UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
Commission file number 0-14938
STANLEY FURNITURE COMPANY, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 54-1272589
------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1641 Fairystone Park Highway, Stanleytown, VA 24168
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (540) 627-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.02 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes (x) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant based on the closing price on January 31, 2001: $153 million
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of January 31, 2001:
Common Stock, par value $.02 per share 6,596,436
- -------------------------------------- ----------------
(Class of Common Stock) Number of Shares
Documents incorporated by reference: Portions of the Registrant's Proxy
Statement for its Annual Meeting of Stockholders scheduled for April 25, 2001
are incorporated by reference into Part III.
TABLE OF CONTENTS
Part I Page
Item 1 Business........................................................ 3
Item 2 Properties...................................................... 6
Item 3 Legal Proceedings............................................... 6
Item 4 Submission of Matters to a Vote of Security Holders............. 6
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 8
Item 6 Selected Financial Data......................................... 9
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 10
Item 7A Quantitative and Qualitative Disclosures about Market Risks..... 12
Item 8 Financial Statements and Supplementary Data..................... 13
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 13
Part III
Items 10 through 13....................................................... 13
Part IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K.. 13
Signatures .............................................................. 18
Index to Financial Statements and Schedule................................ F-1
Stanley Furniture Company, Inc.
PART I
Item 1. Business
General
The Company is a leading designer and manufacturer of residential wood
furniture exclusively targeted at the upper-medium price range. The Company
offers diversified product lines across all major style and product categories
within this price range. Its product depth and extensive style selections make
the Company a complete wood furniture resource for retailers in its price range
and allow the Company to respond more quickly to shifting consumer preferences.
The Company has established a broad distribution network that includes
independent furniture stores, department stores, and national and regional
furniture chains. To produce its products and support its broad distribution
network, the Company has developed efficient and flexible manufacturing
processes that it believes are unique in the furniture industry. The Company
emphasizes continuous improvement in its manufacturing processes to enable it to
continue providing competitive advantages to its customers, such as quick
delivery, reduced inventory investment, high quality, and value.
Products and Styles
The Company's product lines cover all major design categories, and include
collections (dining room, bedroom, tables and entertainment units), youth
bedroom (Young AmericaTM) and home office furniture. The Company believes that
the diversity of its product lines enables it to anticipate and respond quickly
to changing consumer preferences and provides retailers a complete wood
furniture resource in the upper-medium price range. The Company intends to
continue developing its product styles with particular emphasis on home office
and youth bedroom. The Company believes that its products represent good value
and that the quality and style of its furniture compare favorably with more
premium-priced products.
The Company provides products in a variety of woods, veneers, and
finishes. The number of styles by product line currently marketed by the Company
is set forth in the following table:
Number of Styles
----------------
Collections:
Dining room..................................................... 17
Bedroom......................................................... 17
Tables.......................................................... 12
Entertainment units............................................. 9
Youth bedroom (Young America(TM))................................ 14
Home office...................................................... 8
These product lines cover all major design categories including European
traditional, contemporary/transitional, American traditional, and country/casual
designs.
The Company designs and develops new product styles each year to replace
discontinued items or styles and, if desired, to expand product lines. The
Company's product design process begins with marketing personnel identifying
customer needs and conceptualizing product ideas, which generally consist of a
group of related furniture pieces. A variety of sketches are produced, usually
by Company designers, from which prototype furniture pieces are built. The
Company's engineering department then prepares the prototype for actual
full-scale production. The Company consults with its marketing personnel, sales
representatives, and selected customers throughout this process and introduces
its new product styles at the fall and spring international furniture markets.
Distribution
The Company has developed a broad domestic and international customer base
and sells its furniture through approximately 70 independent sales
representatives to independent furniture retailers, department stores and
regional chain stores. Representative customers include Homelife, Rooms To Go,
Furnitureland South, Breuners Home Furnishings, Jordan's, Robb & Stucky,
Nebraska Furniture Mart and Wickes. The Company believes this broad network
reduces its exposure to regional recessions, and allows it to capitalize on
emerging channels of distribution. The Company offers tailored marketing
programs to address each channel of distribution.
The general marketing practice followed in the furniture industry is to
exhibit products at international and regional furniture markets. In the spring
and fall of each year, an eight-day furniture market is held in High Point,
North Carolina, which is attended by most buyers and is regarded by the industry
as the international market. The Company utilizes approximately 60,000 square
feet of showroom space at the High Point market to introduce new products,
increase sales of its existing products, and test ideas for future products.
The Company has sold to approximately 3,200 customers during 2000, and
approximately 6% of the Company's sales in 2000 were to international customers.
No single customer accounted for more than ten percent of the Company's sales in
2000. No material part of the Company's business is dependent upon a single
customer, the loss of which would have a material effect on the business of the
Company. The loss of several of the Company's major customers could have a
material impact on the business of the Company.
Manufacturing
The Company's manufacturing operations complement its product and
distribution strategy by emphasizing continuous improvement in quality and
customer responsiveness while reducing costs. The Company's manufacturing
processes produce smaller, more frequent and cost-effective runs. The Company
focuses on identifying and eliminating manufacturing bottlenecks and waste,
employing statistical process control and, in turn, adjusting manufacturing
schedules on a daily basis, using cellular manufacturing in the production of
components, and improving its relationships with suppliers by establishing
primary supplier relationships. In addition, a key element of the Company's
manufacturing processes is to involve all Company personnel, from hourly
associates to management, in the improvement of the manufacturing processes by
encouraging and responding to ideas to improve quality and to reduce
manufacturing lead times.
The Company operates manufacturing facilities in North Carolina and
Virginia consisting of an aggregate of more than 3.6 million square feet. The
Company considers its present equipment to be generally modern, adequate and
well maintained.
The Company schedules production of its various styles based upon actual
and anticipated orders. The Company's manufacturing processes enable it to fill
orders through manufacturing rather than inventory. As a result, the Company
shipped customer orders within 24 days on average during 2000 with average
finished goods inventory turns of 7.6. Since the Company ships customer orders
on average in about three weeks, management believes that the size of its
backlog is not necessarily indicative of its long-term operations. During
December 2000, the Company shipped customer orders in 17 days on average
compared to 30 days in December 1999. As a result, the backlog of unshipped
orders was $15.1 million at December 31, 2000 compared to $28.6 million at
December 31, 1999.
Raw Materials
The principal materials used by the Company in manufacturing its products
include lumber, veneers, plywood, particle board, hardware, glue, finishing
materials, glass products, laminates, fabrics and metals. The Company uses a
variety of species of lumber, including cherry, oak, ash, poplar, pine and
maple. The Company's five largest suppliers accounted for approximately 16% of
its purchases in 2000. The Company believes that its sources of supply for these
materials are adequate and that it is not dependent on any one supplier.
Competition
The Company is the fourteenth largest furniture manufacturer in North
America based on 1999 sales, according to Furniture/Today, a trade publication.
