
delays on selected items could occur for up to six months before remedial
measures could be implemented.  If the Company were to be unsuccessful
in obtaining those products from other sources or at comparable cost, then a
sudden disruption in the Company’s supply chain from its largest import
furniture supplier, or from China in general, could have a short-term material
adverse effect on the Company’s results of operations.
  Changes
in the value of the U.S. Dollar compared to the currencies for the countries
from which the Company obtains its products could adversely affect net sales and
profit margins.
  For imported
products, the Company generally negotiates firm pricing with its foreign
suppliers in U.S. Dollars for periods typically of at least one
year.  The Company accepts the exposure to exchange rate movements
beyond these negotiated periods without using derivative financial instruments
to manage this risk.  Since the Company transacts its imported product
purchases in U.S. Dollars, a relative decline in the value of the U.S. Dollar
could increase the price the Company must pay for imported products beyond the
negotiated periods. These price changes could adversely impact net sales and
profit margins during affected periods.
  The
Company’s dependence on offshore suppliers could, over time, adversely affect
its ability to service customers, which could lower future sales and
earnings.
  In March
2007, the Company exited domestic wood furniture manufacturing.  The
Company now relies exclusively on offshore suppliers for its wood and metal
furniture products.  The Company’s offshore suppliers may not supply
goods that meet the Company’s quality, design or other specifications in a
timely manner and at a competitive price. If the Company’s suppliers do not meet
the Company’s specifications, the Company may need to find alternative vendors,
potentially at a higher cost, or may be forced to discontinue products. Also,
delivery of goods from offshore vendors may be delayed for reasons not typically
encountered for domestically manufactured wood and metal furniture, such as
shipment delays caused by customs or labor issues. The Company’s failure to fill
customer orders during an extended business interruption by a major offshore
supplier could negatively impact existing customer relationships resulting in
decreased sales and earnings.
  Because
the Company relies on offshore sourcing for all of its wood and metal products,
and for some of its upholstered products, it is subject to changes in local
government regulations, which could result in a decrease in
earnings.
  Changes in
political, economic, and social conditions, as well as laws and regulations in
the foreign countries where the Company sources its products could have adverse
impacts on the Company. These changes could make it more difficult to provide
products and service to the Company’s customers. International trade policies of
the United States and the countries where the Company sources its finished
products could adversely affect the Company. Imposition of trade sanctions
relating to imports, taxes, import duties and other charges on imports could
increase the Company’s costs and decrease its earnings.  For example
in 2004, the U.S. Department of Commerce imposed tariffs on wooden bedroom
furniture coming into the United States from China. In this case, none of the
rates imposed were of sufficient magnitude to alter the Company’s import
strategy in any meaningful way; however, these tariffs are subject to review and
could be increased in the future.
  The
Company may engage in acquisitions and investments in businesses, which could
disrupt the Company’s business, dilute its earnings per share and decrease the
value of its common stock.
  The Company
may acquire or invest in businesses that offer complementary products and that
the Company believes offer competitive advantages. However, the Company may fail
to identify significant liabilities or risks that negatively affect the Company
or results in the Company paying more for the acquired company or assets than
they are worth.  The Company may also have difficulty assimilating the
operations and personnel of an acquired business into the Company’s current
operations. Acquisitions may disrupt the Company’s ongoing business or distract
management from the Company’s ongoing business.  The Company may pay
for future acquisitions using cash, stock, the assumption of debt, or a
combination thereof. Future acquisitions could result in dilution to existing
shareholders and to earnings per share.
  12
 If
demand for the Company’s domestically manufactured upholstered furniture
declines and the Company responds by realigning manufacturing, the Company’s
near-term earnings could decrease.
  Since March
2007, the Company’s domestic manufacturing operations consist solely of
upholstered furniture.  A decline in demand for the Company’s
domestically produced upholstered furniture could result in the realignment of
domestic manufacturing operations and capabilities and the implementation of
cost savings programs. These programs could include the consolidation and
integration of facilities, functions, systems and procedures. The Company may
decide to source certain products from offshore suppliers, instead of continuing
to manufacture them domestically.  These realignments and cost savings
programs typically involve initial upfront costs and could result in decreases
in the Company’s near-term earnings before the expected cost reductions from
realignment are realized. The Company may not always accomplish these actions as
quickly as anticipated and may not fully achieve the expected cost
reductions.
  Fluctuations
in the price, availability and quality of raw materials for the Company’s
domestically manufactured upholstered furniture could cause manufacturing
delays, adversely affect the Company’s ability to provide goods to its customers
and increase costs, any of which could decrease the Company’s sales and
earnings.
  The Company
uses various types of wood, leather, fabric, foam and other filling material,
high carbon spring steel, bar and wire stock and other raw materials in
manufacturing upholstered furniture. The Company depends on outside suppliers
for raw materials and must obtain sufficient quantities of quality raw materials
from these suppliers at acceptable prices and in a timely manner. The Company
does not have long-term supply contracts with its suppliers. Unfavorable
fluctuations in the price, quality and availability of required raw materials
could negatively affect the Company’s ability to meet the demands of its
customers. The inability to meet customers’ demands could result in the loss of
future sales.  The Company may not always be able to pass along price
increases in raw materials to its customers due to competition and market
pressures.
  The
Company may experience impairment of its long-lived assets, which would decrease
earnings and net worth.
  Accounting
rules require that long-lived assets be tested for impairment at least annually.
The Company has substantial long-lived assets, consisting primarily of property,
plant and equipment, trademarks, trade names and goodwill, which based upon the
outcome of the annual test, could result in the write-down of all or a portion
of these assets. A write-down of the Company’s assets would, in turn, reduce its
earnings and net worth.
 
  ITEM
1B.                  
UNRESOLVED STAFF COMMENTS
  None.
   13
 ITEM
2.                     PROPERTIES
  Set forth
below is information with respect to the Company’s principal
properties.  The Company believes all of these properties are
well-maintained and in good condition.  The Company believes its
manufacturing facilities are efficiently utilized.  During fiscal
2008, the Company estimated its upholstery operations operated at approximately
69% of capacity on a one-shift basis.  The Company closed its last
domestic wood manufacturing plant located in Martinsville, Va. in March 2007 and
completed the sale of the real property and equipment in December
2007.  All Company production facilities are equipped with automatic
sprinkler systems, except for the Woodleaf, N.C. facility.  All
facilities maintain modern fire and spark detection systems, which the Company
believes are adequate.  The Company has leased certain warehouse
facilities for its distribution and imports operation on a short and medium-term
basis. The Company expects it will be able to renew or extend these leases or
find alternative facilities to meet its warehousing and distribution needs at a
reasonable cost.  All facilities set forth below are active and
operational and represent approximately 2.3 million square feet of owned or
leased space.
 
 Location
              Primary
      Use
              Approximate Size in
      Square Feet
              Owned or
      LeasedMartinsville,
      Va.
              Corporate
      Headquarters
              43,000
              
              OwnedMartinsville,
      Va.
              Distribution
      and Imports
              580,000
              
              OwnedMartinsville,
      Va.
              Distribution
      and Imports
              150,000
              
              Leased
      (1)Martinsville,
      Va.
              Distribution
              189,000
              
              OwnedMartinsville,
      Va.
              Customer
      Support Center
              146,000
              
              OwnedMartinsville,
      Va.
              Distribution
              300,000
              
              Leased
      (2)High
      Point, N.C.
              Showroom
              94,000
              
              Leased
      (3)Cherryville,
      N.C.
              Manufacturing
      and Offices
              144,000
              
              Owned
      (4)Cherryville,
      N.C.
              Manufacturing
      Supply Plant
              53,000
              
              Owned
      (4)Cherryville,
      N.C.
              Distribution
      and Imports
              74,000
              
              Leased
      (4) (5)Cherryville,
      N.C.
              Distribution
      and Imports
              35,000
              
              Leased
      (4) (6)Hickory,
      N.C.
              Manufacturing
              91,000
              
              Owned
      (4)Woodleaf,
      N.C.
              Manufacturing
      Supply Plant
              34,000
              
              Leased
      (4) (7)Bedford,
      Va.
              Manufacturing
      and Offices
              327,000
              
              Owned
      (8)Bedford,
      Va.
              Distribution
      and Imports
              32,000
              
              Leased
      (8) (9)
 (1) 
Lease expires May 31, 2008
 (2) 
Lease expires December 31, 2009
 (3) 
Lease expires October 31, 2010
 (4) 
Comprise the principal properties of Bradington-Young
 (5) 
Lease expires June 30, 2009
 (6) 
Lease expires August 31, 2008 and provides for a one year
extension.
 (7) 
Lease provides for five consecutive one year extensions and expires December 31,
2009
 (8) 
Comprise the principal properties of Sam Moore Furniture LLC
 (9) 
Lease may be terminated with 30 days notice.
 
 Set forth
below is information regarding principal properties utilized by the Company that
are owned and operated by third parties.
  Location
                Primary
      Use
                Approximate Size in
      Square FeetCarson,
      Ca.
                Distribution
                80,000
      (1)Guangdong,
      China
                Distribution
                210,000
      (2)
 (1)
              This
      property is subject to a distribution services agreement that expires on
      January 1, 2010.(2)
              This
      property is subject to an operating agreement that expires on July 31,
      2008 and automatically renews for one year on its anniversary date unless
      notification of termination is provided 120 days prior to such
      anniversary.
 
 ITEM
3.                     LEGAL
PROCEEDINGS
 
 In an audit
of the Company’s 2003 and 2004 federal income tax returns, the IRS took the
position that the timing of certain of the Company’s tax deductions for its
401(k) retirement plan constituted a “listed transaction”, which the Company had
failed to disclose in its tax returns for those years. “Listed transactions” are
transactions that are the same as, or substantially similar to, transactions
that the IRS has identified as having a tax avoidance purpose.
 
 In preparing
its federal income tax returns for each fiscal year, the Company deducted
certain contributions and costs related to its 401(k) that were incurred during
the one-month period falling after the close of its fiscal year, which ended
November 30 in each year, but before the end of the plan’s year, which ended
December 31 of each year.  Because these deductions were attributable
to compensation earned by plan participants during the month after the end of
the Company’s taxable year, the IRS took the position that these deductions
constituted a “listed transaction”. The cumulative effect of these deductions
amounted to $76,000, or $27,000 in federal income tax through November 30,
2004.
 
 14
 The IRS
assessed a penalty under Section 6707A(b)(2) of the Internal Revenue Code in the
amount of $200,000 for failure to disclose a listed transaction on the Company’s
2004 federal income tax return.  An accuracy-related penalty under
Section 6662A(c) of the Internal Revenue Code, for an understatement with
respect to a listed or reportable transaction, was also assessed for
$2,606.  Both penalties were paid in full during the fiscal year ended
February 3, 2008.  The Company has discontinued the deductions that
gave rise to these penalties.
 
 ITEM
4.  SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
 
 None.
 
 
 EXECUTIVE
OFFICERS OF
 HOOKER
FURNITURE CORPORATION
 
 The Company’s
executive officers and their ages as of April 15, 2008 and the year each joined
the Company are as follows:
  Name
                Age
                Position
                Year Joined
      CompanyPaul B.
      Toms, Jr.
                53
                Chairman,  President
      and Chief Executive Officer
                1983E.
      Larry Ryder
                60
                Executive
      Vice President - Finance and Administration,

                    Assistant
      Secretary and Assistant Treasurer
                1977Michael
      P. Spece
                55
                Executive
      Vice President - Merchandising and Design
                1997Alan D.
      Cole
                58
                Executive
      Vice President - Upholstery
                2007Sekar
      Sundararajan
                43
                Executive
      Vice President - Operations
                2008Raymond
      T. Harm
                58
                Senior
      Vice President - Sales
                1999
 
 Paul B. Toms, Jr.has
been Chairman and Chief Executive Officer since December 2000 and President
since November 2006.   Mr. Toms was President and Chief Operating
Officer from December 1999 to December 2000, Executive Vice President -
Marketing from 1994 to December 1999, Senior Vice President - Sales and
Marketing from 1993 to 1994, and Vice President - Sales from 1987 to
1993.  Mr. Toms joined the Company in 1983 and has been a Director
since 1993.
 
 E. Larry Ryder has been
Executive Vice President - Finance and Administration since December 2000,
Assistant Treasurer since 1998, and Assistant Secretary since
1990.  Mr. Ryder was Senior Vice President - Finance and
Administration from December 1987 to December 2000, Treasurer from 1989 to 1998,
and Vice President - Finance and Administration from 1983 to 1987. Prior to
1983, Mr. Ryder served in various financial management positions. Mr. Ryder
joined the Company in 1977 and was a Director from 1987 until 2003.
 
 Michael P. Spece has been
Executive Vice President - Merchandising and Design since September
2004.  Mr. Spece was Senior Vice President - Import Division from
December 2001 to September 2004.  Mr. Spece was Vice President -
Import Division from the time he joined the Company in 1997 until December
2001.
 
 Alan D. Cole has been
Executive Vice President - Upholstery Operations since April
2007.  Prior to joining the Company, Mr. Cole was President and Chief
Executive Officer of Schnadig Corporation, a manufacturer and marketer of a full
line of medium-priced home furnishings from 2004 to 2006.  Mr. Cole
has been President of Parkwest LLC, a real estate development firm from 2002 to
the present.  Mr. Cole also served as a member of the Company’s Board
of Directors in 2003.
 
 Sekar Sundararajanhas been
Executive Vice President - Operations since February 2008.  Prior to
joining the Company, Mr. Sundararajan was President of Libra Consulting, an
operations and supply chain management consulting firm focusing on the home
furnishings and consumer goods industries from 1996 to 2008.  In this
capacity, he provided consulting services to the Company beginning in April
2007.
 
 Raymond T. Harm has been
Senior Vice President - Sales since joining the Company in
1999.  Prior to joining the Company, Mr. Harm served as Vice President
- Sales for The Barcalounger Company, a manufacturer of upholstered motion
furniture from 1992 to 1999.
 
 15
 Hooker
Furniture Corporation
 Part
II
 
 ITEM
5. MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
 
 The Company’s
stock is traded on the NASDAQ Global Select Market under the symbol
“HOFT”.  The table below sets forth the high and low sales prices per
share for the Company’s common stock and the dividends per share paid by the
Company with respect to its common stock for the periods indicated.
 
 Sales Price Per
      Share
                  
                  
                  DividendsHigh
                  
                  
                  Low
                  
                  
                  Per
      ShareOctober
      29, 2007 – February 3, 2008
                  
                  
                  $22.37
                  
                  
                  
                  $16.55
                  
                  
                  
                  $0.10July
      30 – October 28, 2007
                  
                  
                  22.36
                  
                  
                  
                  15.52
                  
                  
                  
                  0.10April
      30 – July 29, 2007
                  
                  
                  25.10
                  
                  
                  
                  19.39
                  
                  
                  
                  0.10January
      29 – April 29, 2007
                  
                  
                  22.29
                  
                  
                  
                  14.70
                  
                  
                  
                  0.10December
      1, 2006 – January 28, 2007
                  
                  
                  15.86
                  
                  
                  
                  14.39September
      1 – November 30, 2006
                  
                  
                  15.44
                  
                  
                  
                  13.52
                  
                  
                  
                  0.08June 1
      – August 31, 2006
                  
                  
                  17.64
                  
                  
                  
                  13.87
                  
                  
                  
                  0.08March 1
      – May 31, 2006
                  
                  
                  20.95
                  
                  
                  
                  15.09
                  
                  
                  
                  0.08December
      1, 2005 – February 28, 2006
                  
                  
                  18.45
                  
                  
                  
                  14.44
                  
                  
                  
                  0.07
 
 As of
February 28, 2008, the Company had approximately 1,660 beneficial shareholders
and 1,104 current and former employees who were participants in the Company’s
former ESOP and are eligible to vote shares of common stock being held by the
plan pending distribution.  The Company pays dividends on its common
stock on or about the last day of February, May, August and November, when
declared by the Board of Directors, to shareholders of record approximately two
weeks earlier.  Although the Company presently intends to continue to
declare cash dividends on a quarterly basis for the foreseeable future, the
determination as to the payment and the amount of any future dividends will be
made by the Board of Directors from time to time and will depend on the
Company’s then-current financial condition, capital requirements, results of
operations and any other factors then deemed relevant by the Board of
Directors.
 
 Purchases
of Equity Securities by the Issuer or Affiliated Purchasers
 
 The following
table provides information about common stock purchases by or on behalf of the
Company during the quarter ended February 3, 2008:
 
 Total
                
                Average
                
                Total
      Number ofShares
      Purchased
                Maximum
      DollarValue
      of Shares ThatNumber of
                
                Price
                
                as Part of Publicly
                May Yet BeShares
                
                Paid per
                
                Announced
                Purchased Under thePurchased
                
                Share
                
                Program
                ProgramOctober
      29, 2007 – November 25, 2007
                
                
                158,303
                
                
                
                $20.69
                
                
                
                158,303November 26, 2007 – December 30,
      2007
                
                
                40,015
                
                
                
                19.92
                
                
                
                40,015
                
                $9.2
      millionDecember 31, 2007 – February 3,
      2008
                
                
                268,579
                
                
                
                19.16
                
                
                
                268,579
                
                $4.1
      millionTotal
                
                
                466,897
                
                
                
                $19.74
                
                
                
                466,897
 
 On February
7, 2007, the Company announced that its Board of Directors had authorized the
repurchase of up to $20 million of the Company’s common stock.  On
June 6, 2007, the Company announced that its Board of Directors had authorized a
$10 million increase to the existing stock repurchase authorization, for an
aggregate authorization of up to $30 million.  The Company completed
this repurchase program in November 2007, repurchasing 1.4 million shares of
Company common stock in open market transactions under this authorization at an
average price of $21.36 per share, excluding commissions.
  16
 On December
5, 2007, the Company announced that its Board of Directors had approved a new
authorization to repurchase up to $10 million of the Company’s common
stock.  There is no expiration date for this authorization, but the
Company expects the purchases to be completed by the end of the 2009 fiscal
year.  Repurchases may be made from time-to-time in the open market,
or in privately negotiated transactions at prevailing market prices that the
Company deems appropriate.  The Company entered into a trading plan
under Rule 10b5-1 of the Securities Exchange Act of 1934 for effecting some or
all of the purchases under this repurchase authorization.  The trading
plan contains certain provisions that could restrict the amount and timing of
purchases.  The Company can terminate this plan at any
time.  Through April 14, 2008, the Company had used $6.8 million of
this authorization to purchase 351,581 shares of the Company’s common stock,
with $3.2 million remaining available for future purchases.
 
 
 Performance
Graph
 
 The following
graph compares cumulative total shareholder return for the Company with a broad
performance indicator, the Russell 2000® Index,
and an industry index, the Household Furniture Index, for the period from
November 30, 2002 to February 3, 2008.The Household Furniture
Index combines wood and upholstered furniture companies.
 
 
 
 (1)
              The
      graph shows the cumulative total return on $100 invested at the beginning
      of the measurement period in the Company’s Common Stock or the specified
      index, including reinvestment of dividends.
 
 (2)
              On
      August 29, 2006, the Company approved a change in its fiscal year. After
      the fiscal year ended November 30, 2006, the Company’s fiscal years will
      end on the Sunday nearest to January 31. Information regarding the change
      in the Company’s fiscal year is available in the Company’s Form 8-K
      filed September 1, 2006.  In making the transition to a new
      fiscal year, the Company completed a two-month transition period
      that began December 1, 2006 and ended January 28, 2007. The
      Company’s  fiscal year ended February 3, 2008 and the transition
      period are reflected in the Performance Graph.
 
 (3)
              The
      Russell 2000®
      Index, prepared by Frank Russell Company, measures the performance of the
      2,000 smallest companies out of the 3,000 largest U.S. companies based on
      total market capitalization.
 
