UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 19951997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-14938
STANLEY FURNITURE COMPANY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 54-1272589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Route 57,1641 Fairystone Park Highway, Stanleytown, VirginiaVA 24168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (540) 627-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.02 per share
(Title of Class)
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 (Section 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.[ ]
Aggregate market value of the voting stock held by non-affiliates
of the registrant based on the closing price on January 26, 1996: $15,337,24520, 1998:
$95.1 million
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of January 26, 1996:27, 1998:
Common Stock, par value $.02 per share 4,726,5783,432,759
(Class of Common Stock) Number of Shares
Documents incorporated by reference: Portions of the Registrant's
Proxy Statement for its Annual Meeting of ShareholdersStockholders scheduled for
April 25, 199630, 1998 are incorporated by reference into Part III.
TABLE OF CONTENTS
Part I Page
Item 1 Business............................. 3
Item 2 Properties........................... 8
Item 3 Legal Proceedings.................... 8
Item 4 Submission of Matters to a Vote
of Security Holders................ 8
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters.... 11
Item 6 Selected Financial Data.............. 12
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 14
Item 8 Financial Statements and
Supplementary Data................. 17
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure............... 17
Part III
Items 10 through 13.............................. 1718
Part IV
Item 14 Exhibits, Financial Statement
Schedule and Reports on Form 8-K... 1718
Signatures....................................... 2324
Index to Financial Statements and Schedule....... F-1
Stanley Furniture Company,
Inc.
PART I
Item 1. Business
General
Stanley FurnitureThe Company Inc. ("Stanley" or the "Company") is a leading designer and manufacturer of
residential furniture exclusively targeted at the upper-medium
price range of the residential market.range. The Company is ranked among the top 25 furniture manufacturers in
North America, based on sales, according to Furniture Today, a
trade publication. During 1994,offers diversified product lines across
all major style and product categories within this price range.
Its product depth and extensive style selections make the Company
expanded it's product
line offerings to include upholstered furniture. See "Productsa complete furniture resource for retailers in its price range and
Styles".
The original predecessor ofallow the Company was founded in 1924.to respond more quickly to shifting consumer
preferences. The Company was incorporated in Delaware in 1984has established a broad distribution
network that includes independent furniture stores, department
stores, and was acquired
by Stanley Holding Corporation, a Delaware corporation, in a
leveraged buy out in January 1989.
In November 1992,national and regional furniture chains. To produce its
products and support its broad distribution network, the Company
completed a comprehensive
financial restructuring. As a result,has developed efficient and flexible manufacturing processes that
it believes are unique in the furniture industry. The Company
was the sole
surviving corporationemphasizes continuous improvement in its manufacturing processes to
enable it to continue providing competitive advantages to its
customers, such as quick delivery, reduced inventory investment,
high quality, and the only outstanding class of the
Company's capital stock was common stock.
In July 1993, the Company completed a public offering of
1,725,000 shares of its common stock at $8.50 per share. The net
proceeds of $13.1 million were used to reduce debt. Approximately
61% of the Company's common stock was owned by the ML - Lee
Acquisition Fund, L.P., certain affiliates of the Thomas H. Lee
Company,value.
Products and management after the public offering.
In connection with the financial restructuring, the Company
closed its Waynesboro, Virginia facility in 1992 to eliminate
excess capacity, and initiated the sale of the Norman's of
Salisbury fabric division ("Norman's"). In June 1994, the Company
ceased operations at Norman's.
StrategyStyles
The Company's marketing strategy is to penetrate all available
distribution channels compatible with its price niche and to be a
single-source provider by offering a broad range of product lines cover all major design
categories, and styles. Product lines include bedroom, dining room, youth occasionalbedroom (Young
AmericaTM), living room tables, entertainment centers, home office
(The OfficeTM), and upholstered furniture.upholstery. The Company'sCompany believes that the
diversity of its product styling mix reflects currentlines enables it to anticipate and respond
quickly to changing consumer preferences and covers all
major design categories withinprovides retailers a
complete furniture resource in the upper-medium price range. The
Company intends to continue expanding its price niche. The Company's
operating strategy is to provide superior quality, quick delivery,
styleproduct styles with
particular emphasis on upholstery, home office, and value.youth bedroom.
The Company believes that its strategy of penetrating
all available distribution channels compatible with its price niche
provides it with flexibility to adapt to market changes.
The Company believes its operating strategy provides its
customers with a competitive advantage. In order to respond to
demand for shorter lead timesproducts represent good value and improved quality, the Company's
manufacturing process focuses on producing smaller, more frequent
and cost effective production runs. As a result, the Company
achieved its goal of shipping customer orders within three weeks on
average during 1995, with average finished goods inventory turns of
5.2 times. In addition, management believes this operating
strategy has helped to improve product quality. Quick delivery and
high quality reduce the retailer's inventory investment while
minimizing the retailer's re-delivery costs and price markdowns.
The Company uses the marketing theme, "We Just Look Expensive,"
because it believes
that the design, quality and style of its furniture compare favorably with
more premium-priced products. ProductsTo emphasize this comparison the
Company uses the marketing theme, "We Just Look Expensive."
The Company provides wood products in a variety of woods,
veneers, and Stylefinishes. The Company's broad range of product lines and styles provide
retailers a single source for the purchase of upper-medium priced
furniture. The range of product lines and number of designs for
wood productsstyles by product line
currently marketed by the Company is set forth in the following
table.table:
Number of Designs
Bedroom 32Styles
Bedroom....................................... 25
Dining room 28room................................... 22
Youth bedroom 19(Young America)................. 16
Occasional:
Living room tables 24
Wall systemstables......................... 19
Entertainment centers...................... 13
Home Office 3
The Company'soffice (The Office)................... 5
These product styling mix reflects current consumer
preferences and coverslines cover all major design categories
within its
upper-medium price niche including European traditional, contemporary, contemporary/transitional, 18th century, countryAmerican
traditional, and nostalgiacountry/casual designs.
UpholsteredThe Company introduced upholstered furniture products were initially introduced in the
Fallfall of 1994, andallowing the Company to expand its product offerings
in the upper-medium price range. The Company's entry into the
upholstery business takes advantage of its existing distribution
network without requiring a significant capital investment. The
Company's upholstered products consist mainly of stationary sofas,
sleepers, love seats, and chairs. TheSince initial introduction, the
Company has expanded its upholstered products in 1995 and nowcurrently offers
a variety of frameframes and approximately 500 fabric selections.
MarketingThe Company designs and Salesdevelops new product styles each year
to replace discontinued items or styles and, if desired, expand
product lines. The Company's product design process begins with
marketing personnel identifying customer needs and conceptualizing
product ideas, which generally consist of a group of related
furniture pieces. A variety of sketches are produced, usually by
Company designers, from which prototype furniture pieces are built.
The Company's engineering department then prepares the prototype
for actual full-scale production. The Company consults with its
marketing personnel, sales representatives, and selected customers
throughout this process and introduces its new product styles at
the fall and spring international furniture markets.
Distribution
The Company has developed a diversebroad domestic and extensive nationwideinternational
customer base which the Company believes provides it with
flexibility to adapt to market changes. The Companyand sells its furniture products through approximately 6070
independent sales representatives to independent furniture
retailers; national
accounts such as Searsretailers and J.C. Penney; national and regional chain stores such as Homestead House, Huffman-Koos,stores. Representative
customers include Sears, J.C. Penney, Rhodes, Rooms To Go, Breuners
Home Furnishings, Robb & Stucky, R C
WilleyNebraska Furniture Mart,
Furnitureland South, and Rhodes; and major department stores such as Federated
Department Stores. Products are also distributed internationally
with approximately 7% of the Company's sales from international
customers.Haverty's. The Company currently has approximately 3,600 active
customers.
In marketingbelieves this
broad network reduces its productsexposure to independent retailers, theregional recessions, and
allows it to capitalize on emerging channels of distribution. The
Company utilizes a promotional incentive sales program, the
"Stanley Preferred Retailer". This program is designedoffers tailored merchandising programs to encourage the independent retailer to commit retail floor space to
the Company's products. The program is designed to be flexible and
is adapted into the marketing plansaddress each
channel of retailers by accommodating
geographic, style and promotional preferences. To participate, a
retailer must commit a specified amount of floor space to the
Company's products and achieve a specified sales volume.distribution.
The general marketing practice followed in the furniture
industry is to exhibit products at international and regional
furniture markets. In the Springspring and Fallfall of each year, an eight-
daya nine-day
furniture market is held in High Point, North Carolina, which is
attended by most buyers and is regarded by the industry as the
international market, attracting
buyers from the United States and abroad.market. The Company maintainsutilizes approximately 60,000
square feet of showroom space at the High Point market to introduce
new products, increase sales of its existing products, and test
ideas for future products.
The Company has sold to over 3,600 customers during the past
twelve months, and approximately 8% of the Company's sales in the San Francisco
regional market.1997
were to international customers. No single customer accounted for
more than 10%ten percent of the Company's sales in 1995.1997. No material
part of the Company's business is dependent upon a single customer,
the loss of which would have a material effect on the business of
the Company. The loss of several of the Company's major customers
could have a material impact on the business of the Company.
There are no
significant seasonal aspects to the Company's business.
Product Design and Development
The Company's marketing personnel begin the design process by
identifying marketing needs to be fulfilled and conceptualizing
product ideas, generally consisting of a group of related furniture
pieces. A variety of sketches are produced, usually by Company
designers, from which prototype furniture pieces are prepared in
consultation with marketing personnel, selected dealers and sales
representatives. The Company's engineering department then
processes the prototype in preparation for actual full-scale
production. Consistent with industry practice, the Company designs
and develops new product groups each year, replacing discontinued
items or collections.
Manufacturing
The Company's manufacturing operations complement its marketingproduct
and distribution strategy by emphasizing superiorcontinuous improvement in
quality and quick
delivery.customer responsiveness while reducing costs. The
Company's manufacturing process producesprocesses produce smaller, more frequent
and cost effective runs byruns. The Company focuses on identifying and
eliminating manufacturing bottlenecks and waste, employing
statistical process control establishingand, in turn, adjusting manufacturing
schedules on a daily basis, using cellular manufacturing in the
production of components, and improving its relationships with
suppliers.suppliers by establishing primary supplier relationships. In
addition, a key element of the Company's manufacturing processprocesses is
to involve all Company personnel, from hourly associates to
management, in the improvement of the manufacturing processprocesses by
encouraging and responding to suggested methodsideas to improve quality and to
reduce manufacturing lead times.
The Company operates manufacturing facilities in North
Carolina and Virginia consisting of an aggregate of approximately
3more than three
million square feet. The Company considers its present equipment to
be generally modern, adequate and well maintained.
The Company schedules production of its various styles based
upon actual and anticipated orders. The Company's manufacturing
processes enable it to fill orders through manufacturing rather
than inventory. As a result, the Company shipped customer orders
within 16.3 days on average during 1997 with average finished goods
inventory turns of 6.2. Since the Company ships customer orders on
average in less than three weeks, management believes that the size
of its backlog is not necessarily indicative of its long-term
operations. The Company's backlog of unshipped orders was $34.9
million at December 31, 1997 and $23.6 million at December 31,
1996.
Raw Materials
The principal materials used by the Company in manufacturing
its products include lumber, veneers, plywood, particle board,
hardware, glue, finishing materials, glass products, laminates,
fabrics, metals; andmetals, frames, filling, and cushioning materials for
upholstered products.materials. The
Company uses a variety of species of lumber, including cherry, oak,
ash, poplar, pine, maple, and mahogany. The Company's five largest
suppliers accounted for approximately 22%21% of its purchases in 1995.1997.
The Company believes that its sources of supply for these materials
are adequate and that it is not dependent on any one supplier.
Competition
The Company is the fourteenth largest furniture manufacturer
in North America based on 1996 sales, according to Furniture/Today,
a trade publication. The furniture industry has experienced increased prices for lumber during the
past several years, which is the most significant raw material used
by the Company, although there was a moderation in lumber price
increases during 1995. While the industry has historically
increased prices to reflect such increased costs, there can be no
assurance that, if raw material prices increase, market and
competitive pressures will permit the Company or its competitors to
increase the prices for their products.
Backlog
The Company schedules production of its various groups based
upon actual or anticipated orders. The Company, and the furniture
industry, generally honor cancellation of orders prior to shipment,
although cancellations generally decrease as demand increases. The
Company's backlog of unshipped orders was $21.5 million, $17.4
million, and $26.6 million at December 31, 1995, 1994 and 1993,
respectively. The Company's manufacturing process is intended to
reduce backlog and to fill orders through manufacturing rather than
inventory. Therefore, management believes that the size of its
backlog is not necessarily indicative of its operations.