The furniture industry is highly competitive and includes a large number of
foreign and domestic manufacturers, none of which dominates the market. In
addition, competition has increased from foreign manufacturers in countries such
as China with lower production costs. The markets in which the Company competes
include a large number of relatively small manufacturers; however, certain
competitors of the Company have substantially greater sales volumes and
financial resources than the Company. Competitive factors in the upper-medium
price range include style, price, quality, delivery, design, service, and
durability. The Company believes that its manufacturing processes, its
long-standing customer relationships and customer responsiveness, its consistent
support of existing diverse product lines that are high quality and good value,
and its experienced management are competitive advantages.
Associates
At December 31, 2000, the Company employed approximately 3,350 associates.
None of the Company's associates is represented by a labor union. The Company
considers its relations with its associates to be good.
Trademarks
The trade names of the Company represent many years of continued business,
and the Company believes such names are well recognized and associated with
quality in the furniture industry. The Company owns a number of trademarks, none
of which is considered to be material to the Company.
Governmental Regulations
The Company is subject to federal, state, and local laws and regulations
in the areas of safety, health, and environmental pollution controls. Compliance
with these laws and regulations has not in the past had any material effect on
the Company's earnings, capital expenditures, or competitive position; however,
the effect of such compliance in the future cannot be predicted. Management
believes that the Company is in material compliance with applicable federal,
state, and local safety, health and environmental regulations.
Forward-Looking Statements
Certain statements made in this Annual Report on Form 10-K are not based
on historical facts, but are forward-looking statements. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the 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 and general economic conditions.
Item 2. Properties
Set forth below is certain information with respect to the Company's
principal properties. The Company believes that all these properties are well
maintained and in good condition. All Company plants are equipped with automatic
sprinkler systems and modern fire protection equipment, which management
believes are adequate. All facilities set forth below are active and
operational. The Company believes its manufacturing facilities are being
efficiently utilized and each facility is focused on specific product lines to
optimize efficiency. The Company estimates that its facilities, excluding the
Martinsville, Virginia factory, are presently operating at 90% capacity,
principally on a one-shift basis. The Martinsville, Virginia factory began
production in early 2000 and is operating at 50-60% of its anticipated annual
sales capacity of $50-60 million.
Approximate Owned
Facility Size or
Location Primary Use (Square Feet) Leased
-------- ----------- ------------- ------
Stanleytown, VA Manufacturing 1,721,000 Owned
and Corporate
Headquarters
Martinsville, VA Manufacturing 300,000 Owned
West End, NC Manufacturing 470,000 Owned(1)
Lexington, NC Manufacturing 635,000 Owned
Robbinsville, NC Manufacturing 540,000 Owned
High Point, NC Showroom 63,000 Leased(2)
- ------------------------------------
(1) This plant leases its lumber yard; lease expires May 31, 2007.
(2) Lease expires October 31, 2004.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The Company's executive officers and their ages as of January 1, 2001 are
as follows:
Name Age Position
Albert L. Prillaman........... 55 Chairman, President and Chief
Executive Officer
John W. Johnson ............ 56 Senior Vice President-Manufacturing
Douglas I. Payne ............ 42 Senior Vice President -
Finance and Administration,
and Secretary
William A. Sibbick............ 44 Senior Vice President -Sales
Kelly S. Cain ............... 46 Senior Vice President -
Product Development
and Merchandising
Albert L. Prillaman has been President and Chief Executive Officer of the
Company since December 1985 and Chairman of the Board of Directors since
September 1988. Prior to that time, Mr. Prillaman served as a Vice President of
the Company and President of the Stanley Furniture division of the Company's
predecessor since 1983, and in various executive and other capacities with the
Stanley Furniture division of the predecessors of the Company since 1969. Mr.
Prillaman is a director of American Woodmark Corporation.
John W. Johnson has been Senior Vice President-Manufacturing since
December 1998. He was Vice President of Manufacturing from November 1984 until
December 1998. Prior to that time, Mr. Johnson held various management positions
related to manufacturing since his employment by the Company in 1966.
Douglas I. Payne has been Senior Vice President-Finance and Administration
since December 1996. He was Vice President of Finance and Treasurer of the
Company from September 1993 to December 1996. Prior to that time, Mr. Payne held
various financial management positions since his employment by the Company in
1983. Mr. Payne has been Secretary of the Company since 1988.
William A. Sibbick has been Senior Vice President-Sales since December
1997. He was Vice President-Product Development and Merchandising-Dining Room
and Occasional from December 1996 to December 1997. He was Vice President -
Product Development and Merchandising from April 1995 until December 1996. Prior
to that time, Mr. Sibbick held various management positions related to product
development since his employment by the Company in 1989.
Kelly S. Cain has been Senior Vice President-Product Development and
Merchandising since December 1997. He was Vice President-Product Development and
Merchandising for bedroom product lines from December 1996 to December 1997. He
was Vice President-Sales National Accounts from April 1993 to December 1996.
Prior to that time, Mr. Cain held various management positions in sales and
marketing since his employment by the Company in 1985.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
The Company's common stock is quoted on The Nasdaq Stock Market ("Nasdaq")
under the symbol STLY. The table below sets forth the high and low sales prices
per share, for the periods indicated, as reported by Nasdaq.
High Low
2000
First Quarter............. $20.25 $15.13
Second Quarter............ 24.00 18.88
Third Quarter............. 28.50 21.25
Fourth Quarter............ 25.88 20.19
1999
First Quarter............. $22.63 $16.50
Second Quarter............ 23.63 19.00
Third Quarter............. 24.50 18.75
Fourth Quarter............ 22.25 17.00
As of January 31, 2001, there were approximately 2,500 beneficial stockholders.
To date the Company has retained all earnings to finance the growth and
development of its business. However, the Company will continue to evaluate its
dividend policy, and any future payments will depend upon the financial
condition, capital requirements and earnings of the Company, as well as other
factors that the Board of Directors may deem relevant. The Company's ability to
pay dividends is restricted under certain loan covenants. See Note 3 of the
Notes to Financial Statements.
Item 6. Selected Financial Data
Years Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
Income Statement Data:
Net sales.................................. $283,092 $264,717 $247,371 $211,905 $201,905
Cost of sales.............................. 214,499 196,631 186,931 159,453 153,332
-------- -------- -------- -------- --------
Gross profit............................. 68,593 68,086 60,440 52,452 48,573
Selling, general and administrative
expenses................................. 33,656 33,796 32,496 29,949 30,403
-------- -------- -------- -------- --------
Operating income........................... 34,937 34,290 27,944 22,503 18,170
Other expense (income), net ............... (82) 388 411 276 616
Interest expense........................... 4,003 3,478 4,164 3,538 3,344
-------- -------- -------- -------- --------
Income from continuing operations
before income taxes.................... 31,016 30,424 23,369 18,689 14,210
Income taxes............................... 11,476 11,211 8,886 7,102 5,470
-------- -------- -------- -------- --------
Income from continuing operations........ $ 19,540 $ 19,213 $ 14,483 $ 11,587 $ 8,740
======== ======== ======== ======== ========
Basic Earnings Per Share:(1)
Income from continuing operations.......... $ 2.76 $ 2.70 $ 2.07 $ 1.38 $ .92
======== ======== ======== ======== ========
Weighted average shares(2)................. 7,076 7,119 7,008 8,394 9,444
======== ======== ======== ======== ========
Diluted Earnings Per Share:(1)
Income from continuing operations.......... $ 2.63 $ 2.47 $ 1.82 $ 1.25 $ .88
======== ======== ======== ======== ========
Weighted average shares(2)................. 7,429 7,770 7,963 9,278 9,890
======== ======== ======== ======== ========
Balance Sheet and Other Data:
Cash....................................... $ 1,825 $ 3,597 $ 6,791 $ 756 $ 8,126
Inventories................................ 54,423 43,580 46,514 45,730 40,239
Working capital............................ 53,759 38,531 44,408 41,440 46,225
Total assets............................... 179,206 170,522 154,374 143,225 141,510
Long-term debt including
current maturities (2) .................. 52,169 38,404 43,539 52,577 39,350
Stockholders' equity (2)(3)................ 79,477 79,573 62,368 48,247 61,617
Capital expenditures(4).................... 6,068 25,566 6,680 4,076 3,599
(1) Amounts have been retroactively adjusted to reflect a two-for-one stock
split, distributed in the form of a stock dividend, on May 15, 1998.