 
 (4)
              The
      Household Furniture Index (SIC Codes 2510 and 2511) as prepared by Zack’s
      Investment Research.  On March 1, 2008, Zacks Investment
      Research reported that the Household Furniture Index consisted
      of:  Bassett Furniture Industries, Inc., Chromcraft Revington,
      Inc., Ethan Allen Interiors Inc., Flexsteel Industries, Inc., Furniture
      Brands International, Inc., Hooker Furniture Corporation, La-Z-Boy
      Incorporated, Natuzzi S.p.A and Stanley Furniture Company,
      Inc.
  17
 ITEM
6.                     SELECTED
FINANCIAL DATA
 
 On August 29,
2006, the Company approved a change in its fiscal year.  After the
fiscal year that ended November 30, 2006, the Company’s fiscal years will end on
the Sunday closest to January 31.  The following selected financial
data for each of the Company’s last five fiscal years and for the two-month
transition period ended January 28, 2007 has been derived from the Company’s
audited, consolidated financial statements.  The selected financial
data should be read in conjunction with the Consolidated Financial Statements,
including the related Notes, and Management’s Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
report.
   For
      The
                    53
      Weeks Ended
                
                For The
      TwoMonths
      Ended
                
                
                For The Twelve Months
      EndedFebruary 3,
                    2008
      (1)(2)
                
                January
      28,
                  2007
                
                
                Nov.
      30,
                  2006
                
                
                Nov.
      30,
                  2005
                
                
                Nov.
      30,

                    2004
                
                
                Nov.
      30,

                    2003
      (3)(In thousands, except per
      share data)Income
      Statement Data (4):Net
      sales
                
                $
                316,801
                
                
                $
                49,061
                
                
                $
                350,026
                
                
                $
                341,775
                
                
                $
                345,944
                
                
                $
                309,005Cost of
      sales
                
                
                219,555
                
                
                
                35,446
                
                
                
                248,812
                
                
                
                249,873
                
                
                
                250,467
                
                
                
                226,880Gross
      profit
                
                
                97,246
                
                
                
                13,615
                
                
                
                101,214
                
                
                
                91,902
                
                
                
                95,477
                
                
                
                82,125Selling
      and administrative expenses
                
                
                67,240
                
                
                
                9,458
                
                
                
                71,549
                
                
                
                65,497
                
                
                
                62,707
                
                
                
                54,903ESOP
      termination compensation charge (5)
                
                
                
                
                
                
                18,428Restructuring
      and asset impairment charges (6)
                
                
                309
                
                
                
                2,973
                
                
                
                6,881
                
                
                
                5,250
                
                
                
                1,604
                
                
                
                1,470Operating
      income (loss)
                
                
                29,697
                
                
                
                (17,244
                )
                
                
                22,784
                
                
                
                21,155
                
                
                
                31,166
                
                
                
                25,752Other
      income (expense), net
                
                
                1,472
                
                
                
                129
                
                
                
                (77
                )
                
                
                (646
                )
                
                
                (1,242
                )
                
                
                (2,352
                )Income
      (loss) before income taxes
                
                
                31,169
                
                
                
                (17,115
                )
                
                
                22,707
                
                
                
                20,509
                
                
                
                29,924
                
                
                
                23,400Income
      taxes
                
                
                11,514
                
                
                
                1,300
                
                
                
                8,569
                
                
                
                8,024
                
                
                
                11,720
                
                
                
                8,690Net
      income (loss)
                
                
                19,655
                
                
                
                (18,415
                )
                
                
                14,138
                
                
                
                12,485
                
                
                
                18,204
                
                
                
                14,710Per
      Share Data:Basic
      and diluted earnings per share (6)
                
                $
                1.58
                
                
                $
                (1.52
                )
                
                $
                1.18
                
                
                $
                1.06
                
                
                $
                1.56
                
                
                $
                1.28Cash
      dividends per share
                
                
                0.40
                
                
                
                0.00
                
                
                
                0.31
                
                
                
                0.28
                
                
                
                0.24
                
                
                
                0.22Net
      book value per share (7)
                
                
                12.18
                
                
                
                12.23
                
                
                
                13.49
                
                
                
                12.50
                
                
                
                11.60
                
                
                
                10.02Weighted
      average shares outstanding
                
                
                12,442
                
                
                
                12,113
                
                
                
                11,951
                
                
                
                11,795
                
                
                
                11,669
                
                
                
                11,474Balance
      Sheet Data:Cash
      and cash equivalents
                
                $
                33,076
                
                
                $
                47,085
                
                
                $
                31,864
                
                
                $
                16,365
                
                
                $
                9,230
                
                
                $
                14,859Trade
      accounts receivable
                
                
                38,229
                
                
                
                37,744
                
                
                
                45,444
                
                
                
                43,993
                
                
                
                40,960
                
                
                
                37,601Inventories
                
                
                50,560
                
                
                
                62,803
                
                
                
                68,139
                
                
                
                68,718
                
                
                
                69,735
                
                
                
                42,442Assets
      held for sale (8)
                
                
                
                
                
                
                3,475
                
                
                
                
                
                
                
                1,656
                
                
                
                5,376Working
      capital
                
                
                102,307
                
                
                
                127,193
                
                
                
                124,028
                
                
                
                110,421
                
                
                
                97,661
                
                
                
                75,181Total
      assets
                
                
                175,232
                
                
                
                202,463
                
                
                
                201,299
                
                
                
                189,576
                
                
                
                188,918
                
                
                
                167,466Long-term
      debt (including current maturities)
                
                
                7,912
                
                
                
                10,415
                
                
                
                11,012
                
                
                
                13,295
                
                
                
                23,166
                
                
                
                30,837Shareholders’
      equity
                
                
                140,826
                
                
                
                162,310
                
                
                
                162,536
                
                
                
                148,612
                
                
                
                136,585
                
                
                
                116,264
 (1)
              On
      April 28, 2007, the Company acquired substantially all of the assets of
      Bedford, Va.-based fabric upholstered seating specialist Sam Moore
      Furniture.  Shipments of Sam Moore  upholstered
      furniture products accounted for $20.8 million in net sales for the
      portion of fiscal 2008 after the
acquisition.
 (2)
              On
      December 14, 2007, the Company acquired the assets of Opus Designs
      Furniture, LLC, a specialist in imported moderately-priced youth bedroom
      furniture.  Shipments of Opus youth bedroom furniture products
      accounted for $636,000 in net sales for the portion of fiscal 2008 after
      the acquisition.
 (3)
              In
      2003, the Company acquired substantially all of the assets of Cherryville,
      N.C. based leather seating specialist Bradington-Young
      LLC.  Shipments of Bradington-Young upholstered furniture
      products accounted for net sales of  $59.1 million in fiscal
      2008, $9.9 million in the 2007 two-month transition period, $62.9 million
      in fiscal 2006, $62.5 million in fiscal 2005, $57.5 million in fiscal 2004
      and $44.2 million during the eleven-month period following the acquisition
      in January 2003.
 (4)
              Certain
      items in the financial statements for periods prior to 2008 have been
      reclassified to conform to the 2008 method of
  presentation.
 (5)
              On
      January 26, 2007, the Company terminated its ESOP.  The
      termination resulted in an $18.4 million non-cash, non-tax deductible
      charge to earnings in January 2007.
 (6)
              Since
      2000, the Company closed facilities in order to reduce and ultimately
      eliminate its domestic wood furniture manufacturing
      capacity.  As a result, the Company has recorded restructuring
      charges, principally for severance and asset impairment, as
      follows:
 (a) in
      fiscal 2008, the Company recorded after tax charges of $190,000 ($309,000
      pretax), or $0.02 per share, principally related to the March 2007 closing
      and sale of its Martinsville, Va. manufacturing
  facility;
 (b) in
      the 2007 two-month transition period, the Company recorded after tax
      charges of $1.8 million ($3.0 million pretax), or $0.15 per share,
      principally for severance and related benefits for salaried and hourly
      employees related to the planned closing of its Martinsville, Va.
      manufacturing facility;
 (c) in
      fiscal 2006, the Company recorded after tax charges of $4.3 million ($6.9
      million pre tax), or $0.36 per share, principally related to the planned
      closing of its Martinsville, Va. manufacturing facility and the closing of
      its Roanoke, Va. facility;
 (d) in
      fiscal 2005, the Company recorded after tax charges of $3.3 million ($5.3
      million pretax), or $0.28 per share, principally related to the closing of
      its Pleasant Garden, N.C. facility;
 (e) in
      fiscal 2004, the Company recorded after tax charges of $994,000 ($1.6
      million pretax), or $0.09 per share, principally related to the closing of
      its Maiden, N.C. facility; and
 (f)  in
      fiscal 2003, the Company recorded after tax charges of $911,000 ($1.5
      million pretax), or $0.08 per share, related to the closing of its
      Kernersville, N.C. facility.
  (7)
              Net
      book value per share is derived by dividing (a)  “shareholders’
      equity” by (b) the number of common shares issued and outstanding,
      excluding unearned ESOP and restricted shares, all determined as of the
      end of each fiscal period.
 (8)
              In
      connection with the closings of the Martinsville, Va. plant in March
      2007,  the Roanoke, Va. plant in August 2006, the Pleasant
      Garden, N.C. plant in October 2005 and the  Maiden, N.C. plant
      in October 2004, the Company reclassified substantially all of the related
      property, plant and equipment to “assets held for
      sale.”   The carrying value of these assets approximated
      fair value less anticipated selling expenses.  The Company
      completed the sale of  the assets located
      in  Martinsville, Va. in December 2007, the assets located in
      Roanoke, Va. in October 2006, the assets located in Pleasant Garden, N.C.
      in May 2006 and the assets located in Maiden N.C. in January
      2005.
  18
 ITEM
7.                    
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF
 OPERATIONS
 
 The following
discussion should be read in conjunction with the Selected Financial Data and
the Consolidated Financial Statements, including the related Notes, contained
elsewhere in this annual report.
 
 On August 29,
2006, the Company approved a change in its fiscal year.  After the
fiscal year that ended November 30, 2006, the Company’s fiscal years will end on
the Sunday nearest to January 31.  In addition, starting with the
fiscal year that began January 29, 2007, the Company adopted quarterly periods
based on thirteen-week “reporting periods” (which will end on a Sunday) rather
than quarterly periods consisting of three calendar months. As a result, each
quarterly period generally will be thirteen weeks, or 91 days, long. However,
since the Company’s fiscal year will end on the Sunday closest to January 31, in
some years (generally once every six years) the fourth quarter will be fourteen
weeks long and the fiscal year will consist of 53 weeks (e.g. the fiscal year
that ended February 3, 2008 was 53 weeks).  For more information about
the changes in the Company’s fiscal year and quarterly periods, please refer to
the Company’s Form 8-K filed with the Securities and Exchange Commission on
September 1, 2006.
 
 In connection
with the change in its fiscal year, the Company completed a two-month transition
period that began December 1, 2006 and ended January 28, 2007 and filed a
transition report on Form 10-Q for that period on March 16, 2007.  The
financial statements filed as part of this annual report on Form 10-K cover the
fifty-three week period that began January 29, 2007 and ended on February 3,
2008.  The financial statements also include the two-month transition
period that began December 1, 2006 and ended January 28, 2007 and the
twelve-month periods that ended November 30, 2006 and 2005.  The
Company did not recast the financial statements for the twelve-month periods
ended November 30, 2006 and 2005, principally because the financial reporting
processes in place for those periods included certain procedures that were
completed only on a quarterly basis.  Consequently, to recast those
periods would have been impractical and would not have been
cost-justified.
 
 Overview
 
 Since 2001,
the Company has operated in a sluggish economy impacted by low to moderate
levels of consumer confidence and growing consumer preference for lower-priced
imported furniture products.  The Company’s results of operations have
been affected in opposing ways by lower-priced imported furniture.
 
 ·
              First,
      net sales of the Company’s imported wood and metal furniture as a
      percentage of total wood and metal net sales have experienced significant
      growth during this five-year period, and Bradington-Young imported
      upholstered furniture net sales have experienced significant growth since
      2005.  Net sales of imported products, as a percentage of total
      net sales have increased to record levels every year from 2001 to 2006 and
      have grown as a percentage of total net sales, from 31.2% in 2001 to 76.0%
      in fiscal 2008.
 
 ·
              Second,
      the Company’s domestic wood furniture manufacturing operations suffered
      from lower demand and significant declines in volume for bedroom, home
      office, home entertainment and other products.  These declines
      led to the decision to close the Company’s last domestic wood
      manufacturing plant, located in Martinsville, Va. in March 2007, which
      marked the Company’s exit from domestic wood furniture
      manufacturing.  Prior to this, the Company had closed its
      Roanoke, Va. facility in August 2006, Pleasant Garden, N.C. facility in
      2005, Maiden, N.C. facility in 2004 and Kernersville, N.C. facility in
      2003.  The Company also reduced its workforce at the
      Martinsville, Va. facility in 2001 and operated on reduced work schedules
      at the Company’s wood furniture manufacturing facilities over most of the
      period since 2001.  The Company’s domestic upholstered furniture
      manufacturing operations at Bradington-Young experienced declining
      year-over-year shipments in fiscal 2008, fiscal 2006 and in the fiscal
      2005 third and fourth quarters, and reduced work schedules since the
      fiscal 2005 fourth quarter.
 
 Results of
operations for the fifty-three weeks ended February 3, 2008 reflect the
Company’s transformation into a home furnishings design, marketing and logistics
company with world-wide sourcing capabilities.  With the closing of
its last domestic wood furniture plant during the fiscal 2008 first quarter, the
Company is now focused on imported wood and metal and domestically produced and
imported upholstered home furnishings.  On April 28, 2007, the Company
completed the acquisition of substantially all of the assets of Sam Moore
Furniture Industries, Inc., a Bedford, Virginia manufacturer of upscale
occasional chairs with an emphasis on fabric-to-frame customization in the
upper-medium to high-end price niches.  The Company began operating
the business as Sam Moore Furniture LLC during the fiscal 2008 second
quarter.  On December 14, 2007, the Company completed its acquisition
of certain assets of Opus Designs Furniture, LLC, a specialist in
moderately-priced imported youth bedroom furniture.  The Company has
integrated this business with its existing imported wood and metal furniture
business and now offers this brand to customers as Opus Designs by
Hooker.
  19
 Because
fiscal 2008 included three more shipping days than fiscal 2006, due to the
change in the fiscal year format, management’s discussion of results of
operations includes information regarding profitability performance as a
percentage of net sales and daily average sales rates.
 
 Following are
the principal factors that impacted the Company’s results of operations during
the 53-week period ended February 3, 2008:
 
 ·
              Based
      on actual shipping days in each period, average daily net sales declined
      10.6% during the 255-day 2008 fiscal year compared to the 252-day 2006
      fiscal year.  The decline in average daily net sales continues
      to mirror the year-over-year decline in incoming order rates the Company
      has experienced since the fiscal 2006 third quarter resulting from the
      industry-wide slow down in business at
retail.
 
 ·
              Operating
      margin during the 2008 fiscal year compared with the 2006 fiscal year was
      favorably impacted by:
 
 §
              a $6.6
      million, or 95.5%, decline in restructuring and asset impairment related
      charges;
  §
              an
      improvement in gross profit margin to 30.7% of net sales compared with
      28.9% in the prior fiscal year, principally as a result of the higher
      proportion of imported wood and metal products sold and lower delivered
      cost of those imported products (primarily lower inbound freight and
      delivery costs) as a percentage of net sales; partially offset
      by
  §
              an
      increase in selling and administrative costs as a percentage of net sales,
      due to the decline in net sales.  These expenses actually
      declined by $4.3 million, or 6.0%, driven primarily
  by:
  §
              reductions
      in  temporary warehousing and storage costs for imported wood
      and metal furniture products;
  §
              lower
      early retirement and non-cash employee stock ownership plan (“ESOP”) costs
      (the ESOP was terminated in January
2007);
  §
              lower
      selling expenses; and
  §
              a
      gain on the settlement of a corporate-owned life insurance policy in
      connection with the death of a former executive of the
      company;  partially offset
by
  §
              the
      selling and administrative expenses incurred by Sam Moore and the donation
      of two showrooms, located in High Point, N.C. formerly operated by
      Bradington-Young to a local university, in December 2007;
    and
  ·
              The
      inclusion of the operations of Sam Moore Furniture in the Company’s
      results of operations as of the beginning of the fiscal 2008 second
      quarter.
 
  20
 Results
of Operations
 
 The following
table sets forth the percentage relationship to net sales of certain items for
the annual periods included in the consolidated statements of
income:
  Fifty-ThreeWeeks
      Ended
                
                Twelve Months
      EndedFebruary
      3,
                
                November
      30,
                
                November
      30,2008
                
                2006
                
                2005Net
      sales
                
                
                100.0
                %
                
                
                100.0
                %
                
                
                100.0
                %Cost of
      sales
                
                
                69.3
                
                
                
                71.1
                
                
                
                73.1Gross
      profit
                
                
                30.7
                
                
                
                28.9
                
                
                
                26.9Selling
      and administrative expenses
                
                
                21.2
                
                
                
                20.4
                
                
                
                19.2Restructuring
      and asset impairment charges
                
                
                0.1
                
                
                
                2.0
                
                
                
                1.5Operating
      income
                
                
                9.4
                
                
                
                6.5
                
                
                
                6.2Other
      income (expense), net
                
                
                0.5
                
                
                
                
                
                
                
                (0.2
                )Income
      before income taxes
                
                
                9.8
                
                
                
                6.5
                
                
                
                6.0Income
      taxes
                
                
                3.6
                
                
                
                2.5
                
                
                
                2.3Net
      income
                
                
                6.2
                
                
                
                4.0
                
                
                
                3.7
 Fiscal
2008 Compared to Fiscal 2006
 
 For fiscal
2008, the Company reported net sales of $316.8 million, a decrease of $33.2
million, or 9.5%, compared to $350.0 million in fiscal 2006.  Net
sales of Hooker’s wood and metal furniture decreased $50.2 million, or 17.5%, to
$236.9 million during fiscal 2008 compared to net sales of $287.1 million in
fiscal 2006, principally due to lower unit volume.  The decline in
unit volume was attributed to a sharp decline in domestically produced wood
furniture sales as a result of exiting domestic wood manufacturing in March 2007
and the industry-wide slow down in business at retail.  Based on
actual shipping days in each period, average daily net sales declined 10.6% to
$1.2 million per day during the 255-day 2008 fiscal year compared to $1.4
million per day during the 252-day 2006 fiscal year.  The Company
experienced lower average daily unit volume shipments overall and in every
product category except Bradington-Young imported leather upholstery, which
experienced a slight increase, comparing fiscal 2008 to fiscal
2006.  Sam Moore fabric upholstery sales amounted to $20.8 million for
the three quarters since it was acquired at the beginning of the fiscal 2008
second quarter.
 
 Overall,
average selling prices declined slightly.  The primary contributor to
the overall decline was the sharp decline in domestically produced wood
furniture average selling prices, principally due to sharp discounting offered
on these discontinued products. The Company experienced slight increases in
average selling prices for imported wood and metal and Bradington-Young imported
and domestically produced leather upholstered furniture.  Average
selling prices for imported wood and metal furniture during fiscal year 2008
increased in part due to the mix of products shipped and lower discounting,
compared to fiscal year 2006.  While average selling prices per unit
for both Bradington-Young domestically produced and imported leather upholstered
furniture increased, Bradington Young’s overall per unit average selling price
declined slightly, due to the higher proportion of imported products
shipped.
 
 Gross profit
margin for fiscal 2008 increased to 30.7% of net sales compared to 28.9% in
fiscal 2006, principally due to the larger proportion of sales of higher margin
imported products and the lower delivered cost of those products (primarily
lower inbound freight and delivery costs) as a percentage of net
sales.
 
 For fiscal
2008, selling and administrative expenses decreased $4.3 million, or 6.0%, to
$67.2 million compared with $71.5 million in 2006.  The decline is
principally due to reductions in temporary warehousing and storage costs for
imported wood furniture products, lower early retirement and non-cash ESOP
costs, lower selling expenses and a gain on the settlement of a corporate-owned
life insurance policy in connection with the death of a former executive of the
Company, partially offset by the selling and administrative expenses incurred by
Sam Moore and a $1.1 million charitable contribution for the donation of two
former Bradington-Young showrooms to a local university.  As a
percentage of net sales, selling and administrative expenses increased to 21.2%
in fiscal 2008 from 20.4% in fiscal 2006, due to lower net sales in the current
year.
 
 During fiscal
2008, the Company recorded $309,000 ($190,000 after tax, or $0.02 per share) in
restructuring and asset impairment charges (net of restructuring credits),
principally related to:
 
 ·
              $553,000
      for additional asset impairment, disassembly and exit costs associated
      with the closing of the Martinsville, Va. domestic wood manufacturing
      facility in March 2007; net of
 ·
              a
      restructuring credit of $244,000, principally for previously accrued
      health care benefits for terminated employees at the former Pleasant
      Garden, N.C.,  Martinsville, Va. and Roanoke, Va. facilities
      that are not expected to be paid.
 
 21
 During fiscal
2006, the Company recorded $6.9 million ($4.3 million after tax, or $0.36 per
share) in restructuring and asset impairment charges (net of restructuring
credits).
 
 The Company’s
operating income margin for fiscal 2008 increased to  9.4% of net
sales, compared to operating income margin of 6.5% of net sales for fiscal 2006,
principally due to:
 
 ·
              the
      $6.6 million, or 95.5%, decrease in restructuring and asset impairment
      costs;
 ·
              the
      increase in gross profit margin to 30.7% from 28.9%; partially offset
      by
 ·
              the
      increase in selling and administrative expenses as a percentage of net
      sales to 21.2% in 2008 compared to 20.4% in fiscal  2006, due to
      the decline in sales (although these costs decreased $4.3 million or
      6.0%).
 
  Excluding the
effect of restructuring and asset impairment charges and the December 2007
donation of the two former Bradington-Young showrooms, operating profitability
in fiscal 2008 improved year over year compared to fiscal 2006, principally as a
result of higher gross profit margins on the Company’s imported wood and metal
furniture. The following table reconciles operating income as a percentage of
net sales ("operating margin") to operating margin excluding these charges
(“restructuring and special charges”) as a percentage of net sales for each
period:
  Fifty-Three
                
                Twelve
      MonthsWeeks
      Ended
                
                EndedFebruary
      3,
                
                November
      30,2008
                
                2006Operating
      margin, including restructuring  and specialcharges
                
                
                9.4
                %
                
                
                6.5
                %Donation
      of two showrooms
                
                
                0.3
                %Restructuring
      charges
                
                
                0.1
                %
                
                
                2.0
                %Operating
      margin, excluding restructuring and specialcharges
                
                
                9.8
                %
                
                
                8.5
                %
 
 The operating
margin excluding the impact of  restructuring charges and the
showrooms donation is a “non-GAAP” financial measure.  The Company
provides this information because management believes it is useful to investors
in evaluating the Company’s ongoing operations.
 
 Other income,
net was $1.5 million, or 0.5% of net sales, for fiscal 2008 compared to other
expense, net of $77,000 for fiscal 2006.  This improvement was the
result of an increase in interest income earned on higher cash and cash
equivalent balances and a decrease in interest expense on lower debt
levels.
 
 The Company’s
effective tax rate decreased to 36.9% for fiscal 2008 compared to 37.7% for
fiscal 2006.  The effective rate declined in fiscal 2008 principally
due to the tax effect of the ESOP.  In fiscal 2008, the Company
reversed previously recorded income tax expense related to its ESOP in
connection with the settlement of an IRS audit. In addition, the Company
recorded no ESOP compensation cost during the current year period after the
termination of that plan in January 2007.  The effective rate also
declined during the current year period due to the non-taxable gain recorded on
the settlement of a corporate owned life insurance policy discussed previously,
and lower assessments under the Company’s captive insurance arrangement compared
to fiscal 2006.  These declines were partially offset by an increase
in the Company’s effective state income tax rate, principally attributed to
California state income taxes incurred as a result of opening the new West Coast
distribution center.
 
 Net income
for fiscal 2008 rose by 39.0%, or $5.5 million, to $19.7 million, or $1.58 per
share, from $14.1 million, or $1.18 per share, for fiscal 2006.  As a
percent of net sales, net income increased to 6.2% in fiscal 2008 compared to
4.0% for fiscal 2006.
 
 Fiscal
2006 Compared to Fiscal 2005
 
 For fiscal
2006, the Company reported net sales of $350.0 million, an increase of $8.3
million, or 2.4%, compared to $341.8 million in fiscal 2005.  Net
sales of Hooker’s wood and metal furniture increased $7.8 million, or 2.8%, to
$287.1 million during fiscal 2006 compared to net sales of $279.2 million in
fiscal 2005.  Higher unit volume for imported wood and metal furniture
was partially offset by lower unit volume for domestically produced wood
furniture.  Average selling prices increased slightly for imported
wood and metal products but declined for domestically manufactured wood
products, principally due to the mix of products shipped and higher sales
discounting offered on overstocked and discontinued products.
 
 22
 Net sales of
Bradington-Young upholstered furniture increased by $0.4 million, or 0.7%, to
$62.9 million during fiscal 2006 compared to $62.5 million during the prior
fiscal year period, due to an increase in unit shipments of imported upholstered
furniture, offset by  lower unit sales of domestically produced
upholstered furniture.  Average selling prices increased during fiscal
2006 compared to the fiscal 2005 period for both imported and domestically
producedupholstered
furniture products.
 