Competition
The furniture market is highly
competitive and includes a large number of foreign and domestic
manufacturers.manufacturers, none of which dominates the market. The markets in
which the Company competes include a large number of relatively
small manufacturers; however, certain competitors of the Company
have substantially greater sales volumes and greater financial resources
than the Company. While competition occurs principallyCompetitive factors in the areas ofupper-medium price
range include style, price, quality, delivery, design, service, design and
price, thedurability. The Company believes that its operating strategy,manufacturing processes,
its long-standing customer relationships with
its customers,and customer
responsiveness, its consistent support of existing diverse product
lines over timethat are high quality and good value, and its experienced
management experience are competitive advantages.
Associates
At December 31, 1995,1997, the Company employed approximately 2,7002,800
associates. None of the Company's associates areis represented by a
labor union. The Company considers its relations with its
associates to be good.
Patents and Trademarks
The trade names of the Company represent many years of
continued business, and the Company believes such names are well
recognized and associated with quality in the furniture industry.
The Company owns a number of patents, trademarks, and licenses,
none of which areis considered to be material to the Company.
Environmental RegulationGovernmental Regulations
The Company is regulated under severalsubject to federal, state, and local environmental laws and
regulations concerning air emissions,
water dischargesin the areas of safety, health, and management of solid and hazardous waste.
Management believes that the Company is in material compliance with
applicable federal, state and local environmental
regulations.pollution controls. Compliance with these laws and regulations has
not in the past had any material effect on the Company's earnings,
capital expenditures, or competitive position; however, the effect
of such compliance in the future cannot be determined.predicted. Management
believes that the Company is in material compliance with applicable
federal, state, and local environmental regulations.
Regulations issued in December 1995 under the Clean Air Act
Amendments of 1990 may requireas part of the National Emission Standards for
Hazardous Air Pollutants program and negotiated into the Furniture
Maximum Achievable Control Technology Standard, requires the
Company to reformulate certain furniture finishes orand institute
process and administrative changes to reduce emissions of hazardous
volatile organic compounds.air pollutants. The furniture industry
andCompany believes it is in compliance with
these regulations by its suppliers are attempting to develop water-based and other
formsuse of compliant finishing materials to replace commonly-used
organic-based finishes which are a major source of regulated
emissions.coatings and by training
its associates in work practice standards. The Company cannot at
this time estimate the future impact of these new standards on the
Company's operations and future capital expenditure requirements,requirements.
Forward-Looking Statements
Certain statements made in this Annual Report on Form 10-K are
not based on historical facts, but are forward-looking statements.
These statements can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should,"
or "anticipates" or the costnegative thereof or other variations
thereon or comparable terminology, or by discussions of compliance.strategy.
These statements reflect the Company's reasonable judgment with
respect to future events and are subject to risks and uncertainties
that could cause actual results to differ materially from those in
the forward-looking statements. Such risks and uncertainties
include the cyclical nature of the furniture industry, fluctuations
in the price for lumber which is the most significant raw material
used by the Company, competition in the furniture industry, capital
costs and general economic conditions.
Item 2. Properties
Set forth below is certain information with respect to the
Company's principal properties. The Company believes that all
these properties are well maintained and in good condition. The
Company believes its manufacturing facilities are being efficiently
utilized and that it could increase production at its facilities if
required by customer demand. Each facility is focused on specific
product lines to optimize efficiency. The Company estimates that
its facilities are presently operating at approximately 85%90% of
capacity, principally on a one-shift basis. All Company plants are
equipped with automatic sprinkler systems and modern fire
protection equipment, which management believes are adequate. All
facilities set forth below are active and operational, except as
noted.operational.
Approximate Owned
Lease
Facility Size or Expiration
Location Primary Use (Square Feet) Leased
Date
Stanleytown, VA Manufacturing 1,660,000 Owned(1)Owned
and Corporate
Headquarters 61,000 Owned
West End, NC Manufacturing 470,000 Owned(1)Owned
West End, NC Lumber Yard Leased May 31, 2007Leased(1)
Lexington, NC Manufacturing 635,000 Owned
Robbinsville, NC Manufacturing 540,000 Owned
Salisbury,High Point, NC Idle 109,000Showroom 80,000 Leased(2)
April 30, 2000
(1) These facilities were leased through June 1995 at which time the Company
purchased these facilities. See Note 2 of the Notes to Financial
Statements.Lease expires May 31, 2007.
(2) This facility was subleased through August 1995 and is currently idle.
This was the principal facility of Norman's. The Company has the right
to purchase the property at any time at its fair market value.
The Company also leases and maintains approximately 60,000
square feet (8,000Lease expires October 31, 1999. Approximately 17,500 square
feet is subleased) of showroom space in
High Point, North Carolina and 7,000 square feet of showroom space
in San Francisco, California.subleased.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The Company's executive officers and their ages as of the Company are:January
1, 1998 are as follows:
Name Age Position
Albert L. Prillaman 50Prillaman........ 52 Chairman, President
and Chief Executive
Officer
Bobby I. Hodges............ 60 Senior Vice President-
Manufacturing
Douglas I. Payne........... 39 Senior Vice President-
Finance and
Director
C.Administration,
Treasurer and Secretary
William Cubberley, Jr. 55A. Sibbick......... 41 Senior Vice President-
Sales
and Marketing
Douglas I. Payne 38 Vice President of Finance,
Treasurer and Secretary
Bobby I. Hodges 58Kelly S. Cain.............. 43 Senior Vice President-
Manufacturing
William A. Sibbick 39 Vice President-Product
Development and
Merchandising
Joe G. Bost 49 Vice President-Upholstery
Albert L. Prillaman has been a Director of the Company since
March 1986, President and Chief Executive
Officer of the Company since December 1985 and Chairman of the
Board of Directors since September 1988. Prior thereto, Mr.
Prillaman had served as a Vice President of the Company and
President of the Stanley Furniture division of the Company's
predecessor since 1983, and in various executive and other
capacities with predecessors of the Stanley Furniture division of the Company since 1969.
C. William Cubberley, Jr. has been Senior Vice President-Sales
and Marketingpredecessors
of the Company since April 1995. He has been1969. Mr. Prillaman is a Vice
Presidentdirector of the Company since December 1990Main
Street BankGroup Incorporated and Senior Vice
President-Sales and Marketing of the Stanley Furniture division
since October 1988. Mr. Cubberley was Senior Vice President-Sales
of the Stanley Furniture division from January 1986 to
October 1988, when he became Senior Vice President - Sales and
Marketing of the Stanley Furniture division.
Douglas I. Payne has been Vice President of Finance and
Treasurer of the Company since September 1993, was Vice President-
Treasurer of the Company from December 1989 to September 1993, was
Treasurer of the Company from June 1986 to December 1989 and was
Assistant Treasurer of the Company from August 1985 to June 1986.
Mr. Payne has been Secretary of the Company since September 1988.
First Alert, Inc.
Bobby I. Hodges has been Senior Vice President-Manufacturing
of the Company since April 1995. He has been a Vice President
since June 1993. He was Senior Vice President-Manufacturing of the
Stanley Furniture division from January 1986 until June 1993.
He
was Vice President-Manufacturing of the Stanley Furniture division
from December 1983 until January 1986. Prior to that time, Mr. Hodges was employed by the Company inheld various positions related to
manufacturing management.management since his employment in 1967.
Douglas I. Payne has been Senior Vice President-Finance and
Administration since December 1996. He was Vice President of
Finance and Treasurer of the Company from September 1993 to
December 1996. He was Vice President-Treasurer of the Company from
December 1989 to September 1993. Prior to that time, Mr. Payne held
various financial management positions since his employment in
1983. Mr. Payne has been Secretary of the Company since 1988.
William A. Sibbick has been Senior Vice President-Sales since
December 1997. He was Vice President-Product Development and
Merchandising-Dining Room and Occasional from December 1996 to
December 1997. He was Vice President - Product Development and
Merchandising sincefrom April 1995.1995 until December 1996. He was Vice
President - Product Development from June 1993 until April 1995.
He was Vice President-Senior Product Manager of the Stanley
Furniture division from January 1992 until June 1993. Prior to
that time, he had beenMr. Sibbick was Vice President-Product Manager since his
employment in March 1989.
Joe G. BostKelly S. Cain has been Senior Vice President-UpholsteryPresident-Product
Development and Merchandising since April
1995.December 1997. He was President of Norman's of SalisburyVice
President-Product Development and Merchandising for bedroom product
lines from December 1996 to December 1997. Prior to that time, Mr.
Cain held various management positions in sales and marketing since
his employment in January 1993 until April 1995. Prior to joining
the Company, Mr. Bost was Senior Vice-President of Sales, Marketing,
Administration and Manufacturing of Hickorycraft, Inc., a manufacturer of
upholstery and occasional tables, a position he held since 1987.
1985.
PART II
Item 5. Market for Registrant's Common Equity and Related
ShareholdersStockholder Matters
The Company's common stock is tradedquoted on the National
Association of Securities Dealers Automated Quotation (NASDAQ)
NationalThe Nasdaq Stock
Market ("Nasdaq") under the symbol STLY. The table below sets
forth the high and low sales prices per share as reported by
the NASDAQ
National Market.
High Low
1995
First Quarter.......................... 9 1/2 7
Second Quarter......................... 8 3/8 7
Third Quarter.......................... 8 3/4 7
Fourth Quarter......................... 9 7 3/4
1994
First Quarter.......................... 16 13
Second Quarter......................... 15 11
Third Quarter.......................... 12 1/2 9
Fourth Quarter......................... 10 3/4 9 3/4Nasdaq.
High Low
1997
First Quarter.......................... $26.00 $18.25
Second Quarter......................... 23.50 17.00
Third Quarter.......................... 29.75 22.75
Fourth Quarter......................... 29.00 22.75
1996
First Quarter.......................... $10.75 $ 8.00
Second Quarter......................... 12.13 10.00
Third Quarter.......................... 17.50 10.25
Fourth Quarter......................... 20.75 14.00
The quotations reflect interdealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent
actual transactions. As of January 26, 1996,20, 1998, there were
approximately 1,5001,600 beneficial shareholders.stockholders. The Company has not
paidcurrently
retains all earnings to finance the growth and development of its
business. However, the Company will continue to evaluate its
dividend policy, and any future payments will depend upon the
financial condition, capital requirements, and earnings of the
Company, as well as other factors that the Board of Directors may
deem relevant. The Company's ability to pay dividends with respect
to the Common Stock is restricted, under certain loan covenants, to
$25.0 million plus 50% of the Company's consolidated net earnings,
adjusted for net cash proceeds received by the Company from the
sale of its stock and the amount of payments for redemption,
purchase or other acquisition of its capital stock, subsequent to
January 1, 1997. As of December 31, 1997, $5.6 million was
available for the payment of dividends and is prohibited from doing so under its
bank credit facility.
these restrictions.
Item 6. Selected Financial Data
The selected financial data for the five years in the period
ended December 31, 1995 are derived from the Company's financial
statements, which have been audited by Coopers & Lybrand L.L.P.
The selected financial data should be read in conjunction with the
Financial Statements including the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein.
Stanley Furniture Company, Inc.
Selected Financial Data
(In
Years Ended December 31,
1997 1996 1995 1994 1993
(in thousands, except per share data)
1995 1994 1993 1992 1991
Operating Results:Income Statement Data:
Net sales......................sales..............$211,905 $201,905 $174,179 $184,342 $167,091 $166,501 $144,169
Cost of sales:
From products sold...........sold....159,453 153,332 137,621 148,453 134,972
132,984 121,027
Business interruption
insurance (1)..................... (5,036)
Gross profit.............profit...... 52,452 48,573 36,558 35,889 37,155 33,517 23,142
Selling, general and admin-
istrative expenses...........expenses.....29,949 30,403 26,454 26,483 25,976
25,117 22,877
Unusual items, net(2).............. (136)
Restructuring charge
(credit)(3).................. (2,078) 14,051
Operating income (loss)....income.....22,503 18,170 10,240 9,406 11,179
10,478 (13,786)
Other expense, net.............net....... 276 616 433 444 1,346
686 1,252
Gain on insurance settlement (4)settlement(3) (2,379) (2,186)
Interest expense...............expense......... 3,538 3,344 3,534 2,969 3,048
7,058 8,581
Income (loss) from continu-
ingcontinuing
operations before income
taxes...............taxes................18,689 14,210 6,273 8,372 8,971
2,734 (23,619)
Income tax provision (benefit).taxes............. 7,102 5,470 2,384 3,256 3,691
1,053 (9,088)
Income (loss) from continu-
ing operations(5)..........continuing
operations..........$11,587 $ 8,740 $ 3,889 $ 5,116 $ 5,280
$ 1,681 $(14,531)Basic Earnings Per Share:
Income from continuing
operations per common share(5)operations..........$ 2.76 $ 1.85 $ .82 $ 1.08 $ 1.39
$ .56
Weighted average number of
shares
(6) (7)...............(4)(5)................ 4,197 4,722 4,727 4,725 3,792
2,996
Financial Position:
Inventories.................... Diluted Earnings Per Share:
Income from continuing
operations............$ 2.50 $ 1.77 $ .82 $ 1.08 $ 1.39
Weighted average shares
(4)(5)................ 4,639 4,945 4,727 4,744 3,792
Supplementary Income From Con-
tinuing Operations Per
Share Data-Diluted:
Before non-recurring
gain(6)...............$ 2.50 $ 1.77 $ .82 $ .77 $ .90
Non-recurring gain on
insurance............. .31 .29
As reported...........$ 2.50 $ 1.77 $ .82 $ 1.08 $ 1.19
Weighted average shares
(7)................... 4,639 4,945 4,727 4,744 4,725
Item 6. Selected Financial Data (continued)
Years Ended December 31,
1997 1996 1995 1994 1993
(in thousands, except per share data)
Balance Sheet Data:
Cash.................... $ 756 $ 8,126 $ 298 $ 301 $ 200
Inventories............. 45,730 40,239 40,167 $ 39,905 $ 37,684
$ 33,343 $ 34,355
Working capital................capital......... 41,440 46,225 42,422 42,912 40,833
34,650 25,396
Total assets...................assets............ 143,225 141,510 134,551 124,519 124,859
114,302 113,724
Long-term debt................. 40,417debt including
current maturities(5). 52,577 39,350 41,067 33,395 32,022 46,543 41,221
Subordinated notes payable to
majority stockholder (6)..... 20,000
Mandatorily redeemable pre-
ferred stock (6)32,647
Stockholders' equity
(4)(5)(8)............. 12,662
Preferred stock (6)............ 15,023
Common stockholders' equity
(6) (7) (8)..................48,247 61,617 54,739 50,830 47,204 29,959 (18,748)
Selected Financial Data (continued)
(1) In 1993, the Company recorded $5.0 million of business
interruption insurance replacing the gross profit on lost sales due
to the fire which
occurred in February 1993 at its Stanleytown, Virginia facility. See Note 8
of the Notes to Financial Statements.a fire.