(2) The Company purchased 869,400, 226,750, 315,000 and 2,326,402 shares of
its common stock for a total consideration of $19.8 million, $4.7 million,
$5.6 million and $25.3 million in 2000, 1999, 1998 and 1997, respectively.
In 1998, the Company issued 103,400 shares to the Stanley Retirement Plan.
(3) No dividends have been paid on the Company's common stock during any of
the years presented.
(4) In 1999, the Company spent $10 million on expansion projects at existing
facilities and $15 million to purchase and equip a new facility.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Selected
Financial Data and the Financial Statements and Notes thereto contained
elsewhere herein.
Results of Operations
The following table sets forth the percentage relationship to net sales of
certain items included in the Statements of Income:
For the Years Ended
December 31,
----------------------------------
2000 1999 1998
---- ---- ----
Net sales............................... 100.0% 100.0% 100.0%
Cost of sales........................... 75.8 74.3 75.6
----- ----- -----
Gross profit.......................... 24.2 25.7 24.4
Selling, general and administrative
expenses.............................. 11.9 12.7 13.1
----- ----- -----
Operating income..................... 12.3 13.0 11.3
Other expense (income), net.............. (.1) .2 .1
Interest expense......................... 1.4 1.3 1.7
----- ----- -----
Income before income taxes............. 11.0 11.5 9.5
Income taxes............................. 4.1 4.2 3.6
----- ----- -----
Net income............................. 6.9% 7.3% 5.9%
===== ===== =====
2000 Compared to 1999
Net sales increased $18.4 million, or 6.9%, for 2000 compared to 1999. The
increase was due to higher unit volume in the Company's Young AmericaTM youth
bedroom and home office product categories, and to a lesser extent higher
average selling prices. Due to the softening U.S. economy, the Company
experienced a 5.2% decline in net sales for the fourth quarter of 2000 compared
to an exceptionally strong prior year quarter. The Company anticipates the
current economic slowdown to continue through the first half of 2001 and;
therefore, expects any sales growth to be modest to slightly below comparable
prior year periods.
Capacity constraints limited shipments during 1999. As a result, the
Company completed expansion projects during 1999 to increase production in
response to the growing demand for its bedroom and Young America(TM) youth
bedroom products. 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. The Company experienced consistent improvement in
operating performance at the new facility as production levels were increased
throughout 2000 and expects continued improvement in 2001.
Gross profit margin for 2000 decreased to 24.2% from 25.7% for 1999. The
decrease resulted primarily from start-up expenses at the new factory along with
operating inefficiencies created by a change in product mix at several other
factories as product was moved to the new facility, higher raw material cost and
increased labor cost.
Selling, general and administrative expenses as a percentage of net sales
decreased to 11.9% in 2000 from 12.7% for 1999. The lower percentage in 2000 was
due principally to higher net sales. Expenditures in 2000 were slightly lower
due primarily to reduced selling expenses.
As a result, operating income increased to $34.9 million, from $34.3
million in 1999. However, due to the above factors, operating income as a
percentage of net sales declined to 12.3% from 13.0% in 1999.
Interest expense for 2000 increased due to higher average debt levels
resulting from the Company's purchase of its stock and increased working capital
levels.
The Company's effective income tax rate was 37.0% and 36.9% for 2000 and
1999, respectively.
1999 Compared to 1998
Net sales increased $17.3 million, or 7.0%, for 1999 compared to 1998. The
Company ceased its upholstery operations in the second half of 1998. Excluding
upholstered product sales in 1998, wood furniture sales increased 9.1% for 1999.
The increase was due to higher unit volume and to a lesser extent higher average
selling prices. Capacity constraints limited shipments during 1999.
Gross profit margin for 1999 increased to 25.7% from 24.4% for 1998. The
increase resulted primarily from improved operating efficiencies and the
favorable impact in 1999 from the phase out of upholstered products in the prior
year.
Selling, general and administrative expenses as a percentage of net sales
were 12.7% and 13.1% for 1999 and 1998, respectively. The lower percentage in
1999 was due principally to higher net sales. Expenditures in 1999 were higher
due principally to selling expenses directly attributable to increased sales.
However, the majority of the increase was offset by the elimination of
expenditures related to upholstered products.
As a result of the above, operating income increased to $34.3 million, or
13.0% of net sales, from $27.9 million, or 11.3% of net sales, in 1998.
Interest expense for 1999 decreased due to lower average debt levels.
The Company's effective income tax rate declined to 36.9% for 1999 from
38.0% in 1998, due to state income tax credits related to expansion projects.
Financial Condition, Liquidity and Capital Resources
The Company generated cash from operations of $11.8 million in 2000
compared to $27.8 million in 1999 and $25.0 million in 1998. The decrease in
2000 compared to 1999 was attributable to increased inventory levels and higher
tax payments. The increase in 1999 compared to 1998 was due primarily to
increased sales. The Company used the cash generated from operations in 2000,
1999 and 1998 to fund capital expenditures and repurchase its common stock.
Net cash used by investing activities was $8.7 million in 2000 compared to
$23.0 million and $6.5 million in 1999 and 1998, respectively. Net cash used for
capital expenditures in 2000 was $8.8 million, reflecting $2.7 million of prior
year capital expenditures included in accounts payable at December 31, 1999 and
$6.1 million of capital expenditures in 2000. In 1999 capital expenditures were
primarily for capacity expansion projects. Approximately $10 million was used to
expand production capability for the Company's bedroom and Young America(TM)
youth bedroom products and approximately $15 million was used to purchase and
equip a facility dedicated to the production of home office furniture. This
dedicated facility began operation in the first quarter of 2000. The
expenditures in 2000, the remaining expenditures in 1999 and the expenditures in
1998 were primarily for plant and equipment and other assets in the normal
course of business. Capital expenditures in 2001 are anticipated to be
approximately $6-$7 million.
Net cash used by financing activities was $4.9 million, $7.9 million and
$12.5 million in 2000, 1999 and 1998, respectively. In 2000, cash from
operations and borrowings under the revolving credit facility provided cash for
the purchase and retirement of the Company's common stock, senior debt payments
and capital expenditures. In 1999, the purchase of common stock and the
reduction in borrowings were financed from operations, cash on hand and the
proceeds from the exercise of stock options. In 1998, the purchase of common
stock and the reduction in borrowings were financed by cash generated from
operations and the proceeds from the exercise of stock options.