 Overall, unit
volume increased in fiscal 2006 compared to fiscal 2005, principally due to the
higher volume of imported wood, metal and upholstered units
shipped.  Average selling prices declined in fiscal 2006 compared to
fiscal 2005 due to the mix of products shipped (principally the larger
proportion of lower priced imported furniture) and as a result of larger
discounts offered on overstocked and discontinued products and the increased
volume of imported wood and metal furniture shipped via  the Company’s
Container Direct Program.
 
 Gross profit
margin for fiscal 2006 increased to 28.9% of net sales compared to 26.9% in
fiscal 2005, principally due to the larger proportion of sales of higher margin
imported products.
 
 For fiscal
2006, selling and administrative expenses increased $6.1 million, or 9.2%, to
$71.5 million compared with $65.5 million in fiscal 2005.  As a
percentage of net sales, selling and administrative expenses increased to 20.4%
in fiscal 2006 from 19.2% in fiscal 2005.  Higher warehousing and
distribution costs to support increased imported furniture demand and supply
chain initiatives, early retirement benefits, principally for a key executive of
the Company, and an increase in bad debt expense account for this increase in
expenses.  These cost increases were partially offset by lower selling
expenses, principally advertising, sample costs and depreciation.
 
 For fiscal
2006, ESOP cost decreased $653,000 to $2.7 million compared to $3.4 million in
fiscal 2005, principally due to a decline in the average market price of the
Company’s common stock.  The Company recorded non-cash ESOP cost for
the number of shares that it committed to release to eligible employees at the
average market price of the Company’s common stock during each respective period
based on the amount of the annual principal and interest payments made on the
ESOP Loan.  The Company committed to release approximately 164,000
shares during fiscal 2006, having an average closing market price of $16.11 per
share, and approximately 171,000 shares during fiscal 2005, having an average
closing market price of $18.90 per share.  The  ESOP shares
had a cost basis of $6.25 per share.  Prior to its termination in
January 2007, the cost of the plan was allocated between cost of goods sold and
selling and administrative expenses based on employee compensation.
 
 The Company
terminated its ESOP effective January 26, 2007.  See “Note 10 –
Employee Benefit Plans” to the Consolidated Financial Statements included in
this report for more information regarding the ESOP termination.
 
 During fiscal
2006, the Company recorded $6.9 million ($4.3 million after tax, or $0.36 per
share) in restructuring and asset impairment charges (net of restructuring
credits), principally related to:
 
 ·
              the
      write-down of real and personal property at the Martinsville, Va. plant to
      estimated fair value in connection with the planned closing announced
      January 17, 2007 ($4.2 million);
 ·
              the
      August 2006 closing of the Roanoke, Va. manufacturing facility ($2.7
      million), which included $1.6 million in severance and related benefits
      for approximately 260 terminated hourly and salaried employees and $1.1
      million in asset impairment
charges;
 ·
              the
      final sale of the Pleasant Garden, N.C. wood furniture plant and the
      related closing of the Martinsville, Va. plywood plant ($161,000);
      and
 ·
              the
      planned sale of two showrooms in High Point, N.C. formerly operated by
      Bradington-Young ($140,000); net of
 ·
              a
      restructuring credit for previously accrued health care benefits for
      terminated employees at the former Pleasant Garden and Kernersville, N.C.
      facilities that were not expected to be paid
  ($295,000).
 
 In October
2006, the Company completed the sale of the Roanoke, Va. plant for $2.2 million,
net of selling costs.
 
 In May 2006,
the Company completed the sale of the Pleasant Garden facility. Aggregate
proceeds from that sale, including proceeds from equipment auctions at both the
Pleasant Garden and plywood facilities held in December 2005, amounted to $1.5
million ($1.1 million in cash and a note receivable for $400,000), net of
selling expenses.
 
 23
 Prior to the
spring 2006 International Home Furnishings Market, the Company moved its
Bradington-Young showroom to leased space proximate to the Company’s wood
furniture showroom in High Point, N.C.  In connection with the
relocation, the Company decided to sell two showrooms formerly operated by
Bradington-Young in High Point, N.C. and recorded an asset impairment charge of
$140,000 to write-down one of these showrooms to estimated market value less
cost to sell.
 
 During fiscal
2005, the Company recorded aggregate restructuring and asset impairment charges
of $5.3 million ($3.3 million after tax, or $0.28 per share) principally related
to:
 
 ·
              the
      closing of its Pleasant Garden, N.C. manufacturing facility ($4.3
      million);
 ·
              consolidation
      of plywood production at its Martinsville, Va. manufacturing facility
      ($406,000); and
 ·
              additional
      factory disassembly costs, health care benefits for terminated employees,
      environmental monitoring, and asset impairment charges of $586,000 related
      to the closing and sale of its Maiden, N.C. manufacturing facility (which
      closed in 2004) and its Kernersville, N.C. facility (which closed in
      2003).
 
 Operating
income in fiscal 2006 increased 7.7%, to $22.8 million from $21.2 million in
fiscal 2005.  As a percentage of net sales, operating income increased
to 6.5% in fiscal 2006, compared to 6.2% for fiscal 2005.  The
improvement in operating income principally resulted from higher net sales and
gross profit.  These factors were partially offset by an increase in
selling and administrative expenses and higher restructuring
charges.
  Excluding the
effect of restructuring and asset impairment charges, operating profitability in
2006 improved year over year compared to fiscal 2005, principally as a result of
increased net sales volume and improved gross profit margins on the Company's
imported wood and upholstered furniture. The following table reconciles
operating income as a percentage of net sales ("operating margin") to operating
margin excluding restructuring and asset impairment charges ("restructuring
charges") as a percentage of net sales for each period:
  
 For the
      Fiscal YearsEnded
      November 30,2006
                  
                  2005Operating
      margin, including restructuring charges
                  
                  
                  6.5
                  %
                  
                  
                  6.2
                  %Restructuring
      charges
                  
                  
                  2.0
                  %
                  
                  
                  1.5
                  %Operating
      margin, excluding restructuring charges
                  
                  
                  8.5
                  %
                  
                  
                  7.7
                  %
 
  Other
expense, net decreased to $77,000 in fiscal 2006 from $646,000 in fiscal 2005
principally as a result of increased interest income from higher cash balances
compared to the prior year, as well as a decline in interest expense, due to
lower debt levels resulting from principal repayments, partially offset by
higher weighted average interest rates on outstanding borrowings
 
 The Company’s
effective tax rate decreased to 37.7% for 2006 compared to 39.1% for
2005.  The decrease was principally attributed to lower non-cash ESOP
cost.
 
 Net income
for fiscal 2006 increased by 13.2%, or $1.7 million, to $14.1 million, or $1.18
per share, from $12.5 million, or $1.06 per share, for fiscal
2005.  As a percent of net sales, net income increased to 4.0% in
fiscal 2006 compared to 3.7% for fiscal 2005.
 
  24
 Fiscal
2007 Two-Month Transition Period Compared to Fiscal 2006 First
Quarter
 
 The following
table sets forth the percentage relationship to net sales of certain items
included in the consolidated statements of operations.
  Two
      Months
                
                Three
      MonthsEnded
                
                EndedJanuary
      28,
                
                February
      28,2007
                
                2006Net
      sales
                
                
                100.0
                %
                
                
                100.0
                %Cost of
      sales
                
                
                72.2
                
                
                
                73.1Gross
      profit
                
                
                27.8
                
                
                
                26.9Selling
      and administrative expenses
                
                
                19.3
                
                
                
                19.9ESOP
      termination compensation charge
                
                
                37.6Restructuring
      and related asset impairment charges
                
                
                6.1
                
                
                
                0.2Operating
      (loss) income
                
                
                (35.1
                )
                
                
                6.8Other
      income, net
                
                
                0.3(Loss)
      income before income taxes
                
                
                (34.9
                )
                
                
                6.8Income
      taxes
                
                
                2.7
                
                
                
                2.6Net
      (loss) income
                
                
                (37.5
                )
                
                
                4.2
 Net sales for
the 2007 two-month transition period ended January 28, 2007 were $49.1 million
and were $85.3 million for the fiscal 2006 three-month period.  Based
on actual shipping days in each period, average daily net sales declined 5.8% to
$1,258,000 per day during the 39-day fiscal 2007 transition period compared to
$1,335,400 per day during the 42-day operating period from December 1, 2005
through January 31, 2006 and 8.6% from $1,376,400 per day during the 62-day
fiscal 2006 first quarter.
 
 Average daily
net sales increased for imported wood, metal and upholstered furniture for the
2007 transition period compared to the fiscal 2006 first quarter, principally
due to slightly higher unit volume. This increase was offset by a continued
decline in average daily net sales rates for domestically manufactured wood
furniture and a moderate decline in average daily net sales rates for
domestically produced upholstered furniture.
  Overall
average selling prices decreased slightly for wood, metal and upholstered
furniture during the 2007 two-month transition period compared with the fiscal
2006 first quarter, principally due to higher sales discounting offered on
overstocked and discontinued domestically produced wood furniture products, as
well as a minimal decline in domestic upholstered furniture selling prices,
partially offset by increases in imported wood and upholstered average selling
prices.  Average number of units sold per day declined during the 2007
two-month transition period compared to the fiscal 2006 first
quarter.  Average per-day unit sales for imported wood and metal and
upholstered furniture increased slightly, while average daily per unit sales for
upholstered furniture declined moderately and domestic wood and metal furniture
average per-day unit sales declined sharply.
 
 Gross profit
margin increased to 27.8% of net sales in the 2007 two-month transition period
compared to 26.9% in the fiscal 2006 first quarter.  This improvement
was the result of an increase in the gross profit margin for wood and metal
furniture, partially offset by a decline in the gross profit margin for
upholstered furniture.  The increase in gross profit margin on wood
and metal furniture was principally due to an increased proportion of sales of
imported wood, metal and upholstered furniture and was partially offset by a
significantly lower gross profit margin on domestically produced wood
furniture.  Gross profit margin on domestically produced wood
furniture declined as production costs as a percentage of net sales increased in
the 2007 two-month transition period compared to the fiscal 2006 first quarter,
principally due to lower production levels.
 
 Bradington-Young’s
gross profit margin decline for the 2007 two-month transition period versus the
fiscal 2006 first quarter was principally due to lower production
levels.
 
 Selling and
administrative expenses, as a percentage of net sales, decreased to 19.3% in the
2007 two-month transition period from 19.9% in the fiscal 2006 first quarter
principally due to lower port storage and temporary warehousing costs for
imported wood furniture purchases.
 
 On January
29, 2007, the Company announced that it had terminated its ESOP, effective
January 26, 2007.  The termination resulted in an $18.4 million,
non-cash, non-tax deductible charge to earnings in January 2007 with an
offsetting increase in shareholders’ equity.  As a result of the ESOP
termination, approximately 1.2 million shares of previously unallocated shares
of Company common stock held by the ESOP were allocated to eligible employees,
resulting in the $18.4 million charge to operating income.  To effect
the termination of the ESOP, the Company redeemed and retired approximately 1.2
million of the shares of Company common stock held by the ESOP, with proceeds to
the ESOP of $17.2 million (or $15.01 per share). The ESOP used the proceeds to
repay the outstanding balance on the ESOP loan.
 
 25
 Through
November 30, 2006, the Company recorded non-cash ESOP cost for the number of
shares that it committed to release to eligible employees at the average closing
market price of the Company’s common stock during the period.  During
the 2007 two-month transition period, except for the effect of the ESOP
termination discussed above, no shares were committed to be
released.  As a result, no non-cash ESOP cost was recorded during the
2007 two-month transition period.  The Company recorded $636,000 in
non-cash ESOP cost during the 2006 first quarter.  The cost of the
plan was allocated to cost of goods sold and selling and administrative expenses
based on employee compensation.
 
 During the
2007 two-month transition period, the Company recorded aggregate restructuring
and asset impairment charges of $3.0 million ($1.8 million after tax, or $0.15
per share), principally for severance and related benefits for approximately 280
hourly and salaried employees that were terminated ($2.3 million) and additional
asset impairment charges for the expected costs to sell the real and personal
property of the Martinsville, Va. manufacturing facility
($655,000).
 
 In the 2006
first quarter, the Company recorded restructuring charges of $188,000 ($117,000
after tax, or $0.01 per share) to prepare the Pleasant Garden, N.C.
manufacturing facility for sale and for additional asset impairment related to
the closing of this facility.
 
 Principally
due to the ESOP termination and restructuring and asset impairment charges, the
Company incurred an operating loss for the 2007 two-month transition period of
$17.2 million, or 35.1% of net sales, compared to operating income of $5.8
million, or 6.8% of net sales in the 2006 first quarter.
 
 Excluding the
effect of the ESOP termination and restructuring and asset impairment charges,
operating profitability as a percentage of net sales during the transition
period improved when compared to the three month first quarter of fiscal 2006.
The following table reconciles operating results as a percentage of net sales
(“operating margin”) to operating margin excluding ESOP termination charges and
restructuring and asset impairment charges (“restructuring charges”) as a
percentage of net sales for each period:
 
 Two
      Months
                
                Three
      MonthsEnded
      January 28,
                
                Ended
      February 28,2007
                
                2006Operating
      (loss) income margin, including ESOP terminationand
      restructuring charges
                
                
                (35.1
                )%
                
                
                6.8
                %ESOP
      termination charges
                
                
                37.5Restructuring
      charges
                
                
                6.1
                
                
                
                0.2Operating
      margin, excluding ESOP termination andrestructuring
      charges
                
                
                8.5
                %
                
                
                7.0
                %
 Operating
margin excluding the impact of the ESOP termination and restructuring charges is
a “non-GAAP” financial measure.  The Company provides this information
because management believes it is useful to investors in evaluating the
Company’s ongoing operations.
 
 Other income,
net increased to $129,000 in the 2007 two-month transition period from $13,000
in the 2006 first quarter.  This improvement was the result of an
increase in interest income earned on higher cash and cash equivalent balances
and a decrease in interest expense, due to one less month of interest expense in
the 2007 two-month transition period compared to the three-month 2006 first
quarter.
 
 The Company
recorded income tax expense of $1.3 million for the 2007 two-month transition
period and $2.2 million for the 2006 first quarter. Despite the net loss for the
2007 transition period, the Company incurred income tax expense in the
transition period because the $18.4 million non-cash ESOP termination charge was
not tax deductible.  In connection with the ESOP termination, the
Company wrote-off the related deferred tax asset in the amount of
$855,000.
 
 The Company incurred a net loss of $18.4
million, or $1.52 per share, for the 2007 two-month transition period and net
income of $3.6 million, or $0.30 per share, in the 2006 first
quarter.
 
 Financial
Condition, Liquidity and Capital Resources
 
 Balance Sheet and Working
Capital
 
 Total assets
decreased $27.2 million to $175.2 million at February 3, 2008 from $202.5
million at January 28, 2007, principally as a result of a $14.0 million decrease
in cash and cash equivalents, a $12.2 million decrease in inventories, a $3.5
million decline in assets held for sale and a $2.3 million decrease in other
long-term assets (primarily non-current deferred tax assets).  These
decreases were partially offset by a $2.9 million  increase in
goodwill and intangible assets from acquisitions, a $667,000 increase in the
cash surrender value of life insurance policies, a $514,000 increase in
property, plant and equipment, net, a $485,000 increase in trade accounts
receivable and a $298,000 increase in prepaid expenses and other current
assets.
 
 26
 Working
capital decreased by $24.9 million to $102.3 million as of February 3, 2008,
from $127.2 million at January 28, 2007, principally as a result of decreases in
cash and cash equivalents, inventories and assets held for sale, offset by
increases in trade accounts receivable and prepaid expenses and other current
assets, and a decrease in current liabilities.  Current liabilities
decreased to  $23.1 million at February 3, 2008, from $27.2 million at
January 28, 2007.  The Company’s long-term debt, including current
maturities, decreased $2.5 million to $7.9 million on February 3, 2008, compared
to $10.4 million on January 28, 2007 as a result of scheduled debt
payments.  Shareholders’ equity at February 3, 2008 decreased $21.5
million to $140.8 million compared to $162.3 million on January 28, 2007,
principally as a result of the repurchase of 1.7 million shares of the Company’s
common stock during the 2008 fiscal year.
 
 Summary Cash Flow
Information – Operating, Investing and Financing Activities
 
 Fifty-Three
                  Weeks
      Ended
                
                Two
      Months
                  Ended
                
                Twelve Months
      EndedFebruary
      3,
                
                January
      28,
                
                November
      30,
                
                November
      30,2008
                
                2007
                
                2006
                
                2005Net
      cash provided by operating activities
                
                $
                43,658
                
                
                $
                16,215
                
                
                $
                22,328
                
                
                $
                19,624Net
      cash (used in) provided by investing activities
                
                
                (14,100
                )
                
                
                (397
                )
                
                
                (859
                )
                
                
                1,636Net
      cash used in financing activities
                
                
                (43,567
                )
                
                
                (597
                )
                
                
                (5,970
                )
                
                
                (14,125
                )Net
      (decrease) increase in cash and cash equivalents
                
                $
                (14,009
                )
                
                $
                15,221
                
                
                $
                15,499
                
                
                $
                7,135
 During fiscal
year 2008, cash generated from operations ($43.7 million), a decrease in cash
and cash equivalents ($14.0 million) and proceeds from the sale of property,
plant and equipment ($3.7 million, principally from the sale of the
Martinsville, Va. facility) funded purchases of the Company’s common stock
($36.0 million), acquisitions ($15.8 million), cash dividends ($5.0 million),
payments on long-term debt ($2.5 million) and capital expenditures ($1.9
million).
 
 During the
2007 two-month transition period ended January 28, 2007, cash generated from
operations ($16.2 million) funded a net increase in cash and cash equivalents
($15.2 million), payments on long-term debt ($597,000), and the purchase of
property, plant and equipment ($397,000, net).
 
 During fiscal
year 2006, cash generated from operations ($22.3 million) and proceeds from the
sale of property, plant and equipment ($3.4 million principally from the sale of
the Roanoke, Va. and Pleasant Garden, N.C. facilities) funded an increase in
cash and cash equivalents ($15.5 million), capital expenditures ($4.3 million),
cash dividends ($3.7 million) and payments on long-term debt ($2.3
million).
 
 During fiscal
2005, cash generated from operations ($19.6 million) and proceeds from the sale
of property, plant and equipment ($5.2 million, principally from the sale of the
Maiden, N.C. facility) funded payments on long-term debt and the termination of
an interest rate swap agreement ($9.9 million), an increase in cash and cash
equivalents ($7.1 million), capital expenditures ($3.6 million), cash dividends
($3.3 million), and the purchase and retirement of common stock
($930,000).
 
 In fiscal
year 2008, cash generated from operations of $43.7 million increased $21.3
million from $22.3 million in fiscal 2006.  The increase was due to a
$51.9 million decline in payments to suppliers and employees (principally due to
a decline in the purchase of imported products) and a $1.3 million decrease in
interest paid, net due to an increase interest income and a decline in interest
expense. The increase was partially offset by a $27.9 million decrease in cash
received from customers and a $4.0 million increase in income taxes paid,
principally due to increased taxable income.
 
 Cash
generated from operations during the 2007 two-month transition period of $16.2
million increased 39.9%, or $4.6 million, from $11.6 million in the fiscal 2006
first quarter.  The increase was due to lower payments made to
suppliers and employees and reduced interest payments, offset by a decrease in
cash received from customers and increased income tax
payments.  Payments to suppliers and employees and cash received from
customers reflect two months of activity and lower employee headcount in the
2007 transition period compared to the three month fiscal 2006 first
quarter.  Interest payments declined $129,000 as a result of the
shorter transition period and lower outstanding debt levels compared to the
prior year period.
 
 In fiscal
2006, cash generated from operations of $22.3 million increased $2.7 million
from $19.6 million in fiscal 2005.  The increase was due to a $10.0
million increase in cash received from customers, an $873,000 decline in income
taxes paid (principally net overpayments from 2005 that were recovered in 2006)
and a $735,000 decrease in interest payments due to the $2.3 million decline in
long-term debt.  The increase was partially offset by an $8.9 million
increase in payments to suppliers and employees (principally due to an increase
in purchases of imported products).
 
 27
 Investing
activities consumed $14.1 million in fiscal year 2008 compared to consuming
$397,000 in the 2007 two-month transition period, $859,000 in fiscal 2006 and
generating $1.6 million in fiscal 2005.  In fiscal year 2008, the
investments of $10.6 million to acquire Sam Moore, $5.3 million to acquire Opus
Designs and the $1.9 million investments in property, plant and equipment
exceeded the $3.7 million in proceeds from the sale of property, plant and
equipment (principally from the sale of the Martinsville, Va.
facility).  The Company invested $419,000 in the 2007 transition
period for the purchase of equipment and other assets to maintain and enhance
the Company’s business operating systems and facilities, offset by proceeds of
$22,000 received from the sale property, plant and equipment.
 
 In fiscal
2006, the investment of $4.3 million in property, plant and equipment exceeded
the $3.4 million in proceeds from the sale of property, plant and equipment
(principally from the sale of the Roanoke, Va. and Pleasant Garden, N.C.
facilities).  In fiscal 2005, $5.2 million in proceeds from the sale
of property, plant and equipment (principally from the sale of the Maiden, N.C.
facility), exceeded a $3.6 million investment in property, plant and
equipment.  As the number of domestic manufacturing plants has fallen
from nine to five, investments in new property, plant and equipment for
manufacturing operations has declined but has increased for supply chain
management, distribution, warehousing, imports, the Company’s Container Direct
Program and related computer systems.
 
 Financing
activities consumed cash of $43.6 million in fiscal year 2008, $597,000 in the
2007 two-month transition period, $6.0 million in fiscal 2006
and  $14.1 million in fiscal 2005. During fiscal year 2008, the
Company expended cash of $36.0 million for the repurchase of 1.7 million shares
of Company common stock, cash dividends of $5.0 million and  $2.5
million for scheduled debt payments.  During the 2007 transition
period, the Company made a scheduled principal repayment of $597,000 on the
Company’s term loan.  During fiscal 2006, the Company expended $2.3
million in cash for scheduled debt payments and cash dividends of $3.7
million.  During fiscal 2005, the Company expended $4.6 million in
cash for early redemption of industrial revenue bonds, paid $5.3 million in
other scheduled debt payments, paid cash dividends of $3.3 million and redeemed
50,000 shares of Company common stock for $930,000 under the Company’s stock
repurchase authorization.
 
 Swap
Agreements
 
 The Company
is party to an interest rate swap agreement that in effect provides for a fixed
interest rate of 4.1% through 2010 on its term loan.  In 2003, the
Company terminated a similar swap agreement, which in effect provided a fixed
interest rate of approximately 7.4% on that term loan. The Company’s $3.0
million payment to terminate the former swap agreement is being amortized over
the remaining payment period of the loan, resulting in an effective fixed
interest rate of approximately 7.4% on the term loan.  The Company is
accounting for the interest rate swap agreement as a cash flow
hedge.
 