(2) In 1995, the Company recognized a pretax credit of $1.1
million after it was released from a lease obligation at itsa
previously closed Waynesboro,
Virginia manufacturing facility. Also included is a
pretax charge for a severance accrual.
See Note 4 of the Notes to Financial Statements.
(3) In 1991,1993, a $2.2 million pretax gain was recorded since
insurance proceeds exceeded the Company recorded pretax chargesbook value of $14.1 millionleasehold
improvements and equipment destroyed in anticipation of the closing of the Waynesboro, Virginia facility to eliminate
excess capacity and the transfer of certain product lines to other
manufacturing facilities. Operating income for 1992 includes a restructuring
credit of $2.1 million from lower than anticipated costs of closing the
Waynesboro facility.
(4)fire. In 1994, the
Company recorded a pretax gain of $2.4 million as part of the final
insurance settlement.
Also, in 1993 a $2.2 million pretax gain was
recorded since proceeds exceeded the book value of leasehold improvements and
equipment destroyed in the fire. See Note 8 of the Notes to Financial
Statements.
(5) Income from continuing operations before insurance related gains was
$3.7 million (77 cents per share) in 1994 and $4.3 million (90 cents per
share) on a proforma basis in 1993.
(6) In 1992, the Company completed a financial restructuring which resulted
in the exchange of certain long-term debt and preferred stock for common
stock.
(7)(4) In July 1993, the Company completed a public offering of
1,725,000 shares of common stock at $8.50 per share. The net
proceeds of $13.1 million were used to reduce debt.
(5) In 1997, the Company purchased 1,163,201 million shares of
its common stock for a total consideration of $25.3 million. See
Note 5 of the Notes to Financial Statements.
(6) Income from continuing operations before insurance related
gains was $3.7 million in 1994 and $4.3 million in 1993.
(7) The 1993 period includes the effect of pro forma adjustments
assuming the July 1993 public offering of 1,725,000 shares of
common stock occurred at the beginning of the year.
(8) No dividends have been paid on the Company's common stock
during any of the years presented.
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 Financial Statements and Notes
thereto contained elsewhere herein.
Results of Operations
The following table sets forth the percentage relationship to
net sales of certain items included in the Statements of Income:
For the Years Ended
December 31,
1997 1996 1995
Net sales...............................100.0% 100.0% 100.0%
Cost of sales........................... 75.3 75.9 79.0
Gross profit.......................... 24.7 24.1 21.0
Selling, general and administrative
expenses...............................14.1 15.1 15.2
Unusual items, net....................... (.1)
Operating income.......................10.6 9.0 5.9
Other expenses, net...................... .1 .3 .3
Interest expense......................... 1.6 1.7 2.0
Income from continuing operations
before income taxes.................. 8.9 7.0 3.6
Income taxes............................. 3.4 2.7 1.4
Income from continuing operations...... 5.5% 4.3% 2.2%
1997 Compared to 19941996
Net sales decreased $10.2increased $10.0 million, or 5.5%5.0%, from 1994 levelsfor 1997 compared
to 1996. The increase was due principallyprimarily to lower unit volume, partially offset by the
additional volume from the upholstered products and higher average selling
prices.prices and to a lesser extent higher unit volume.
Gross profit margin for 1997 increased to 21.0%24.7% from 19.5% in 1994.24.1% for
the comparable 1996 period. The higher gross profit margin was due
principallyprimarily to increased
prices, a moderation in lumber cost increases, a more favorable
product mix and the favorable impact from the purchase of the
previously leased manufacturing facilities discussed in Note 2 of
the Notes to Financial Statements. The increase in gross profit
was slightly offset by an increased overhead absorption rate
resulting from lower output levels in 1995.
Selling, general and administrative expenses were
approximately the same for both years. However,raw material costs as a percentage of net sales
theseand improved operating efficiencies. However, gross profit margin
declined from 25.2% for the first half of 1997 to 24.4% for the
second half of 1997, due primarily to increased lumber cost.
Management expects this trend to continue into 1998.
Selling, general and administrative expenses as a percentage
of net sales were 14.1% and 15.1% for 1997 and 1996, respectively.
These expenses were lower in 1997 due primarily to lower selling
expenses and a reduced provision for bad debts.
As a result of the above, operating income increased to 15.2%$22.5
million, or 10.6% of net sales, from $18.2 million, or 9.0% of net
sales, in 1996.
Interest expense for the 1997 period increased due to higher
debt levels resulting from the Company's June and November 1997
repurchases of its common stock. Including the December 1996
purchase of 150,000 shares, the Company acquired a total of
1,313,201 shares of its common stock for a total consideration of
$27.6 million.
The Company's effective income tax rate was 38.0% and 38.5%
for 1997 and 1996, respectively.
1996 Compared to 1995
from 14.4% in
1994.Net sales increased $27.7 million, or 15.9%, for 1996 compared
to 1995. The higher percentageincrease was due principally to lowerhigher unit volume.
Gross profit margin for 1996 increased to 24.1% from 21.0% for
the comparable 1995 period. The higher gross profit margin was due
primarily to stabilizing raw material costs, improved operating
efficiencies, and the leveraging of fixed costs due to increased
production levels.
Selling, general and administrative expenses as a percentage
of net sales were 15.1% and 15.2% for 1996 and 1995, respectively.
These expenses increased for the 1996 period due principally to (i)
higher selling cost resulting from increased sales and increased
selling cost associated with new products.merchandising expenses, (ii) increased compensation expense
pursuant to the Company's incentive compensation plan for key
employees, and (iii) increased provision for bad debts.
During the second quarter of 1995, the Company wasrecognized an
unusual item consisting of the net effect of (i) an accrual
reversal as a result of being released from a lease obligation at
its previously closed Waynesboro, Virginia manufacturing facility. Accordingly, the Company
recognizedfacility and (ii) a pretax credit of $1.1 million related to the reversal
of an accrual set up in 1991 for the closing of the facility.
Unusual items also included a pretax
charge for severance resulting from the resignation of the Company's Chief Operating Officer.
As a result of the above, operating income increased to $10.2
million, or 5.9%, of net sales from $9.4 million, or 5.1%, of net
sales in 1994. The Company estimates that upholstery operations
reduced operating income by approximately $1.0 million for both
1995 and 1994.
Interest expense for 1995 increased due principally to higher
debt levels, resulting from the purchase of two previously leased
manufacturing facilities in June 1995 and also due to slightly
higher interest rates.
The Company's effective tax rate in 1995 decreased to 38.0%
from 38.9% in 1994. The lower tax rate in 1995 is principally due
to an increase in non-taxable income and increased benefits from
export sales.
1994 Compared to 1993
Net sales increased $17.3 million, or 10.3%, from 1993 levels
due principally to higher average selling prices and higher unit
volume. Lower unit volume in the 1993 period was due principally
to the disruption in production caused by the 1993 fire at the
Stanleytown, Virginia facility.
Gross profit margin decreased to 19.5% from 22.2% in 1993.
The higher gross profit percentage for 1993 was due principally to
the recognition of $5.0 million of business interruption insurance
without the related sales revenue. This $5.0 million represented
the estimated settlement proceeds for gross profits lost and other
direct costs related to lost sales from the Stanleytown fire.
Selling, general and administrative expenses as a percentage
of net sales was 14.4% and 15.5% for 1994 and 1993, respectively.
The lower percentage was due principally to an increase in net
sales and containment of cost.former
officer.
As a result of the above, operating income for 1994 decreased1996 increased
to $9.4$18.2 million, or 5.1%,9.0% of net sales, from $11.2$10.2 million, or 6.7%,5.9%
of net sales, in 1993. Operating income was reduced by upholstery
startup costs of approximately $1.0 million, in 1994.
In 1994, the Company reached a final insurance settlement on
the 1993 fire and recorded a pretax gain of $2.4 million.
Interest expense approximated the 1993 period due principally
to lower average debt levels, which was offset by higher interest
rates.1995.
The Company's effective income tax rate decreased to 38.9%
from 41.1% in 1993. The higher 1993 rate was due principally to
the effect of the 1% federal statutory rate increase on the prior
years' deferred tax balances.38.5% and 38.0%
for 1996 and 1995, respectively.
Financial Condition, Liquidity and Capital Resources
During August 1995,In November 1997, the Company amendedissued $10.0 million of 7.43%
senior notes due 2007 in a private placement of debt. The proceeds
were used to purchase 413,201 shares of its $25.0 million
revolving credit facility which extendedcommon stock from the
ML-Lee Acquisition Fund, L.P. and its maturity date to
August 1998. The interest rate under the facility was reduced to
prime (8.5% on December 31, 1995) or, at the Company's option,
equal to reserve adjusted LIBOR plus 1.0% per annum.affiliates. In June 1995,
the Company issued a $10.0 million 7.57% senior note due 2005 in a
private placement of debt and thedebt. The proceeds were used to purchase two
previously leased manufacturing facilities.
In February 1994,
the Company completed the private placement of $30.0At December 31, 1997, long-term debt including current
maturities was $52.6 million. Approximately $19.1 million of
7.28% senior notes due 2004. The proceeds from the senior notes
were used to repay an existing term note andadditional borrowing capacity was available under a portion of the revolving
credit facility. Long-term debt outstandingHowever, current loan covenants restrict
borrowings to an additional $6.4 million at December 31, 1995 was $40.4
million. Aggregate maturities of long-term1997,
without obtaining lender consent. Annual debt for the next five
yearsservice requirements
are as follows: 1996 - $650,000; 1997 - $878,000;$5.1 million in 1998, -
$6.0 million;$9.1 million in 1999, - $5.1 million;$5.2 million in
2000, - $5.2 million. As of
December 31, 1995, approximately $21.9$6.7 million of additional
borrowings were available under the revolving credit facility.in 2001, and $6.8 million in 2002. The Company
believes that its financial resources are adequate to support its
capital needs and debt service requirements.
The Company has and will continue to make certain
investments in its software systems and applications to ensure the
Company is year 2000 compliant. The financial impact to the
Company has not been and is not anticipated to be material to its
financial position or results of operations in any given year.
Operating Cash Flows
The Company generated cash from operations of $8.3 million in
1997 compared to $15.3 million in 1996. The decrease in cash
generated from operations was due primarily to higher payments to
suppliers and employees due to increased production. Also, cash
was required to fund higher tax payments resulting from higher
taxable income in 1997. The Company used the cash generated from
operations in 1997 and 1996 to fund capital expenditures, reduce
borrowings and repurchase its common stock. During 1995, cash
generated from operations of $6.6 million was used to reduce
borrowings under the revolving credit facility and to fund capital
expenditures in the normal course of business.
The increase in cash generated from operations was due principally
to lower tax payments of $1.0 million compared to $4.5 million in
1994. Tax payments were higher in 1994 principally due to the
timing of installment payments for 1993, resulting from the
utilization of net operating losses carried forward from 1992.
Also, refunds attributed to 1994 reduced tax payments for 1995.
Cash generated from operations, also increased as a result of less
cash paid to suppliers and employees due to reduced production
levels. During 1994, cash provided by operations of $4.1 million
and net borrowings of $1.2 million were used to fund capital
expenditures.
