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 SeptemberMarch 28, 19971998 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.)
1641 Fairystone Park Highway, 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 OctoberApril 10, 1997.1998.
Class Number
----- ------
Common Stock, par value $.02 per share 3,845,9443,440,757 Shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
SeptemberMarch 28, December 31,
ASSETS 1998 1997
1996
ASSETS----------- -------------
Current assets:
Cash........................................... $ 1,2991,717 $ 8,126756
Accounts receivable, less allowances
of $1,928$1,943 and $1,945 respectively............... 30,308 23,096$1,895......................... 31,295 27,427
Inventories:
Finished goods............................... 23,879 20,95321,984 21,220
Work-in-process.............................. 7,031 6,1427,124 6,997
Raw materials................................ 14,958 13,144
45,868 40,23919,334 17,513
-------- --------
48,442 45,730
Prepaid expenses and other current assets...... 995 486653 1,571
Deferred income taxes.......................... 1,634 1,886770 770
-------- --------
Total current assets....................... 80,104 73,833assets......................... 82,877 76,254
-------- --------
Property, plant and equipment, at cost........... 81,837 80,73785,557 84,545
Less accumulated depreciation.................. 31,578 28,024
50,259 52,71334,138 32,831
-------- --------
51,419 51,714
Goodwill, less accumulated amortization of $2,940$3,108
and $2,688.............................. 10,500 10,752$3,024..................................... 10,332 10,416
Other assets..................................... 4,207 4,212
$145,070 $141,5104,729 4,841
-------- --------
$149,357 $143,225
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt........... $ 5,086 $ 7255,086
Accounts payable............................... 16,315 14,63019,040 18,164
Accrued salaries, wages and benefits........... 9,856 9,5849,673 9,687
Other accrued expenses......................... 1,985 2,6692,955 1,877
-------- --------
Total current liabilities.................... 33,242 27,60836,754 34,814
Long-term debt, exclusive of current maturities.. 43,736 38,62548,303 47,491
Deferred income taxes............................ 10,786 11,67310,448 10,448
Other long-term liabilities...................... 1,987 1,9872,225 2,225
-------- --------
Total liabilities.............................. 89,751 79,89397,730 94,978
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares
authorized, 3,845,9443,440,757 and 4,579,0423,432,759 shares
issued and outstanding......................... 76 9168 68
Capital in excess of par value................... 47,696 62,44237,618 37,508
Retained earnings (deficit)...................... 7,547 (916)earnings................................ 13,941 10,671
-------- --------
Total stockholders' equity..................... 55,319 61,617
$145,070 $141,51051,627 48,247
-------- --------
$149,357 $143,225
======== ========
The accompanying notes are an integral
part of the financial statements.
2
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months
Nine Months
Ended
Ended
September September September September---------------------
March 28, March 30,
1998 1997
29, 1996 28, 1997 29, 1996-------- ---------
Net sales.......................... $54,270 $52,550 $153,370 $148,023sales............................ $ 57,691 $ 49,631
Cost of sales...................... 40,982 39,772 115,133 113,389sales........................ 43,546 37,170
-------- --------
Gross profit................... 13,288 12,778 38,237 34,634profit..................... 14,145 12,461
Selling, general and administrative
expenses......................... 7,501 7,619 21,828 21,973expenses........................... 7,752 7,127
-------- --------
Operating income............... 5,787 5,159 16,409 12,661income................... 6,393 5,334
Other expense, net................. 94 90 227 485net................... 34 69
Interest expense................... 992 852 2,493 2,569expense..................... 1,084 756
-------- -------
Income from continuing operations before income taxes............ 4,701 4,217 13,689 9,607taxes....... 5,275 4,509
Income taxes....................... 1,766 1,602 5,227 3,706
Income from continuing operations 2,935 2,615 8,462 5,901
Gain from discontinued operations,
net of taxes..................... 246 246taxes......................... 2,005 1,737
-------- -------
Net income.........................income........................ $ 2,9353,270 $ 2,861 $ 8,462 $ 6,147
Primary earnings2,772
======== =======
Earnings per share:
Continuing operations............ $ .68 $ .53 $ 1.77 $ 1.22
Discontinued operations.......... .05 .05
Net income.................... $ .68 $ .58 $ 1.77 $ 1.27Basic............................. .95 .60
Diluted........................... .83 .55
Weighted average number of shares.. 4,315 4,954 4,794 4,848
Fully diluted earnings per share:
Continuing operations............ $ .68 $ .52 $ 1.75 $ 1.17
Discontinued operations.......... .05 .05
Net income.................... $ .68 $ .57 $ 1.75 $ 1.22
Weighted average number of shares.. 4,315 5,051 4,839 5,052shares outstanding:
Basic............................. 3,437 4,584
Diluted........................... 3,949 5,011
The accompanying notes are an integral
part of the financial statements.