 The aggregate
fair market value of the Company’s swap agreement decreases when interest rates
decline and increases when interest rates rise.  Overall, interest
rates have declined since the inception of the Company’s swap
agreement.  The aggregate decrease in the fair market value of the
effective portion of the agreement of $191,000 ($311,000 pretax) as of February
3, 2008 and  $69,000 ($111,000 pretax) as of January 28, 2007 is
reflected under the caption “accumulated other comprehensive loss” in the
consolidated balance sheets.  See “Note 9 – Other Comprehensive Income
(Loss)” to the Consolidated Financial Statements included in this
report.  Substantially all of the aggregate pre-tax decrease in fair
market value of the agreement is expected to be reclassified into interest
expense during the next twelve months.
 
 Debt Covenant
Compliance
 
 The credit
agreement for the Company’s revolving credit facility and outstanding term loan
contains, among other things, financial covenants as to minimum tangible net
worth, debt service coverage, the ratio of funded debt to earnings before
interest, taxes, depreciation, amortization and maximum capital
expenditures.  The Company was in compliance with these covenants as
of February 3, 2008.
 
 Liquidity, Financial
Resources and Capital Expenditures
 
 As of
February 3, 2008, the Company had an aggregate $13.6 million available under its
revolving credit facility to fund working capital needs.  Standby
letters of credit in the aggregate amount of $1.4 million, used to collateralize
certain insurance arrangements and for imported product purchases, were
outstanding under the Company’s revolving credit facility as of February 3,
2008.  There were no additional borrowings outstanding under the
revolving credit line on February 3, 2008.  Any principal outstanding
under the credit line is due March 1, 2011.
 
 The Company
believes that it has 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, dividends on the Company’s common stock,
repurchases of common stock under the Company’s stock repurchase program and
repayments of outstanding debt.  Cash flow from operations is highly
dependent on incoming order rates and the Company’s operating
performance.  The Company expects to spend $4 to $6 million in capital
expenditures during fiscal year 2009 to maintain and enhance its operating
systems and facilities.
 
 28
 Common Stock and
Dividends
 
 On February
7, 2007, the Company announced that its Board of Directors had authorized the
repurchase of up to $20 million of the Company’s common stock.  On
June 6, 2007, the Company announced that its Board of Directors increased this
stock repurchase authorization by $10 million to $30 million.  This
authorization had no expiration date, but the Company completed the repurchase
program in November 2007.  The Company repurchased in open market
transactions 1.4 million shares of Company common stock under this authorization
at an average price of $21.36 per share, excluding commissions.
 
 On December
5, 2007, the Company announced that its Board of Directors had approved a new
authorization to repurchase up to $10 million of the Company’s common
stock.  There is no expiration date for this authorization, but the
Company expects the purchases to be completed by the end of the 2009 fiscal
year.  Repurchases may be made from time-to-time in the open market,
or in privately negotiated transactions at prevailing market prices that the
Company deems appropriate.  The Company entered into a trading plan
under Rule 10b5-1 of the Securities Exchange Act of 1934 for effecting some or
all of the purchases under this repurchase authorization.  The trading
plan contains certain provisions that could restrict the amount and timing of
purchases.  The Company can terminate this plan at any
time.  Through April 14, 2008, the Company had used $6.8 million of
this authorization to purchase 351,581 shares of the Company’s common stock,
with $3.2 million remaining available for future purchases.
 
 On January
15, 2008, awards totaling 4,335 shares of restricted common stock were granted
to five non-employee members of the Board of Directors.  Each award is
subject to vesting requirements and other limitations in accordance with the
Hooker Furniture 2005 Stock Incentive Plan.
 
 On April 1,
2008, the Company’s Board of Directors declared a quarterly cash dividend of
$0.10 per share, payable on May 30, 2008, to shareholders of record May 16,
2008.
 
 Commitments
and Contractual Obligations
 
 As of
February 3, 2008, the Company’s commitments and contractual obligations were as
follows:
 
 Payments
      Due by Period (In thousands)Less
      than
                
                
                
                
                
                More
      than1
      Year
                
                1-3
      Years
                
                3-5
      Years
                
                5
      Years
                
                TotalLong-term
      debt (a)
                
                $
                2,926
                
                
                $
                5,367
                
                
                
                
                
                
                
                
                $
                8,293Operating
      leases and agreements
                
                
                4,094
                
                
                
                4,205
                
                
                $
                162
                
                
                $
                6
                
                
                
                8,467Other
      long-term liabilities (b)
                
                
                331
                
                
                
                744
                
                
                
                1,088
                
                
                
                15,951
                
                
                
                18,114Total
      contractual cash obligations
                
                $
                7,351
                
                
                $
                10,316
                
                
                $
                1,250
                
                
                $
                15,957
                
                
                $
                34,874
 
  (a)
              Represents
      principal and estimated interest payments under the Company’s term
      loan.
 (b)
              Represents
      estimated payments to be made under deferred compensation
      arrangements.
   Standby
letters of credit in the aggregate amount of $1.4 million, used to collateralize
certain insurance arrangements and for imported product purchases, were
outstanding under the Company’s revolving credit facility as of February 3,
2008.  There were no additional borrowings outstanding under the
revolving credit line on February 3, 2008.
 
 Strategy
and Outlook
 
 During fiscal
2008, Hooker Furniture continued to make significant progress toward its
strategic goal of transforming itself into a home furnishings design, marketing
and logistics company with world-wide sourcing capabilities
including:
 
 ·
              completing
      the exit from domestic wood furniture manufacturing to concentrate on
      imported wood and metal and domestically produced and imported upholstered
      home furnishings;
 ·
              completing
      the  purchase of the assets of Sam Moore Furniture LLC, a
      manufacturer of fabric-covered upscale occasional
  chairs;
 ·
              completing
      the purchase of certain of the assets of Opus Designs LLC, a youth bedroom
      furniture specialist, to expand the Company’s youth bedroom furniture
      offerings and, long-term, to begin introducing more products, at a more
      moderate price point, which appeal to a younger
    demographic;
  29
 ·
              completing
      the sale of the Company’s last domestic wood furniture plant and equipment
      and donating two former Bradington-Young showrooms, thus eliminating the
      carrying costs and related operating and maintenance costs for those
      facilities;
 ·
              continuing
      to improve and expand the Company’s supply chain capabilities, with
      further improvements in forecasting and demand-planning software and SKU
      count reduction, resulting in the reduction of inventories to optimal
      levels, while maintaining  flow of product to
      customers;
 ·
              filling
      key leadership positions with people who have the skill sets and
      experience needed under the Company’s new business model;
    and
 ·
              opening
      a distribution facility located in the port area of Southern California to
      improve the Company’s  service, and further reduce inbound and
      outbound freight cost, to its dealers principally located on the U.S. West
      Coast, for certain imported wood, metal and upholstered furniture
      products.
 
 The Company
anticipates that these changes will result in:
 
 ·
              slightly
      improved operating margins,
 ·
              increased
      sales, due to expanded product
offerings,
 ·
              reduced
      site operation and occupancy costs,
and
 ·
              lower
      inventory carrying costs.
 
 During the
year, Bradington-Young and Sam Moore launched a number of new domestic and
imported products.  Going forward, the Company expects that
Bradington-Young and Sam Moore will retain their business for domestically
produced goods and expand sales of their imported products.  Following
its acquisition, Sam Moore’s product distribution was expanded through Hooker’s
independent sales representatives.  While Sam Moore operated at a loss
in fiscal 2008, the Company believes that this improved market penetration will
result in increased sales once economic conditions improve and marginal
profitability for Sam Moore in fiscal year 2009.
 
 Hooker
continues to offer its “store within a store” displays with the Company’s
existing dealers through “SmartLiving ShowPlace” galleries dedicated exclusively
to multi-category and whole-home collections under the Hooker and
Bradington-Young brands.  The mission of the SmartLiving program is to
develop progressive partnerships with retailers consisting of a merchandising
and marketing plan to drive increased sales and profitability and positively
impact consumers’ purchase decisions, satisfaction and loyalty through an
enhanced shopping experience.
 
 The Company
expects business conditions will remain challenging well into fiscal 2009 based
on industry forecasts for a lower growth rate in furniture shipments and a
decline in the Company’s incoming orders since the 2006 fourth quarter. Although
net sales growth will continue to be challenging, the Company expects improved
profitability because of the steps it has taken to reduce costs and expand the
Company’s product offerings.
 
 Environmental
Matters
 
 Hooker
Furniture is committed to protecting the environment.  As a part of
its business operations, the Company’s manufacturing sites generate
non-hazardous and hazardous wastes, the treatment, storage, transportation and
disposal of which are subject to various local, state and national laws relating
to protecting the environment.  The Company is in various stages of
investigation, remediation or monitoring of alleged or acknowledged
contamination at current or former manufacturing sites for soil and groundwater
contamination and visible air emissions, none of which the Company believes is
material to its results of operations or financial position.  The
Company’s policy is to record monitoring commitments and environmental
liabilities when expenses are probable and can be reasonably
estimated.  The costs associated with the Company’s environmental
responsibilities, compliance with federal, state and local laws regulating the
discharge of materials into the environment, or costs otherwise relating to the
protection of the environment, have not had and are not expected to have a
material effect on the Company’s financial position, results of operations,
capital expenditures or competitive position.
 
 Critical
Accounting Policies and Estimates
 
 The Company’s
significant accounting policies are described in “Note 1 – Summary of
Significant Accounting Policies” to the consolidated financial statements
beginning at page F-1 in this report.  The preparation of financial
statements in conformity with  U.S. generally accepted accounting
principles requires management to make estimates and assumptions in certain
circumstances that affect amounts reported in the accompanying financial
statements and related notes.  In preparing these financial
statements, management has made its best estimates and judgments of certain
amounts included in the financial statements, giving due consideration to
materiality.  The Company does not believe that actual results will
deviate materially from its estimates related to the Company’s accounting
policies described below.  However, because application of these
accounting policies involves the exercise of judgment and the use of assumptions
as to future uncertainties, actual results could differ materially from these
estimates.
 
 30
 Allowance for Doubtful
Accounts. The Company evaluates the adequacy of its allowance for
doubtful accounts at the end of each quarter.  In performing this
evaluation, the Company analyzes the payment history of its significant past due
accounts, subsequent cash collections on these accounts and comparative accounts
receivable aging statistics.  Based on this information, along with
consideration of the general strength of the economy, the Company develops what
it considers to be a reasonable estimate of the uncollectible amounts included
in accounts receivable.  This estimate involves significant judgment
by management of the Company and actual uncollectible amounts may differ
materially from the Company’s estimate.
 
 Valuation of
Inventories.The Company values all of its inventories at the
lower of cost (using the last-in, first-out (“LIFO”) method) or
market.  LIFO cost for all of the Company’s inventories is determined
using the dollar-value, link-chain method.  This method allows for the
more current cost of inventories to be reported in cost of goods sold, while the
inventories reported on the balance sheet consist of the costs of inventories
acquired earlier, subject to adjustment to the lower of cost or
market.  Hence, if prices are rising, the LIFO method will generally
lead to higher cost of goods sold and lower profitability as compared to the
FIFO method.  The Company evaluates its inventory for excess or slow
moving items based on recent and projected sales and order
patterns.  The Company establishes an allowance for those items when
the estimated market or net sales value is lower than their recorded
cost.  This estimate involves significant judgment by management and
actual values may differ materially from the Company’s estimate.
 
 Impairment of Long-Lived
Assets.  Long-lived assets, such as property, plant and
equipment, are evaluated for impairment when events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable through
the estimated undiscounted future cash flows from the use of those
assets.  When any such impairment exists, the related assets are
written down to fair value.  Long-lived assets to be disposed of by
sale are measured at the lower of their carrying amount or fair value less cost
to sell, are no longer depreciated, and are reported separately as “assets held
for sale” in the consolidated balance sheets.
 
 The Company’s
domestic wood furniture manufacturing operations have suffered from lower demand
and significant declines in volume for its bedroom, home office and home
entertainment products, principally due to competition from lower-priced
imported furniture products.  These declines led to the Company’s exit
from domestic wood manufacturing with the closing of the Company’s Martinsville,
Va. facility in March 2007, Roanoke, Va. facility in August 2006, Pleasant
Garden, N.C. facility in October 2005, Maiden, N.C. facility in October 2004 and
Kernersville, N.C. facility in August 2003.
 
 As a result
of these plant closings, the Company recorded asset impairment charges to write
down the carrying value of the related assets to fair market
value.  The costs to dispose of these assets are recognized when
management commits to a plan of disposal.  Severance and related
benefits paid to terminated employees affected by the closings are recorded in
the period when management commits to a plan of termination.  The
Company recognizes liabilities for these exit and disposal activities at fair
value in the period in which the liability is incurred.  Asset
impairment charges related to the closure of manufacturing facilities are based
on the Company’s best estimate of expected sales prices, less related selling
expenses for assets to be sold.  The recognition of asset impairment
and restructuring charges for exit and disposal activities requires significant
judgment and estimates by management.  Management reassesses its
accrual of restructuring and asset impairment charges each reporting
period.  Any change in estimated restructuring and related asset
impairment charges is recognized in the period during which the change
occurs.
 
 Accounting
Pronouncements
  In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133.”   The objective of this statement is to require enhanced
disclosures about an entity’s derivative and hedging activities and to improve
the transparency of financial reporting.  This statement changes the
disclosure requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows.  This statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. This statement encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. The
Company expects to adopt the standard in its fiscal year 2010 first quarter,
which will begin February 2, 2009.  The adoption of
SFAS 161 is not expected to have a material impact on the Company’s
financial position or results of operations.
  In December
2007, the FASB issued a revision to SFAS No. 141R, “Business
Combinations”.   The objective of this Statement is to improve
the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial reports about a
business combination and its effects. To accomplish that, this statement
establishes principles and requirements for how the acquirer:  a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree;  b) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  This
statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  Early adoption of
this standard is not permitted.  Consequently, the Company expects to
adopt the standard in its fiscal year 2010 first quarter, which will begin
February 2, 2009.  The adoption of SFAS 141R is not expected to
have a material impact on the Company’s financial position or results of
operations.
  31
 In March
2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF No.
06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance
Arrangements”.  The task force reached a consensus that requires an
employer to measure the asset associated with collateral-assignment split-dollar
life insurance based on the arrangement’s terms.  Under the consensus,
an employer would record a liability for a postretirement benefit only if the
employer has agreed to maintain the life insurance policy during the employee’s
retirement or provide the employee with a death benefit.   The
consensus is effective for fiscal years beginning after December 15,
2007.  Consequently, the Company will adopt the EITF No. 06-10 in its
fiscal year 2009 first quarter, which began February 4,
2008.   The adoption of EITF No. 06-10 is not expected to have a
material impact on the Company’s financial position or results of
operations.
 
 In February
2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities – Including an Amendment of FASB Statement No.
115”.   This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This statement is expected to expand the use of fair value
measurement, which is consistent with FASB’s long-term measurement objectives
for accounting for financial instruments.  This statement is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of FASB Statement No. 157, Fair Value
Measurements.  Consequently, the Company will adopt the standard in
its fiscal year 2009 first quarter, which began February 4,
2008.   The adoption of SFAS 159 is not expected to have a
material impact on the Company’s financial position or results of
operations.
 
 In September
2006, the FASB issued SFAS No. 157, “Fair Value Measurements”.  This
statement defines fair value, establishes a framework for measuring fair value
under U.S. generally accepted accounting principles, and expands disclosures
about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this statement does not require any
new fair value measurements. However, for some entities, the application of this
statement will change current practice.  This statement is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years.  Consequently,
the Company will adopt the standard in its fiscal year 2009 first quarter, which
began February 4, 2008.   The adoption of SFAS 157 is not
expected to have a material impact on the Company’s financial position or
results of operations.
 
 In September
2006, the EITF reached a consensus on EITF No. 06-5 “Accounting for Purchase of
Life Insurance – Determining the Amount That Could Be Realized in Accordance
with FASB Technical Bulletin No. 85-4” .  The task force reached a
consensus on a number of issues related to the purchase and surrender of life
insurance contracts.  The consensus is effective for fiscal years
beginning after December 15, 2006.  Consequently, the Company adopted
EITF No. 06-5 in its fiscal year 2008 first quarter, which began on January 29,
2007.   The adoption of EITF No. 06-5 did not have a material
impact on the Company’s financial position or results of
operations.
 
 
 ITEM
7A.                  
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 The Company
is exposed to market risk from changes in interest rates and foreign currency
exchange rates, which could impact its results of operations and financial
condition.  The Company manages its exposure to these risks through
its normal operating and financing activities and through the use of interest
rate swap agreements with respect to interest rates.
 
 The Company’s
obligations under its lines of credit and term loan bear interest at variable
rates.  The outstanding balance under the Company’s term loan amounted
to $7.9 million as of February 3, 2008.  The Company has entered into
an interest rate swap agreement that, in effect, fixes the rate of interest on
its term loan at 4.1% through 2010.  The notional principal value of
the swap agreement is substantially equal to the outstanding principal balance
of the term loan.  A fluctuation in market interest rates of one
percentage point (or 100 basis points) would not have a material impact on the
Company’s results of operations or financial condition.
 
 32
 For imported
products, the Company generally negotiates firm pricing denominated in U.S.
Dollars with its foreign suppliers, for periods typically of at least one
year.  The Company accepts the exposure to exchange rate movements
beyond these negotiated periods without using derivative financial instruments
to manage this risk.  Most of the Company’s 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 the
Company transacts its imported product purchases in U.S. Dollars, a relative
decline in the value of the U.S. Dollar could increase the price the Company
pays for imported products beyond the negotiated periods. The Company generally
expects to reflect substantially all of the effect of any price increases from
suppliers in the prices it charges for imported
products.   However, these changes could adversely impact sales
volume and profit margin during affected periods.
 
 ITEM
8.                    
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
 The financial
statements listed in Item 15(a), and which begin on page F-1, of this report are
incorporated herein by reference and are filed as a part of this
report.
 
 Certain
Non-GAAP Financial Measures
 
 The Company,
in its Annual Report to Shareholders (of which this annual report on Form 10-K
is a part), under the heading “Financial Highlights,” has reported net income
and earnings per share both including and excluding the impact of restructuring
and asset impairment charges, the January 2007 ESOP termination charge and the
December 2007 charge related to the donation of two former Bradington-Young
showrooms.  In this Form 10-K, under the headings “Results of
Operations  Fiscal 2008 Compared to Fiscal 2006,” “Results of
Operations Fiscal 2007 Two-Month Transition Period Compared to Fiscal 2006 First
Quarter” and “Results of Operations – Fiscal 2006 Compared to Fiscal
2005,”  the Company has reported operating income margin both
including and excluding the impact of restructuring and asset impairment
charges, the January 2007 ESOP termination charge and the December 2007 charge
related to the donation of two former Bradington-Young
showrooms.   The net income, earnings per share and operating
income margins figures excluding the impact of the items specified above are
“non-GAAP” financial measures.  The Company provides this information
because management believes it is useful to investors in evaluating the
Company’s ongoing operations.
 
 
 ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 None.
 
 ITEM
9A.                   CONTROLS
AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
  Based on
their most recent review, which was made as of the end of the Company’s fourth
quarter ended February 3, 2008, the Company’s principal executive officer and
principal financial officer have concluded that the Company’s disclosure
controls and procedures are effective to provide reasonable assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934, as amended, is accumulated
and communicated to the Company’s management, including its principal executive
officer and principal financial officer, as appropriate to allow timely
decisions regarding required disclosure and are effective to provide reasonable
assurance that such information is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission
(“SEC”) rules and forms.
 
 Management’s
Annual Report on Internal Control over Financial Reporting
  In accordance
with Section 404 of the Sarbanes-Oxley Act and SEC rules thereunder, management
has conducted an assessment of the Company’s internal control over financial
reporting as of February 3, 2008.  Management’s report regarding that
assessment is included with the financial statements on page F-2 of this report
and is incorporated herein by reference.
 
 Report
of Registered Public Accounting Firm
 
 The Company’s
independent registered public accounting firm, KPMG LLP, audited the
consolidated financial statements included in this annual report on Form 10-K
and have issued an audit report on the effectiveness of the Company’s internal
control over financial reporting.  Their report is included with the
financial statements on page F-4 of this report and is incorporated herein by
reference.
  33
 Changes
in Internal Control over Financial Reporting
 
 There have
been no changes in the Company’s internal control over financial reporting for
the Company’s fourth quarter ended February 3, 2008, that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
  
 ITEM
9B.                   OTHER
INFORMATION
 
 On February
27, 2008, the Company renewed the $15 million revolving credit line under its
credit facility with Bank of America, N.A.  The new maturity date for
the revolving credit line is March 1, 2011.  The other terms and
conditions applicable to the revolving credit line, including the financial
covenants regarding minimum tangible net worth, debt service coverage, the ratio
of funded debt to earnings before interest, taxes, depreciation, amortization,
and maximum capital expenditures, remain unchanged.
   34
 Hooker
Furniture Corporation
 Part
III
 
 In accordance
with General Instruction G (3) of Form 10-K, the information called for by Items
10, 11, 12, 13 and 14 of Part III is incorporated by reference to the Company’s
definitive Proxy Statement for its Annual Meeting of Shareholders scheduled to
be held June 30, 2008 (the “2008 Proxy Statement”), as set forth
below:
 
 ITEM
10.                    DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 Information
related to the Company’s directors is set forth under the caption “Election of
Directors” in the 2008 Proxy Statement and is incorporated herein by
reference.
 
 Information
relating to compliance with Section 16(a) of the Exchange Act is set forth under
the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the
2008 Proxy Statement and is incorporated herein by reference.
 
 Information
regarding material changes, if any, in the procedures by which shareholders may
recommend nominees to the Company’s Board of Directors will be set forth under
the caption “Procedures for Shareholder Recommendations of Director Nominees” in
the 2008 Proxy Statement and is incorporated herein by reference.
 
 Information
relating to the Audit Committee of the Company’s Board of Directors, including
the composition of the Audit Committee and the Board’s determinations concerning
whether certain members of the Audit Committee are “financial experts” as that
term is defined under Item 407(d)(5) of Regulation S-K is set forth under the
captions “Board  and Board Committee Information” and “Audit
Committee” in the 2008 Proxy Statement and is incorporated herein by
reference.
 
 Information
concerning the executive officers of the Company is included in Part I of this
report under the caption “Executive Officers of Hooker Furniture
Corporation.”
 