Cash generated from operations in 1993 of $6.5
million was used to fund capital expenditures and to reduce
borrowings under the senior credit facility.
Operating cash flows in both 1994 and 1993 include proceeds of
$4.6 and $23.2 million, respectively, received from insurance in
connection with the fire. Cash paid to suppliers in 1994 and 1993
included costs of $2.7 million and $25.2 million, respectively,
incurred in connection with the fire. Excluding the effect of the
fire, cash was required in the 1994 period to support higher
accounts receivable requirements reflecting higher sales levels,
higher payments to suppliers and employees as a result of higher
production levels and higher tax payments as discussed above.
These higher payments in the 1994 period were partially offset by
lower interest payments due principally to lower debt levels.
Excluding the cash flow impact from the fire, cash provided by
operating activities improved $12.1 million in 1993 principally
from higher customer receipts, lower payments for the restructuring
program and lower interest payments.Investing Activities
Net cash used by investing activities was $4.2 million in 1997
compared to $4.0 million and $14.7 million in 1996 and 1995,
compared to $5.2 million and $4.3 million in 1994 and 1993,
respectively. As noted above,In the 1995 period, proceeds of $10.0 million from the issuance of
senior notenotes and additional borrowings from the revolving credit
facility were used to purchase $10.5 million oftwo previously leased manufacturing facilities. Expenditures inplant
facilities for $10.5 million. The 1997 and 1996 expenditures, and
the 1994 period include
the purchase of equipment and other capitalremaining expenditures for the
new upholstery operation of approximately $727,000. Except for
fire related expenditures in 1993, which were reimbursed by
insurance, and the manufacturing facilities purchased in 1995,
expenditures in each year were primarily for plant and
equipment and other assets in the normal course of business.
Financing Activities
Net cash providedused by financing activities was $8.1$11.5 million and
$3.5 million in 19951997 and 1996, respectively, compared to net cash
provided by financing activities of $1.2$8.1 million in 19941995. In 1997,
the purchase of common stock was financed by the private placement
of debt, the revolving credit facility and cash usedgenerated from
operations. In 1996, the purchase of common stock and the
reduction in borrowings were financed by financing activitiescash generated from
operations. The 1995 borrowings provided cash for the purchase of
$2.7
million in 1993. Cash provided by financing activities in the 1994
period was used to fundtwo previously leased plant facilities and other capital
expenditures.
Discontinued Operations
In 1993, cash
provided by the public offering ($13.1 million) and from operations
enabled1996, the Company to redeem $3.1 millionwas released from a lease obligation
resulting from the purchase and concurrent resale of outstanding senior
subordinated debentures and to reduce borrowings undercertain
facilities at a former division, which ceased operations in 1994.
Accordingly, the senior
credit facility by $12.8 million.
Discontinued Operations
Beginning in 1991, the Norman'sCompany recorded an after tax gain of Salisbury fabric division
("Norman's") was reflected$246,000, or
$.05 per share, as a discontinued operation. In 1994,partial reversal of a previous accrual,
representing the Company ceased operations at Norman's and liquidatedfinal adjustment for the division resulting in a $2.8 million ($4.5 million pretax)
additional loss provision.cost of the closure.
Item 8. Financial Statements and Supplementary Data
The financial statements and schedule listed in Items 14(a)(1)
and (a)(2) hereof are incorporated herein by reference and are
filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
In accordance with general instruction G(3) of Form 10-K, the
information called for by items 10, 11, 12, and 13 of Part III is
incorporated by reference to the registrant'sRegistrant's definitive Proxy
Statement for its Annual Meeting of ShareholdersStockholders scheduled for
April 25, 1996,30, 1998, except for information concerning the executive
officers of the registrant which is included in Part I of this
report under the caption "Executive Officers of the Registrant."
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K
(a) Documents filed as a part of this Report:
(1) The following financial statements are included in this
report on Form 10-K:
Report of Independent Accountants
Balance Sheets - as of December 31, 19951997 and 19941996
Statements of Income - for each of the three years in the
period ended December 31, 19951997
Statements of Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 19951997
Statements of Cash Flows - for each of the three years in the
period ended December 31, 19951997
Notes to Financial Statements
(2) Financial Statement Schedule:
Schedule II - Valuation of Qualifying Accounts - for each
of the three years in the period ended December 31, 19951997
(b) The following reports on Form 8-K were filed by the Registrant
during the last quarter of the period covered by this report:
None.
(c) Exhibits:
2.1 Agreement and PlanA report on Form 8-K was filed on December 2, 1997, to
disclose the repurchase of Merger dated as413,201 shares of July 24, 1992 by
and among the Registrant, Stanley Holding Corporation,
Stanley Acquisition Corporation,Company's
common stock from the ML-Lee Acquisition Fund, (Retirement Accounts) II, L.P., and
the persons
listed on Schedules I and II thereto (incorporated by
reference to Exhibit 2.1 to the Registrant's Registration
Statement on Form S-4 No. 33-50050).its affiliates.
(c) Exhibits:
3.1 The Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, No. 33-
7300)33-7300).
3.2 The By-laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on Form
S-1, No. 33-7300).
3.3 Amendment adopted March 21, 1988 to the By-laws of the
Registrant (incorporated by reference to Exhibit 3.3 to the
Registrant's Form 10-K (Commission File No. 0-14938) for the
year ended December 31, 1987).
3.4 Amendments adopted February 8, 1993 to the By-laws of the
Registrant (incorporated by reference to Exhibit 3.4 to the
Registrant's Registration Statement on Form S-1 No. 33-57432).
3.5 Certificate of Stock Designation dated May 1, 1991 of the
Registrant as modified by an Amendment to Certificate of
Designation dated May 31, 1991 (incorporated by reference to
Exhibit 3.6 to the Registrant's Form 10-K for the year ended
December 31, 1991).
3.6 Certificate of Merger dated as of November 9, 1992
(incorporated by reference to Exhibit 3.6 to the Registrant's
Statement on Form S-1 No. 33-57432).
3.7 Certificate of Amendment dated June 30, 1993. (incorporated by
reference to Exhibit 3.7 to the Registrant's Form 10-K for the
year ended December 31, 1994).
4.1 The Certificate of Incorporation and By-laws of the Registrant
as currently in effect incorporated(incorporated by reference asto Exhibits
3.1 through 3.7 (incorporated by
reference to Exhibit 4.2 to the Registrant's Registration
Statement on Form S-1 No. 33-57432)hereto).
4.2 Registration Rights Agreement dated as of November 9,
1992 by and among the Registrant, ML-Lee Acquisition Fund,
L.P., ML - Lee Acquisition Fund II, L.P., ML-Lee
Acquisition Fund (Retirement Accounts) II, L.P., Lee
Stockholders (as defined therein) and Management
Stockholders (as defined therein) (incorporated by
reference to Exhibit 4.3 to the Registrant's Statement on
Form S-1 No. 33-57432).
4.3 Form of Indenture (including the Form of the Debenture)
(incorporated by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-1, No. 33-
12746).
4.4 First Supplemental Indenture dated as of January 17, 1989
(incorporated by reference to Exhibit 4.2 to the
Registrant's Form 10-K for the year ended December 31,
1988).
4.5 Second Supplemental Indenture dated as of November 9,
1992 (incorporated by reference to Exhibit 4.5 to the
Registrant's Form 10-K for the year ended December 31,
1993).
4.6 Note Agreement dated February 15, 1994 between the Registrant
and the Prudential Insurance Company of America. (incorporated
by reference to Exhibit 4.6 to the Registrant's Form 10-K for
the year ended December 31, 1993).
4.3 Letter Amendment, dated October 14, 1996, to Note Agreements,
dated February 15, 1994 and June 29, 1995, between the
Registrant and The Prudential Insurance Company of America
(incorporated by reference to Exhibit 4.1 to the Registrant's
Form 10-Q for the quarter ended September 29, 1996).
4.4 Letter Amendment, dated June 16, 1997, to Note Agreements,
dated February 15, 1994 and June 29, 1995, between the
Registrant and The Prudential Insurance Company of America
(incorporated by reference to Exhibit 4.1 to the Registrant's
Statement on Form 8-K filed July 9, 1997).
4.5 Note Purchase and Private Shelf Agreement, dated as of June
29, 1995, among the Company, The Prudential Insurance Company
of America and the affiliates of Prudential who become
Purchasers as defined therein (incorporated by reference to
Exhibit 4.1 to the Registrant's Form 8-K filed December 2,
1997).
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments
evidencing long term debt less than 10% of the Registrant's total
assets have been omitted and will be furnished to the Securities
and Exchange Commission upon request.
10.1 Employment Agreement made as of January 1, 1991 between
Albert L. Prillaman and the Company (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 10-K for
the year ended December 31, 1991).(2)
10.2 Lease dated February 23, 1987 between SICStanley Interiors
Corporation and Southern Furniture Exposition Building, Inc.
d/b/a Southern Furniture Market Center (incorporated by
reference to Exhibit 10.10 to the Registrant's Form 10-K for
the year ended December 31, 1987).
10.3 Lease dated June 30, 1987 between A. Allan McDonald, Virginia
Cary McDonald, C. R. McDonald, Dorothy V. McDonald, and
Lillian S. McDonald, as lessor, and SIC,Stanley Interiors
Corporation, as lessee (incorporated by reference to Exhibit
10.14 to the Registrant's Form 10-K for the year ended
December 31, 1987).
10.4 The Stanley Retirement Plan, as restated effective January 1,
1989, adopted April 20, 1995.(1)1995 (incorporated by reference to
Exhibit 10.4 to the Registrant's Form 10-K for the year ended
December 31, 1995).(2)
10.5 Amendment No. 1, theThe Stanley Retirement Plan, effective
December 31, 1995, adopted December 15, 1995.(1)1995 (incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-K for
the year ended December 31, 1995).(2)
(2) Management contract or compensatory plan
10.6 Supplemental Retirement Plan of Stanley Furniture Company,
Inc., as restated effective January 1, 1993. (incorporated by
reference to Exhibit 10.8 to the Registrant's Form 10-K for
the year ended December 31, 1993).(2)
10.7 First Amendment to Supplemental Retirement Plan of Stanley
Furniture Company, Inc., effective December 31, 1995, adopted
December 15, 1995.(1)1995 (incorporated by reference to Exhibit 10.7
to the Registrant's Form 10-K for the year ended December 31,
1995).(2)
(1) Filed herewith
(2) Management contract or compensatory plan
10.8 Stanley Interiors Corporation Deferred Compensation Capital
Enhancement Plan, effective January 1, 1986, as amended and
restated effective August 1, 1987 (incorporated by reference
to Exhibit 10.12 to the Registrant's Registration Statement
on Form S-1, No. 33-
7300)33-7300).(2)
10.9 Stanley 401(k) Retirement Savings Plan, as amended and
restated effective January 1, 1996.(1)(2)
10.10 Management Agreement with Thomas H. Lee Company entered
into September 29, 1988 by and among the Registrant, as
successor to Interiors Acquisition Corporation, Stanley
Holding Corporation, Stanley Acquisition Corporation and
Thomas H. Lee Company1996 (incorporated by reference
to Exhibit (c)(9)10.9 to the Registrant's Rule 13e-3
Transaction Statement filed October 14, 1988)Form 10-K for the year
ended December 31, 1995).
10.11(2)
10.10 Employment Agreement made as of January 1, 1991 between
William Cubberley, Jr. and the Registrant (incorporated by
reference to Exhibit 10.42 to the Registrant's Form 10-K for
the year ended December 31, 1991).(2)
10.1210.11 Split Dollar Insurance Agreement dated as of March 21, 1991
between Albert L. Prillaman and the Registrant (incorporated
by reference to Exhibit 10.43 to the Registrant's Form 10-K
for the year ended December 31, 1991).(2)
10.1310.12 Second Amended and Restated Revolving Credit Facility and
Term Loan Agreement dated February 15, 1994 (the "Second
Amended and Restated Credit Facility") between the
Registrant, National Canada Finance Corp., and the National
Bank of Canada.
10.14Canada (incorporated by reference to Exhibit 10.17 to
Registrant's Form 10-K for the year ended December 31, 1994).
10.13 First Amendment to Second Amended and Restated Credit
Facility dated as of August 21, 1995.(1)
10.151995 (incorporated by
reference to Exhibit 10.14 to Registrant's Form 10-K for the
year ended December 31, 1995).