3
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine
Three Months Ended
September September----------------------
March 28, March 30,
1998 1997
29, 1996--------- ---------
Cash flows from operating activities:
Cash received from customers....................customers....................... $53,836 $ 146,302 $141,88746,323
Cash paid to suppliers and employees............ (137,431) (127,917)employees............... (51,503) (45,667)
Interest paid................................... (2,880) (3,169)paid...................................... (1,183) (1,038)
Income taxes paid, net.......................... (6,461) (3,409)net............................. (37) (736)
------- --------
Net cash provided (used) provided by operating
activities.................................. (470) 7,392activities..................................... 1,113 (1,118)
------- --------
Cash flows from investing activities:
Capital expenditures............................ (1,369) (2,706)expenditures............................... (1,012) (270)
Purchase of other assets........................ (100) (181)
Proceeds from sale of assets.................... 12assets........................... (24) (65)
------- --------
Net cash used by investing activities......... (1,469) (2,875)activities............ (1,036) (335)
------- --------
Cash flows from financing activities:
Purchase and retirement of common stock......... (15,000)
Proceeds from (repayment of) revolving credit facility, net.......................... 10,197 (914)net....... 5,098
Repayment of senior note........................ (725) (650)Senior Notes.......................... (4,286)
Proceeds from insurance policy loans............ 480 430
Proceeds from exercise ofexercised stock options......... 160 24options.............. 72 75
------- --------
Net cash usedprovided by financing activities......... (4,888) (1,110)activities........ 884 75
------- --------
Net increase (decrease) increase in cash................. (6,827) 3,407cash.................... 961 (1,378)
Cash at beginning of year.......................year.......................... 756 8,126
298------- --------
Cash at end of quarter..........................quarter............................. $ 1,2991,717 $ 3,705
Supplemental6,748
======= ========
Reconciliation of net income to net cash flow information:provided
(used) by operating activities:
Net income......................................income......................................... $ 8,4623,270 $ 6,1472,772
Adjustments to reconcile net income to net
cash provided (used) provided by operating activities:
Depreciation and amortization............... 4,070 3,865
Loss on sale of assets...................... 76 265
Other....................................... (246)amortization.................. 1,416 1,350
Changes in assets and liabilities:
Accounts receivable....................... (7,212) (5,441)
Inventories............................... (5,629) 1,362receivable.......................... (3,868) (3,268)
Inventories.................................. (2,712) (3,300)
Prepaid expenses and other current
assets. (873) (1,101)assets, net................................ 914 8
Accounts payable.......................... 1,685 539payable............................. 876 984
Accrued salaries, wages and benefits...... 272 2,183benefits......... (14) (477)
Other accrued expenses.................... (605) 41
Deferred income taxes..................... (635) 114expenses....................... 1,116 859
Other assets.............................. (81) (69)assets................................. 115 97
Other long-term liabilities............... (267)liabilities.................. (143)
------- --------
Net cash provided (used) provided by operating activities....................................activities... $ (470)1,113 $ 7,392(1,118)
======= ========
The accompanying notes are an integral
part of the financial statements.