The Company used $19.8 million of cash to purchase 869,400 shares of its
stock on the open market at an average price of $22.72 in 2000. For the three
years ending December 31, 2000, the Company has used $30.0 million of cash to
purchase 1.4 million shares of its stock on the open market at an average price
of $21.27. At December 31, 2000, approximately $10 million remains authorized by
the Company's Board of Directors to repurchase shares of the Company's common
stock. Consequently, the Company may, from time to time, either directly or
through agents, repurchase its common stock in the open market, through
negotiated purchases or otherwise, at prices and on terms satisfactory to the
Company. Depending on market prices and other conditions relevant to the
Company, such purchases may be discontinued at any time.
At December 31, 2000, long-term debt, including current maturities, was
$52.2 million. In March 2000, the revolving credit facility was amended to
increase available borrowings from $25.0 million to $35.0 million. Approximately
$14.4 million of additional borrowing capacity was available under the revolving
credit facility at December 31, 2000. Annual debt service requirements are $6.7
million in 2001, $6.8 million in 2002, $6.9 million in 2003, $7.0 million in
2004 and $2.8 million in 2005. The Company believes that its financial resources
are adequate to support its capital needs and debt service requirements.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. SAB 101 was
adopted in the fourth quarter of 2000 and did not have a material impact on the
Company's financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). In June 2000, the FASB issued Statement of Financial Accounting Standards
No. 138 ("SFAS 138"), an amendment of SFAS 133. Both provide guidance on
accounting for derivatives and hedging activities. At December 31, 2000, the
Company had no derivative or hedging activities, and any future activity is not
anticipated to have a material impact on the Company's financial statements.
Item 7A.Quantitative and Qualitative Disclosures about Market Risks
Because the Company's obligation under its Revolving Credit Facility bears
interest at a variable rate, the Company is sensitive to changes in prevailing
interest rates. A one-percentage point fluctuation in market interest rates
would not have had a material impact on earnings during the 2000 fiscal year.
Item 8. Financial Statements and Supplementary Data
The financial statements and schedule listed in Items 14(a)(1) and (a)(2)
hereof are incorporated herein by reference and are filed as part of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
In accordance with general instruction G(3) of Form 10-K, the information
called for by Items 10, 11, 12, and 13 of Part III is incorporated by reference
to the Registrant's definitive Proxy Statement for its Annual Meeting of
Stockholders scheduled for April 25, 2001, except for information concerning the
executive officers of the Registrant which is included in Part I of this report
under the caption "Executive Officers of the Registrant."
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
--------------------------------------------------------------
(a) Documents filed as a part of this Report:
(1) The following financial statements are included in this report on Form 10-K:
Report of Independent Accountants
Balance Sheets as of December 31, 2000 and 1999
Statements of Income for each of the three years in the period ended
December 31, 2000
Statements of Changes in Stockholders' Equity for each of the three years
in the period ended December 31, 2000
Statements of Cash Flows for each of the three years in the period ended
December 31, 2000
Notes to Financial Statements
(2) Financial Statement Schedule:
----------------------------
Schedule II - Valuation and Qualifying Accounts for each of the three
years in the period ended December 31, 2000
(b) The following reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report:
A report on Form 8-K was filed on December 13, 2000, to announce the
Company's Board of Directors' authorization to increase the Company's
stock repurchase program to $14.6 million and to comment on the
Registrant's fourth quarter and 2001 outlook.
(c) Exhibits:
3.1 The Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's Form 10-K
(Commission File No. 0-19938) for the year ended December 31, 1998).
3.2 The By-laws of the Registrant (incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1,
No. 33-7300).
3.3 Amendment adopted March 21, 1988 to the By-laws of the Registrant
(incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-K
(Commission File No. 0-14938) for the year ended December 31, 1987).
3.4 Amendments adopted February 8, 1993 to the By-laws of the Registrant
(incorporated by reference to Exhibit 3.4 to the Registrant's
Registration Statement on Form S-1 No. 33-57432).
4.1 The Certificate of Incorporation and By-laws of the Registrant as
currently in effect (incorporated by reference to Exhibits 3.1 through
3.4 hereto).
4.2 Note Agreement dated February 15, 1994 between the Registrant and the
Prudential Insurance Company of America (Incorporated by reference to
Exhibit 4.6 to the Registrant's Form 10-K (Commission File No. 0-14938)
for the year ended December 31, 1993).
4.3 Letter Amendment, dated October 14, 1996, to Note Agreements, dated
February 15, 1994 and June 29, 1995, between the Registrant and The
Prudential Insurance Company of America (incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-Q (Commission File No. 0-14938)
for the quarter ended September 29, 1996).
4.4 Letter Amendment, dated June 16, 1997, to Note Agreements, dated
February 15, 1994 and June 29, 1995, between the Registrant and The
Prudential Insurance Company of America (incorporated by reference to
Exhibit 4.1 to the Registrant's Statement on Form 8-K (Commission File
No. 0-14938) filed July 9, 1997).
4.5 Note Purchase and Private Shelf Agreement, dated as of June 29, 1995,
among the Company, The Prudential Insurance Company of America and the
affiliates of Prudential who become Purchasers as defined therein
(incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K
(Commission File No. 0-14938) filed December 2, 1997).
4.6 Amendment, dated as of May 10, 1999, to Note Agreements, dated February
15, 1994 and June 29, 1995, between the Registrant and The Prudential
Insurance Company of America (incorporated by reference to Exhibit 4.1
to the Registrant's Form 10-Q (Commission File No. 0-14938) for the
quarter ended June 26, 1999).
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments evidencing
long term debt less than 10% of the Registrant's total assets have been omitted
and will be furnished to the Securities and Exchange Commission upon request.
10.1 Employment Agreement made as of January 1, 1991 between Albert L.
Prillaman and the Company (incorporated by reference to Exhibit 10.1 to
the Registrant's Form 10-K (Commission File No. 0-14938)
for the year ended December 31, 1991).(2)
10.2 Lease dated February 23, 1987 between Stanley Interiors Corporation
and Southern Furniture Exposition Building, Inc. d/b/a Southern
Furniture Market Center (incorporated by reference to Exhibit 10.10 to
the Registrant's Form 10-K (Commission File No. 0-14938) for the year
ended December 31, 1987).
10.3 Lease dated June 30, 1987 between A. Allan McDonald, Virginia Cary
McDonald, C. R. McDonald, Dorothy V. McDonald, and Lillian S. McDonald,
as lessor, and Stanley Interiors Corporation, as lessee (incorporated
by reference to Exhibit 10.14 to the Registrant's Form 10-K
(Commission File No. 0-14938) for the year ended December 31, 1987).