10.14 1992 Stock Option Plan (incorporated by reference to
Registrant's Registration Statement on Form S-8, No. 33-
58396).(2)
10.16(2) Management contract or compensatory plan
10.15 1994 Stock Option Plan. (incorporated by reference to Exhibit
10.18 to the Registrant's Form 10-K for the year ended
December 31, 1994).(2)
(1) Filed herewith
(2) Management contract or compensatory plan
10.1710.16 1994 Executive Loan Plan. (incorporated by reference to
Exhibit 10.19 to the Registrant's Form 10-K for the year
ended December 31, 1994).(2)
10.1810.17 Loan and Stock Purchase Agreement dated as of December 2,
1994 by Albert L. Prillaman. (incorporated by reference to
Exhibit 10.20 to the Registrant's Form 10-K for the year
ended December 31, 1994).(2)
10.18 Employment agreement dated as of June 1, 1996, between
Douglas I. Payne and the Registrant (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 10-Q for
the quarter ended June 30, 1996).(2)
10.19 Amendment No. 1 to Employment Agreement between C. William
Cubberley, Jr. and the Registrant, dated as of June 1, 1996
(incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q for the quarter ended June 30,
1996).(2)
10.20 Amendment No. 1, dated as of October 1, 1996, to the
Employment Agreement, dated as of January 1, 1991, between
the Registrant and Albert L. Prillaman (incorporated by
reference to Exhibit 10.4 to the Registrant's Form 10-Q for
the quarter ended September 29, 1996).
10.21 Assignment and Transfer Agreement, dated as of October 8,
1996, between National Canada Finance Corp. and National Bank
of Canada relating to the Second Amended and Restated
Revolving Credit Facility (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q for the quarter
ended September 29, 1996).
10.22 Second Amendment, dated as of October 14, 1996, to the Second
Amended and Restated Revolving Credit Facility (incorporated
by reference to Exhibit 10.2 to the Registrant's Form 10-Q
for the quarter ended September 29, 1996).
10.23 Stock Purchase Agreement, dated as of November 13, 1996,
between the Registrant and the Selling Stockholders listed on
Schedule 1 thereto (incorporated by reference to Exhibit 99.1
to the Registrant's Registration Statement on Form S-3 No.
333-14063).
(2) Management contract or compensatory plan
10.24 First Amendment to Loan and Stock Pledge Agreement, dated
December 31, 1996, by Albert L. Prillaman (incorporated by
reference to Exhibit 10.27 to the Registrant's Form 10-K for
the year ended December 31, 1996).
10.25 Stock Purchase Agreement, dated as of June 27, 1997 among the
Registrant and the Selling Stockholders named therein
(incorporated by reference to Exhibit 99.1 to the
Registrant's Form 8-K filed July 9, 1997).
10.26 Registration Rights Agreement dated as of November 9, 1992 by
and among the Registrant, ML-Lee Acquisition Fund, L.P., ML-
Lee Acquisition Fund II, L.P., ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P., Lee Stockholders (as defined
therein) and Management Stockholders (as defined therein)
(incorporated by reference to Exhibit 4.3 to the Registrant's
Statement on Form S-1 No. 33-57432).
10.27 Amendment No. 1, dated as of June 27, 1997, to Registration
Rights Agreement, dated as of November 9, 1992, by and among
the Registrant, ML-Lee Acquisition Fund, L.P., ML-Lee
Acquisition Fund II, L.P., ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P., Lee Stockholders and Manage-
ment Stockholders (incorporated by reference to Exhibit 99.2
to the Registrant's Form 8-K filed July 9, 1997).
10.28 Stock Purchase Agreement, dated as of November 11, 1997,
among the Company and the Selling Stockholders named therein
(incorporated by reference to Exhibit 99.2 to the
Registrant's Form 8-K filed December 2, 1997).
10.29 Third Amendment, dated as of June 24, 1997, to the Second
Amended and Restated Revolving Credit Facility and Term Loan
Agreement dated February 15, 1994 between the Registrant,
National Canada Finance Corp., and the National Bank of
Canada (incorporated by reference to Exhibit 99.4 to the
Registrant's Form 8-K filed July 9, 1997).
11 Schedule of Computation of Earnings Per Share.(1)
21 Listing of Subsidiaries:
Charter Stanley Foreign Sales Corporation, a United
States Virgin Islands Corporation.
23 Consent of Coopers & Lybrand L.L.P.(1)
27 Financial Data Schedule.(1)
(1) Filed herewith
(2) Management contract or compensatory plan
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.
STANLEY FURNITURE COMPANY, INC.
February 14, 19966, 1998 By: /s/Albert L. Prillaman
Albert L. Prillaman
Chariman, President, and
Chief Executive Officer and Chairman of the
Board
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/Albert L. Prillaman Chairman, President, Chief February 14, 19966, 1998
(Albert L. Prillaman) and Chief Executive
Officer,
Chairman of the
Board, and Director
(Principal Executive
Officer)
/s/Douglas I. Payne Senior Vice President of February 14, 19966, 1998
(Douglas I. Payne) Finance,-Finance and
Administration,
Treasurer and
Secretary (Principal
Financial and
Accounting Officer)
/s/David V. Harkins Director February 14, 19966, 1998
(David V. Harkins)Harkins
/s/C. Hunter Boll Director February 14, 19966, 1998
(C. Hunter Boll)
/s/Edward J. Mack Director February 14, 19966, 1998
(Edward J. Mack)
/s/T.Scott McIlhenny,Jr. Director February 6, 1998
(T.Scott McIlhenny, Jr.)
STANLEY FURNITURE COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 19951997
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Financial Statements Page
Report of Independent Accountants......................... F- 2F-2
Balance Sheets as of December 31, 19951997 and 1994........... F- 31996........... F-3
Statements of Income for each of the three years
in the period ended December 31, 1995................... F- 41997................... F-4
Statements of Changes in Stockholders' Equity for each
of the three years in the period ended
December 31, 1995...................................... F- 51997...................................... F-5
Statements of Cash Flows for each of the three years
in the period ended December 31, 1995................... F- 61997................... F-6
Notes to Financial Statements............................. F- 7F-7
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for
each of the three years in the period ended
December 31, 1995....................................... S- 11997....................................... S-1
F-1
To The Board of Directors and ShareholdersStockholders Of
Stanley Furniture Company, Inc.
We have audited the financial statements and financial statement
schedule of Stanley Furniture Company, Inc. listed in the index on
page F-1. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements 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 financial statements referred to above present
fairly, in all material respects, the financial position of Stanley
Furniture Company, Inc. as of December 31, 19951997 and 1994,1996, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 19951997 in conformity with
generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 7 of the Notes to Financial Statements,
effective as of the beginning of 1993, the Company changed its
method of accounting for postretirement benefits other than
pensions to conform with Statement of Financial Accounting
Standards No. 106.Coopers & Lybrand L.L.P.
Richmond, Virginia
January 26, 199623, 1998
F-2
STANLEY FURNITURE COMPANY, INC.INC
BALANCE SHEETS
(In(in thousands, except share data)
December 31,
1995 19941997 1996
ASSETS
Current assets:
Cash............................................. Cash.......................................$ 298756 $ 3018,126
Accounts receivable, less allowances of
$1,157$1,895 and $933................................ 22,732 23,760$1,945........................ 27,427 23,096
Inventories:
Finished goods................................. 22,391 20,893
Work-in-process................................ 5,368 5,957goods........................... 21,220 20,953
Work-in-process.......................... 6,997 6,142
Raw materials.................................. 12,408 13,055
40,167 39,905materials............................ 17,513 13,144
45,730 40,239
Prepaid expenses and other
current assets................................. 435 1,446assets........................... 1,571 486
Deferred income taxes............................ 2,420 2,003taxes...................... 770 1,886
Total current assets........................... 66,052 67,415assets..................... 76,254 73,833
Property, plant and equipment, at cost............. 78,399 64,827cost....... 84,545 80,737
Less accumulated depreciation.................... 24,168 20,049
54,231 44,778depreciation.............. 32,831 28,024
51,714 52,713
Goodwill, less accumulated amortization
of $2,352$3,024 and $2,016............................. 11,088 11,424$2,688....................... 10,416 10,752
Other assets....................................... 3,180 902
$134,551 $124,519assets................................. 4,841 4,212
$143,225 $141,510
LIABILITIES
Current liabilities:
Current maturities of long-term debt............. debt.......$ 6505,086 $ 725
Accounts payable................................. 13,637 $ 14,659payable........................... 18,164 14,630
Accrued salaries, wages and benefits............. 6,619 7,119benefits....... 9,687 9,584
Other accrued expenses........................... 2,724 2,725expenses..................... 1,877 2,669
Total current liabilities...................... 23,630 24,503liabilities................ 34,814 27,608
Long-term debt, exclusive of current
maturities.... 40,417 33,395maturities................................. 47,491 38,625
Deferred income taxes.............................. 12,180 11,541taxes........................ 10,448 11,673
Other long-term liabilities........................ 3,585 4,250liabilities.................. 2,225 1,987
Total liabilities................................ 79,812 73,689liabilities.......................... 94,978 79,893
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000
shares authorized, 4,726,5783,432,759 and
4,726,5504,579,042 shares issued and outstanding.......... 94 94outstanding.... 68 91
Capital in excess of par value..................... 64,547 64,527
Deficit............................................ (9,902) (13,791)value............... 37,508 62,442
Retained earnings (deficit).................. 10,671 (916)
Total stockholders' equity....................... 54,739 50,830
$134,551 $124,519equity................. 48,247 61,617
$143,225 $141,510
The accompanying notes are an integral part
of the financial statements.
F-3
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(In(in thousands, except per share data)
For the Years Ended
December 31,
1997 1996 1995 1994 1993
Net sales........................... $211,905 $201,905 $174,179 $184,342 $167,091
Cost of sales:
From products sold................sales....................... 159,453 153,332 137,621
148,453 134,972
Business interruption insurance... (5,036)
137,621 148,453 129,936
Gross profit....................profit...................... 52,452 48,573 36,558 35,889 37,155
Selling, general and administrative
expenses.......................... 29,949 30,403 26,454 26,483 25,976
Unusual items, net.................. (136)
Operating income ................. 22,503 18,170 10,240 9,406 11,179
Gain on insurance settlement........ (2,379) (2,186)
Other expense, net.................. 276 616 433 444 1,346
Interest expense.................... 3,538 3,344 3,534 2,969 3,048
Income from continuing operations
before income taxes............. 18,689 14,210 6,273 8,372 8,971
Income taxes........................ 7,102 5,470 2,384 3,256 3,691
Income from continuing operations... 11,587 8,740 3,889
5,116 5,280
DiscontinuedGain from discontinued operations, including
provision for operating losses
of $1,721,
net of income taxes.... (2,758)taxes...................... 246
Net income .....................income.................... $ 11,587 $ 8,986 $ 3,889
$ 2,358 $ 5,280
Earnings (loss)Basic earnings per common share:
Continuing operations............. $ .822.76 $ 1.081.85 $ 1.39.82
Discontinued operations........... (.58).05
Net income...................... $ .822.76 $ .501.90 $ 1.39.82
Weighted average number of shares...shares outstanding. 4,197 4,722 4,727
4,725 3,792Diluted earnings per share:
Continuing operations............. $ 2.50 $ 1.77 $ .82
Discontinued operations........... .05
Net income...................... $ 2.50 $ 1.82 $ .82
Weighted average shares outstanding. 4,639 4,945 4,727
The accompanying notes are an integral part
of the financial statements.
F-4
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the three years in the period ended December 31, 1995
(In1997
(in thousands)
Adjust-
Capital
ment for
in MinimumRetained
Common Stock Excess of PensionEarnings
Shares Amount Par Value Liability Deficit(Deficit)
Balance at December 31,
1992................. 2,997 $60 $51,328 $ -0- $(21,429)
Public offering........ 1,725 34 13,053
Adjustment for minimum
pension liability.... (1,122)
Net income............. 5,280
Balance at December 31,
1993............... 4,722 94 64,381 (1,122) (16,149)
Exercise of stock
options.............. 5 66
Adjustment for minimum
pension liability.... 1,122January 1,
1995...................... 4,727 $94 $64,527 $(13,791)
Compensation expense related to executive
loan plan............ 80
Net income............. 2,358
Balance at December 31,
1994............... 4,727 94 64,527 -0- (13,791)
Compensation expense
related tofor
executive loan plan, net.......net.. 20
Net income.............income.................. 3,889
Balance at December 31,
1995...............1995.................... 4,727 $94 $64,547 $ -0- $94 64,547 (9,902)
Purchase and retirement
of common stock........... (150) (3) (2,265)
Compensation expense for
executive loan plan, net.. 133
Other....................... 2 27
Net income.................. 8,986
Balance at December 31,
1996.................... 4,579 91 62,442 (916)
Purchase and retirement
of common stock........... (1,163) (23) (25,306)
Compensation expense for
executive loan plan, net.. 133
Exercise of stock options... 17 239
Net income.................. 11,587
Balance at December 31,
1997.................... 3,433 $68 $37,508 $10,671
The accompanying notes are an integral part
of the financial statements.
