SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30,September 29, 1996 or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to .
Commission file number 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 No.)
Route 57, Stanleytown, Virginia 24168
(Address of principal executive offices, Zip Code)
(540) 627-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of JulyOctober 15, 1996.
Class Number
Common Stock, par value $.02 per share 4,726,5784,729,042 Shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
June 30,September 29, December 31,
1996 1995
ASSETS
Current assets:
Cash.............................................Cash................................ $ 1,4333,705 $ 298
Accounts receivable, less allowances of
$1,389$1,961 and $1,157, respectively............. 23,709respectively... 28,173 22,732
Inventories:
Finished goods................................. 25,088goods.................... 21,527 22,391
Work-in-process................................ 5,060Work-in-process................... 5,756 5,368
Raw materials.................................. 12,488materials..................... 11,522 12,408
42,63638,805 40,167
Prepaid expenses and other current assets........ 807assets 415 435
Deferred income taxes............................taxes............... 2,615 2,420
Total current assets......................... 71,200assets............ 73,713 66,052
Property, plant and equipment, at cost............. 79,658cost. 80,054 78,399
Less accumulated depreciation.................... 25,753depreciation........ 26,946 24,168
53,90553,108 54,231
Goodwill, less accumulated amortization
of $2,520$2,604 and $2,352....................................... 10,920$2,352.................... 10,836 11,088
Other assets....................................... 3,096assets........................... 3,975 3,180
$139,121$141,632 $134,551
LIABILITIES
Current liabilities:
Current maturities of long-term debt.............debt. $ 1,375725 $ 650
Accounts payable................................. 13,722payable..................... 14,176 13,637
Accrued salaries, wages and benefits............. 8,118benefits. 8,802 6,619
Other accrued expenses........................... 3,129expenses............... 3,189 2,724
Total current liabilities...................... 26,344liabilities.......... 26,892 23,630
Long-term debt, exclusive of current
maturities....maturities........................... 38,778 40,417
Deferred income taxes..............................taxes.................. 12,650 12,180
Other long-term liabilities........................ 3,324liabilities............ 2,402 3,585
Total liabilities................................ 81,096liabilities.................... 80,722 79,812
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000
shares authorized, 4,726,5784,729,042 shares
issued and outstanding...........................outstanding............... 94 94
Capital in excess of par value.....................value......... 64,571 64,547
64,547
Deficit............................................ (6,616)Deficit................................ (3,755) (9,902)
Total stockholders' equity....................... 58,025equity........... 60,910 54,739
$139,121$141,632 $134,551
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months SixNine Months
Ended Ended
June 30, July 2, June 30, July 2,September October September October
29, 1996 1, 1995 29, 1996 1, 1995
Net sales.......................... $47,282 $38,163 $95,472 $83,152sales.................. $52,550 $44,706 $148,023 $127,858
Cost of sales...................... 36,195 30,113 73,617 66,001sales.............. 39,772 35,611 113,389 101,612
Gross profit................... 11,087 8,050 21,855 17,151profit........... 12,778 9,095 34,634 26,246
Selling, general and
administrative
expenses......................... 7,308 6,152 14,354 13,055administratie expenses... 7,619 6,347 21,973 19,402
Unusual items, net................. (136)net......... (136)
Operating income............... 3,779 2,034 7,501 4,232income....... 5,159 2,748 12,661 6,980
Other expense, net................. 145 66 393 197net......... 90 109 485 306
Interest expense................... 838 829 1,717 1,594expense........... 852 1,028 2,569 2,622
Income from continuing operations
before income taxes............ 2,796 1,139 5,391 2,441taxes.... 4,217 1,611 9,607 4,052
Income tax provision............... 1,092 420 2,104 928provision....... 1,602 613 3,706 1,541
Income from continuing
operations............. 2,615 998 5,901 2,511
Gain from discontinued
operations, net of taxes. 246 246
Net income.........................income................. $ 1,7042,861 $ 719998 $ 3,2876,147 $ 1,5132,511
Primary earnings per share:
Continuing operations.... $ .53 $ .21 $ 1.22 $ .53