10.4 The Stanley Retirement Plan, as restated effective January 1, 1989,
adopted April 20, 1995 (incorporated by reference to Exhibit 10.4 to
the Registrant's Form 10-K (Commission File No. 0-14938) for the year
ended December 31, 1995).(2)
10.5 Amendment No. 1, The Stanley Retirement Plan, effective December 31,
1995, adopted December 15, 1995 (incorporated by reference to Exhibit
10.5 to the Registrant's Form 10-K (Commission File No. 0-14938)
for the year ended December 31, 1995).(2)
10.6 Supplemental Retirement Plan of Stanley Furniture Company, Inc., as
restated effective January 1, 1993. (incorporated by reference to
Exhibit 10.8 to the Registrant's Form 10-K (Commission File
No. 0-14938) for the year ended December 31, 1993).(2)
10.7 First Amendment to Supplemental Retirement Plan of Stanley Furniture
Company, Inc., effective December 31, 1995, adopted December 15, 1995
(incorporated by reference to Exhibit 10.7 to the Registrant's Form
10-K (Commission File No. 0-14938) for the year ended December 31,
1995).(2)
10.8 Stanley Interiors Corporation Deferred Compensation Capital Enhancement
Plan, effective January 1, 1986, as amended and restated effective
August 1, 1987 (incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1(Commission File No.
0-14938), No. 33-7300).(2)
10.9 Split Dollar Insurance Agreement dated as of March 21, 1991 between
Albert L. Prillaman and the Registrant (incorporated by reference to
Exhibit 10.43 to the Registrant's Form 10-K (Commission File
No. 0-14938) for the year ended December 31, 1991).(2)
10.10 Second Amended and Restated Revolving Credit Facility and Term Loan
Agreement dated February 15, 1994 (the "Second Amended and Restated
Credit Facility") between the Registrant, National Canada Finance
Corp., and the National Bank of Canada (incorporated by reference to
Exhibit 10.17 to Registrant's Form 10-K (Commission File No. 0-14938)
for the year ended December 31, 1994).
10.11 First Amendment to Second Amended and Restated Credit Facility dated as
of August 21, 1995 (incorporated by reference to Exhibit 10.14 to
Registrant's Form 10-K (Commission File No. 0-14938) for the year ended
December 31, 1995).
10.12 1992 Stock Option Plan. (incorporated by reference to Registrant's
Registration Statement on Form S-8 No. 33-58396).(2)
10.13 1994 Stock Option Plan. (incorporated by reference to Exhibit 10.18 to
the Registrant's Form 10-K (Commission File No. 0-14938) for the year
ended December 31, 1994).(2)
10.14 1994 Executive Loan Plan. (incorporated by reference to Exhibit 10.19
to the Registrant's Form 10-K (Commission File No. 0-14938) for the
year ended December 31, 1994).(2)
10.15 Employment Agreement dated as of June 1, 1996, between Douglas I. Payne
and the Registrant (incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-Q (Commission File No. 0-14938) for the quarter
ended June 30, 1996).(2)
10.16 Amendment No. 1, dated as of October 1, 1996, to the Employment
Agreement, dated as of January 1, 1991, between the Registrant and
Albert L. Prillaman (incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-Q (Commission File No. 0-14938) for the quarter
ended September 29, 1996).(2)
10.17 Assignment and Transfer Agreement, dated as of October 8, 1996, between
National Canada Finance Corp. and National Bank of Canada relating to
the Second Amended and Restated Revolving Credit Facility (incorporated
by reference to Exhibit 10.1 to the Registrant's Form 10-Q (Commission
File No. 0-14938) for the quarter ended September 29, 1996).
10.18 Second Amendment, dated as of October 14, 1996, to the Second Amended
and Restated Revolving Credit Facility (incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-Q (Commission File No.
0-14938) for the quarter ended September 29, 1996).
10.19 Third Amendment, dated as of June 24, 1997, to the Second Amended and
Restated Revolving Credit Facility and Term Loan Agreement dated
February 15, 1994 between the Registrant, National Canada Finance
Corp., and the National Bank of Canada (incorporated by reference to
Exhibit 99.4 to the Registrant's Form 8-K (Commission File No. 0-14938)
filed July 9, 1997).
10.20 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 (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q (Commission File No.
0-14938) for the quarter ended March 28, 1998).
10.21 Fifth Amendment, dated as of March 10, 1999, to the Second Amended and
Restated Revolving Credit Facility and Term Loan Agreement dated
February 15, 1994 among the Registrant, National Canada Finance Corp.,
and the National Bank of Canada (incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-Q (Commission File No. 0-14938) for
the quarter ended March 27, 1999).
10.22 Employment Agreement dated as of April 1, 1999 between John W. Johnson
and the Registrant (incorporated by reference to Exhibit 10.2 to the
Registrant's Form 10-Q (Commission File No. 0-14938) for the quarter
ended March 27, 1999).(2)
10.23 Employment Agreement dated as of April 1, 1999 between William A.
Sibbick, Jr. and the Registrant (incorporated by reference to Exhibit
10.3 to the Registrant's Form 10-Q (Commission File No. 0-14938)
for the quarter ended March 27, 1999).(2)
10.24 Employment Agreement dated as of April 1, 1999 between Kelly S. Cain
and the Registrant (incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-Q (Commission File No. 0-14938) for the quarter
ended March 27, 1999).(2)
10.25 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
(incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-Q (Commission File No. 0-14938) for the quarter ended April 1,
2001).
10.26 Seventh Amendment, dated as of 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
(incorporated by reference to Exhibit 10.2 to the Registrant's Form
10-Q (Commission File No. 0-14938) for the quarter ended April 1,
2000).
10.27 2000 Incentive Compensation Plan (incorporate by reference to Exhibit A
to the Registrant's Proxy Statement (Commission File No. 0-14938) for
the special meeting of stockholders held on August 24, 2000).(2)
10.28 Amendment No. 2 to The Stanley Furniture Company, Inc. 1992 Stock
Option Plan dated as of July 1, 2000 (incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-Q (Commission File
No. 0-14938)for the quarter ended September 1, 2000).(2)
10.29 Amendment No. 1 to The Stanley Furniture Company, Inc. 1994 Stock
Option Plan dated as of July 1, 2000 (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-Q (Commission File
No. 0-14938)for the quarter ended September 1, 2000).(2)
21 Listing of Subsidiaries:
Charter Stanley Foreign Sales Corporation, a United States Virgin
Islands Corporation.
23 Consent of PricewaterhouseCoopers LLP(1)
- ------------------------------------
(1) Filed herewith
(2) Management contract or compensatory plan
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC.
February 5, 2001 By: /s/Albert L. Prillaman
-------------------------------
Albert L. Prillaman
Chairman, President, and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Albert L. Prillaman Chairman, President, and Chief February 5, 2001
- -------------------------- Executive Officer, and Director
(Albert L. Prillaman) (Principal Executive Officer)
/s/Douglas I. Payne Senior Vice President - Finance February 5, 2001
- -------------------------- and Administration and Secretary
(Douglas I. Payne) (Principal Financial and
Accounting Officer)
/s/Robert G. Culp, III Director February 5, 2001
- --------------------------
(Robert G. Culp, III)
/s/David V. Harkins Director February 5, 2001
- --------------------------
(David V. Harkins)
/s/Edward J. Mack Director February 5, 2001
- --------------------------
(Edward J. Mack)
/s/Thomas L. Millner Director February 5, 2001
- --------------------------
(Thomas L. Millner)
/s/T. Scott McIlhenny, Jr. Director February 5, 2001
- --------------------------
(T.Scott McIlhenny, Jr.)