F-5
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(In(in thousands)
For the Years Ended
December 31,
1997 1996 1995 1994 1993
Cash flows from operating activities:
Cash received from customers...............$175,189 $183,458 $166,706customers...... $207,590 $200,793 $175,189
Cash paid to suppliers and
employees.......employees....................... (187,346) (176,739) (164,022)
(176,194) (179,218)
Interest paid..............................paid..................... (3,403) (3,483) (3,535) (2,464) (3,529)
Income taxes paid, net.....................net............ (8,529) (5,259) (1,033) (4,463) (321)
Proceeds received on insurance coverage.... 4,625 23,196
Operating activities of discontinued
operations............................... (867) (285)
Net cash provided by operating
activities.............................activities.................... 8,312 15,312 6,599 4,095 6,549
Cash flows from investing activities:
Capital expenditures.......................expenditures.............. (4,076) (3,599) (14,225) (4,968) (6,392)
Proceeds received on insurance coverage.... 2,679
Purchase of other assets...................assets.......... (143) (370) (467) (650) (591)
Proceeds from sale of assets...............assets...... 13 25 108 91
Investing activities of discontinued
operations............................... 357 ( 47)
Net cash used by investing
activities....activities.................... (4,219) (3,956) (14,667) (5,153) (4,260)
Cash flows from financing activities:
Proceeds from issuancePurchase and retirement of common
stock..... 13,087stock........................... (25,329) (2,268)
Issuance of senior notes...................notes.......... 10,000 30,000
Redemption10,000
Repayment of senior subordinated
debentures............................... (3,093)
Repayment of term note..................... (16,569) (2,616)
Repayment ofnote.......... (725) (650)
Proceeds from (repayment of) revolving
credit facility, net............................net............. 3,952 (914) (2,320)
(12,685) (10,229)
Proceeds from insurance policy loans.......Other, net......................... 639 304 385 345 292
Other, net................................. 68 (179)
Net cash (used) provided (used) by
financing activities.............................activities........... (11,463) (3,528) 8,065 1,159 (2,738)
Net (decrease) increase in cash..............cash...... (7,370) 7,828 (3) 101 (449)
Cash at beginning of year....................year............ 8,126 298 301 200 649
Cash at end of year........................year................ $ 756 $ 8,126 $ 298 $ 301 $ 200
The accompanying notes are an integral part
of the financial statements.
F-6
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
Stanley Furniture Company, Inc. (the "Company") is a leading
designer and manufacturer of furniture exclusively targeted at the
upper-medium price range of the residential market.
The Company operates predominantly in one business segment.
Substantially all revenues result from the sale of home
furnishings, primarily residential
furniture products. Substantially all of the Company's trade
accounts receivable are due from retailers in this market, which
consistconsists of a large number of entities with a broad geographical
dispersion.
Inventories
Inventories are valued at the lower of cost or market. Cost
for all inventories is determined using the first-in, first-out
(FIFO) method.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed
using the straight-line method based upon the estimated useful
lives of the assets and amounted to $4.5 million, $4.0 million and
$3.7 million for 1995, 1994 and 1993, respectively. Depreciable
lives are as follows:
Years
Buildings................................. 40 to 50
Machinery and equipment................... 5 to 12
Leasehold improvements.................... 3 to 20
Furniture, fixtures and office equipment.. 3 to 10lives. Gains and losses related to dispositions and retirements
are included in income. Maintenance and repairs are charged to
income as incurred; renewals and betterments are capitalized.
Capitalized Software Cost
The Company amortizes certain purchased computer software
costs using the straight-line method over the economic lives of the
related products not to exceed five years. Unamortized cost at
December 31, 19951997 and 19941996 was $473,000$838,000 and $39,000,$720,000, respectively.
F-7
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Accounting Policies (continued)
Goodwill and Long-lived Assets
Goodwill is being amortized on a straight-line basis over 40
years. The Company continually evaluates the existence of
impairment of long-lived assets, including goodwill, on the basis
of whether it is fully recoverable from projected, undiscounted net
cash flows.
Income Taxes
Deferred income taxes are determined based on the difference
between the financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Deferred tax expense
represents the change in the deferred tax asset/liability balance.
Income tax credits are reported as a reduction of federal income tax
expense in the year in which the credits are generated.
F-7
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The fair value of the Company's long-term debt is estimated
using discounted cash flow analysis based on the incremental
borrowing rates currently available to the Company for loans with
similar terms and maturities, and atmaturities. At December 31, 1995,1997, the fair value
approximated the carrying amount. The fair value of trade
receivables, trade payables and letters of credit approximate the
carrying amount because of the short maturity of these instruments.
Pension Plans
The Company's funding policy is to contribute to all qualified
plans annually an amount equal to the normal cost and a portion of
the unfunded liability, but not to exceed the maximum amount that
can be deducted for federal income tax purposes.
Earnings Perper Common Share
EarningsThe Company has adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share", resulting in the
restatement of earnings per share for all prior periods. Basic
earnings per common share are based upon the weighted average
number of shares outstanding. AllOutstanding stock options are treated as
common stock equivalents for purposes of computing diluted earnings
per share and per share data have
been restatedrepresent the difference between basic and diluted
weighted average shares outstanding.
Stock Options
The Company applies Accounting Principles Board Opinion No. 25
in accounting for stock options and discloses the fair value of
options granted as permitted by Statement of Financial Accounting
Standards No. 123.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
reflectmake estimates and assumptions that affect the one-for-two reverse stock split,
effective July 1993.amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates.
F-8
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Accounting Policies (continued)
Supplementary earnings per common share are presented below.
Income from continuing operations for the 1994 and 1993 periods
reflect a non-recurring gain from insurance proceeds. The 1993
period reflects the effect of proforma adjustments for the 1993
public offering. It is assumed that the transaction took effect at
the beginning of the year. The 1995 and 1994 per share information
is included for comparison purposes.
1995 1994 1993
Continuing operations:
Before non-recurring gain........... $ .82 $ .77 $ .90
Non-recurring gain on insurance..... .31 .29
As reported....................... .82 1.08 1.19
Discontinued operations............... (.58)
Net income.......................... $ .82 $ .50 $ 1.19
2. Property, Plant and Equipment at December 31
(in thousands)
1995 1994
Land and buildings.................... $33,594 $17,853
Machinery and equipment............... 43,127 41,059
Leasehold improvements................ 153 3,986
Furniture, fixtures and office
equipment........................... 1,387 1,289
Construction in progress.............. 138 640
$78,399 $64,827
In June 1995, the Company purchased the manufacturing
facilities at its Stanleytown, Virginia and West End, North
Carolina locations, which it previously leased. The total purchase
price was $10.5 million for both facilities. As a result of the
purchase, the Company also reclassified related leasehold
improvements with a net book value of $3.3 million to land and
buildings.
Depreciable
lives (in thousands)
(in years) 1997 1996
Land and buildings............. 20 to 50 $33,941 $33,694
Machinery and equipment........ 5 to 12 48,180 45,120
Office furniture and equipment. 3 to 10 1,836 1,794
Construction in progress....... 588 129
$84,545 $80,737
3. Long-Term Debt at December 31
(in thousands)
1995 1994
(in thousands)
1997 1996
7.28% Senior notes due March 15, 2004........$30,000 $30,000
7.57% Senior note due June 30, 2005.......... 8,625 9,350
7.43% Senior notes due November 18, 2007..... 10,000
Revolving credit facility.................... 3,952
Total.................................... 52,577 39,350
Less current maturities...................... 5,086 725
$47,491 $38,625
In November 1997, the Company issued $10.0 million of 7.43%
senior notes due March 15, 2004......... $30,000 $30,000
7.57% Senior note due June 30, 2005........... 10,000
Revolving credit facility..................... 914 3,234
7% Convertible subordinated debentures
due April 1, 2012........................... 153 161
Total..................................... 41,067 33,395
Less current maturities....................... 650
$40,417 $33,395
F-9
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Long-term2007 in a private placement of debt, at December 31 (continued)
During August 1995,which was
used to purchase 413,201 shares of its common stock from the Company amendedML-Lee
Acquisition Fund, L.P. and its $25.0 millionaffiliates.
The revolving credit facility which extended its maturity dateprovides for borrowings of up to
August 1998. The interest rate$25.0 million through June 1999, automatically renewable thereafter
for one year periods unless terminated by either party. Interest
under the facility was reduced tois payable monthly at prime (8.5%(8.50% on December
31, 1995)1997) or, at the Company's option, equal tothe reserve adjusted LIBOR
plus 1.0% per annum.annum (6.60% on December 31, 1997).
The above loan agreements require the Company to maintain
certain financial covenants. As of December 31, 1995, approximately $21.9 million of1997, these
covenants limit additional borrowings wereto $6.4 million and limit
funds available under the revolving credit facility. In
June 1995, the Company issued a $10.0to pay dividends and repurchase its common stock to
$5.6 million.
Annual debt service requirements are $5.1 million 7.57% senior note due
2005 in a private placement of debt1998,
$9.1 million in 1999, $5.2 million in 2000, $6.7 million in 2001
and the proceeds were used to
purchase two plant facilities, as discussed$6.8 million in Note 2. In February
1994, the Company completed the private placement of $30.0 million
of 7.28% senior notes due in 2004. The proceeds were used to repay
a term note and a portion of the revolving credit facility.2002.
The Company utilizes letters of credit to collateralize
certain insurance policies and inventory purchases. Outstanding
letters of credit at December 31, 1997 were $1.9 million.
F-9
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Income Taxes
The provision for income taxes on income from continuing
operations consists of (in thousands):
1997 1996 1995
Current:
Federal......................... $6,454 $5,217 $1,750
State........................... 757 952 412
Total current................. 7,211 6,169 2,162
Deferred:
Federal......................... (96) (567) 156
State........................... (13) (132) 66
Total deferred................ (109) (699) 222
Income taxes................ $7,102 $5,470 $2,384
A reconciliation of the difference between the federal
statutory income tax rate and the effective income tax rate on
income from continuing operations follows:
1997 1996 1995
Federal statutory rate.......... 35.0% 35.0% 35.0%
State taxes, net of federal
benefit....................... 2.6 3.8 5.0
Goodwill........................ .6 .8 1.9
Life insurance.................. (.7) (.7) (1.5)
Tax savings from foreign sales
corporation................... (.5) (1.4) (.8)
Tax credits..................... (.2)
Other, net...................... 1.0 1.0 (1.4)
Effective income tax rate..... 38.0% 38.5% 38.0%
The income tax effects of temporary differences that comprise
deferred tax assets and liabilities at December 31 follow (in
thousands):
1997 1996
Current deferred tax assets (liabilities):
Accounts receivable............... $ (180) $ 618
Inventory......................... (18) (521)
Employee benefits................. 901 1,692
Other accrued expenses............ 67 97
Net current deferred tax asset.. $ 770 $ 1,886
Noncurrent deferred tax liabilities:
Property, plant and equipment..... $10,236 $11,229
Employee benefits................. 212 444
Net noncurrent deferred tax
liability..................... $10,448 $11,673
F-10
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Stockholders' Equity, Stock Options and Related Matters
The Company's stock option plans provide for the granting of
stock options up to an aggregate of 700,000 shares of common stock
to key employees. The exercise price may not be less than the fair
market value of the Company's common stock on the grant date.
Granted options vest 20% annually.
At December 31, 1997 and 1996, options to purchase 496,188 and
385,443 shares, were exercisable with a weighted-average exercise
price of $9.74 and $9.66, respectively. At December 31, 1997,
3,651 shares were available for grant. Activity for the three
years ended December 31, 1997 follows:
Number Weighted-Average
of shares Exercise Price
Outstanding at January 1, 1995.... 670,000 $ 9.86
Cancelled or Lapsed.............(162,047) 9.84
Granted......................... 170,000 8.75
Outstanding at December 31, 1995...677,953 9.59
Lapsed...........................(15,216) 9.80
Exercised........................ (2,500) 9.75
Granted.......................... 20,000 14.78
Outstanding at December 31, 1996...680,237 9.74
Lapsed........................... (9,000) 9.17
Exercised........................(16,902) 9.48
Granted.......................... 17,500 20.11
Outstanding at December 31, 1997...671,835 $ 9.89
Options outstanding at December 31, 1997, include 634,335
shares with an exercise price ranging from $8.50 to $10.00 and a
weighted-average remaining contractual life of 7.2 years. The
remaining options have an exercise price ranging from $12.13 to
$28.00 with a weighted-average remaining contractual life of 9.1
years.
The estimated per share weighted-average fair value of stock
options granted during 1997, 1996, and 1995 was $14.50, $8.00 and
$6.00 respectively, on the date of grant. A risk-free interest
rate of 5.4%, 6.8% and 6.2% for 1997, 1996, and 1995 respectively,
and a 50% volatility rate with an expected life of 10 years was
assumed in estimating the fair value.