 The Company
has adopted a Code of Business Conduct and Ethics, which applies to all of the
Company’s employees and directors, including the Company’s principal executive
officer, principal financial officer and principal accounting officer. A copy of
the Company’s Code of Business Conduct and Ethics is available on the Company’s
website at www.hookerfurniture.com.
Amendments of and waivers from the Company’s Code of Business Conduct and Ethics
will be posted to the Company’s website when permitted by applicable SEC and
NASDAQ rules and regulations.
 
 ITEM
11.                    EXECUTIVE
COMPENSATION
 
 Information
relating to this item is set forth under the captions “Executive Compensation”
and “Director Compensation” in the 2008 Proxy Statement and is incorporated
herein by reference.
 
 ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER
MATTERS
 
 Information
relating to this item is set forth under the captions “Equity Compensation Plan
Information” and “Security Ownership of Certain Beneficial Owners and
Management” in the 2008 Proxy Statement and is incorporated herein by
reference.
 
 ITEM
13.                    CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
 Information
relating to this item is set forth under the captions “Certain Relationships and
Related Transactions” and “Board and Board Committee Information” in the 2008
Proxy Statement and is incorporated herein by reference.
 
 ITEM
14.                    PRINCIPAL
ACCOUNTANT FEES AND SERVICES
 
 Information
relating to this item is set forth under the caption “Ratification of Selection
of Independent Registered Public Accounting Firm” in the 2008 Proxy Statement
and is incorporated herein by reference.
 
 
 35
 Hooker
Furniture Corporation
 Part
IV
 ITEM
15.                    EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
  (a)
              Documents
      filed as part of this report on Form
10-K:
  (1)
              The
      following financial statements are included in this report on Form
      10-K:
  Report
      of Independent Registered Public Accounting
Firm
  Consolidated
      Balance Sheets as of February 3, 2008 and January 28,
  2007
  Consolidated
      Statements of Operations for the fifty-three weeks ended February 3, 2008,
      the two-month transition period ended January 28, 2007 and the twelve
      months ended November 30, 2006 and
2005
  Consolidated
      Statements of Cash Flows for the fifty-three weeks ended February 3, 2008,
      the two-month transition period ended January 28, 2007 and the twelve
      months ended November 30, 2006 and
2005
  ConsolidatedStatements of Shareholders’ Equity for the twelve months ended
      November 30, 2006 and 2005, the two-month transition period ended January
      28, 2007 and the fifty-three weeks ended February 3,
      2008
  Notes
      to Consolidated Financial
Statements
  (2)
                Financial
      Statement Schedules:
  FinancialStatement Schedules have been omitted because the information
      required has been separately disclosed in the consolidated financial
      statements or related
notes.
  (b)
                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)
  4.3(a)
              Credit
      Agreement, dated April 30, 2003, between Bank of America, N.A., and the
      Company (incorporated by reference to Exhibit 4.1 of the Company’s Form
      10-Q (SEC File No. 000-25349) for the quarter ending May 31,
      2003)
  4.3(b)
              First
      Amendment to Credit Agreement, dated as of February 18, 2005, among the
      Company, the Lenders party thereto, and Bank of America, N.A., as agent
      (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q (SEC
      File No. 000-25349) for the quarter ending February 28,
    2005)
  4.3(c)
              Second
      Amendment to Credit Agreement dated as of February 27, 2008, among the
      Company and Bank of America, N.A. as lender and agent (filed
      herewith)
  Pursuantto Regulation S-K, Item 601(b)(4)(iii), instruments evidencing
      long-term debt not exceeding 10% of the Company’s total assets have been
      omitted and will be furnished to the Securities and Exchange Commission
      upon request.
  10.1(a)
              Form of
      Executive Life Insurance Agreement dated December 31, 2003, between the
      Company and certain of its executive officers (incorporated by reference
      to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for
      the quarter ended February 29,
2004)*
  10.1(b)(i)
              Supplemental
      Retirement Income Plan effective as of December 1, 2003 (incorporated by
      reference to Exhibit 10.3 of the Company’s Form 10-Q (SEC File No.
      000-25349) for the quarter ended February 29,
  2004)*
  10.1(b)(ii)
              First
      Amendment to the Supplemental Retirement Income Plan, dated as of May 24,
      2007 (filed herewith)*
  10.1(c)
              Summary
      of Compensation for Named Executive Officers (filed
    herewith)*
 36
 10.1(d)
              Summary
      of Director Compensation (filed
herewith)*
  10.1(e)
              Hooker
      Furniture Corporation 2005 Stock Incentive Plan (incorporated by reference
      to Appendix B of the Company’s Definitive Proxy Statement dated March 1,
      2005 (SEC File No. 000-25349))*
  10.1(f)
              Form of
      Outside Director Restricted Stock Agreement (incorporated by reference to
      Exhibit 99.1 of the Company’s Current Report on Form 8-K (SEC File No.
      000-25349) filed January 17, 2006)*
  10.1(g)
              Retirement
      Agreement, dated October 26, 2006, between Douglas C. Williams and the
      Company (incorporated by reference to Exhibit 10.1(g) of the Company’s
      Annual Report on Form 10-K (SEC File No. 000-25349) filed February 28,
      2007)*
  10.1(h)
              Employment
      Agreement, dated June 15, 2007, between Alan D. Cole and the Company
      (filed herewith)*
  10.2(a)
              Credit
      Agreement, dated April 30, 2003, between Bank of America, N.A., and the
      Company (See Exhibit 4.3(a))
  10.2(b)
              First
      Amendment to Credit Agreement, dated as of February 18, 2005, among the
      Company, the Lenders party thereto, and Bank of America, N.A., as agent
      (See Exhibit 4.3(b))
  10.2(c)
              Second
      Amendment to Credit Agreement, dated as of February 27, 2008, among the
      Company and Bank of America, N.A., as lender and agent (See Exhibit
      4.3(c))
  21
              List of
      Subsidiaries:
  Bradington-Young
      LLC, a Virginia limited liability
company
 Sam
      Moore Furniture LLC, a Virginia limited liability
  company
  23
              Consent
      of Independent Registered Public Accounting Firm (filed
      herewith)
  31.1
              Rule
      13a-14(a) Certification of the Company’s principal executive officer
      (filed herewith)
  31.2
              Rule
      13a-14(a) Certification of the Company’s principal financial officer
      (filed herewith)
  32.1
              Rule
      13a-14(b) Certification of the Company’s principal executive officer
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (filed
herewith)
  32.2
              Rule
      13a-14(b) Certification of the Company’s principal financial officer
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (filed
herewith)
 _____________
 *Management
contract or compensatory plan
  37
 SIGNATURES
 
 Pursuant to
the requirements of Section 13 or 15(d) 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 CORPORATIONApril
      16, 2008
                /s/  Paul B.
      Toms, Jr.Paul B.
      Toms, Jr.Chairman,
      President and Chief Executive
Officer
 Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Signature
                Title
                Date/s/  Paul B. Toms,
      Jr.
                Chairman,
      President, Chief Executive Officer and
                April
      16, 2008Paul
      B. Toms, Jr.
                Director
      (Principal Executive Officer)/s/  E. Larry
      Ryder
                Executive
      Vice President - Finance and
                April
      16, 2008E.
      Larry Ryder
                Administration
      (Principal Financial Officer)/s/  R. Gary
      Armbrister
                Chief
      Accounting Officer
                April
      16, 2008R. Gary Armbrister
                (Principal
      Accounting Officer)/s/  W. Christopher Beeler,
      Jr.
                Director
                April
      16, 2008W.
      Christopher Beeler, Jr./s/  John L. Gregory,
      III
                Director
                April
      16, 2008John
      L. Gregory, III/s/  Mark F.
      Schreiber
                Director
                April
      16, 2008Mark F. Schreiber/s/  David G.
      Sweet
                Director
                April
      16, 2008David
      G. Sweet/s/  Henry
      G. Williamson, Jr.
                Director
                April
      16, 2008Henry G. Williamson, Jr.
 38
 HOOKER
FURNITURE CORPORATION AND SUBSIDIARIES
 INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
 
 PageManagement's
      Report on Internal Control Over Financial Reporting
                F-2Report
      of Independent Registered Public Accounting Firm
                F-3Consolidated
      Balance Sheets as of  February 3, 2008 and January 28,
      2007
                F-5Consolidated
      Statements of Operations for the fifty-three weeks ended February 3,
      2008,the
      two-month transition period ended January 28, 2007 and the twelve months
      endedNovember
      30, 2006 and 2005
                F-6Consolidated
      Statements of Cash Flows for the fifty-three weeks ended February 3,
      2008,the
      two-month transition period ended January 28, 2007 and the twelve months
      endedNovember
      30, 2006 and 2005
                F-7Consolidated
      Statements of Shareholders’ Equity for the twelve months ended November
      30,2006
      and 2005, the two-month transition period ended January 28, 2007 and the
      fifty-threeweeks
      ended February 3, 2008
                F-8Notes
      to Consolidated Financial Statements
                F-9
 F-1
 MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 
 To the
Shareholders of
 Hooker
Furniture Corporation
 Martinsville,
Virginia
 
 Management is
responsible for establishing and maintaining adequate internal control over
financial reporting, as defined in Exchange Act Rule 13a-15(f). Under the
supervision and with the participation of management, including the principal
executive officer and principal financial officer, the Company conducted an
evaluation of the effectiveness of its internal control over financial reporting
based on the framework in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO).  Based on the Company’s evaluation under that framework,
management concluded that the Company’s internal control over financial
reporting was effective as of February 3, 2008.  The effectiveness of
the Company’s internal control over financial reporting as of February 3, 2008
has been audited by KPMG LLP, the Company’s independent registered public
accounting firm, as stated in their report which is included
herein.
 
 The Company
acquired substantially all of the assets of Sam Moore Furniture Industries, Inc.
on April 28, 2007. The Company operates the Sam Moore business through a wholly
owned subsidiary named Sam Moore Furniture LLC.  Management did not
include the Sam Moore business in its evaluation of internal control over
financial reporting as of February 3, 2008. The Sam Moore business
constituted $11.3 million, or 6.4% of consolidated total assets and $20.8
million, or 6.6% of consolidated net sales of Hooker Furniture Corporation as of
and for the year ended February 3, 2008. Additional discussion regarding
the Sam Moore acquisition and its impact on the Company’s financial statements
can be found in Note 4 of the Company’s consolidated financial
statements.
 
 
 F-2
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The Board of
Directors and Shareholders
 Hooker
Furniture Corporation:
 
 We have
audited the accompanying consolidated balance sheets of Hooker Furniture
Corporation and subsidiaries as of February 3, 2008 and January 28, 2007 and the
related consolidated statements of operations, cash flows and shareholders’
equity for each of:  the fifty-three week period ended February 3,
2008; the two-month transition period ended January 28, 2007;  and
the  twelve-month periods ended November 30, 2006 and 2005. These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
 
 We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States).  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Hooker Furniture Corporation
and subsidiaries as of  February 3, 2008 and  January 28,
2007, and the results of their operations and their cash flows for each
of:   the fifty-three week period ended February 3, 2008; the
two-month transition period ended January 28, 2007; and the twelve-month periods
ended November 30, 2006 and 2005 in conformity with U.S. generally accepted
accounting principles.
 
  As discussed
in Note 13 to the consolidated financial statements, effective January 29, 2007,
the Company adopted the provisions of Financial Accounting Standards Board
Interpretation No. 48,Accounting for Uncertainty in Income Taxes.
  
 We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Hooker Furniture Corporation’s internal control
over financial reporting as of February 3, 2008 based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated April 15,
2008 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
 
 
 
 
 Greensboro,
North Carolina
 April 15,
2008
 
 F-3
  Report
of Independent Registered Public Accounting Firm
  The Board of
Directors and Shareholders
 Hooker
Furniture Corporation:
  We have
audited Hooker Furniture Corporation’s internal control over financial reporting
as of February 3, 2008, based on criteria established inInternal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Hooker Furniture Corporation’s management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting, included in the accompanying Management’s Report On Internal Control
Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our
audit.
  We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audit also included performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.
  A company’s
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the
financial statements.
  Because of
its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
  In our
opinion, Hooker Furniture Corporation maintained, in all material respects,
effective internal control over financial reporting as of February 3, 2008,
based on criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
  Hooker
Furniture Corporation acquired substantially all of the assets of Sam Moore
Furniture Industries, Inc. during 2008, and management excluded from its
assessment of the effectiveness of Hooker Furniture Corporation’s internal
control over financial reporting as of February 3, 2008, the Sam Moore
Furniture business’s internal control over financial reporting associated with
total assets of $11.3 million, or 6.4% of consolidated total assets and net
sales of $20.8 million, or 6.6% of consolidated net sales included in the
consolidated financial statements of Hooker Furniture Corporation and
subsidiaries as of and for the year ended February 3, 2008. Our audit of
internal control over financial reporting of Hooker Furniture Corporation also
excluded an evaluation of the internal control over financial reporting of the
Sam Moore Furniture business.
  We also have
audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of Hooker
Furniture Corporation and subsidiaries as of February 3, 2008 and January
28, 2007, and the related consolidated statements of operations, cash flows and
shareholders’ equity for each of: the fifty-three week period ended February 3,
2008; the two-month transition period ended January 28, 2007; and the
twelve-month periods ended November 30, 2006 and 2005, and our report dated
April 15, 2008 expressed an unqualified opinion on those consolidated financial
statements.
  
  
 Greensboro,
North Carolina
 April 15,
2008
 
 F-4
 HOOKER
FURNITURE CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
BALANCE SHEETS
 (In
thousands)
 
 As
      of
                  
                  February
      3,
                  
                  
                  January
      28,2008
                  
                  
                  2007AssetsCurrent
      assetsCash and cash
      equivalents
                  
                  $
                  33,076
                  
                  
                  $
                  47,085Trade accounts receivable, less
      allowance for doubtful accountsof $1,750 and $1,436 on
      each date
                  
                  
                  38,229
                  
                  
                  
                  37,744Inventories
                  
                  
                  50,560
                  
                  
                  
                  62,803Prepaid expenses and other
      current assets
                  
                  
                  3,552
                  
                  
                  
                  3,254Assets held for
      sale
                  
                  
                  
                  
                  
                  
                  3,475Total current
    assets
                  
                  
                  125,417
                  
                  
                  
                  154,361Property,
      plant and equipment, net
                  
                  
                  25,353
                  
                  
                  
                  24,839Goodwill
                  
                  
                  3,774
                  
                  
                  
                  2,396Intangible
      assets
                  
                  
                  5,892
                  
                  
                  
                  4,400Cash
      surrender value of life insurance policies
                  
                  
                  12,173
                  
                  
                  
                  11,506Other
      assets
                  
                  
                  2,623
                  
                  
                  
                  4,961Total assets
                  
                  $
                  175,232
                  
                  
                  $
                  202,463
  Liabilities
      and Shareholders’ EquityCurrent
      liabilitiesTrade accounts
      payable
                  
                  $
                  13,025
                  
                  
                  $
                  10,071Accrued salaries, wages and
      benefits
                  
                  
                  3,838
                  
                  
                  
                  6,918Other accrued
      expenses
                  
                  
                  3,553
                  
                  
                  
                  7,676Current maturities of long-term
      debt
                  
                  
                  2,694
                  
                  
                  
                  2,503Total current
      liabilities
                  
                  
                  23,110
                  
                  
                  
                  27,168Long-term
      debt, excluding current maturities
                  
                  
                  5,218
                  
                  
                  
                  7,912Deferred
      compensation
                  
                  
                  5,369
                  
                  
                  
                  3,919Other
      long-term liabilities
                  
                  
                  709
                  
                  
                  
                  1,154Total liabilities
                  
                  
                  34,406
                  
                  
                  
                  40,153Shareholders’
      equityCommon stock, no par value,
      20,000 shares
      authorized,11,561and 13,269shares issued and
      outstanding on each date
                  
                  
                  18,182
                  
                  
                  
                  20,840Retained
    earnings
                  
                  
                  122,835
                  
                  
                  
                  141,539Accumulated other comprehensive
      loss
                  
                  
                  (191
                  )
                  
                  
                  (69
                  )Total shareholders’
      equity
                  
                  
                  140,826
                  
                  
                  
                  162,310Total liabilities and
      shareholders’ equity
                  
                  $
                  175,232
                  
                  
                  $
                  202,463
 
 See
accompanying Notes to Consolidated Financial Statements.
  F-5
 HOOKER
FURNITURE CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (In
thousands, except per share data)
 For
      The
                
                Fifty-Three
                
                
                Two
      MonthsWeeks
      Ended
                
                
                Ended
                
                
                Twelve Months
      EndedFebruary
      3,
                
                
                January
      28,
                
                
                November
      30,
                
                
                November
      30,2008
                
                
                2007
                
                
                2006
                
                
                2005Net
      sales
                
                $
                316,801
                
                
                $
                49,061
                
                
                $
                350,026
                
                
                $
                341,775Cost of
      sales
                
                
                219,555
                
                
                
                35,446
                
                
                
                248,812
                
                
                
                249,873Gross profit
                
                
                97,246
                
                
                
                13,615
                
                
                
                101,214
                
                
                
                91,902Selling
      and administrative expenses
                
                
                67,240
                
                
                
                9,458
                
                
                
                71,549
                
                
                
                65,497ESOP
      termination compensation charge
                
                
                
                
                
                
                18,428Restructuring
      and asset impairment charges
                
                
                309
                
                
                
                2,973
                
                
                
                6,881
                
                
                
                5,250Operating
      income (loss)
                
                
                29,697
                
                
                
                (17,244
                )
                
                
                22,784
                
                
                
                21,155Other
      income (expense), net
                
                
                1,472
                
                
                
                129
                
                
                
                (77
                )
                
                
                (646
                )Income
      (loss) before income taxes
                
                
                31,169
                
                
                
                (17,115
                )
                
                
                22,707
                
                
                
                20,509Income
      taxes
                
                
                11,514
                
                
                
                1,300
                
                
                
                8,569
                
                
                
                8,024Net
      income (loss)
                
                $
                19,655
                
                
                $
                (18,415
                )
                
                $
                14,138
                
                
                $
                12,485Earnings
      (loss) per share:Basic and diluted
                
                $
                1.58
                
                
                $
                (1.52
                )
                
                $
                1.18
                
                
                $
                1.06Weighted
      average shares outstanding:Basic
                
                
                12,442
                
                
                
                12,113
                
                
                
                11,951
                
                
                
                11,795Diluted
                
                
                12,446
                
                
                
                12,113
                
                
                
                11,953
                
                
                
                11,795Cash
      dividends declared per share
                
                $
                0.40
                
                
                $
                
                
                
                $
                0.31
                
                
                $
                0.28
 
 See
accompanying Notes to Consolidated Financial Statements.
  F-6
 HOOKER
FURNITURE CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF CASH FLOWS (In thousands)
 For
      The
                
                Fifty-Three
                
                
                Two
      MonthsWeeks
      Ended
                
                
                Ended
                
                
                Twelve Months
      EndedFebruary
      3,
                
                
                January
      28,
                
                
                November
      30,
                
                
                November
      30,2008
                
                
                2007
                
                
                2006
                
                
                2005Cash
      flows from operating activitiesCash received from
      customers
                
                $
                321,189
                
                
                $
                56,869
                
                
                $
                349,075
                
                
                $
                339,041Cash paid to suppliers and
      employees
                
                
                (266,009
                )
                
                
                (40,202
                )
                
                
                (317,895
                )
                
                
                (308,957
                )Income taxes paid,
      net
                
                
                (12,717
                )
                
                
                (480
                )
                
                
                (8,741
                )
                
                
                (9,614
                )Interest received (paid),
      net
                
                
                1,195
                
                
                
                28
                
                
                
                (111
                )
                
                
                (846
                )Net cash provided by operating
      activities
                
                
                43,658
                
                
                
                16,215
                
                
                
                22,328
                
                
                
                19,624Cash
      flows from investing activitiesAcquisitions, net of cash
      required
                
                
                (15,826
                )Purchase of property, plant and
      equipment
                
                
                (1,942
                )
                
                
                (419
                )
                
                
                (4,268
                )
                
                
                (3,590
                )Proceeds from the sale of
      property and equipment
                
                
                3,668
                
                
                
                22
                
                
                
                3,409
                
                
                
                5,226Net cash (used in) provided by
      investing activities
                
                
                (14,100
                )
                
                
                (397
                )
                
                
                (859
                )
                
                
                1,636Cash
      flows from financing activitiesPurchase and retirement of
      common stock
                
                
                (36,028
                )
                
                
                
                
                
                
                
                
                
                
                (930
                )Cash dividends
    paid
                
                
                (5,036
                )
                
                
                
                
                
                
                (3,687
                )
                
                
                (3,286
                )Payments on long-term
      debt
                
                
                (2,503
                )
                
                
                (597
                )
                
                
                (2,283
                )
                
                
                (9,871
                )Payment to terminate interest
      rate swap agreement
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (38
                )Net cash used in financing
      activities
                
                
                (43,567
                )
                
                
                (597
                )
                
                
                (5,970
                )
                
                
                (14,125
                )Net
      (decrease) increase in cash and cash equivalents
                
                
                (14,009
                )
                
                
                15,221
                
                
                
                15,499
                
                
                
                7,135Cash
      and cash equivalents at beginning of year
                
                
                47,085
                
                
                
                31,864
                
                
                
                16,365
                
                
                
                9,230Cash
      and cash equivalents at end of year
                
                $
                33,076
                
                
                $
                47,085
                
                
                $
                31,864
                
                
                $
                16,365Reconciliation
      of net income (loss) to net cash providedby operating
      activitiesNet
      income (loss)
                
                $
                19,655
                
                
                $
                (18,415
                )
                
                $
                14,138
                
                
                $
                12,485Depreciation and
      amortization
                
                
                3,352
                
                
                
                681
                
                
                
                4,645
                
                
                
                6,296Non-cash ESOP
    cost
                
                
                
                
                
                
                18,149
                
                
                
                2,646
                
                
                
                3,217Restricted stock compensation
      cost
                
                
                47
                
                
                
                
                
                
                
                18
                
                
                
                8Restructuring and related asset
      impairment charges
                
                
                309
                
                
                
                2,973
                
                
                
                6,881
                
                
                
                5,250(Loss) gain on disposal of
      property
                
                
                (100
                )
                
                
                
                
                
                
                2
                
                
                
                (10
                )Donation of showroom
      facilities
                
                
                1,082Provision (credit) for doubtful
      accounts
                
                
                1,313
                
                
                
                (182
                )
                
                
                1,920
                
                
                
                569Deferred income tax expense
      (benefit)
                
                
                2,624
                
                
                
                (787
                )
                
                
                (3,273
                )
                
                
                (1,479
                )Changes in assets and
      liabilities, net of effect from acquisitions:Trade accounts
      receivable
                
                
                2,972
                
                
                
                7,882
                
                
                
                (3,371
                )
                
                
                (3,602
                )Inventories
                
                
                18,757
                
                
                
                5,336
                
                
                
                579
                
                
                
                992Prepaid expenses and other
      assets
                
                
                (1,141
                )
                
                
                844
                
                
                
                (1,224
                )
                
                
                (2,550
                )Trade accounts
      payable
                
                
                2,063
                
                
                
                (1,180
                )
                
                
                (2,621
                )
                
                
                (1,058
                )Accrued salaries, wages and
      benefits
                
                
                (3,256
                )
                
                
                (1,589
                )
                
                
                (1,340
                )
                
                
                (2,440
                )Accrued income
      taxes
                
                
                (3,826
                )
                
                
                1,607
                
                
                
                2,489Other accrued
      expenses
                
                
                (1,198
                )
                
                
                255
                
                
                
                313
                
                
                
                300Other long-term
      liabilities
                
                
                1,005
                
                
                
                641
                
                
                
                526
                
                
                
                1,646Net cash provided by
      operating activities
                
                $
                43,658
                
                
                $
                16,215
                
                
                $
                22,328
                
                
                $
                19,624
 
 See
accompanying Notes to Consolidated Financial Statements.
 