STANLEY FURNITURE COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2000
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Financial Statements Page
Report of Independent Accountants.................................... F-2
Balance Sheets as of December 31, 2000 and 1999...................... F-3
Statements of Income for each of the three years in the period
ended December 31, 2000............................................ F-4
Statements of Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 2000.................. F-5
Statements of Cash Flows for each of the three years in the period
ended December 31, 2000............................................ F-6
Notes to Financial Statements........................................ F-7
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for each of the
three years in the period ended December 31, 2000.................. S-1
Report of Independent Accountants
To the Board of Directors and Stockholders of
Stanley Furniture Company, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Stanley
Furniture Company, Inc. at December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Richmond, Virginia
January 22, 2001
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(in thousands, except share data)
December 31,
-------------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash .......................................................... $ 1,825 $ 3,597
Accounts receivable, less allowances of $2,230 and $2,050...... 33,224 32,133
Inventories:
Finished goods............................................... 30,521 22,393
Work-in-process.............................................. 9,507 8,432
Raw materials................................................ 14,395 12,755
-------- --------
Total inventories.......................................... 54,423 43,580
Prepaid expenses and other current assets...................... 568 1,011
Deferred income taxes.......................................... 2,514 2,463
-------- --------
Total current assets......................................... 92,554 82,784
Property, plant and equipment, net............................... 70,455 72,100
Goodwill, less accumulated amortization of $4,032 and $3,696..... 9,408 9,744
Other assets..................................................... 6,789 5,894
-------- --------
Total assets................................................. $179,206 $170,522
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt........................... $ 6,714 $ 5,236
Accounts payable............................................... 19,507 25,836
Accrued salaries, wages and benefits........................... 10,779 10,864
Other accrued expenses......................................... 1,795 2,317
-------- --------
Total current liabilities.................................... 38,795 44,253
Long-term debt, exclusive of current maturities.................. 45,455 33,168
Deferred income taxes............................................ 10,860 11,072
Other long-term liabilities...................................... 4,619 2,456
-------- --------
Total liabilities.............................................. 99,729 90,949
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
6,596,436 and 7,113,655 shares issued and outstanding......... 132 142
Capital in excess of par value................................... 18,160 35,064
Retained earnings................................................ 63,907 44,367
Stock option loans............................................... (2,722)
-------- --------
Total stockholders' equity..................................... 79,477 79,573
-------- --------
Total liabilities and stockholders' equity.................. $179,206 $170,522
======== ========
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(in thousands, except per share data)
For the Years Ended
December 31,
-------------------------------------------
2000 1999 1998
-------- -------- --------
Net sales........................................ $283,092 $264,717 $247,371
Cost of sales.................................... 214,499 196,631 186,931
-------- -------- --------
Gross profit................................... 68,593 68,086 60,440
Selling, general and administrative expenses..... 33,656 33,796 32,496
-------- -------- --------
Operating income............................... 34,937 34,290 27,944
Other expense (income), net...................... (82) 388 411
Interest expense................................. 4,003 3,478 4,164
-------- -------- --------
Income before income taxes..................... 31,016 30,424 23,369
Income taxes..................................... 11,476 11,211 8,886
-------- -------- --------
Net income..................................... $ 19,540 $ 19,213 $ 14,483
======== ======== ========
Earnings per share:
Basic.......................................... $ 2.76 $ 2.70 $ 2.07
======== ======== ========
Diluted........................................ $ 2.63 $ 2.47 $ 1.82
======== ======== ========
Weighted average shares outstanding:
Basic........................................... 7,076 7,119 7,008
======== ======== ========
Diluted......................................... 7,429 7,770 7,963
======== ======== ========
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the three years in the period ended December 31, 2000
(in thousands)
Common Stock Capital in Stock
-------------------- Excess of Retained Option
Shares Amount Par Value Earnings Loans
------ ------ --------- -------- ------
Balance at January 1, 1998................ 6,866 $137 $37,439 $10,671
Purchase and retirement of stock.......... (315) (6) (5,547)
Issuance of stock to the Stanley
Retirement Plan......................... 103 2 1,872
Compensation expense and stock issuance
related to the executive loan plan...... 100 2 131
Exercise of stock options................. 316 6 3,178
Net income................................ 14,483
----- ---- ------- ------- ------
Balance at December 31, 1998............ 7,070 141 37,073 25,154
Purchase and retirement of stock.......... (227) (4) (4,704)
Exercise of stock options................. 271 5 2,695
Net income................................ 19,213
----- ---- ------- ------- -------
Balance at December 31, 1999............ 7,114 142 35,064 44,367
Purchase and retirement of stock.......... (870) (17) (19,739)
Exercise of stock options................. 352 7 2,835 $(3,078)
Stock option loan payments................ 356
Net income................................ 19,540
----- ---- ------- ------- -------
Balance at December 31, 2000............ 6,596 $132 $18,160 $63,907 $(2,722)
===== ==== ======= ======= ========
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended
December 31,
-------------------------------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Cash received from customers.................. $281,949 $261,566 $245,492
Cash paid to suppliers and employees.......... (255,058) (220,642) (209,030)
Interest paid................................. (4,013) (3,527) (4,228)
Income taxes paid, net........................ (11,033) (9,620) (7,211)
-------- -------- --------
Net cash provided by operating activities... 11,845 27,777 25,023
-------- -------- --------
Cash flows from investing activities:
Capital expenditures.......................... (8,768) (22,866) (6,680)
Other, net.................................... 42 (157) 191
-------- -------- --------
Net cash used by investing activities....... (8,726) (23,023) (6,489)
-------- -------- --------
Cash flows from financing activities:
Purchase and retirement of common stock....... (19,754) (4,708) (5,553)
Repayment of senior notes..................... (5,236) (5,135) (5,086)
Proceeds from (repayment of) revolving
credit facility, net........................ 19,001 (3,952)
Proceeds from exercise of stock options....... 459 1,299 1,556
Other, net.................................... 639 596 536
-------- -------- --------
Net cash used by financing activities....... (4,891) (7,948) (12,499)
-------- -------- --------
Net increase (decrease) in cash................. (1,772) (3,194) 6,035
Cash at beginning of year....................... 3,597 6,791 756
-------- -------- --------
Cash at end of year........................... $ 1,825 $ 3,597 $ 6,791
======== ======== ========
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
Stanley Furniture Company, Inc. (the "Company") is a leading designer and
manufacturer of wood furniture exclusively targeted at the upper-medium price
range of the residential market.
The Company operates in one business segment. Substantially all revenues
result from the sale of residential furniture products. Substantially all of the
Company's trade accounts receivable are due from retailers in this market, which
consists of a large number of entities with a broad geographical dispersion.
Revenue Recognition
Revenue is recognized upon shipment of product at which time risks and
rewards of ownership transfer to the buyer.
Inventories
Inventories are valued at the lower of cost or market. Cost for all
inventories is determined using the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed using the
straight-line method based upon the estimated useful lives. Gains and losses
related to dispositions and retirements are included in income. Maintenance and
repairs are charged to income as incurred; renewals and betterments are
capitalized.
Capitalized Software Cost
The Company amortizes certain purchased computer software costs using the
straight-line method over the economic lives of the related products not to
exceed five years. Unamortized cost at December 31, 2000 and 1999 was $579,000
and $815,000, respectively.
