UNITED STATES
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 April 1, 2000 or
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------- Transition report pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934
For the transition period from to .
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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
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(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 April 8, 2000.
Class Number
Common Stock, par value $.02 per share 7,339,071 Shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
April 1, December 31,
2000 1999
-------- --------
ASSETS
Current assets:
Cash......................................................... $ 1,368 $ 3,597
Accounts receivable, less allowances of $2,264 and $2,050.... 38,521 32,133
Inventories:
Finished goods............................................. 23,674 22,393
Work-in-process............................................ 9,602 8,432
Raw materials.............................................. 15,448 12,755
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48,724 43,580
Prepaid expenses and other current assets.................... 595 1,011
Deferred income taxes........................................ 2,463 2,463
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Total current assets....................................... 91,671 82,784
Property, plant and equipment, net............................. 72,490 72,100
Goodwill, less accumulated amortization of $3,780 and $3,696... 9,660 9,744
Other assets................................................... 5,583 5,894
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$179,404 $170,522
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt......................... $ 5,236 $ 5,236
Accounts payable............................................. 23,452 25,836
Accrued salaries, wages and benefits......................... 11,685 10,864
Other accrued expenses....................................... 4,027 2,317
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Total current liabilities.................................. 44,400 44,253
Long-term debt, exclusive of current maturities................ 39,218 33,168
Deferred income taxes.......................................... 11,072 11,072
Other long-term liabilities.................................... 2,456 2,456
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Total liabilities............................................ 97,146 90,949
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STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
7,339,071 and 7,113,655 issued and outstanding.............. 147 142
Capital in excess of par value................................. 35,748 35,064
Retained earnings.............................................. 49,416 44,367
Stock option loans............................................. (3,053)
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Total stockholders' equity................................... 82,258 79,573
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$179,404 $170,522
======== ========
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 Ended
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April 1, March 27,
2000 1999
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Net sales...................................................... $70,973 $63,661
Cost of sales.................................................. 53,623 47,615
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Gross profit................................................. 17,350 16,046
Selling, general and administrative expenses................... 8,365 8,241
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Operating income............................................. 8,985 7,805
Other expense (income), net.................................... (25) 177
Interest expense............................................... 932 873
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Income before income taxes................................... 8,078 6,755
Income taxes................................................... 3,029 2,567
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Net income................................................... $ 5,049 $ 4,188
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Earnings per share:
Basic........................................................ $ .71 $ .59
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Diluted...................................................... $ .66 $ .54
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Weighted average shares outstanding:
Basic........................................................ 7,142 7,089
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Diluted...................................................... 7,597 7,816
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The accompanying notes are an integral part of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
--------------------------
April 1, March 27,
2000 1999
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Cash flows from operating activities:
Cash received from customers................................... $ 64,494 $ 58,337
Cash paid to suppliers and employees........................... (64,496) (55,282)
Interest paid.................................................. (829) (924)
Income taxes received (paid), net.............................. (648) 376
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Net cash provided (used) by operating activities............. (1,479) 2,507
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Cash flows from investing activities:
Capital expenditures........................................... (4,807) (2,261)
Purchase of other assets....................................... (28)
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Net cash used by investing activities........................ (4,807) (2,289)
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Cash flows from financing activities:
Proceeds from revolving credit facility, net................... 10,336
Repayment of senior notes...................................... (4,286) (4,285)
Purchase and retirement of common stock........................ (2,002) (183)
Proceeds from exercised stock options.......................... 9 278
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Net cash provided (used) by financing activities............. 4,057 (4,190)
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Net decrease in cash........................................... (2,229) (3,972)
Cash at beginning of year...................................... 3,597 6,791
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Cash at end of quarter....................................... $ 1,368 $ 2,819
======== ========
Reconciliation of net income to net cash provided (used)
by operating activities:
Net income..................................................... $ 5,049 $ 4,188
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................................ 1,863 1,493
Loss on sale of assets....................................... 106
Changes in assets and liabilities:
Accounts receivable........................................ (6,388) (5,117)
Inventories................................................ (5,143) 343
Prepaid expenses and other current assets, net............. 64 (34)
Accounts payable........................................... 316 (1,386)
Accrued salaries, wages and benefits....................... (93) (217)
Other accrued expenses..................................... 2,718 3,000
Other assets............................................... 135 131
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Net cash provided (used) by operating activities............... $ (1,479) $ 2,507
======== ========
The accompanying notes are an integral part of the financial statements.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In 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. Operating results
for the interim period reported herein may not be indicative of the results
expected for the year. 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)
April 1, December 31,
2000 1999
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Land and buildings.................................... $ 40,067 $ 35,871
Machinery and equipment............................... 74,269 62,120
Office fixtures and equipment......................... 1,742 1,732
Construction in progress.............................. 1,280 15,528
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Property, plant and equipment, at cost.............. 117,358 115,251
Less accumulated depreciation......................... 44,868 43,151
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Property, plant and equipment, net.................. $ 72,490 $ 72,100
======== ========
3. Long-Term Debt
(Unaudited)
April 1, December 31,
2000 1999
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7.28% senior notes due March 15, 2004................. $17,143 $21,429
7.57% senior note due June 30, 2005................... 6,975 6,975
7.43% senior notes due November 18, 2007.............. 10,000 10,000
Revolving credit facility............................. 10,336
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Total............................................... 44,454 38,404
Less current maturities............................... 5,236 5,236
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Long-term debt, exclusive of current maturities...... $39,218 $33,168
======= =======
In March 2000, the Revolving Credit Facility was amended to increase available
borrowings from $25 million to $35 million.