4
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands, except share and per share data)thousands)
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)
SeptemberMarch 28, December 31,
1998 1997
1996---------- ------------
Land and buildings............. $33,802 $33,694buildings.............. $34,150 $33,941
Machinery and equipment........ 45,643 45,120equipment......... 49,057 48,180
Office fixtures and equipment.. 1,825 1,794equipment... 1,836 1,836
Construction in progress....... 567 129
$81,837 $80,737progress........ 514 588
------- -------
$85,557 $84,545
======= =======
3. Long-Term Debt
(Unaudited)
SeptemberMarch 28, December 31,
1998 1997
1996--------- ------------
7.28% senior notes due March
15, 2004..................... $30,0002004...................... $25,714 $30,000
7.57% senior note due June
30, 2005.........................2005...................... 8,625 9,3508,625
7.43% senior notes due November
18, 2007...................... 10,000 10,000
Revolving credit facility...... 10,197facility....... 9,050 3,952
------- -------
Total 48,822 39,35053,389 52,577
Less current maturities........maturities......... 5,086 725
$43,736 $38,6255,086
------- -------
$48,303 $47,491
======= =======
5
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except4. Earnings Per Common Share and Stock Split
Basic earnings per common share and per share data)
4. Common Stock Repurchase
On June 30, 1997,are based upon the Company purchased 750,000weighted average shares
of itsoutstanding. Outstanding stock options are treated as common stock equivalents
for an aggregate purchase pricepurposes of $15 million which
was funded from available cash and borrowings under its revolving
credit facility. The shares were purchased from the ML-Lee
Acquisition Fund, L.P. and its affiliates.
Assuming the shares were repurchased on January 2, 1997 and
financed entirely by borrowings under the revolving credit facility
at an assumed interest rate of 7.25%, the pro forma fullycomputing diluted earnings per share would have been $1.86, forand represent the
nine month period
ended September 28, 1997.
5. New Accounting Standarddifference between basic and diluted weighted average shares outstanding.
In February 1997,April 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share" effective for financial statements issued for periods ending
after December 15, 1997.Directors approved a two-for-one stock split, to be
effected in the form of a stock dividend, payable to stockholders of record on
May 1, 1998. In connection with the stock dividend, approximately $69,000 will
be transferred to common stock from capital in excess of par value in the second
quarter of 1998. The new standard specifies the
computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock. Since
early adoption of the standard is prohibited, the followingunaudited pro forma earnings per share, amounts computed usinggiving retroactive
effect to the new standard
are presented below.
Three Months Ended Nine Months Ended
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
Basic earnings per share:
Continuing operations... $.76 $.56 $1.94 $1.25
Discontinued operations. .05 .05
Net income............ $.76 $.61 $1.94 $1.30
Diluted earnings per share:
Continuing operations... $.68 $.53 $1.77 $1.22
Discontinued operations. .05 .05
Net income............ $.68 $.58 $1.77 $1.27
stock split were as follows:
Three Months Ended
--------------------------
March 28, March 30,
1998 1997
----------- ---------
Earnings per share:
Basic.................... $ .48 $ .30
Diluted.................. $ .41 $ .28
Weighted average shares
outstanding:
Basic.................... 6,874 9,168
Diluted.................. 7,898 10,022
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales increased $1.7$8.1 million, or 3.3%16.2%, for the three month
period ended SeptemberMarch 28, 19971998, from the comparable 1996 period.
For the nine month period, net sales increased $5.3 million, or
3.6%, from the comparable 19961997 period. The
increase was due primarily to higher average selling prices.unit volume.
Gross profit margin for the three and nine month periodsperiod of 1997
increased1998 decreased to 24.5% and 24.9%, respectively, from
24.3% and 23.4%25.1% for the comparable 1996 periods. Gross profit margin for the third
quarter approximates the comparable prior year quarter.1997 period. The decrease resulted from higher
gross profit margin for the nine month period of 1997 was due
primarily to lower raw
material (primarily lumber) costs, as a percentage of net sales
andpartially offset by improved operating
efficiencies. However, gross profit margin
declined from 25.2% for the first half of 1997 to 24.5% for the
third quarter of 1997, due primarily to rising lumber cost, and
management expects this trend to continue in the fourth quarter and
into 1998.
Selling, general and administrative expenses for the three and nine
month periods of 1997 as a percentage of net sales
decreased to 13.8% and 14.2%, respectively, from 14.5% and 14.8%13.4% for the comparable 1996 periods. These expenses were lower1998 period from 14.4% in the comparable 1997 periods,period.
The lower percentage was due primarilyprincipally to a higher provision for bad debtsnet sales in the prior year periods.1998 period.
The majority of the $625,000 increase in 1998 was selling expenses directly
attributable to the sales increase.
6
As a result of the above, operating income for the three and nine
month periods of 1997 increased to $5.8$6.4 million, or 11.1%
of net sales, from $5.3 million, or 10.7% of net
sales, and $16.4 million, or 10.7% of net sales, respectively, from
$5.2 million, or 9.8% of net sales, and $12.7 million, or 8.6% of
net sales, forin the comparable 1996 periods.1997 period.