F-11
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Stockholders' Equity, Stock Options, and Related Matters
(continued)
The following table summarizes the pro forma effects assuming
compensation cost for such awards had been recorded based upon the
estimated fair value (in thousands, except per share data):
1997 1996 1995
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
Net income...........$11,587 $11,326 $8,986 $8,754 $3,889 $3,685
Basic earnings per
share.............. 2.76 2.70 1.90 1.85 .82 .78
Diluted earnings per
share.............. 2.50 2.45 1.82 1.79 .82 .78
During 1994, the Company entered into a contractual agreement
to issue 50,000 shares of common stock to the chief executive
officer at $10.00 per share (the market price on the date of the
agreement) in exchange for a non-recourse 7.6% note receivable. One
tenth of the principal amount plus accrued interest is due each
December 31 until 1998 and the remaining principal is due January
2, 1999. The Company agreed to forgive the accrued interest plus
one tenth of the initial principal amount each December 31, if the
executive remains employed by the Company. During 1996, the
Company agreed to forgive the outstanding loan balance over the
remaining three years, subject to the executive's continued
employment. Compensation expense was $285,000, $308,000 and
$98,000 for 1997, 1996 and 1995, respectively.
During 1996, a secondary offering of 1,000,000 shares of the
Company's common stock owned by the ML-Lee Acquisition Fund, L.P.
(the "Lee Fund") and its affiliates was completed. In connection
with the offering, the Company incurred approximately $325,000 of
expenses. The Company also purchased 150,000 shares of its common
stock, which were $2.2subject to the over-allotment option from the
secondary offering, for an aggregate consideration of $2.3 million.
In 1997, the Company completed two transactions for the
purchase of its common stock owned by the Lee Fund and its
affiliates. In June 1997, 750,000 shares were purchased for an
aggregate purchase price of $15.0 million and $1.8in November 1997,
413,201 shares were purchased for an aggregate purchase price of
$10.3 million. Assuming the shares were repurchased at the
beginning of the year and financed entirely by borrowings under the
revolving credit facility at an assumed rate of 7.25%, the pro
forma diluted earnings per share would have been $2.77 for 1997.
F-12
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In addition to its common stock, the Company's authorized
capital includes 1,000,000 shares of "blank check" preferred stock.
None was outstanding during the three years ended December 31,
1997. The Board of Directors is authorized to issue such stock in
series and to fix the designation, powers, preferences, rights,
limitations and restrictions with respect to any series of such
shares. Such "blank check" preferred stock may rank prior to
common stock as to dividend rights, liquidation preferences or
both, may have full or limited voting rights and may be convertible
into shares of common stock.
6. Employee Benefit Plans
Defined Contribution Plan
The Company maintains a defined contribution plan covering
substantially all of its employees. Discretionary matching and
profit sharing contributions for 1997 and 1996 totaled $1.2 million
and $856,000, respectively. Prior to 1996, the Company made no
contributions.
Pension Plans
Benefits were accrued under the Company's pension plans
through 1995. The Stanley Retirement Plan covers substantially all
employees hired prior to 1995. The Supplemental Plan is unfunded
and covers certain key employees hired prior to 1989. Stanley
Retirement Plan assets are invested in fixed income and equity
securities. Benefits under both plans are based on average
compensation and service through 1995. The financial status of the
plans at December 31 follows (in thousands):
1997 1996
Stanley Supple- Stanley Supple-
Retirement mental Retirement mental
Plan Plan Plan Plan
Accumulated benefit obligation:
Vested.....................$(15,361) $(1,210) $(14,334) $ (990)
Nonvested.................. (1,785) (1,636)
Accumulated benefit obliga-
tion.......................$(17,146) $(1,210) $(15,970) $ (990)
Projected benefit obligation.$(17,146) $(1,210) $(15,970) $ (990)
Plan assets at fair value.... 17,170 16,116
Plan assets more than
(less than) projected benefit
obligation................. 24 (1,210) 146 (990)
Unrecognized (gain) loss..... 4,776 (5) 3,994 (62)
Prepaid (accrued) pension
costs....................$ 4,800 $(1,215) $ 4,140 $(1,052)
F-13
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Employee Benefit Plans (continued)
Components of net periodic pension cost follow (in thousands):
1997 1996 1995
Service cost.................... $ 774
Interest cost................... $1,279 $1,295 1,256
Actual return on assets......... (1,587) (618) (1,320)
Net amortization and deferral... 550 (55) 965
Loss on curtailment............. 31
$ 242 $ 622 $1,706
The assumptions used as of December 31 to determine the plans'
financial status and pension cost were:
1997 1996 1995
Discount rate for funded status.. 7.00% 7.75% 7.67%
Discount rate for pension cost... 7.75% 7.67% 9.00%
Salary progression............... N/A N/A 5.00%
Return on assets................. 7.50% 7.50% 7.75%
A reduction in the discount rate of 0.25% would create an
additional minimum pension liability of $5.4 million and would
result in a charge to stockholders' equity of $3.3 million, net of
deferred taxes, at December 31, 1997.
Postretirement Benefits Other Than Pensions
The Company provides health care benefits to eligible retired
employees between the ages of 55 and 65 and provides life insurance
benefits to eligible retired employees from age 55 until death.
Substantially all of the Company's employees are eligible for these
benefits after satisfying service and age provisions. Employees
who elect benefits at retirement contribute to the cost of
coverage. The plan is unfunded.
F-14
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Employee Benefit Plans (continued)
The plan's financial status at December 31 follows (in
thousands):
1997 1996
Accumulated postretirement benefit
obligation:
Retirees............................. $(2,963) $(3,049)
Fully eligible active plan
participants....................... (285) (254)
Other active plan participants....... (393) (300)
Accumulated postretirement
benefit obligation................... (3,641) (3,603)
Unrecognized net loss.................. 895 741
Unrecognized transition obligation..... 1,954 2,084
Accrued postretirement benefit cost.. $ (792) $ (778)
Components of net periodic postretirement benefit cost were
(in thousands):
1997 1996 1995
Service cost............... $ 36 $ 35 $ 93
Interest cost.............. 261 274 510
Amortization of transition
obligation............... 131 130 134
Amortization and deferral.. 29 33 182
$ 457 $ 472 $919
The weighted-average discount rates used in determining the
actuarial present value of the projected benefit obligation were
7.00%, 7.75% and 7.67% for 1997, 1996 and 1995, respectively. The
above loan agreements requirerate of increase in future health care benefit cost used in
determining the obligation for 1997 was 9% gradually decreasing to
5.5% beginning in 2004; for 1996 was 10% gradually decreasing to
5.5% beginning in 2003; and, for 1995 was 12% gradually decreasing
to 6% beginning in 2002.
Increasing the assumed health care cost trend rate by one
percentage point in each future year would increase the accumulated
postretirement benefit obligation at December 31, 1997, by $101,000
and the annual postretirement benefit cost by $12,000.
Deferred Compensation
The Company has a deferred compensation plan, funded with life
insurance policies, which permits certain management employees to
defer portions of their compensation and earn a fixed rate of
return. The accrued liabilities relating to this plan of $1.4
million at December 31, 1997 and 1996, are included in accrued
salaries, wages and benefits and other long-term liabilities. The
cash surrender value, net of policy loans, is included in other
assets.
F-15
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Leases
The Company leased a substantial portion of its facilities
under operating leases through June 1995, at which time the Company
purchased these facilities. The Company continues to maintainlease
showroom space and certain financial covenantsother equipment. Rental expenses
charged to operations were $1.1 million, $970,000, and prohibit$1.4 million
in 1997, 1996 and 1995, respectively. Future minimum lease
payments, net of subleases, are approximately as follows: 1998 -
$913,000; 1999 - $728,000; 2000 -$54,000; and thereafter -
$45,000.
8. Discontinued Operations
In 1996, the Company was released from paying
dividendsa lease obligation
resulting from the purchase and acquiringconcurrent resale of certain
facilities at a former division, which ceased operations in 1994.
Accordingly, the Company recorded an after tax gain of $246,000, or
retiring it's common stock.
Aggregate maturities$.05 per share, as a partial reversal of long-term debta previous accrual,
representing the final adjustment for the next five years
are as follows:cost of the closure.
9. Related Party Transactions
During 1996 - $650,000;and 1997, - $878,000; 1998 - $6.0
million; 1999 - $5.1 million; 2000 - $5.2the Company completed three purchases of
its common stock from the ML-Lee Acquisition Fund, L.P. and its
affiliates (the "Lee Fund") totaling 1.3 million shares for a total
consideration of $27.6 million. 4.The Lee Fund sold to public
investors its remaining ownership in January 1998. The Company
maintained a management agreement with an affiliate of the Lee Fund
which was terminated in November 1997. Fees paid pursuant to this
agreement amounted to $125,000 in 1997, $241,000 in 1996, and
$250,000 in 1995.
10. Unusual Items
During the second quarter of 1995, the Company was released from a lease obligation
at its previously closed Waynesboro, Virginia manufacturing
facility. Accordingly, the Company recognized a pretax credit of
$1.1 million related to the reversal of an accrual set upprovided in 1991
for the closing of the facility. Unusual items also included a
pretax charge for severance resulting from the resignation of the Company's Chief Operating Officer.
F-10
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Income Taxes
The provision for income taxes on income from continuing
operations consists of (in thousands):
1995 1994 1993
Current:
Federal......................... $1,750 $2,314 $1,123
State........................... 412 669 245
Total current................. 2,162 2,983 1,368
Deferred:
Federal......................... 156 214 1,940
State........................... 66 59 383
Total deferred.............. 222 273 2,323
Income taxes................ $2,384 $3,256 $3,691
A reconciliationa
former officer of the difference between the federal
statutory income tax rate and the effective income tax rate on
income from continuing operations at December 31 follows:
1995 1994 1993
Federal statutory rate.......... 35.0% 35.0% 35.0%
State taxes, net of federal
benefit....................... 5.0 5.0 4.6
Goodwill........................ 1.9 1.4 1.3
Life insurance.................. (1.5) (0.9) (0.7)
Tax savings from foreign sales
corporation................... (0.8) (0.4) (0.4)
Federal tax rate change......... 2.8
Tax credits..................... (0.2) (0.8) (1.3)
Other, net...................... (1.4) (0.4) (0.2)
Effective income tax rate..... 38.0% 38.9% 41.1%
F-11
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Income Taxes (continued)
The income tax effects of temporary differences that comprise
deferred tax assets and liabilities at December 31 follow (in
thousands):
1995 1994
Current deferred tax assets (liabilities):
Accounts receivable........................ $ 379 $ 360
Inventory.................................. (432) (439)
Employee benefits.......................... 1,834 1,305
Other accrued expenses..................... 639 777
Net current deferred tax asset........... $2,420 $2,003
Noncurrent deferred tax (assets) liabilities:
Inventory.................................. $ 500 $ 966
Property, plant and equipment.............. 11,552 11,302
Employee benefits.......................... 215 (785)
Restructuring costs........................ (95) (183)
Other...................................... 8 241
Net noncurrent deferred tax liability.... $12,180 $11,541
At December 31, 1994, the Company had alternative minimum tax
credit carryforwards of $519,000 which were utilized in 1995. The
Company's federal income tax returns have been examined and closed
by the Internal Revenue Service through 1992.
6. Stock Options and Loan Plan
In December 1994, the Company adopted the Stanley Furniture
Company, Inc. 1994 Stock Option Plan (the "1994 Plan"). The 1994
Plan and the Company's 1992 Stock Option Plan provide for the
granting of stock options for up to an aggregate of 700,000 shares
of common stock to certain key employees. Options granted may be
either nonqualified or qualified stock options and the exercise
price may not be less than 100% of the fair market value of the
Company's common stock on the date the options are granted.
Granted options vest 20% annually.
F-12
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Stock Options and Loan Plan (continued)
At December 31, 1995 and 1994, options to purchase 229,023 and
182,297 shares, respectively, were exercisable and 16,935 were
available for grant at December 31, 1995. Activity for the two
years ended December 31, 1995 follows:
Number Option price
of shares per share
Outstanding at December 31, 1993... 668,317 $ 8.50 to $12.86
Exercised.......................... (5,112) 8.50 to 12.86
Cancelled.......................... (602,834) 12.86
Granted............................ 609,629 10.00
Outstanding at December 31, 1994. 670,000 8.50 to 10.00
Lapsed............................. (5,327) 8.50 to 10.00
Cancelled.......................... (156,720) 8.50 to 10.00
Granted............................ 170,000 8.75
Outstanding at December 31, 1995. 677,953 $ 8.50 to $10.00
During 1994, the Company established the Executive Loan Plan.
Under the Executive Loan Plan, the Company has entered into a
contractual agreement to issue 50,000 shares of common stock to the
Chief Executive Officer at $10 per share (the market price per
share on the date of the agreement) in exchange for a non-recourse
7.6% note receivable payable in five annual installments with the
balance due January 2, 1999. The Company has also agreed to
forgive interest plus one half of the contractual purchase price
over the next five years, if the Chief Executive Officer remains
employed by the Company. The contractual agreement under the
Executive Loan Plan with the former Chief Operating Officer was
cancelled in July 1995. Accordingly, net compensation expense
including interest and income taxes was $98,000 and $160,000 for
1995 and 1994, respectively.