4. Stock Option Plan
The Company maintains a Stock Option Plan under which holders of exercisable
stock options may obtain interest-bearing loans from the Company to facilitate
their exercise of stock options. Such loans are evidenced by promissory notes
and are collateralized by the shares of stock. As of April 1, 2000,
approximately $3.1 million in stock option loans are outstanding.
5. Earnings Per Common Share
Basic earnings per common share are based upon the weighted average shares
outstanding. Outstanding stock options are treated as common stock equivalents
for purposes of computing diluted earnings per share. Basic and diluted earnings
per share are calculated using the following share data (unaudited):
April 1, March 27,
2000 1999
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Weighted average shares outstanding for basic
calculation....................................... 7,142 7,089
Add: Effect of stock options......................... 455 727
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Weighted average shares outstanding,
adjusted for diluted calculation............... 7,597 7,816
===== =====
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales increased $7.3 million, or 11.5%, for the three month period ended
April 1, 2000, from the comparable 1999 period. The increase was due primarily
to higher unit volume in the Company's bedroom and Young America(TM) youth
bedroom product lines. During 1999, the Company completed expansion projects to
increase production in response to the growing demand for these product lines.
During the first quarter of 2000, the Company commenced operations at its new
manufacturing facility in response to the growing demand for home office
furniture. This facility should provide $50-$60 million of sales capacity on an
annualized basis when in full production in two to three years.
Gross profit margin for the three months of 2000 decreased to 24.4% from 25.2%
for the comparable 1999 period. The decrease resulted primarily from start-up
expenses associated with the new facility dedicated to the production of home
office furniture, partially offset by improved operating efficiencies at other
manufacturing facilities and stable raw material cost.
Selling, general and administrative expenses as a percentage of net sales
decreased to 11.8% for the 2000 period from 12.9% in the comparable 1999 period.
The lower percentage was due principally to higher net sales in the 2000 period.
As a result of the above, operating income increased to $9.0 million, or 12.7%
of net sales, from $7.8 million, or 12.3% of net sales in the comparable 1999
period.
Interest expense for the three-month period of 2000 approximates the comparable
1999 period.
The Company's effective income tax rate was 37.5% for the 2000 three-month
period and 36.9% for the total year 1999. The lower 1999 percentage was due to
state income tax credits related to expansion projects.
Financial Condition, Liquidity and Capital Resources
The Company used cash from operations of $1.5 million in the 2000 first quarter
compared to cash generated from operations of $2.5 million in the 1999 period.
Cash was required to fund start-up of the new facility, increased production
levels at other facilities and increased tax payments. These items were
partially offset by increased receipts due to higher sales. The Company used the
cash generated from operations in the 1999 period to fund capital requirements
and reduce borrowings.
Net cash used by investing activities was $4.8 million in the 2000 period
compared to $2.3 million in the 1999 period. Net cash used for capital
expenditures in the 2000 period was $4.8 million. This amount reflects $2.7
million of prior year capital expenditures included in accounts payable at
December 31, 1999 and $2.1 million of capital expenditures in the 2000 period.
Capital expenditures in each year were primarily for plant and equipment and
other assets in the normal course of business. Capital expenditures in 2000 are
anticipated to be approximately $6-$7 million.
Net cash provided by financing activities was $4.1 million in the 2000 period
compared to cash used by financing activities of $4.2 million in the 1999
period. In the 2000 period, borrowings under the revolving credit facility
provided cash for operating activities, senior debt payments, capital
expenditures and the purchase and retirement of the Company's common stock.
During the three months ended April 1, 2000, the Company purchased 112,000
shares of its stock on the open market at an average price of $17.875. Since
October 1998, the Company has utilized $12.3 million, of the $20.0 million
authorization, to purchase a total of 653,750 shares of its common stock at an
average price of $18.758 per share.
At April 1, 2000, long-term debt including current maturities was $44.5 million.
Debt service requirements are $950,000 remaining in 2000, $6.7 million in 2001,
$17.2 million in 2002, $6.9 million in 2003, and $7.0 million in 2004. In March
2000, the Revolving Credit Facility was amended to increase available borrowings
from $25.0 million to $35.0 million. As of April 1, 2000, approximately $23.7
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.
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, 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 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,
delays in planned expansions and general economic conditions.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Sixth Amendment, dated March 30, 2000, to the
Second Amended and Restated Revolving Credit Facility
and Term Loan Agreement dated February 15, 1994, among
the Registrant, National Bank of Canada. (1)
Exhibit 10.2 Seventh Amendment, dated March 31, 2000, to the
Second Amended and Restated Revolving Credit Facility
and Term Loan Agreement dated February 15, 1994, among
the Registrant, National Bank of Canada. (1)
Exhibit 27 Financial Data Schedule. (1)
(b) Reports on Form 8-K
None.
(1) 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: April 18, 2000 By: /s/ Douglas I. Payne
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Douglas I. Payne
Sr. V.P. - Finance & Administration,
Secretary and Treasurer
(Principal Financial and Accounting Officer)