Discontinued operations.. .05 .05
Net income per common share........income............ $ .36.58 $ .15.21 $ .701.27 $ .32.53
Weighted average number of
shares.. 4,727 4,727 4,727 4,727shares................... 4,954 4,728 4,848 4,728
Fully diluted earnings per share:
Continuing operations.... $ .52 $ .21 $ 1.17 $ .53
Discontinued operations.. .05 .05
Net income............ $ .57 $ .21 $ 1.22 $ .53
Weighted average number of
shares................... 5,051 4,728 5,052 4,728
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
SixNine Months Ended
June 30, July 2,September October
29, 1996 1, 1995
Cash flows from operating activities:
Cash received from customers................. $ 94,276 $87,052customers......... $141,887 $126,394
Cash paid to suppliers and employees......... (86,331) (87,866)employees. (127,917) (122,447)
Interest paid................................ (1,662) (1,719)paid........................ (3,169) (3,019)
Income taxes paid, net....................... (2,343) (591)net............... (3,409) (932)
Net cash provided (used) by
operating activities............................... 3,940 (3,124)activities............. 7,392 (4)
Cash flows from investing activities:
Capital expenditures......................... (2,305) (12,550)expenditures................. (2,706) (12,932)
Purchase of other assets..................... (25) (139)assets............. (181) (399)
Proceeds from sale of assets................. 9assets......... 12 25
Net cash used by investing
activities...... (2,321) (12,664)activities....................... (2,875) (13,306)
Cash flows from financing activities:
Issuance of senior note......................notes............. 10,000
(Repayment of) proceeds from revolving
credit facility...................................facility, net............... (914) 5,3252,897
Repayment of senior note............. (650)
Proceeds from insurance policy loans.........loans. 430 385
Proceeds from exercise of stock
options............................ 24
Net cash (used) provided by financing
activities............................... (484) 15,710activities....................... (1,110) 13,282
Net increase (decrease) in cash.............. 1,135 (78)cash...... 3,407 (28)
Cash at beginning of year....................year............ 298 301
Cash at end of quarter.......................quarter............... $ 1,4333,705 $ 223
Reconciliation of273
Supplemental cash flow information:
Net income........................... $ 6,147 $ 2,511
Adjustments to reconcile net income to
net cash provided (used) by operating activities:
Net income................................ $ 3,287 $ 1,513
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization......... 2,559 2,365
Other, net............................ - (30)amortization.... 3,865 3,529
Loss on sale of assets................ 268assets........... 265 44
Other............................ (246) (30)
Changes in assets and liabilities:
Accounts receivable................. (977) 3,817
Inventories......................... (2,469) (8,022)receivable............ (5,441) (1,501)
Inventories.................... 1,362 (1,778)
Prepaid expenses and other
current assets.................... (648) (98)assets............... (1,101) (265)
Accounts payable.................... 85 (2,250)payable............... 539 (3,196)
Accrued salaries, wages and
benefits 1,499 266benefits..................... 2,183 1,458
Other accrued expenses.............. 405 417expenses......... 41 356
Deferred income taxes............... 275taxes.......... 114 (193)
Other assets.......................... (166) (137)assets................... (69) (54)
Other long-term liabilities........... (178) (816)liabilities.... (267) (885)
Net cash provided (used) by operating
activities.............................activities......................... $ 3,940 $(3,124)7,392 $ (4)
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)(Unaudited)
1. Preparation of Interim Financial Statements
The financial statements of Stanley Furniture Company, Inc.
(referred to as "Stanley" or the "Company") have been prepared in
accordance with the rules and regulations of the Securities and
Exchange Commission ("SEC"). In the opinion of management, these
statements include all adjustments necessary for a fair
presentation of the results of all interim periods reported herein.
All such adjustments are of a normal recurring nature. Certain
information and footnote disclosures prepared in accordance with
generally accepted accounting principles have been either condensed
or omitted pursuant to SEC rules and regulations. However,
management believes that the disclosures made are adequate for a
fair presentation of results of operations and financial position.