 F-7
 HOOKER
FURNITURE CORPORATION AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
 (In
thousands, except per share data)
 
 
 AccumulatedUnearned
                
                
                
                
                
                Other
                
                
                TotalCommon
      Stock
                
                
                ESOP
                
                
                Retained
                
                
                Comprehensive
                
                
                Shareholders’Shares
                
                
                Amount
                
                
                Shares
                
                
                Earnings
                
                
                Loss
                
                
                EquityBalance
      at November 30, 2004
                
                
                14,475
                
                
                $
                7,385
                
                
                $
                (16,927
                )
                
                $
                146,886
                
                
                $
                (759
                )
                
                $
                136,585Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                12,485
                
                
                
                
                
                
                
                12,485Unrealized
      gain on interest rate swap
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                533
                
                
                
                533Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                13,018Cash
      dividends ($0.28 per share)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,286
                )
                
                
                
                
                
                
                (3,286
                )Purchase
      and retirement of common stock
                
                
                (50
                )
                
                
                (28
                )
                
                
                
                
                
                
                (902
                )
                
                
                
                
                
                
                (930
                )ESOP
      cost
                
                
                
                
                
                
                2,159
                
                
                
                1,066
                
                
                
                
                
                
                
                
                
                
                
                3,225Balance
      at November 30, 2005
                
                
                14,425
                
                
                
                9,516
                
                
                
                (15,861
                )
                
                
                155,183
                
                
                
                (226
                )
                
                
                148,612Cumulative
      effect adjustment as a result of theimplementation
      of SEC Staff Accounting BulletinNo.
      108
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                692
                
                
                
                
                
                
                
                692Balance
      at December 1, 2005
                
                
                14,425
                
                
                
                9,516
                
                
                
                (15,861
                )
                
                
                155,875
                
                
                
                (226
                )
                
                
                149,304Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                14,138
                
                
                
                
                
                
                
                14,138Unrealized
      gain on interest rate swap
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                117
                
                
                
                117Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                14,255Cash
      dividends ($0.31 per share)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,687
                )
                
                
                
                
                
                
                (3,687
                )Restricted
      stock grants, net of forfeitures
                
                
                4Restricted
      stock compensation cost
                
                
                
                
                
                
                18
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                18ESOP  cost
                
                
                
                
                
                
                1,620
                
                
                
                1,026
                
                
                
                
                
                
                
                
                
                
                
                2,646Balance
      at November 30, 2006
                
                
                14,429
                
                
                
                11,154
                
                
                
                (14,835
                )
                
                
                166,326
                
                
                
                (109
                )
                
                
                162,536Net
      loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (18,415
                )
                
                
                
                
                
                
                (18,415
                )Unrealized
      gain on interest rate swap
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                40
                
                
                
                40Total
      comprehensive loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (18,375
                )Restricted
      stock grants
                
                
                5Restricted
      stock compensation cost
                
                
                
                
                
                
                8
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                8ESOP
      termination
                
                
                (1,165
                )
                
                
                9,678
                
                
                
                14,835
                
                
                
                (6,372
                )
                
                
                
                
                
                
                18,141Balance
      at January 28, 2007
                
                
                13,269
                
                
                
                20,840
                
                
                
                
                
                
                
                141,539
                
                
                
                (69
                )
                
                
                162,310Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                19,655
                
                
                
                
                
                
                
                19,655Unrealized
      loss on interest rate swap
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (122
                )
                
                
                (122
                )Total
      comprehensive income
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                19,533Cash
      dividends ($0.40 per share)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (5,036
                )
                
                
                
                
                
                
                (5,036
                )Restricted
      stock grants, net of forfeitures
                
                
                4Restricted
      stock compensation cost
                
                
                
                
                
                
                47
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                47Purchase
      and retirement of common stock
                
                
                (1,712
                )
                
                
                (2,705
                )
                
                
                
                
                
                
                (33,323
                )
                
                
                
                
                
                
                (36,028
                )Balance
      at February 3, 2008
                
                
                11,561
                
                
                $
                18,182
                
                
                $
                
                
                
                $
                122,835
                
                
                $
                (191
                )
                
                $
                140,826
 See
accompanying Notes to Consolidated Financial Statements.
 F-8
 NOTE  1
– SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Nature
of Business
 
 Hooker
Furniture Corporation and subsidiaries (the “Company”) design, import,
manufacture and market residential household furniture for sale to wholesale and
retail merchandisers located principally in North America.
 
 Consolidation
 
 The
consolidated financial statements include the accounts of Hooker Furniture
Corporation and its wholly owned subsidiaries.  All material
intercompany accounts and transactions have been eliminated in
consolidation.
 
 Certain items
in the consolidated financial statements and the notes to the consolidated
financial statements for the periods prior to fiscal year 2008 have been
reclassified to conform to the fiscal year 2008 method of
presentation.
 
 Change
in Fiscal Year
 
 On August 29,
2006, the Company approved a change in its fiscal year.  After the
fiscal year that ended November 30, 2006, the Company’s fiscal years will end on
the Sunday nearest to January 31.  In addition, starting with the
fiscal year that began January 29, 2007, the Company adopted quarterly periods
based on thirteen-week “reporting periods” (which will end on a Sunday) rather
than quarterly periods consisting of three calendar months. As a result, each
quarterly period generally will be thirteen weeks, or 91 days, long. However,
since the Company’s fiscal year will end on the Sunday closest to January 31, in
some years (generally once every six years) the fourth quarter will be fourteen
weeks long and the fiscal year will consist of 53 weeks (for example, the fiscal
year that ended February 3, 2008 was 53 weeks).
 
 The Company
completed a two-month transition period that began December 1, 2006 and ended
January 28, 2007 and filed a transition report on Form 10-Q for that period on
March 16, 2007.  These financial statements are being filed as part of
an annual report on Form 10-K covering the fifty-three week period that began
January 29, 2007 and ended February 3, 2008.  These financial
statements also include the two-month transition period that began December 1,
2006 and ended January 28, 2007 and the twelve-month periods that ended November
30, 2006 and 2005.  The Company did not recast the financial
statements for the twelve-month periods ended November 30, 2006 and 2005
principally because the financial reporting processes in place for those periods
included certain procedures that were completed only on a quarterly
basis.  Consequently, to recast those periods would have been
impractical and would not have been cost-justified.
 
 References to
the 2008 fiscal year and comparable terminology in the notes to the consolidated
financial statements mean the fiscal year that began January 29, 2007 and ended
February 3, 2008.  References to the 2007 two-month transition period
and comparable terminology in the notes to the consolidated financial statements
refers to the period that began December 1, 2006 and ended January 28,
2007.  References to the 2006 and 2005 fiscal years and comparable
terminology in the notes to the consolidated financial statements refers to the
fiscal years that began December 1, 2006 and 2005 and ended November 30, 2006
and 2005, respectively.
 
 Cash
and Cash Equivalents
 
 The Company
temporarily invests its unused cash balances in a high quality, diversified
money market fund that provides for daily liquidity and pays dividends
monthly.  Cash and cash equivalents invested in short-term liquid
investments amounted to $23.5 million at February 3, 2008 and $37.7 million at
January 28, 2007.  Cash equivalents are stated at cost plus accrued
interest, which approximates market.
 
 Trade
Accounts Receivable
 
 Substantially
all of the Company’s trade accounts receivable are due from retailers and
dealers that sell residential home furnishings, which consist of a large number
of entities with a broad geographical dispersion. The Company continually
performs credit evaluations of its customers and generally does not require
collateral. The Company’s upholstered furniture subsidiaries factor
substantially all of their receivables on a non-recourse
basis.  Accounts receivable are reported net of allowance for doubtful
accounts.
 
 F-9
 The activity
in the allowance for doubtful accounts was:
 
 Fifty-Three
                  
                  Two-MonthsWeeks
      Ended
                  
                  Ended
                  
                  TwelveMonthsEndedFebruary
    3,
                  
                  January
      28,
                  
                  November
      30,
                  
                  November
      30,2008
                  
                  2007
                  
                  2006
                  
                  2005Balance
      at beginning of year
                  
                  $
                  1,436
                  
                  
                  $
                  1,807
                  
                  
                  $
                  1,352
                  
                  
                  $
                  1,341Non-cash
      charges to cost and expenses
                  
                  
                  1,313
                  
                  
                  
                  (182
                  )
                  
                  
                  1,920
                  
                  
                  
                  569Allowance
      for doubtful accounts acquired in acquisitions
                  
                  
                  257Less
      uncollectible receivables written off, net of recoveries
                  
                  
                  (1,256
                  )
                  
                  
                  (189
                  )
                  
                  
                  (1,465
                  )
                  
                  
                  (558
                  )Balance
      at end of year
                  
                  $
                  1,750
                  
                  
                  $
                  1,436
                  
                  
                  $
                  1,807
                  
                  
                  $
                  1,352
 
 Fair
Value of Financial Instruments
 
 The carrying
value for each of the Company’s financial instruments (consisting of cash and
cash equivalents, trade accounts receivable and payable, and accrued
liabilities) approximates fair value because of the short-term nature of those
instruments.  The fair value of the Company’s term loan is estimated
based on the quoted market rates for similar debt with a similar remaining
maturity.   On February 3, 2008 and January 28, 2007, the
carrying value of the term loan approximated fair value.  The fair
value of the Company’s interest rate swap agreement is based on values provided
by the issuer.
 
 Inventories
 
 All
inventories are stated at the lower of cost, using the last-in, first-out (LIFO)
method, or market.
 
 Property,
Plant and Equipment
 
 Property,
plant and equipment is stated at cost, less allowances for
depreciation.  Provision for depreciation has been computed (generally
by the declining balance method) at annual rates that will amortize the cost of
the depreciable assets over their estimated useful lives.
 
 Impairment
of Long-Lived Assets
 
 Long-lived
assets, such as property, plant and equipment, are evaluated for impairment when
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through the estimated undiscounted future cash
flows from the use of those assets.  When any such impairment exists,
the related assets are written down to fair value.  Long-lived assets
to be disposed of by sale are measured at the lower of their carrying amount or
fair value less cost to sell, are no longer depreciated, and are reported
separately as “assets held for sale” in the consolidated balance
sheets.
 
 Capitalized Software
Costs
 
 Certain costs
incurred in connection with developing or obtaining computer software for
internal use that has a useful life of three or more years are
capitalized.  These costs are amortized over five years or less, and
generally over five years.  The activity in capitalized software costs
was:
  Fifty-Three
                
                Two-MonthsWeeks
      Ended
                
                Ended
                
                Twelve Months
      EndedFebruary
    3,
                
                January
      28,
                
                November
      30,
                
                November
      30,2008
                
                2007
                
                2006
                
                2005Balance
      beginning of year
                
                $
                1,847
                
                
                $
                1,576
                
                
                $
                2,961
                
                
                $
                4,366Software
      acquired in the acquisition of Sam Moore
                
                
                458Purchases
                
                
                2,176
                
                
                
                540
                
                
                
                166
                
                
                
                607Amortization
      expense
                
                
                (1,142
                )
                
                
                (269
                )
                
                
                (1,407)
                
                
                
                (1,906
                )Disposals
                
                
                (46
                )
                
                
                
                
                
                
                (144)
                
                
                
                (106
                )Balance
      end of year
                
                $
                3,293
                
                
                $
                1,847
                
                
                $
                1,576
                
                
                $
                2,961
 
 F-10
 Goodwill
and Intangible Assets
 
 The Company
owns certain amortizable and indefinite-lived intangible assets and goodwill
related to Bradington-Young, Sam Moore and Opus Designs.  The
principal amortizable intangible assets are non-compete agreements and furniture
designs, which are amortized over their estimated useful lives.  The
principal indefinite-lived intangible assets are trademarks and trade
names.  Goodwill, trademarks and trade names have indefinite lives and
are not amortized but are tested for impairment annually or more frequently if
events or circumstances indicate that the asset might be impaired.
 
 The fair
value of the indefinite-lived intangible assets is determined based on the
estimated earnings and cash flow capacity of those assets.  The
impairment test consists of a comparison of the fair value of the
indefinite-lived intangible assets with their carrying amount.  If the
carrying value of the indefinite-lived intangible assets exceeds their fair
value, an impairment loss is recognized in an amount equal to that
excess.
 
 Goodwill is
tested for impairment by the Company at the reporting unit level and involves
two steps.  First, the Company determines the fair value of the
reporting unit and compares it to the reporting unit’s carrying amount including
goodwill.  Second, if the carrying amount of the reporting unit
exceeds its fair value, an impairment loss is recognized to the extent the
carrying amount of the reporting unit’s goodwill exceeds the implied fair value
of that goodwill.  The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit to its assets in a manner
similar to a purchase price allocation.  The residual fair value
resulting from this allocation is the implied fair value of the reporting unit
goodwill.
 
 No impairment
losses have been recorded for goodwill or intangible assets through February 3,
2008.
 
 Cash
Surrender Value of Life Insurance Policies
 
 The Company
owns key-man life insurance policies on certain executives and other key
employees and also maintains a collateral interest to the extent of premiums
paid by the Company with respect to split-dollar life insurance policies on
certain executives.  Proceeds of the policies are used to fund certain
executive life insurance benefits and for other general corporate
purposes.  The Company accounts for life insurance as a component of
its employee benefits cost.  Consequently the cost of the coverage and
any resulting gains or losses related to those insurance policies are recorded
as a decrease or increase to operating income.    The cash
surrender value of those life insurance policies amounted to $12.2 million as of
February 3, 2008 and $11.5 million as of January 28, 2007.
 
 Derivative
Instruments and Hedging Activities
 
 The Company
uses interest rate swap agreements to manage variable interest rate exposure on
the majority of its long-term debt.  The Company’s objective for
holding these derivatives is to decrease the volatility of future cash flows
associated with interest payments on its variable rate debt.  The
Company does not issue derivative instruments for trading
purposes.  The Company accounts for its interest rate swap agreements
as cash flow hedges.  For derivatives designated as cash flow hedges,
the effective portion of changes in the fair value of the derivative is
initially reported in “accumulated other comprehensive income or loss” on the
consolidated balance sheets and subsequently reclassified to interest expense
when the hedged exposure affects income (i.e. as interest expense accrues on the
related  outstanding debt).  Differences between the amounts
paid and amounts received under the swap agreements are recognized in interest
expense.
 
 In some
cases, such as upon the early repayment of a debt instrument, the Company may
continue to hold an interest rate swap for a period of time after the related
principal has been paid rendering the hedge ineffective.  Changes in
the ineffective portion of the fair value of the derivative are accounted for
through interest expense.  The notional principal value of the
Company’s swap agreement outstanding as of February 3, 2008 was equal to the
outstanding principal balance of the corresponding debt instrument.
 
 Revenue
Recognition
 
 The Company
recognizes sales revenue when title and the risk of loss pass to the customer,
which occurs at the time of shipment.  Sales are recorded net of
allowances for trade promotions, estimated product returns, rebate advertising
programs and other discounts.
 
 F-11
 Advertising
 
 The Company
has advertising programs under which it may provide signage, catalogs and other
marketing support to its customers and may reimburse advertising and other costs
incurred by its customers in connection with promoting the Company’s
products.  The cost of these programs does not exceed the fair value
of the benefit received.  The Company charges the cost of
point-of-purchase materials (including signage and catalogs) to selling and
administrative expense as incurred, which amounted to $3.0 million in fiscal
2008, $288,000 in the 2007 two-month transition period, $2.8 million in fiscal
2006 and $3.8 million in fiscal 2005.  The cost for the Company’s
other advertising programs is charged against net sales.
 
 
 Shipping
and Handling Costs
 
 Amounts
billed to customers that represent shipping and handling are reported as net
sales.  The Company’s shipping and handling costs, which include all
costs to warehouse and distribute goods to customers, are classified in selling
and administrative expenses and amounted to $15.3 million in fiscal 2008, $2.4
million in the 2007 two-month transition period, $20.9 million in fiscal 2006
and $15.2 million in fiscal 2005.
 
 Income
Taxes
 
 Income taxes
are accounted for under the asset and liability method.  Deferred
income taxes reflect the expected future tax consequences of differences between
the book and income tax bases of assets and liabilities using enacted tax rates
in effect in the years in which those differences are expected to
reverse.
 
 Earnings
Per Share
 
 Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period.  Unearned ESOP shares (2.4 million shares at November 30, 2006
and 2.5 million shares at November 30, 2005) were not considered outstanding for
purposes of calculating basic or diluted earnings per share.  Diluted
earnings per share reflects the potential dilutive effect of securities that
could share in the earnings of the Company.  The Company has issued
restricted stock awards to non-employee members of the board of directors under
the Company’s 2005 Stock Incentive Plan, and expects to continue to grant these
awards to non-employee board members in the future.  As of February 3,
2008, there were 13,130 shares and as of January 28, 2007 there were 8,795
shares of restricted stock outstanding, net of forfeitures and vested
shares.  Restricted shares awarded that have not yet vested are
considered when computing diluted earnings per share.
 
 Concentrations
of Sourcing Risk
 
 The Company
sources its imported products through over 30 different vendors, from 59
separate factories, located in seven countries.  Because of the large
number and diverse nature of the foreign factories from which the Company can
source its imported products, the Company has some flexibility in the placement
of products in any particular factory or country.  As of February 3,
2008, the Company held $7.9 million in inventory (4.5% of total assets) outside
of the United States, in China.
 
 Factories
located in China have become an important resource for the
Company.  In fiscal year 2008, imported products sourced from China
accounted for approximately 87% of import purchases, and the factory in China
from which the Company directly sources the most product accounted for
approximately 38% of the Company’s worldwide purchases of imported
product.  A sudden disruption in the Company’s supply chain from this
factory, or from China in general, could significantly impact the Company’s
ability to fill customer orders for products manufactured at that factory or in
that country.  If such a disruption were to occur, the Company
believes that it would have sufficient inventory to adequately meet demand for
approximately three months.  Also, with the broad spectrum of product
the Company offers, the Company believes that, in some cases, buyers could be
offered similar product available from alternative sources.  The
Company believes that it could, most likely at higher cost, source most of the
products currently sourced in China from factories in other countries and could
produce certain upholstered products domestically at its own
factories.  However, supply disruptions and delays on selected items
could occur for approximately six months.  If the Company were to be
unsuccessful in obtaining those products from other sources, or at comparable
cost, then a sudden disruption in the Company’s supply chain from its largest
import furniture supplier, or from China in general, could have a short-term
material adverse effect on the Company’s results of operations. Given the
capacity available in China and other low-cost producing countries, the Company
believes the risks from these potential supply disruptions are
manageable.
 
 F-12
 Use
of Estimates
 
 The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, as well as disclosures
regarding contingent assets and liabilities at the date of the financial
statements; and the reported amounts of revenue and expenses during the reported
periods.  Actual results could differ from those
estimates.
 
 Accounting
Pronouncements
  In March
2008, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standard (“SFAS”) No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133.”   The objective of this statement is to require enhanced
disclosures about an entity’s derivative and hedging activities and to improve
the transparency of financial reporting.  This statement changes the
disclosure requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash
flows.  This statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. This statement encourages, but does not require,
comparative disclosures for earlier periods at initial adoption.  The
Company expects to adopt the standard in its fiscal year 2010 first quarter,
which will begin February 2, 2009.  The adoption of SFAS 161 is
not expected to have a material impact on the Company’s financial position or
results of operations.
  In December
2007, the FASB issued a revision to SFAS No. 141R, “Business
Combinations”.   The objective of this Statement is to improve
the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial reports about a
business combination and its effects. To accomplish that, this statement
establishes principles and requirements for how the acquirer:  a)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree;  b) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase; and c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  This
statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  Early adoption of
this standard is not permitted.  Consequently, the Company expects to
adopt the standard in its fiscal year 2010 first quarter, which will begin
February 2, 2009.  The adoption of SFAS 141R is not expected to have a
material impact on the Company’s financial position or results of
operations.
 
 In March
2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF No.
06-10 “Accounting for Collateral Assignment Split-Dollar Life Insurance
Arrangements”.  The task force reached a consensus that requires an
employer to measure the asset associated with collateral-assignment split-dollar
life insurance based on the arrangement’s terms.  Under the consensus,
an employer would record a liability for a postretirement benefit only if the
employer has agreed to maintain the life insurance policy during the employee’s
retirement or provide the employee with a death benefit.   The
consensus is effective for fiscal years beginning after December 15,
2007.  Consequently, the Company will adopt the EITF No. 06-10 in its
fiscal year 2009 first quarter, which began February 4,
2008.   The adoption of EITF No. 06-10 is not expected to have a
material impact on the Company’s financial position or results of
operations.
 
 In February
2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities – Including an Amendment of FASB Statement No.
115”.   This statement permits entities to choose to measure many
financial instruments and certain other items at fair value. The objective is to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This statement is expected to expand the use of fair value
measurement, which is consistent with FASB’s long-term measurement objectives
for accounting for financial instruments.  This statement is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007. Early adoption is permitted as of the beginning of a fiscal year that
begins on or before November 15, 2007, provided the entity also elects to apply
the provisions of FASB Statement No. 157, Fair Value
Measurements.  Consequently, the Company will adopt the standard in
its fiscal year 2009 first quarter, which began February 4,
2008.   The adoption of SFAS 159 is not expected to have a
material impact on the Company’s financial position or results of
operations.
 
