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)