Goodwill and Long-lived Assets
Goodwill is being amortized on a straight-line basis over 40 years. The
Company continually evaluates the potential impairment of long-lived assets,
including goodwill, on the basis of whether the carrying value is fully
recoverable from projected, undiscounted net cash flows.
Income Taxes
Deferred income taxes are determined based on the difference between the
financial statement and income tax bases of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected to
reverse. Deferred tax expense represents the change in the deferred tax
asset/liability balance. Income tax credits are reported as a reduction of
income tax expense in the year in which the credits are generated.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Accounting Policies (continued)
Fair Value of Financial Instruments
The fair value of the Company's long-term debt is estimated using
discounted cash flow analysis based on the incremental borrowing rates currently
available to the Company for loans with similar terms and maturities. At
December 31, 2000, the fair value approximated the carrying amount. The fair
value of trade receivables, trade payables and letters of credit approximate the
carrying amount because of the short maturity of these instruments.
Pension Plans
The Company's funding policy is to contribute to all qualified plans
annually an amount equal to the normal cost and a portion of the unfunded
liability, but not to exceed the maximum amount that can be deducted for federal
income tax purposes.
Earnings per Common Share
Basic earnings per share is computed based on the average number of common
shares outstanding. Diluted earnings per share reflects the increase in average
common shares outstanding that would result from the assumed exercise of
outstanding stock options, calculated using the treasury stock method.
Stock Options
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for stock options and discloses the fair value of options granted as
permitted by Statement of Financial Accounting Standards No. 123.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Changes in such estimates may affect amounts reported in
future periods.
2. Property, Plant and Equipment
Depreciable
lives (in thousands)
(in years) 2000 1999
-------- ---- ----
Land and buildings......................... 20 to 50 $ 41,445 $35,871
Machinery and equipment.................... 5 to 12 75,869 62,120
Office furniture and equipment............. 3 to 10 1,829 1,732
Construction in progress................... 610 15,528
-------- -------
Property, plant and equipment, at cost... 119,753 115,251
Less accumulated depreciation.............. 49,298 43,151
-------- -------
Property, plant and equipment, net....... $ 70,455 $72,100
======== =======
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Long-Term Debt
(in thousands)
2000 1999
---- ----
7.28% Senior notes due March 15, 2004.................. $17,143 $21,429
7.57% Senior note due June 30, 2005.................... 6,025 6,975
7.43% Senior notes due November 18, 2007............... 10,000 10,000
Revolving credit facility.............................. 19,001
------- -------
Total................................................ 52,169 38,404
Less current maturities................................ 6,714 5,236
------- -------
Long-term debt, exclusive of current maturities...... $45,455 $33,168
======= =======
In March 2000, the Revolving Credit Facility was amended to increase
available borrowings from $25 million to $35 million through August 2002,
automatically renewable thereafter for one year periods unless terminated by
either party. Interest under the facility is payable monthly at prime (9.5% on
December 29, 2000) or, at the Company's option, the reserve adjusted LIBOR plus
.75% per annum (6.56% on December 29, 2000). The Company utilizes letters of
credit to collateralize certain insurance policies and inventory purchases.
Outstanding letters of credit at December 31, 2000 were $1.6 million. At
December 31, 2000, $14.4 million of additional borrowings were available under
the revolving credit facility.
The above loan agreements require the Company to maintain certain
financial covenants. The Company's ability to pay dividends with respect to the
common stock is restricted to $25.0 million plus 50% of the Company's
consolidated net earnings, adjusted for net cash proceeds received by the
Company from the sale of its stock and the amount of payments for redemption,
purchase or other acquisition of its capital stock, subsequent to January 1,
1999. At December 31, 2000, these covenants limit funds available to pay
dividends and repurchase the Company's common stock to $21.9 million.
Annual debt service requirements are $6.7 million in 2001, $6.8 million in
2002, $6.9 million in 2003, $7.0 million in 2004 and $2.8 million in 2005.
4. Income Taxes
The provision for income taxes consists of (in thousands):
2000 1999 1998
---- ---- ----
Current:
Federal................................... $10,623 $10,435 $8,558
State..................................... 1,116 881 1,292
------- ------- ------
Total current........................... 11,739 11,316 9,850
------- ------- ------
Deferred:
Federal................................... (233) (93) (852)
State..................................... (30) (12) (112)
------- ------- ------
Total deferred.......................... (263) (105) (964)
------- ------- ------
Income taxes.......................... $11,476 $11,211 $8,886
======= ======= ======
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. Income Taxes (continued)
A reconciliation of the difference between the federal statutory income
tax rate and the effective income tax rate follows:
2000 1999 1998
---- ---- ----
Federal statutory rate...................... 35.0% 35.0% 35.0%
State taxes, net of federal benefit......... 2.3 2.4 3.3
Goodwill.................................... .4 .4 .5
Life insurance.............................. (.6) (.5) (.6)
Tax savings from foreign sales
corporation............................... (.3) (.3) (.2)
Other, net.................................. .2 (.1)
----- ---- ----
Effective income tax rate................. 37.0% 36.9% 38.0%
==== ==== ====
The income tax effects of temporary differences that comprise deferred tax
assets and liabilities at December 31 follow (in thousands):
2000 1999
---- ----
Current deferred tax assets (liabilities):
Accounts receivable.................................. $ 568 $ 497
Inventory............................................ (23) 48
Employee benefits.................................... 1,944 1,903
Other accrued expenses............................... 25 15
------- -------
Net current deferred tax asset..................... $ 2,514 $ 2,463
======= =======
Noncurrent deferred tax liabilities:
Property, plant and equipment........................ $ 9,570 $10,201
Employee benefits.................................... 1,290 871
------- -------
Net noncurrent deferred tax liability.............. $10,860 $11,072
======= =======
5. Stockholders' Equity
The Company used $19.8 million of cash to purchase 869,400 shares of its
stock on the open market at an average price of $22.72 in 2000. For the three
years ending December 31, 2000, the Company has used $30.0 million of cash to
purchase 1.4 million shares of its common stock on the open market at an average
price of $21.27. At December 31, 2000, approximately $10.0 million remains of
the Board of Directors authorization to repurchase shares of the Company's
common stock.
In 1998, the Company contributed 103,400 shares of its common stock, with
a fair value of $1.9 million, to the Stanley Retirement Plan.
The Company effected a two-for-one stock split, distributed in the form of
a stock dividend on May 15, 1998, to stockholders of record on May 1, 1998. All
related amounts have been retroactively adjusted to reflect the stock split.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Stockholders' Equity (continued)
In addition to its common stock, the Company's authorized capital includes
1,000,000 shares of "blank check" preferred stock. None was outstanding during
the three years ended December 31, 2000. The Board of Directors is authorized to
issue such stock in series and to fix the designation, powers, preferences,
rights, limitations and restrictions with respect to any series of such shares.
Such "blank check" preferred stock may rank prior to common stock as to dividend
rights, liquidation preferences or both, may have full or limited voting rights
and may be convertible into shares of common stock.