It is suggested that these financial statements be read in
conjunction with the financial statements and accompanying notes
included in Stanley's latest annual report on Form 10-K.
2. Property, Plant and Equipment
(Unaudited)
June 30,(Unaudited)
September 29, December 31,
1996 1995
(In thousands)
Land and buildings............. $33,594$33,643 $33,594
Machinery and equipment........ 42,79144,424 43,127
Leasehold improvements......... 153 153
Furniture, fixtures and office
equipment. .................. 997equipment.................... 1,382 1,387
Construction in progress....... 2,123452 138
$79,658$80,054 $78,399
3. Long-Term Debt
(Unaudited)
June 30,September 29, December 31,
1996 1995
(In thousands)
7.28% senior notes due March
15, 2004..................... $30,000 $30,000
7.57% senior note due June 30,
2005......................... 10,0009,350 10,000
Revolving credit facility...... - 914
7% convertible subordinated
debentures due April 1, 2012. 153 153
Total 40,15339,503 41,067
Less current maturities........ 1,375725 650
$38,778 $40,417
STANLEY FURNITURE COMPANY,. INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data)
4. Subsequent EventDiscontinued Operations
On July 1, 1996, the Company was released from a lease obligation
resulting from the purchase and concurrent resale of certain
facilities at its former Norman's of Salisbury division. This
obligation was accrued as part of the 1994 charge to discontinued
operations in connection with the liquidation of Norman's.
Accordingly, in the third quarter of 1996, the Company expects to recordrecorded an
after tax gain of $246,000, or $.05 per share, as a partial
reversal of this accrual approximating $250,000accrual.
5. New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires a
fair value based method of accounting for stock based compensation,
and provides an option to the Company to either recognize
compensation expense for employee stock based compensation or to
provide proforma earnings information as if such compensation cost
had been recognized. The Company has not determined which election
it will make under SFAS 123, nor the various assumptions that will
be used in the fair value calculations. Under either method the
effect on net income for the nine-month period ended September 29,
1996 is not material, since options to purchase only 7,500 shares
were granted during the period.
6. Subsequent Event
On October 15, 1996, the Company filed a registration statement
with the SEC for a public offering of its common stock held by a
major stockholder. In connection with this offering, the Company
has agreed to acquire from the selling stockholders any share of
common stock not acquired at the price offered to the public, net
of tax, or $.05an amount equal to the underwriting discount that otherwise
would have been paid in respect of such shares of common stock.
Assuming an offering price of $19.25 and an underwriting discount
of 5.5%,
and that the Underwriters' overallotment option is not exercised,
the Company
will acquire 358,902 shares of common stock from the selling
stockholders for
an aggregate consideration of $6,528,876, which the Company will
fund from
available cash and, if necessary, borrowings under its revolving
credit
facility. The following pro forma information assumes that the
repurchase of
common stock is financed entirely by borrowings under the revolving
credit
facility at an assumed interest rate of 7%. The pro forma effects
on the
Company's financial position assume that the stock was repurchased
as of
September 29, 1996. The pro forma effects on the Company's
operating results
for the year ended December 31, 1995 and the nine-months ended
September 29,
1996 assume that the stock was repurchased at the beginning of the
respective
twelve- and nine-month periods.
As Reported Pro Forma
(In thousands, except per
share data)
Financial position at September 29, 1996:
Long-term debt including current
maturities........................... $39,503 $46,032
Stockholders' equity................... 60,910 54,381
Operating results, year ended December
31, 1995:
Interest expense....................... 3,534 3,991
Net income............................. 3,889 3,608
Income from continuing operations per
common share - primary............... $ .82 $ .83
Income from continuing operations per
common share - fully diluted......... $ .82 $ .83
Operating results, nine months ended
September 29, 1996:
Interest expense....................... 2,569 2,912
Net income............................. 6,147 5,937
Income from continuing operations per
common share - primary............... $ 1.22 $ 1.27
Income from continuing operations per
common share - fully diluted......... $ 1.17 $ 1.21
The pro forma information does not include offering expenses of
approximately $300,000 payable by the Company, which will be
incurred in the thirdfourth quarter of 1996.
ItemITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales increased $9.1$7.8 million, or 23.9%17.5%, for the three monththree-month
period ended June 30,September 29, 1996 from the comparable 1995 period.
For the six monthnine-month period, net sales increased $12.3$20.2 million, or
14.8%15.8%, from the comparable 1995 period. The increase wasincreases were due
primarilyprincipally to higher unit volume and to a lesser extent higher
average selling prices.
Gross profit margin for the threethree- and six monthnine-month periods of 1996
increased to 23.4%24.3% and 22.9%23.4%, respectively, from 21.1%20.3% and 20.6%20.5%
for the comparable 1995 periods. The higher gross profit margin
was due primarily to stabilizing raw material costs, improved
operating efficiencies and the favorable impact from the June 1995
purchaseleveraging of the previously leased manufacturing facilities.fixed costs due to
increased production levels.
Selling, general and administrative expenses as a percentage of net
sales for the three and six month periods of 1996 decreased to
15.5% and 15.0%, respectively, from 16.1% and 15.7% for the
comparable 1995 periods, due to higher net sales. These expenses increased for the 1996
periods due to (i) higher selling cost as a
result ofresulting from increased
sales and increased merchandising cost.expenses, (ii) increased
compensation expense pursuant to the Company's incentive
compensation plan for key employees, and (iii) increased provision
for bad debts. For the three-month period, these expenses as a
percentage of net sales increased to 14.5% from 14.2% for the
comparable 1995 period. For the nine-month period, these expenses
as a percentage of net sales decreased to 14.8% from 15.2% for the
comparable 1995 period, due principally to higher net sales.
During the second quarter of 1995, the Company recognized 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 facility and (ii) a
charge for severance resulting from the resignation of the
Company's former Chief Operating Officer.chief operating officer.
As a result of the above, operating income for the threethree- and sixnine-
month periods of 1996 increased to $3.8$5.2 million, or 8.0%9.8% of net
sales, and $7.5$12.7 million, or 7.9%8.6% of net sales, respectively, from
$2.0$2.7 million, or 5.3%6.1% of net sales, and $4.2$7.0 million, or 5.1%5.5% of
net sales, for the comparable 1995 periods.
Interest expense for both the three- and nine-month periods of 1996
three and six month period
increaseddecreased due principally to higherlower debt levels, offset by lower
interest rates.levels.
The Company's effective income tax rate was 39.0%38.6% and 38.0% for the
six month period innine-month periods of 1996 and 1995, respectively.
Financial Condition, Liquidity and Capital Resources
At June 30,September 29, 1996, long-term debt was $38.8 million, and
approximately $23.2$23.0 million of additional borrowing capacity was
available under the revolving credit facility. Annual debt service
requirements are $878,000 in 1997, $5.1 million in both 1998 and
1999 and $5.2 million in both 2000 and 2001. The Company expects
capital expenditures for the next twelve months to range from $4
million to $5 million. The Company believes that its financial
resources are adequate to support its capital needs and debt
service requirements.
The Company generated cash from operations of $3.9$7.4 million in the
1996 nine-month period compared to cashprincipally as a result of higher sales.
The Company used in operations$4.0 million of $3.1 million
during the 1995 period. The cash generated in the 1996
was
attributable to higher sales and was usednine-month period primarily to fund capital expenditures and reduce
borrowings underborrowings. Cash provided from the revolving credit
facility. CashCompany's operations during the
1995 nine-month period was used substantially to fund its operating
activities for that period. For the 1995 nine-month period,
compared to the prior year period, cash was required in 1995 due to lower sales volume,
increased inventory levels andfor higher
interest payments partially
offsetoffet by lower tax payments.payments and less cash paid to
suppliers and employees due to reduced inventory levels.