Interest expense for the 1997 three month period ended March 28, 1998, increased due
to higher average debt levels resulting from the Company's June and November
1997 repurchase of 750,000 sharesrepurchases of its common stock. For the 1997
nine month period, interest expense decreased due primarily to
lower net borrowing levels.
The Company's effective income tax rate was 38.2% and 38.6%38.0% for the nine1998 three month
periods of 1997period and 1996, respectively.total year 1997.
Financial Condition, Liquidity and Capital Resources
At SeptemberMarch 28, 1997,1998, long-term debt including current maturities was $48.8$53.4
million. On June 30, 1997, the Company purchased 750,000
shares of its common stock for an aggregate purchase price of $15
million which was funded from available cash and borrowings under
its revolving credit facility. Debt service requirements for the
next five years are $5.1 million$800,000 in 1998, $15.3$14.2 million in 1999,
$5.2 million in 2000, $5.3$6.7 million in 2001, and $5.4$6.8 million in 2002. As of
SeptemberMarch 28, 1997,1998, approximately $13.0$9.7 million of additional borrowings were
available under the Company's revolving credit facility. The Company believes
that its financial resources are adequate to support its capital needs and debt
service requirements.
The Company usedgenerated cash from operations of $482,000$1.1 million in the 1998 first
quarter compared to cash used from operations of $1.1 million in the 1997
period. Cash in the 1998 period comparedwas used to cash generated from operations of $7.4 million
during the 1996 period.fund capital expenditures. Cash was
required in the 1997 period to fund higher payments to suppliers and employees
due to increased production. Cash was also required forproduction levels and higher tax payments
resulting from higher taxable income in 1997. The cash generated
by operations in 1996 was used to fund capital expenditures and
reduce borrowings.payments.
Net cash used by investing activities was $1.5$1.0 million in the 19971998 period
compared to $2.9 million$335,000 in the 19961997 period. Expenditures in each year were
primarily for plant and equipment and other assets in the normal course of
business.
Net cash usedprovided by financing activities was $4.9 million and $1.1
million$884,000 in the 1998 period
compared to $75,000 in the 1997 and 1996 period, respectively.period. In the 19971998 period, cash and borrowings under the
revolving credit facility were
used to finance the stock repurchase discussed above.
Discontinued Operations
In 1996, the Company was released from a lease obligation at its
former Norman's of Salisbury division. Accordingly, in the third
quarter of 1996, the Company recorded an after tax gain of
$246,000, or $.05 per share, related to the partial reversal of a
1994 accrual.provided cash for senior debt payments.
Forward-Looking Statements
Certain statements made in this report 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 negative thereof or other variations thereon
or comparable terminology.terminology, or by discussions of strategy. These statements
reflect the Company's reasonable judgment with respect to future events and are
subject to risks and uncertainties that could cause
7
actual results to differ materially from those in the forward-lookingforward- 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.
New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share" effective for financial statements issued for periods ending
after December 15, 1997. The new standard specifies the
computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock. Since
early adoption of the standard is prohibited, the following pro
forma earnings per share amounts computed using the new standard
are presented below.
Three Months Ended Nine Months Ended
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
Basic earnings per share:
Continuing operations... $.76 $.56 $1.94 $1.25
Discontinued operations. .05 .05
Net income............ $.76 $.61 $1.94 $1.30
Diluted earnings per share:
Continuing operations... $.68 $.53 $1.77 $1.22
Discontinued operations. .05 .05
Net income............ $.68 $.58 $1.77 $1.27
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Fourth Amendment, dated February 24, 1998, 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.*
Exhibit 11. Schedule of Computation of Earnings Per
Share.*
Exhibit 27. Financial Data Schedule.*
(b) Reports on Form 8-K
A report on Form 8-K was filed on July 9, 1997, to
disclose the repurchase of 750,000 shares of the Company's
common stock from the ML-Lee Acquisition Fund, L.P. and
its affiliates.None.
* Filed herewith.
8
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: OctoberApril 14, 19971998 By: /s/ Douglas I. Payne
-------------------------
Douglas I. Payne
Sr. Vice PresidentV.P. - Finance &and
Administration,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
9