 F-13
 In September
2006, the FASB issued SFAS No. 157, “Fair Value Measurements”.  This
statement defines fair value, establishes a framework for measuring fair value
under U.S. generally accepted accounting principles, and expands disclosures
about fair value measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements, FASB having
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, this statement does not require any
new fair value measurements. However, for some entities, the application of this
statement will change current practice.  This statement is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years.  Consequently,
the Company will adopt the standard in its fiscal year 2009 first quarter, which
began February 4, 2008.   The adoption of SFAS 157 is not
expected to have a material impact on the Company’s financial position or
results of operations.
 
 In September
2006, the EITF reached a consensus on EITF No. 06-5 “Accounting for Purchase of
Life Insurance – Determining the Amount That Could Be Realized in Accordance
with FASB Technical Bulletin No. 85-4” .  The task force reached a
consensus on a number of issues related to the purchase and surrender of life
insurance contracts.  The consensus is effective for fiscal years
beginning after December 15, 2006.  Consequently, the Company adopted
EITF No. 06-5 in its fiscal year 2008 first quarter, which began on January 29,
2007.   The adoption of EITF No. 06-5 did not have a material
impact on the Company’s financial position or results of
operations.
 
 NOTE
2 – INVENTORIES
 February
      3,
                
                January
      28,2008
                
                2007Finished
      furniture
                
                $
                52,602
                
                
                $
                64,536Furniture
      in process
                
                
                1,217
                
                
                
                1,514Materials
      and supplies
                
                
                7,814
                
                
                
                7,952Inventories
      at FIFO
                
                
                61,633
                
                
                
                74,002Reduction
      to LIFO basis
                
                
                11,073
                
                
                
                11,199Inventories
                
                $
                50,560
                
                
                $
                62,803
 If the
first-in, first-out (FIFO) method had been used in valuing all inventories, net
income (loss) would have been $19.5 million in fiscal 2008, $(18.3) million in
the 2007 two-month transition period, $13.7 million in fiscal 2006 and $12.7
million in fiscal 2005.
 
 
 NOTE
3 – PROPERTY, PLANT AND EQUIPMENT
 
 Depreciable
      Lives
                
                February
      3,
                
                January
      28,(In
      years)
                
                2008
                
                2007Buildings
      and land improvements
                
                
                15 –
      30
                
                
                $
                23,076
                
                
                $
                22,976Machinery
      and equipment
                
                
                10
                
                
                
                3,425
                
                
                
                2,097Furniture
      and fixtures
                
                
                3 -
      8
                
                
                
                27,516
                
                
                
                23,066Other
                
                
                5
                
                
                
                3,740
                
                
                
                3,042Total
      depreciable property at cost
                
                
                
                
                
                
                57,757
                
                
                
                51,181Less
      accumulated depreciation
                
                
                
                
                
                
                34,558
                
                
                
                29,907Total
      depreciable property, net
                
                
                
                
                
                
                23,199
                
                
                
                21,274Land
                
                
                
                
                
                
                1,387
                
                
                
                1,472Construction
      in progress
                
                
                
                
                
                
                767
                
                
                
                2,093Property,
      plant and equipment, net
                
                
                
                
                
                $
                25,353
                
                
                $
                24,839
 F-14
 NOTE
4 – GOODWILL AND INTANGIBLE ASSETS
  Useful
      Lives
                
                February
      3,
                
                January
      28,(In
      years)
                
                2008
                
                2007Goodwill
                
                
                
                
                $
                3,774
                
                
                $
                2,396Non-amortizable
      Intangible AssetsTrademarks
      and trade names
                
                
                
                
                $
                5,796
                
                
                $
                4,400Amortizable
      Intangible AssetsNon-compete
      agreements
                
                
                4
                
                
                
                700
                
                
                
                700Furniture
      designs
                
                
                3
                
                
                
                100Total
      amortizable intangible assets
                
                
                
                
                
                
                800
                
                
                
                700Less
      accumulated amortization
                
                
                
                
                
                
                704
                
                
                
                700Net
      carrying value
                
                
                
                
                
                
                96Intangible
      assets
                
                
                
                
                
                $
                5,892
                
                
                $
                4,400
 The Company
has recorded goodwill and certain intangible assets related to Bradington-Young,
Sam Moore and Opus Designs (see “Note 5 – Acquisition”).  The
goodwill, trademarks and trade names have indefinite useful lives and
consequently are not subject to amortization for financial reporting purposes
but are tested for impairment annually or more frequently if events or
circumstances indicate that the asset might be impaired.  See “Note 1
– Summary of Significant Accounting Policies: Goodwill and Intangible
Assets.”  For tax reporting purposes the goodwill and intangible
assets are being amortized over 15 years on a straight line basis.
 
 NOTE
5 – ACQUISITIONS
 
 On April 28,
2007, the Company completed its acquisition of substantially all of the assets
of Bedford, Virginia-based Sam Moore Furniture Industries, Inc., a manufacturer
of upscale occasional chairs with an emphasis on fabric-to-frame customization
in the upper-medium to high-end price niches.  The Company operates
the business as Sam Moore Furniture LLC.  The Company acquired the Sam
Moore operation for an aggregate purchase price of $12.1 million, consisting of
$10.3 million in cash (net of cash acquired), $1.5 million in assumed
liabilities and acquisition-related fees of $333,000.
 
 Based on an
appraisal of the assets of Sam Moore, the fair value of those assets exceeded
the Company’s purchase price paid.  This $3.6 million excess over
purchase price paid was allocated as a reduction to the fair value of property,
plant and equipment and intangible assets in determining their recorded
values.
 
 The recorded
values of the assets acquired and liabilities assumed were:
  April 28,
      2007Current
      assets
                
                $
                8,668Property,
      plant and equipment
                
                
                3,076Intangible
      assets
                
                
                396Total
      assets acquired
                
                
                12,140Current
      liabilities assumed
                
                
                1,487Net
      assets acquired
                
                $
                10,653
 On December
14, 2007, the Company completed its acquisition of certain assets of Opus
Designs Furniture LLC, a specialist in imported moderately-priced youth bedroom
furniture.  The Company has integrated this business with its existing
imported wood and metal furniture business and will offer this brand to
customers as Opus Designs by Hooker.  The Company acquired the
accounts receivable, inventory, intangible assets and goodwill of Opus Designs
Furniture LLC for an aggregate purchase price of $5.3 million, consisting of
$5.2 million in cash and acquisition-related fees of $54,000.
 
 The recorded
values of the assets acquired and liabilities assumed were:
  December 14,
      2007Current
      assets
                
                $
                2,773Goodwill
      and intangible assets
                
                
                2,479Total
      assets acquired
                
                $
                5,252
 F-15
 NOTE
6 – SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
 
 For
      The Year EndedFebruary 3,
      2008Donation
      of showroom facilities located in High Point, N.C.
                
                
                $1,082For The
      Year EndedNovember 30, 2006Note
      received in connection with the sale of  the Pleasant Garden,
      N.C. facility
                
                
                $400
 
 NOTE
7 – LONG-TERM DEBT
  February
      3,
                
                January
      28,2008
                
                2007Term
      loan
                
                $
                7,912
                
                
                $
                10,415Less
      current maturities
                
                
                2,694
                
                
                
                2,503Long-term
      debt, less current maturities
                
                $
                5,218
                
                
                $
                7,912
 The Company’s
term loan bears interest at a variable rate, 5.3% on February 3, 2008 and 6.0%
on January 28, 2007 and is unsecured.  Principal and interest payments
are due quarterly through September 1, 2010.  The Company has entered
into an interest rate swap agreement that in effect provides for a fixed rate of
interest of 4.1% on its term loan.  See “Note 8 –
Derivatives.”
 
 The Company
also has a revolving credit facility that is unsecured and provides for
borrowings of up to $15.0 million at variable interest rates, 5.3% on February
3, 2008 and 6.0% on January 28, 2007.  Up to $3.0 million of the
revolving credit line may be used for the issuance of letters of
credit.  Interest is payable monthly.  No borrowings were
outstanding under the revolving credit line as of February 3, 2008 or January
28, 2007.  As of February 3, 2008, the Company had an aggregate $13.6
million available under its revolving credit facility to fund working capital
needs.  Outstanding letters of credit under that line which is used to
collateralize certain insurance arrangements and for imported product purchases,
amounted to $1.4 million as of February 3, 2008 and $1.3 million as of January
28, 2007.  On February
27, 2008, the Company renewed the $15 million revolving credit
line.  The new maturity date for the revolving credit line is March 1,
2011.  The other terms and conditions, including financial covenants
applicable to the revolving credit line remain unchanged.
 
 The credit
agreement for the term loan and the revolving credit facility contains customary
representations and warranties, covenants and events of default, including
financial covenants as to minimum tangible net worth, debt service coverage, the
ratio of funded debt to earnings before interest, taxes, depreciation and
amortization, and maximum capital expenditures.  The Company was in
compliance with these covenants as of February 3, 2008.
 
 As of
February 3, 2008, aggregate future maturities for the Company’s long-term debt
were $2.7 million in fiscal 2009, $2.9 million in fiscal 2010 and $2.3 million
in fiscal 2011.
 
  NOTE
8 – DERIVATIVES
  The Company
has used interest rate swap agreements to manage variable interest rate
exposures on the majority of its long-term debt.  The notional
principal value of the Company’s outstanding swap agreement is substantially
equal to the outstanding principal balance of the corresponding debt
instrument.  The Company believes that its swap agreement is highly
effective in managing the volatility of future cash flows associated with
interest payments on its variable rate debt.  The Company accounts for
its interest rate swap agreements as cash flow hedges.
 
 In February
2003, the Company, in connection with the refinancing of its bank debt,
terminated an interest rate swap agreement that in effect provided a fixed
interest rate of 7.4% on its term loan and entered into a new interest rate swap
agreement.  The new swap agreement is on substantially the same terms
as the terminated agreement, except that it provides for a fixed interest rate
of 4.1% through 2010 on the term loan.  The Company’s $3.0 million
payment to terminate the former swap agreement is being amortized as interest
expense over the remaining repayment period for the related term loan, resulting
in an effective fixed interest rate of approximately 7.4% on the term
loan.
 
 F-16
 The aggregate
fair market value of the Company’s swap agreement decreases when interest rates
decline and increases when interest rates rise.  Overall, interest
rates have declined since the inception of the Company’s swap
agreement.  The aggregate decrease in the fair market value of the
effective portion of the agreement of $191,000 ($311,000 pretax) as of February
3, 2008 and $69,000 ($111,000 pre-tax) as of January 28, 2007 is reflected under
the caption “accumulated other comprehensive loss” in the consolidated balance
sheets.  See “Note 9 – Other Comprehensive Income
(Loss).”
 
 
 NOTE
9 – OTHER COMPREHENSIVE INCOME (LOSS)
  Fifty-
      Three
                
                Two-
      MonthsWeeks
      Ended
                
                Ended
                
                Twelve
      Months EndedFebruary
      3,
                
                January
      28,
                
                November
      30,
                
                November
      30,2008
                
                2007
                
                2006
                
                2005Net
      income (loss)
                
                $
                19,655
                
                
                $
                (18,415
                )
                
                $
                14,138
                
                
                $
                12,485(Loss)
      gain on interest rate swaps
                
                
                (256
                )
                
                
                56
                
                
                
                88
                
                
                
                321Less
      amount of swaps’ fair value reclassified tointerest
      expense
                
                
                58
                
                
                
                9
                
                
                
                101
                
                
                
                539Other
      comprehensive (loss) income before tax
                
                
                (198
                )
                
                
                65
                
                
                
                189
                
                
                
                860Income
      tax (benefit) expense
                
                
                (76
                )
                
                
                25
                
                
                
                72
                
                
                
                327Other
      comprehensive (loss) income, net of tax
                
                
                (122
                )
                
                
                40
                
                
                
                117
                
                
                
                533Comprehensive
      income (loss)
                
                $
                19,533
                
                
                $
                (18,375
                )
                
                $
                14,255
                
                
                $
                13,018
  NOTE
10 – EMPLOYEE BENEFIT PLANS
  Employee
Stock Ownership Plan
 
 In January
2007, the Company terminated its employee stock ownership plan (the
“ESOP”).  Through January 2007, the Company had sponsored the
leveraged ESOP to provide retirement benefits for substantially all
employees.  As a result of the ESOP termination, approximately 1.2
million shares of previously unallocated shares of Company common stock held by
the ESOP were allocated to eligible employees, resulting in an $18.4 million,
non-cash, non-tax deductible  charge to earnings in January 2007 with
a corresponding increase in shareholders’ equity.  To effect the
termination of the ESOP, the Company redeemed and retired approximately 1.2
million of the shares of Company common stock held by the ESOP, with proceeds to
the ESOP of $17.2 million (or $15.01 per share). The ESOP used the proceeds to
repay the outstanding balance on the ESOP loan.
 
 Prior to the
termination, the Company recorded non-cash ESOP cost for the number of shares
that it committed to release to eligible employees at the average closing market
price of the Company’s common stock during each period.  Those shares
were treated as outstanding for computing earnings per share. “Unearned
ESOP shares” in shareholders’ equity was reduced by the Company’s aggregate cost
basis in the shares that were committed to be released.  Those shares
had a cost basis of $6.25 per share.  “Common stock” was
increased by the aggregate average market price in excess of the cost basis of
those shares.
 
 Dividends
paid on allocated shares held by the ESOP were charged against retained earnings
in the consolidated balance sheets.  Dividends paid on unallocated
shares were in effect recorded as a reduction of principal and interest on the
ESOP Loan.  The cost of the ESOP amounted to:
  Fifty-Three
                
                Two-
      MonthsWeeks
      Ended
                
                Ended
                
                Twelve Months
      EndedFebruary
      3,
                
                January
      28,
                
                November
      30,
                
                November
      30,2008
                
                2007
                
                2006
                
                2005Average
      fair market value per share
                
                
                
                
                $
                15.24
                
                
                $
                16.12
                
                
                $
                18.90Number
      of shares committed to be released (in whole shares)
                
                
                
                
                
                
                
                
                
                164,156
                
                
                
                170,628Non-cash
      ESOP cost
                
                
                
                
                
                
                
                
                
                2,646
                
                
                
                3,225Administrative
      cost
                
                $
                49
                
                
                
                11
                
                
                
                86
                
                
                
                159Total
      ESOP cost
                
                $
                49
                
                
                $
                11
                
                
                $
                2,732
                
                
                $
                3,384
 
 Allocated
shares held by the ESOP pending distribution to employees were 1.7 million as of
February 3, 2008 and 2.2 million as of January 28, 2007.
  F-17
 Employee
Savings Plans
 
 The Company
sponsors a tax-qualified 401(k) plan covering substantially all
employees.  This plan assists employees in meeting their savings and
retirement planning goals through employee salary deferrals and discretionary
matching contributions made by the Company.  The Company made
contributions to the plan amounting to $574,000 in fiscal 2008, $112,000 in the
2007 two-month transition period, $489,000 in fiscal 2006 and $555,000 in fiscal
2005.
 
 Executive
Benefits
 
 The Company
maintains a salary continuation program for certain management employees. 
The program consists of individual agreements with participants that specify the
amount of benefits to be paid upon retirement, death or disability. These
agreements are unfunded.  All benefits are paid solely from the
general assets of the Company.  The total accrued liabilities relating to
this program approximated $1.8 million as of February 3, 2008 and $2.1 million
as of January 28, 2007.  These amounts are included in “accrued
salaries, wages and benefits” and “other long-term liabilities” in the
consolidated balance sheets.  The cost of the program amounted to
$188,000 in fiscal 2008, $192,000 in the 2007 two-month transition period,
$276,000 in fiscal 2006 and $262,000 in fiscal 2005.
 
 The Company
also provides certain eligible executives with life insurance benefits during
their working life and paid up insurance at their retirement through split
dollar life insurance policies.  The Company retains a collateral interest
in each of these policies to the extent of premiums paid by the
Company.
 
 The Company
also has a life insurance program and a supplemental executive retirement plan
for certain executives.  The life insurance program provides death benefit
protection for these executives during employment. Coverage under the program
automatically terminates when the executive terminates employment with the
Company for any reason, other than death, or when the executive attains age 65,
whichever occurs first. The life insurance policies funding this program are
owned by the Company.
 
 The
supplemental executive retirement plan provides a monthly supplemental
retirement benefit based on the executive’s final average monthly compensation
as defined in the plan. The benefit is payable for a 15-year period following
the executive’s termination of employment, subject to a vesting schedule that
may vary for each executive.  In addition, the monthly retirement benefit
for each executive, regardless of age, becomes fully vested and the present
value of all plan benefits is paid to participants in a lump sum upon a change
in control of the Company (as defined in the plan).  Benefits are payable
from the general assets of the Company.  The Company accounts for its
obligation to each participant on the accrual basis.  The aggregate
liability for all participants under the supplemental executive retirement plan
amounted to $3.8 million as of both February 3, 2008 and January 28, 2007. The
cost of the program amounted to $1.8 million in fiscal 2008, $150,000 in the
2007 two-month transition period, $2.4 million in fiscal 2006 and $684,000 in
fiscal 2005.
 
 Mr. Douglas
C. Williams, the Company’s President and Chief Operating Officer retired
effective October 31, 2006. Mr. Williams was offered an early retirement
arrangement in late August 2006. Consequently, the Company recorded $1.4 million
in compensation expense for benefits under the supplemental retirement plan and
other early retirement benefits in the 2006 third quarter related to Mr.
Williams early retirement arrangement.  Substantially all of Mr.
Williams’s retirement benefits were paid during fiscal 2008.
 
 
 NOTE
11 – SHARE-BASED
COMPENSATION
 
 The Hooker
Furniture Corporation 2005 Stock Incentive Plan (“Stock Plan”) permits incentive
awards of restricted stock, restricted stock units, stock appreciation rights
and performance grants to key employees and non-employee directors.  A
maximum of 750,000 shares of the Company’s common stock was approved for
issuance under the Stock Plan.  The Company expects to issue
restricted stock or other forms of stock-based compensation awards to eligible
directors and employees under the plan.  The Company issued restricted
stock awards to each non-employee member of the board of directors in January
2006, 2007 and 2008.  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 Stock Plan. During fiscal 2006, 784 of these shares
were forfeited and 147 shares vested. The grant-date fair value of stock awards
issued during the fiscal 2008 fourth quarter was $19.61 per share, $15.23 per
share for stock awards issued during the 2007 two-month transition period and
$15.31 for stock awards issued during the fiscal 2006 first
quarter.
 
 F-18
 The Company
accounts for these awards as “non-vested equity shares.”  These shares
have an aggregate grant-date fair value of $219,000, after taking vested shares
and forfeitures into account.  As of February 3, 2008, the Company
recognized non-cash compensation expense of approximately $71,000 related to
these non-vested awards and $2,000 for shares that have vested.  The
remaining $148,000 of grant-date fair value will be recognized over the
remaining months of the vesting periods for these awards.
 
 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 February 3, 2008:
 
 Whole
                
                Grant-Date
                
                Aggregate
                
                Compensation
                
                Grant-Date
      Fair ValueNumber
      of
                
                Fair
      Value
                
                Grant-Date
                
                Expense
                
                Unrecognized
      AtShares
                
                Per
      Share
                
                Fair
      Value
                
                Recognized
                
                February 3,
      2008Shared
      Issued on  January 16, 2006Issued
                
                
                4,851
                
                
                $
                15.31
                
                
                $
                74Forfeited
                
                
                (784
                )
                
                
                15.31
                
                
                
                (12
                )Vested
                
                
                (147
                )
                
                
                15.31
                
                
                
                (2
                )3,920
                
                
                
                
                
                
                
                60
                
                
                $
                42
                
                
                $
                18Shares
      Issued on January 15, 2007Issued
                
                
                4,875
                
                
                $
                15.23
                
                
                
                74
                
                
                
                27
                
                
                
                47Shares
      Issued on January 15, 2008Issued
                
                
                4,335
                
                
                $
                19.61
                
                
                
                85
                
                
                
                2
                
                
                
                83Awards
      outstanding at February
      3, 2008:
                
                
                13,130
                
                
                
                
                
                
                $
                219
                
                
                $
                71
                
                
                $
                148
 
 NOTE
12 – EARNINGS
(LOSS) PER SHARE
 
 Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
period.  Unearned ESOP shares are not considered outstanding for
purposes of calculating basic or diluted earnings per share.  Diluted
earnings per share reflects the potential dilutive effect of securities that
could share in the earnings of the Company.  In January 2006, 2007 and
2008, the Company issued restricted stock awards to non-employee members of the
board of directors under the Stock Plan, and expects to continue to grant these
awards to non-employee board members in the future.  As of February 3,
2008, January 28, 2007, November 30, 2006 and November 30, 2005  there
were 13,130,  8,795, 3,920 and 0 shares, respectively, of restricted
stock outstanding, net of forfeitures and vested shares on each
date.  Restricted shares awarded that have not yet vested are
considered when computing diluted earnings per share.
  Fifty-
      Three
                
                Two-
      MonthsWeeks
      Ended
                
                Ended
                
                Twelve
      Months EndedFebruary
      3,
                
                January
      28,
                
                November
      30,
                
                November
      30,2008
                
                2007
                
                2006
                
                2005Net
      income
                
                $
                19,655
                
                
                $
                (18,415
                )
                
                $
                14,138
                
                
                $
                12,485Weighted
      average shares outstanding for basicearnings
      per share
                
                
                12,442
                
                
                
                12,113
                
                
                
                11,951
                
                
                
                11,795Dilutive
      effect of restricted stock awards
                
                
                4
                
                
                
                
                
                
                
                2Weighted
      average shares outstanding for dilutedearnings
      per share
                
                
                12,446
                
                
                
                12,113
                
                
                
                11,953
                
                
                
                11,795Basic
      earnings per share
                
                $
                1.58
                
                
                $
                (1.52
                )
                
                $
                1.18
                
                
                $
                1.06Diluted
      earnings per share
                
                $
                1.58
                
                
                $
                (1.52
                )
                
                $
                1.18
                
                
                $
                1.06
  F-19
 NOTE
13 – INCOME TAXES
  The provision
for income taxes:
 Fifty-
      Three
                
                Two-MonthsWeeks
      Ended
                
                Ended
                
                Twelve
      Months EndedFebruary
    3,
                
                January
      28,
                
                November
      30,
                
                November
      30,2008
                
                2007
                
                2006
                
                2005Current
      expenseFederal
                
                $
                7,937
                
                
                $
                2,000
                
                
                $
                10,792
                
                
                $
                8,829State
                
                
                953
                
                
                
                362
                
                
                
                1,050
                
                
                
                674Total
      current expense
                
                
                8,890
                
                
                
                2,362
                
                
                
                11,842
                
                
                