Net cash used by investing activities was $2.3$2.9 million in the 1996
nine-month period compared to $12.7$13.3 million in the 1995 nine-month
period. In the 1995 nine-month period, proceeds from athe issuance
of senior note issuancenotes and additional borrowings from the revolving credit
facility amounting to $10.5
million were used to purchase two previously leased plant
facilities which were
previously leased.for $10.5 million. The 1996 expenditures and the
remaining expenditures for 1995 were primarily for plant and
equipment and other assets in the normal course of business.
Net cash used by financing activities was $484,000$1.1 million in the 1996
nine-month period compared to cash provided by financing activities
of $15.7$13.3 million in the 1995 nine-month period. In the 1996 period, cash generated
from operations reduced borrowings under the revolving credit
facility. The 1995
borrowings provided cash for operations, the purchase of the two previously
leased plant facilities and other capital expenditures.
Subsequent EventDiscontinued Operations
On July 1, 1996, the Company was released from a lease obligation
resulting from the purchase and concurrent resale of certain
facilities at its former Norman's of Salisbury division. This
obligation was accrued as part of the 1994 charge to discontinued
operations in connection with the liquidation of Norman's.
Accordingly, in the third quarter, the Company expects to recordrecorded an after
tax gain of $246,000, or $.05 per share, as a partial reversal of
this accrual approximating $250,000 netaccrual.
New Accounting Standard
In October 1995, the Financial Accounting Standards Board issued
Statement of tax,Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 requires a
fair value based method of accounting for stock based compensation,
and provides an option to the Company either to recognize
compensation expense for employee stock based compensation or $.05 per share,to
provide pro forma earnings information as if such compensation cost
had been recognized. The Company has not determined which election
it will make under SFAS 123, nor the various assumptions that will
be used in the third quarter of 1996.fair value calculations. Under either method the
effect on net income for the nine-month period ended September 29,
1996 is not material, since options to purchase only 7,500 shares
were granted during the period.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company's shareholders was
held April 25, 1996.
(b) The shareholders of the Company elected one director for
a three-year term expiring at the Annual Meeting of
Shareholders to be held in 1999. The election was
approved by the following vote:
For Withheld
C. Hunter Boll 4,275,158 34,841
(c)(i) The shareholders approved the ratification of the
selection of Coopers & Lybrand L.L.P. as the independent
public accountants for the Company for the current
fiscal year. The ratification was approved by the
following vote:
FOR 4,305,483
AGAINST 724
ABSTAIN 3,792
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4.1 Letter Amendment dated October 14, 1996
to Note Agreements dated February 15,
1994 and June 29, 1995 between the
Company and The Prudential Insurance
Company of America.*
Exhibit 10.1 Employment agreementAssignment and Transfer Agreement dated
as of JuneOctober 8, 1996 between National
Canada Finance Corp., a Delaware
corporation ("NCFC") and National Bank
of Canada, a Canadian chartered bank
("NBC") relating to the Second Amended
and Restated Revolving Credit Facility
dated as of February 15, 1995 (the
"Second Amended and Restated Revolving
Credit Facility") among the Company,
NCFC and NBC.*
Exhibit 10.2 Second Amendment dated as of October 14,
1996 between the Company and National
Bank of Canada to Second Amended and
Restated Revolving Credit Facility.*
Exhibit 10.3 Amendment No. 1, dated as of November 1,
1996, between Douglas I. Paynethe Company and the Registrant.Thomas
H. Lee Company to the Management
Agreement dated September 29, 1988 among
the Company's predecessors and the
Thomas H. Lee Company.*
Exhibit 10.210.4 Amendment #1No. 1 dated as of October 1,
1996 to Employment Agreement between
C. William Cubberley, Jr. and the Registrant,
dated as of
JuneJanuary 1, 1996.1991 between the Company and
Albert L. Prillaman.*
Exhibit 11. Schedule of Computation of Earnings Per
Share.*
Exhibit 27. Financial Data Schedule.*
(b) Reports on Form 8-K
None.
* Filed herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC.
Date: July 16,November 7, 1996 By: /s/ Douglas I. Payne
Douglas I. Payne
Vice President of Finance,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)