7. Employee Benefit Plans
Pension Plans
The Company maintains a non-contributory defined benefit
pension plan (the "Stanley Retirement Plan"), covering
substantially all employees. The benefits provided by the plan are
based on an employee's years of service and average compensation.
Plan assets are invested principally in fixed income and equity
instruments. The Company also maintains a supplemental retirement
plan covering certain key employees (the "Supplemental Plan").
F-13
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Employee Benefit Plans (continued)
A Supplemental Plan participant who retires under any provision of
the Stanley Retirement Plan will receive a supplemental retirement
allowance equal to the excess, if any, of an eligible employee's
benefit under the Stanley Retirement Plan in effect on January 1,
1987, over his benefit actually received at retirement. The
Supplemental Plan is unfunded and benefit payments are made
directly from Company assets.
Effective December 31, 1995, the Company amended both the
Stanley Retirement Plan and the Supplemental Plan to cease future
benefit accruals under the plans. Accordingly, the Company
recognized a pretax loss on curtailment of $31,000. The following
table sets forth the plans' financial status at December 31 (in
thousands):
1995 1994
Stanley Supple- Stanley Supple-
Retirement mental Retirement mental
Plan Plan Plan Plan
Accumulated benefit obligation:
Vested........................ $(14,641) $(897) $(10,603) $ (483)
Nonvested..................... (1,127) (97) (737) (70)
Accumulated benefit obligation.. $(15,768) $(994) $(11,340) $ (553)
Projected benefit obligation.... $(15,768) $(994) $(13,209) $(1,016)
Plan assets at fair value....... 15,842 12,012
Plan assets more than
(less than) projected benefit
obligation.................... 74 (994) (1,197) (1,016)
Unrecognized (gain) loss........ 3,206 2,400 (284)
Prior service cost.............. (112) 659
Prepaid (accrued) pension
costs....................... $ 3,280 $(994) $ 1,091 $ (641)
Components of net periodic pension cost follow (in thousands):
1995 1994 1993
Service cost.................... $ 774 $ 904 $ 799
Interest cost................... 1,256 1,315 1,333
Actual return on assets......... (1,320) (109) (382)
Net amortization and deferral... 965 (589) (444)
Loss on curtailment............. 31
$1,706 $1,521 $1,306
F-14
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Employee Benefit Plans (continued)
The assumptions used as of December 31 to determine the plans'
funded status, pension cost and loss on curtailment were:
1995 1994 1993
Discount rate for funded status..... 7.67% 9.00% 7.75%
Discount rate for pension cost...... 9.00% 7.75% 8.25%
Salary progression.................. 5.00% 5.00% 4.00%
Return on assets.................... 7.75% 8.00% 8.25%
A reduction in the discount rate of 0.25% would create an
additional minimum pension liability of $3.9 million and would
result in a charge to stockholders' equity of $2.3 million, net of
deferred taxes.
401(k) Plan
The Company also maintains the Stanley 401(k) Retirement
Savings Plan ("401(k) Plan") for all of its eligible employees.
Through December 31, 1995, the plan allowed for contributions by
employees up to 20% of their salaries and also permitted discre-
tionary contributions by the Company, although no discretionary
contributions have been made to the plan by the Company. In
connection with the curtailment of benefits in the Stanley
Retirement Plan and Supplemental Plan, the Company amended its
401(k) Plan and expects to begin making discretionary matching and
profit sharing contributions in 1996.
Postretirement Benefits Other Than Pensions
The Company provides certain health care benefits to eligible
retired employees between the ages of 55 and 65 and provides
certain life insurance benefits to eligible retired employees from
age 55 until death. Substantially all of the Company's employees
are eligible for these benefits after attaining specified years of
service and age provisions. Employees who elect benefits at
retirement contribute to the cost of coverage. The plan is
unfunded. Prior to 1993, the Company expensed the cost of these
benefits when paid. Effective January 1, 1993, the Company adopted
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." Accordingly, the expected cost of retiree
benefits, other than pensions, are charged to expense during the
years the employees render service.
F-15
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Employee Benefit Plans (continued)
The Company elected to recognize the January 1, 1993,
obligation of $8.1 million through charges to earnings over 20
years. On March 3, 1993, the Company also adopted plan design
changes which reduced the January 1, 1993, obligation to $2.9
million. The following table sets forth the plan's financial
status at December 31 (in thousands):
1995 1994
Retirees.................................... $(4,875) $(4,769)
Fully eligible active plan participants..... (232) (333)
Other active plan participants.............. (714) (634)
Total accumulated postretirement
benefit obligation...................... (5,821) (5,736)
Unrecognized net loss....................... 2,752 2,927
Unrecognized transition obligation.......... 2,272 2,406
Net accrued postretirement benefit cost... $ (797) $ (403)
Components of net periodic postretirement benefit cost were
(in thousands):
1995 1994 1993
Service cost................................ $ 93 $ 74 $ 72
Interest cost............................... 510 242 239
Amortization of transition obligation,
after reduction for plan design changes... 134 359 146
Amortization and deferral................... 182 21
$ 919 $ 696 $457
The weighted average discount rates used in determining the
actuarial present value of the projected benefit obligation were
7.67%, 9.00% and 7.75% for 1995, 1994 and 1993, respectively. The
rate of increase in future health care benefit cost used in
determining the obligation for 1995 was 12% gradually decreasing to
6% beginning in 2002; for 1994 was 15% gradually decreasing to 7%
beginning in 2005; and, for 1993 was 17% gradually decreasing to
5.75% beginning in 2007.
Increasing the assumed health care cost trend rate by one
percentage point in each future year would increase the accumulated
postretirement benefit obligation at December 31, 1995 by $307,000
and the aggregate of the service cost and interest cost components
of net periodic postretirement benefit cost for 1995 by $31,000.
F-16
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Employee Benefit Plans (continued)
Deferred Compensation
The Company has a deferred compensation plan which permits
certain management employees to defer portions of their
compensation. The employees earn a fixed rate of interest on the
deferred amounts. The plan is funded through the purchase of whole
life insurance contracts on the employees, and the Company borrows
against the cash surrender value of these policies to fund any
benefit payments. The accrued liabilities relating to this plan of
$1.4 million and $1.3 million at December 31, 1995 and 1994,
respectively, are included in accrued salaries, wages and benefits
and other long-term liabilities. The cash surrender value, net of
policy loans, is included in other assets.
8. Insurance Claim Accounting
In February 1993, a fire at the Stanleytown, Virginia facility
damaged approximately 12% of the Company's total manufacturing
facilities. The Company's insurance coverage provided for the
complete replacement of the damaged building (which was
leased), equipment and inventory, and reimbursement for business
interruption losses.
The Company recorded business interruption insurance in 1993
based on estimated profits attributed to lost sales since the fire.
The amount recognized represents the estimated gross profit that
would have been realized on lost sales. Accordingly, $5.0 million
of estimated income from business interruption insurance is
included in gross profit in 1993. Also, a $2.2 million pretax gain
was recorded in 1993 since proceeds from insurance exceeded the
book value of leasehold improvements and equipment destroyed in the
fire. In 1994, the Company reached a final insurance settlement
and recorded a gain of $2.4 million.
9. Discontinued Operations
Beginning in 1991, Norman's was reflected as a discontinued
operation. In 1994, the Company ceased operations at Norman's and
liquidated the division resulting in a $2.8 million ($4.5 million
pretax) additional loss provision. Net sales applicable to
Norman's were $4.1 million and $12.1 million for 1994 and 1993,
respectively.
F-17
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Leases
The Company leased a substantial portion of its facilities
under operating leases through June 1995, at which time the Company
purchased these facilities, as described in Note 2. Rental
expenses charged to operations were $1.4 million, $1.9 million and
$2.0 million in 1995, 1994 and 1993, respectively. The Company
continues to lease two showrooms and certain other equipment.
Future minimum lease payments, net of subleases, are approximately
as follows: 1996 - $769,000; 1997 - $801,000; 1998 -$534,000; 1999
- -$354,000; and thereafter - $12,000.
11. Related Party Transactions
Approximately 58% of the Company's common stock is owned by
the ML-Lee Acquisition Fund, L.P. (the "Majority Stockholder") and
certain affiliates of the Thomas H. Lee Company. The Company has
entered into a management agreement with an affiliate of its
Majority Stockholder. Fees paid pursuant to this agreement
amounted to $250,000 annually in 1995, 1994 and 1993.
12. Supplemental Cash Flow Information
(in thousands)
1997 1996 1995 1994 1993
Net income......................... $11,587 $ 8,986 $ 3,889 $ 2,358 $ 5,280
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.. 4,919 4,421 4,808Depreciation................... 5,000 4,774 4,503
Amortization................... 432 426 416
Other, net..................... 340 463 118 249 295
Loss on disposal of fabric
division..................... 2,758(246)
Changes in assets and
liabilities:
Accounts receivable.......... (4,331) (364) 1,028
(1,011) (289)
Inventories..................Inventories................... (5,491) (72) (262) (2,221) (4,147)
Prepaid expenses and other
current assets............. (2,180) (1,347) (1,030) (892) 374
Insurance claim receivable... 2,029 (4,152)
Operating assets of
discontinued operations.... (867) (285)
Accounts payable............. 3,534 993 (1,022) (922) 2,082
Accrued salaries, wages and
benefits................... (27) 2,965 (500) 585 (589)
Other accrued expenses....... (713) (479) 137 (632) (34)
Deferred income taxes........ (109) (134) 222
189 2,038
Other assets...................assets................. 32 29 25 22 57
Other long-term liabilities....liabilities.. 238 (682) (925) (1,971) 1,111
Net cash provided by
operating activities.......activities..... $ 6,5998,312 $15,312 $ 4,095 $ 6,5496,599
F-18F-17
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13.12. Quarterly Results of Operations (Unaudited)
The Company's unaudited quarterly results of operations were
as follows (in thousands, except per share data):
Fiscal 1995 Quarters
First Second Third Fourth
1997 Quarters:
Net sales.............. $44,989 $38,163 $44,706 $46,321sales............... $49,631 $49,469 $54,270 $58,534
Gross profit........... 9,101 8,050 9,095 10,312profit............ 12,461 12,488 13,288 14,214
Net income............. 794 719 998 1,378income.............. 2,772 2,756 2,935 3,125
Net income per share............ .17 .15 .21 .29
Fiscal 1994 Quartersshare:
Basic................. $ .60 $ .60 $ .76 $ .85
Diluted............... .55 .55 .68 .75
1996 Quarters:
Net sales.............. $44,737 $44,101 $43,845 $51,659sales............... $48,190 $47,282 $52,550 $53,882
Gross profit........... 8,677 8,544 8,865 9,803
Incomeprofit............ 10,769 11,087 12,778 13,939
Net income from continuing
operations.......... 2,386 (a) 957 863 910operations............ 1,583 1,704 2,615 2,839
Net income (loss)...... (372)(b) 957 863 910
Income from continuing
operations per share. .49 (a) .20 .18 .19
Net income (loss)
per share............ (.08)(b) .20 .18 .19
(a) In the first quarter of 1994, the Company reached a final insurance
settlement
and recorded a gain of $1.5 million ($2.4 million pretax) or 31 cents per
share.
(b) In the first quarter of 1994, the Company decided to cease operations at
Norman's and recorded a loss from discontinued operations of $2.8 million
($4.5
million pretax) or 58 cents per share.
F-19
STANLEY FURNITURE COMPANY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For each of the Three Years in the Period Ended December 31, 1995share:
Basic................. $ .33 $ .36 $ .55 $ .60
Diluted............... .33 .35 .53 .56
F-18
STANLEY FURNITURE COMPANY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For each of the Three Years in the Period Ended December 31, 1997
(In thousands)
Column A Column B Column C Column D Column E
Charged
Balance at (Credited) Balance
Beginning to Costs & at End of
Descriptions of Period Expenses Deductions Period
1997
Doubtful
receivables. $1,332 $ 20 $236(a) $1,116
Discounts,
returns,
and
allowances.. 613 166(b) 779
$1,945 $186 $236 $1,895
1996
Doubtful
receivables. $ 600 $860 $128(a) $1,332
Discounts,
returns,
and
allowances.. 557 56(b) 613
$1,157 $916 $128 $1,945
1995
Doubtful
receivables... $528receivables. $ 528 $302 $230(a) $ 600
Discounts,
returns,
and
allowances.......allowances.. 405 152(b) 557
$933$ 933 $454 $230 $1,157
1994
Doubtful receivables... $472 $195 $139(a) $528
Discounts, returns,
and allowances....... 355 50(a) Uncollectible receivables written off, net of recoveries.
(b) 405
$827 $245 $139 $933
1993
Doubtful receivables... $400 $526 $454(a) $472
Discounts, returns,
and allowances....... 463 (108)(b) 355
$863 $418 $454 $827Represents net increase in the reserve.
(a) Uncollectible receivables written off, net of recoveries.
(b) Represents net increase (decrease) in required reserve.
S-1