                9,503Deferred
      (benefit) expenseFederal
                
                
                2,609
                
                
                
                (519
                )
                
                
                (2,833
                )
                
                
                (1,303
                )State
                
                
                15
                
                
                
                (543
                )
                
                
                (440
                )
                
                
                (176
                )Total
      deferred (benefit) expense
                
                
                2,624
                
                
                
                (1,062
                )
                
                
                (3,273
                )
                
                
                (1,479
                )Income
      tax expense
                
                $
                11,514
                
                
                $
                1,300
                
                
                $
                8,569
                
                
                $
                8,024
 In connection
with the termination of its ESOP, the Company wrote off the related deferred tax
asset in the amount of $855,000 in January 2007.  The effective income
tax rate differed from the federal statutory tax rate as follows:
 
 Fifty-
      Three
                
                Two-MonthsWeeks
      Ended
                
                Ended
                
                Twelve
      Months EndedFebruary
    3,
                
                January
      28,
                
                November30,
                
                November
      30,2008
                
                2007
                
                2006
                
                2005Income
      taxes at statutory rate
                
                
                35.0
                %
                
                
                35.0
                %
                
                
                35.0
                %
                
                
                35.0
                %Increase
      (decrease) in tax rate resulting from:State taxes, net of federal
      benefit
                
                
                2.0
                
                
                
                (0.7
                )
                
                
                1.7
                
                
                
                1.6Employee stock ownership
      plan
                
                
                (0.7
                )
                
                
                (42.0
                )
                
                
                0.3
                
                
                
                2.1Captive insurance
      assessments
                
                
                0.3
                
                
                
                
                
                
                
                0.7
                
                
                
                0.9Officer’s life
      insurance
                
                
                (0.9
                )
                
                
                (0.2
                )
                
                
                (0.4
                )
                
                
                0.2Other
                
                
                1.2
                
                
                
                0.3
                
                
                
                0.4
                
                
                
                (0.7
                )Effective income tax
      rate
                
                
                36.9
                %
                
                
                ( 7.6
                )%
                
                
                37.7
                %
                
                
                39.1
                %
 The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets and liabilities were:
  February
      3,
                
                January
      28,2008
                
                2007AssetsDeferred
      compensation
                
                $
                2,156
                
                
                $
                2,420Interest rate
    swaps
                
                
                117
                
                
                
                157Allowance for bad
      debts
                
                
                674
                
                
                
                546State income
    taxes
                
                
                780
                
                
                
                752Restructuring
                
                
                393
                
                
                
                1,459Property, plant and
      equipment
                
                
                107
                
                
                
                1,791Other
                
                
                89
                
                
                
                70Total deferred tax
      assets
                
                
                4,316
                
                
                
                7,195LiabilitiesInventories
                
                
                328
                
                
                
                1,217Intangible
    assets
                
                
                971
                
                
                
                503Employee
    benefits
                
                
                359
                
                
                
                355Other
                
                
                87Total deferred tax
      liabilities
                
                
                1,745
                
                
                
                2,075Net deferred tax
      asset
                
                $
                2,571
                
                
                $
                5,120
  F-20
 As of
February 3, 2008, $2.3 million of deferred income taxes was classified as “other
long-term assets” and $312,000 was classified as “other current assets” in the
consolidated balance sheets.  As of January 28, 2007, $4.3 million of
the deferred income taxes was classified as “other long-term assets” and
$781,000 was classified as “other current assets” in the consolidated balance
sheets.  The Company expects to fully utilize its deferred tax assets
in future periods when the amounts become deductible, consequently no valuation
allowance was recorded as of February 3, 2008 or January 28, 2007.
 
 A portion of
the change in the net deferred income tax asset (liability) relates to
unrealized gains and losses on interest rate swaps that are included in
shareholders’ equity.  The related deferred tax expense amounted to
$76,000 in fiscal 2008, $25,000 in the 2007 two-month transition period, $72,000
in fiscal 2006, and $327,000 in fiscal 2005 and was recorded directly to
shareholders’ equity as a component of “accumulated other comprehensive
loss”.
 
 On January
29, 2007, the Company adopted Financial Accounting Standards Interpretation No.
48, Accounting for Uncertainty in Income Taxes, or FIN 48. FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with SFAS 109, Accounting for Income Taxes.
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
de-recognition, classification, interest and penalties, accounting in interim
periods, disclosures and transition.
 
 A
reconciliation of beginning and ending unrecognized tax benefits is as
follows:
  Balance
      at January 29, 2007 (net of interest)
                
                $
                845,000Increase
      due to positions taken during prior period
                
                
                45,000Settlements
                
                
                (890,000
                )Balance
      at February 3, 2008
                
                $
 
 In connection
with the settlement of an IRS examination issue related to its ESOP, the Company
recognized $215,000 of these previously unrecognized tax positions as a
reduction in income tax expense during fiscal 2008.
 
 The Company
elected upon adoption of FIN 48 to classify interest and penalties recognized in
accordance with FIN 48 as income tax expense.  Interest and penalties
charged to tax expense during fiscal 2008 were $24,000.  Accrued
interest and penalties in addition to these unrecognized tax benefits amounted
to $87,000 as of January 29, 2007. No interest or penalties were accrued as of
February 3, 2008.
 
 The Company
believes that the statute of limitations for all major jurisdictions has expired
for tax periods ending on or before November 30, 2003.
 
 NOTE
14 – RESTRUCTURING CHARGES AND ASSETS HELD FOR SALE
  The Company
incurred significant restructuring and asset impairment charges in connection
with the closing of wood furniture manufacturing plants in each of the past
three full fiscal years and in the 2007 two-month transition
period.  These charges included severance and related benefits for
terminated employees, asset impairment charges to write down real and personal
property to fair market value (as determined based on market prices for similar
assets in similar condition) less selling costs, and factory disassembly and
other related costs to prepare each facility for sale.
  Pretax
restructuring and asset impairment charges reduced operating income by 0.1% of
net sales in fiscal 2008, 6.1% of net sales in the 2007 two-month transition
period, 2.0% of net sales in fiscal 2006 and by 1.5% of net sales in fiscal
2005.
  During fiscal
2008 the Company recorded aggregate restructuring and asset impairment charges
of $309,000 ($190,000 after tax, or $0.02 per share) principally related
to:
  ·
              additional
      asset impairment, disassembly and exit costs associated with the March
      2007 closing of the Martinsville, Va. domestic wood manufacturing facility
      ($553,000); net of
 
 ·
              a
      restructuring credit of $244,000, principally for previously accrued
      health care benefits for the Pleasant Garden, N.C., Martinsville, Va. and
      Roanoke, Va. facilities that are not expected to be
  paid.
  F-21
 During the
2007 two-month transition period, the Company recorded aggregate restructuring
and asset impairment charges of $3.0 million ($1.8 million after tax, or $0.15
per share) principally related to:
 
 ·
              severance
      and related benefits for approximately 280 hourly and salaried employees
      at the Martinsville, Va. manufacturing facility who were terminated ($2.3
      million) and additional asset impairment charges for the estimated costs
      to sell the Martinsville, Va. facility
  ($655,000).
 
 The real and
personal property at the Martinsville facility were included in “assets held for
sale” on the consolidated balance sheet as of January 28, 2007.  That
property was sold during the fiscal year 2008 third and fourth quarters for an
aggregate $3.5 million in cash, net of selling expenses.
 
 In December
2007, the Company donated two showrooms formerly operated by Bradington-Young,
located in High Point, N.C., which had a carrying value of $1.1 million to a
local university.
 
 During fiscal
2006 the Company recorded aggregate restructuring and asset impairment charges
of $6.9 million ($4.3 million after tax, or $0.36 per share) principally related
to:
  ·
              the
      write down of real and personal property at the Martinsville, Va. plant to
      estimated fair value in connection with the planned closing announced
      January 17, 2007 ($4.2 million);
  ·
              the
      August 2006 closing of the Roanoke, Va. manufacturing facility ($2.7
      million), which included $1.6 million in severance and related benefits
      for approximately 260 terminated hourly and salaried employees and $1.1
      million in asset impairment
charges;
  ·
              the
      final sale of the Pleasant Garden, N.C. wood furniture plant and the
      related closing of the Martinsville, Va. plywood plant ($161,000);
      and
  ·
              the
      planned disposition of the two Bradington-Young showrooms located in High
      Point, N.C. ($140,000); net of
 
 ·
              a
      restructuring credit for previously accrued health care benefits for
      terminated employees at the former Pleasant Garden and Kernersville, N.C.
      facilities that are not expected to be paid
  ($295,000).
 
 In October
2006, the Company completed the sale of the Roanoke, Va. plant for $2.2 million,
net of selling costs.
 
 In May 2006,
the Company completed the sale of the Pleasant Garden facility. Aggregate
proceeds from that sale, including proceeds from equipment auctions at both the
Pleasant Garden facility and Martinsville plywood facility held in December
2005, amounted to $1.5 million ($1.1 million in cash and a note receivable for
$400,000), net of selling expenses.
 
 During fiscal
2005, the Company recorded aggregate restructuring charges of $5.3 million ($3.3
million after tax, or $0.28 per share) principally related to:
  ·
              the
      October 2005 closing of its Pleasant Garden, N.C. plant ($4.3 million) and
      the September 2005 consolidation of related plywood production at its
      Martinsville, Va. manufacturing facility ($406,000), which included $1.5
      million in severance and related benefits for approximately 300 hourly and
      salaried employees, $2.9 million in related asset impairment charges and
      $258,000 for other costs to prepare the Pleasant Garden property for
      sale;
 
 ·
              additional
      costs of $586,000 related to its Maiden, N.C. facility (which closed in
      2004) and its Kernersville, N.C. facility (which closed in 2003),
      consisting of :
 
 o
              $322,000
      principally for additional asset impairment and health care expenses
      incurred in connection with the sale of the Maiden real property;
      and
 
 o
              $264,000
      of additional costs principally for environmental monitoring related to
      the closing of the Kernersville
facility.
  F-22
 In connection
with the closing of the Pleasant Garden facility, the Company transferred
related plywood production from a facility located in Martinsville, Va. to its
main Martinsville manufacturing facility.  The Company completed this
transfer in the 2005 fourth quarter and completed the conversion of this
separate facility into a finished goods warehouse during the 2006 first
quarter.
 
 The real and
personal property at the Pleasant Garden facility and certain plywood production
equipment located at the Martinsville plywood facility, with an aggregate
carrying value of $1.7 million net of anticipated selling expenses, were
included in “assets held for sale” on the consolidated balance sheet as of
November 30, 2005.
 
 The following
table sets forth the significant components of and activity related to the
accrued restructuring and asset impairment charges for fiscal years 2005 and
2006, the 2007 two-month transition period and fiscal year
2008.  Accrued restructuring charges are included in “accrued
salaries, wages and benefits,” “other accrued expenses” and “other long-term
liabilities” in the consolidated balance sheets. The expenses are included in
“restructuring and asset impairment charges” in the consolidated statements of
income:
  Severance
      and
                
                Asset
                
                
                
                
                Pretax
                
                After-TaxRelated
      Benefits
                
                Impairment
                
                Other
                
                Amount
                
                AmountAccrued
      balance at December 1, 2005
                
                $
                368
                
                
                
                
                
                $
                225
                
                
                $
                593Restructuring
      charges accrued during fiscal 2005 for the:Pleasant
      Garden, N.C. and Martinsville, Va. plywoodfacilities
                
                1,464
                
                
                $
                2,942
                
                
                
                258
                
                
                
                4,664Maiden
      and Kernersville, N.C. facilities
                
                
                158
                
                
                
                180
                
                
                
                248
                
                
                
                586Total
                
                
                1,622
                
                
                
                3,122
                
                
                
                506
                
                
                
                5,250
                
                
                $
                3,255Non-cash
      charges
                
                
                
                
                
                
                (3,122
                )
                
                
                
                
                
                
                (3,122
                )Cash
      payments
                
                
                (1,201
                )
                
                
                
                
                
                
                (513
                )
                
                
                (1,714
                )Accrued
      balance at November 30, 2005
                
                
                789
                
                
                
                
                
                
                
                218
                
                
                
                1,007Restructuring
      charges accrued during fiscal 2006 for the:Pleasant
      Garden and Kernersville, N.C. manufacturingand
      Martinsville, Va. plywood facilities
                
                (295
                )
                
                
                60
                
                
                
                101
                
                
                
                (134
                )High
      Point, N.C. showrooms
                
                
                
                
                
                
                140
                
                
                
                
                
                
                
                140Roanoke,
      Va. facility
                
                
                1,552
                
                
                
                1,139
                
                
                
                
                
                
                
                2,691Martinsville,
      Va. facility
                
                
                
                
                
                
                4,184
                
                
                
                
                
                
                
                4,184Total
                
                
                1,257
                
                
                
                5,523
                
                
                
                101
                
                
                
                6,881
                
                
                $
                4,266Non-cash
      charges
                
                
                
                
                
                
                (5,523
                )
                
                
                
                
                
                
                (5,523
                )Cash
      payments
                
                
                (1,364
                )
                
                
                
                
                
                
                (116
                )
                
                
                (1,480
                )Accrued
      balance at November 30, 2006
                
                
                682
                
                
                
                
                
                
                
                203
                
                
                
                885Restructuring
      charges accrued during the 2007 two-monthtransition
      period for the Martinsville, Va. facility
                
                2,318
                
                
                
                655
                
                
                
                
                
                
                
                2,973
                
                
                $
                1,843Non-cash
      charges
                
                
                
                
                
                
                (655
                )
                
                
                
                
                
                
                (655
                )Cash
      payments
                
                
                (17
                )
                
                
                
                
                
                
                (3
                )
                
                
                (20
                )Accrued
      balance at January 28, 2007
                
                
                2,983
                
                
                
                
                
                
                
                200
                
                
                
                3,183Restructuring
      charges accrued during fiscal 2008 for the:Pleasant
      Garden, N.C., Roanoke, Va. and Maiden,N.C.
      facilities
                
                
                (182
                )
                
                
                
                
                
                
                
                
                
                
                (182
                )Martinsville,
      Va. facility
                
                
                (62
                )
                
                
                25
                
                
                
                528
                
                
                
                491Total
                
                
                (244
                )
                
                
                25
                
                
                
                528
                
                
                
                309
                
                
                $
                190Non-cash
      charges
                
                
                
                
                
                
                (25
                )
                
                
                
                
                
                
                (25
                )Cash
      payments
                
                
                (1,910
                )
                
                
                
                
                
                
                (535
                )
                
                
                (2,445
                )Accrued
      balance atFebruary 3,
      2008
                
                $
                829
                
                
                $
                
                
                
                $
                193
                
                
                $
                1,022
 
 F-23
 NOTE
15 – QUARTERLY DATA (Unaudited)
  Fiscal
      QuarterFirst
                
                
                Second
                
                
                Third
                
                
                Fourth2008Net
      sales
                
                $
                77,294
                
                
                $
                73,441
                
                
                $
                83,768
                
                
                $
                82,298Gross
      profit
                
                
                22,078
                
                
                
                23,001
                
                
                
                26,636
                
                
                
                25,531Net
      income
                
                
                4,286
                
                
                
                4,858
                
                
                
                5,911
                
                
                
                4,600Basic
      and diluted earnings per share
                
                $
                0.33
                
                
                $
                0.39
                
                
                $
                0.48
                
                
                $
                0.392007 – Two Month Transition
      PeriodNet
      sales
                
                $
                49,061Gross
      profit
                
                
                13,615Net
      loss
                
                
                (18,415
                )Basic
      and diluted loss per share
                
                $
                (1.52
                )2006Net
      sales
                
                $
                85,339
                
                
                $
                90,694
                
                
                $
                83,006
                
                
                $
                90,987Gross
      profit
                
                
                22,979
                
                
                
                26,806
                
                
                
                23,460
                
                
                
                27,969Net
      income
                
                
                3,560
                
                
                
                5,832
                
                
                
                1,210
                
                
                
                3,536Basic
      and diluted earnings per share
                
                $
                0.30
                
                
                $
                0.49
                
                
                $
                0.10
                
                
                $
                0.29
 
 Earnings per
share for each fiscal quarter is derived using the weighted average number of
shares outstanding during that quarter.  Unearned ESOP shares are not
considered outstanding for purposes of calculating earnings per
share.  Earnings per share for the fiscal year is derived using the
weighted average number of shares outstanding on an annual
basis.  Consequently, the sum of earnings per share for the quarters
may not equal earnings per share for the full fiscal year.
 
 NOTE
16 – SEGMENT INFORMATION
 
 The Company
is organized and reports its results of operations in one operating segment that
designs, imports, manufactures and markets residential furniture products,
principally in North America.  The nature of the products, production
processes, distribution methods, types of customers and regulatory environment
are similar for substantially all of the Company’s products.
 
 NOTE
17 – COMMITMENTS, CONTINGENCIES AND OFF BALANCE SHEET
ARRANGEMENTS
  The Company
leases warehousing facilities, showroom space, an upholstery frame plant and
certain manufacturing, office and computer equipment under leases expiring over
the next five years.  Rent expense was $2.2 million in fiscal 2008,
$406,000 in the fiscal 2007 two-month transition period, $2.4 million in fiscal
2006 and $2.3 million in fiscal 2005.  Future minimum annual
commitments under leases and operating agreements amount to $4.1 million in
fiscal 2009, $3.2 million in fiscal 2010, $1.0 million in fiscal 2011, $147,000
in fiscal 2012, $15,000 in fiscal 2013 and $6,000 thereafter.
 
 The Company
had letters of credit outstanding totaling $1.4 million on February 3, 2008 and
$1.7 million on  January 28, 2007. The Company utilizes letters of
credit to collateralize certain imported inventory purchases and certain
insurance arrangements.
  In the
ordinary course of its business, the Company may become involved in legal
proceedings involving contractual and employment relationships, product
liability claims, intellectual property rights and a variety of other matters.
The Company does not believe that any pending legal proceedings will have a
material impact on the Company’s financial position or results of
operations.
 
 NOTE
18 - CASUALTY LOSS
 
 In June
2006, the Martinsville, Virginia area experienced severe storms and heavy
rain.  One of the Company’s finished goods warehouses experienced
significant water damage, confined primarily to finished goods inventory and
real property.  The Company incurred $1.2 million in damaged inventory
(at net sales value) and other related costs, and $371,000 in damage to its
warehouse.  After taking into account the insurance settlement, the
Company recorded a net casualty gain of $109,000, reflecting a deductible of
$250,000 less the amount by which the final insurance settlement exceeded the
Company’s cost basis in the damaged property.
  F-24
  EXHIBIT
INDEX
 
 Exhibit
              Description
 
 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)
 
 4.3(a)
              Credit
      Agreement, dated April 30, 2003, between Bank of America, N.A., and the
      Company (incorporated by reference to Exhibit 4.1 of the Company’s Form
      10-Q (SEC File No. 000-25349) for the quarter ending May 31,
      2003)
 
 4.3(b)
              First
      Amendment to Credit Agreement, dated as of February 18, 2005, among the
      Company, the Lenders party thereto, and Bank of America, N.A., as agent
      (incorporated by reference to Exhibit 10.2 of the Company’s Form 10-Q (SEC
      File No. 000-25349) for the quarter ending February 28,
    2005)
 
 4.3(c)
              Second
      Amendment to Credit Agreement dated as of February 27, 2008, among the
      Company and Bank of America, N.A. as lender and agent (filed
      herewith)
 
 Pursuant
      to Regulation S-K, Item 601(b)(4)(iii), instruments evidencing long-term
      debt not exceeding 10% of the Company’s total assets have been omitted and
      will be furnished to the Securities and Exchange Commission upon
      request.
 
 10.1(a)
              Form of
      Executive Life Insurance Agreement dated December 31, 2003, between the
      Company and certain of its executive officers (incorporated by reference
      to Exhibit 10.1 of the Company’s Form 10-Q (SEC File No. 000-25349) for
      the quarter ended February 29,
2004)*
 
 10.1(b)(i)
              Supplemental
      Retirement Income Plan effective as of December 1, 2003 (incorporated by
      reference to Exhibit 10.3 of the Company’s Form 10-Q (SEC File No.
      000-25349) for the quarter ended February 29,
  2004)*
 
 10.1(b)(ii)
              First
      Amendment to the Supplemental Retirement Income Plan, dated as of May 24,
      2007 (filed herewith)*
 
 10.1(c)
              Summary
      of Compensation for Named Executive Officers (filed
    herewith)*
 
 10.1(d)
              Summary
      of Director Compensation (filed
herewith)*
 
 10.1(e)
              Hooker
      Furniture Corporation 2005 Stock Incentive Plan (incorporated by reference
      to Appendix B of the Company’s Definitive Proxy Statement dated March 1,
      2005 (SEC File No. 000-25349))*
 
 10.1(f)
              Form of
      Outside Director Restricted Stock Agreement (incorporated by reference to
      Exhibit 99.1 of the Company’s Current Report on Form 8-K (SEC File No.
      000-25349) filed January 17, 2006)*
 
 10.1(g)
              Retirement
      Agreement, dated October 26, 2006, between Douglas C. Williams and the
      Company (incorporated by reference to Exhibit 10.1(g) of the Company’s
      Annual Report on Form 10-K (SEC File No. 000-25349) filed February 28,
      2007)*
 
 10.1(h)
              Employment
      Agreement, dated June 15, 2007, between Alan D. Cole and the Company
      (filed herewith)*
 
 10.2(a)
              Credit
      Agreement, dated April 30, 2003, between Bank of America, N.A., and the
      Company (See Exhibit 4.3(a))
 
 10.2(b)
              First
      Amendment to Credit Agreement, dated as of February 18, 2005, among the
      Company, the Lenders party thereto, and Bank of America, N.A., as agent
      (See Exhibit 4.3(b))
 
 10.2(c)
              Second
      Amendment to Credit Agreement, dated as of February 27, 2008, among the
      Company and Bank of America, N.A., as lender and agent (See Exhibit
      4.3(c))
 
 21
              List of
      Subsidiaries:
 
 Bradington-Young
      LLC, a Virginia limited liability
company
 Sam
      Moore Furniture LLC, a Virginia limited liability
  company
 
 23
              Consent
      of Independent Registered Public Accounting Firm (filed
      herewith)
 
 31.1
              Rule
      13a-14(a) Certification of the Company’s principal executive officer
      (filed herewith)
 
 31.2
              Rule
      13a-14(a) Certification of the Company’s principal financial officer
      (filed herewith)
 
 32.1
              Rule
      13a-14(b) Certification of the Company’s principal executive officer
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (filed
herewith)
 
 32.2
              Rule
      13a-14(b) Certification of the Company’s principal financial officer
      pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 (filed
herewith)
 
 ___________
 *Management
contract or compensatory plan