Basic and diluted earnings per share are calculated using the following
share data (in thousands):
2000 1999 1998
---- ---- ----
Weighted average shares outstanding
for basic calculation.................... 7,076 7,119 7,008
Effect of stock options...................... 353 651 955
----- ----- -----
Weighted average shares outstanding
for diluted calculation............. 7,429 7,770 7,963
===== ===== =====
6. Employee Stock Plans
The Company's stock option plans provide for the granting of stock options
up to an aggregate of 2,400,000 shares of common stock to key employees. The
exercise price may not be less than the fair market value of the Company's
common stock on the grant date. Granted options vest 20% annually. At December
31, 2000, 605,002 shares were available for grant.
Activity for the three years ended December 31, 2000 follows:
Number Weighted-Average
of shares Exercise Price
--------- ----------------
Outstanding at January 1, 1998....................... 1,343,670 $ 4.95
Lapsed............................................. (36,400) 7.43
Exercised.......................................... (316,392) 4.95
Granted............................................ 43,000 17.75
---------
Outstanding at December 31, 1998..................... 1,033,878 5.47
Lapsed............................................. (5,000) 5.73
Exercised.......................................... (270,762) 4.80
Granted............................................ 5,700 19.13
---------
Outstanding at December 31, 1999..................... 763,816 5.82
Lapsed............................................. (5,000) 18.75
Exercised.......................................... (352,352) 4.98
Granted............................................ 400,000 24.88
---------
Outstanding at December 31, 2000..................... 806,464 $15.56
=========
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Employee Stock Plans (continued)
Summarized information regarding stock options outstanding and exercisable
at December 31, 2000 follows:
Outstanding Exercisable
------------------------------- -------------------
Range of Average Average Average
Exercise Price Shares Life Price Shares Price
-------------- ------- ------ ----- ------- -----
Up to $7 330,764 4.6 $ 4.7 330,764 $ 4.7
$7 to $10 32,000 6.0 8.5 32,000 8.5
$10 to $20 43,700 7.8 17.7 27,280 17.5
$20 to $30 400,000 10.0 24.9 92,000 25.0
------- ---- ----- ------- -----
806,464 7.5 $15.6 482,044 $ 9.5
======= ==== ===== ======= =====
The estimated per share weighted-average fair value of stock options
granted during 2000, 1999 and 1998 was $15.86, $12.73 and $11.78, respectively,
on the date of grant. A risk-free interest rate of 5.0%, 6.5% and 4.7% for 2000,
1999 and 1998, respectively, and a 50% volatility rate with an expected life of
10 years was assumed in estimating the fair value for all three years.
The following table summarizes the pro forma effects assuming compensation
cost for such awards had been recorded based upon the estimated fair value (in
thousands, except per share data):
2000 1999 1998
------------------- -------------------- -------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
Net income.......................... $19,540 $18,661 $19,213 $18,902 $14,483 $14,175
Basic earnings per share............ 2.76 2.64 2.70 2.65 2.07 2.02
Diluted earnings per share.......... 2.63 2.52 2.47 2.44 1.82 1.79
During 2000, the Company loaned, in a non-cash transaction, an
officer/director $2.6 million to purchase 330,420 shares of the Company's
common stock. This recourse note, is collaterized by the common stock purchased
and is payable on April 19, 2005, including accrued interest at 6.71% per
annum.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Employee Benefit Plans
Defined Contribution Plan
The Company maintains a defined contribution plan covering substantially
all of its employees and makes discretionary matching and profit sharing
contributions. The total plan cost, including employer contributions, was $1.6
million in 2000 and $1.5 million in both 1999 and 1998.
Pension Plans
Benefits do not accrue under the Company's pension plans after 1995. The
financial status of the plans at December 31 follows (in thousands):
2000 1999
--------------------------- ------------------------
Stanley Supple- Stanley Supple-
Retirement mental Retirement mental
Plan Plan Plan Plan
------- ------- ------- -------
Change in benefit obligation:
Beginning benefit obligation............... $14,539 $ 1,396 $17,963 $ 1,444
Interest cost.............................. 1,131 101 1,177 97
Actuarial loss (gain)...................... 588 86 (3,019) (111)
Benefits paid.............................. (2,358) (42) (2,740) (34)
Settlement cost............................ 507 1,158
------- ------- ------- -------
Ending benefit obligation.............. 14,407 1,541 14,539 1,396
------- ------- ------- -------
Change in plan assets:
Beginning fair value of plan assets........ 18,065 19,028
Actual return on plan assets............... 851 1,777
Employer contributions..................... 42 34
Benefits paid.............................. (2,358) (42) (2,740) (34)
------- ------- ------- -------
Ending fair value of plan assets....... 16,558 18,065
------- ------- ------- -------
Funded status.............................. 2,151 (1,541) 3,526 (1,396)
Unrecognized loss (gain)...................... 3,480 (25) 2,450 (111)
------- ------- ------- -------
Prepaid (accrued) pension costs........... $ 5,631 $(1,566) $ 5,976 $(1,507)
======= ======= ======= =======
At December 31, 2000, and 1999, the Stanley Retirement Plan assets
included Company stock with a fair value of $1.7 million and $1.9 million,
respectively.
Components of net periodic pension cost follow (in thousands):
2000 1999 1998
---- ---- ----
Interest cost.......................... $1,231 $1,274 $1,279
Expected return on plan assets......... (1,334) (1,411) (1,290)
Net amortization and deferral.......... 57 333 435
------ ------ ------
Net periodic benefit cost........... (46) 196 424
Settlement expense..................... 492 409 376
------ ------ ------
Total expense....................... $ 446 $ 605 $ 800
====== ====== ======
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Employee Benefit Plans (continued)
The assumptions used as of December 31 to determine the plans' financial
status and pension cost were:
2000 1999 1998
---- ---- ----
Discount rate for funded status............. 7.60% 8.00% 6.65%
Discount rate for pension cost.............. 8.00% 6.65% 7.00%
Return on assets............................ 7.50% 7.50% 7.50%
Postretirement Benefits Other Than Pensions
The Company provides health care benefits to eligible retired employees
between the ages of 55 and 65 and provides life insurance benefits to eligible
retired employees from age 55 until death. The plan's financial status at
December 31 follows (in thousands):
2000 1999
------- -------
Change in benefit obligation:
Beginning benefit obligation......................... $ 2,911 $ 3,568
Service cost......................................... 51 45
Interest cost........................................ 234 212
Actuarial (gain) loss................................ 436 (552)
Plan participants' contributions..................... 156 125
Benefits paid........................................ (636) (487)
------- -------
Ending benefit obligation........................ 3,152 2,911
------- -------
Change in plan assets:
Beginning fair value of plan assets..................
Employer contributions............................... 480 362
Plan participants' contributions..................... 156 125
Benefits paid........................................ (636) (487)
------- -------
Ending fair value of plan assets.................
------- -------
Funded status.......................................... (3,152) (2,911)
Unrecognized net loss.................................. 898 487
Unrecognized transition obligation..................... 1,564 1,694
------- -------
Accrued benefit cost................................. $ (690) $ (730)
======= =======
Components of net periodic postretirement benefit cost were (in
thousands):
2000 1999 1998
---- ---- ----
Service cost.................................... $ 51 $ 45 $ 44
Interest cost................................... 234 212 239
Amortization of transition obligation........... 130 130 130
Amortization and deferral....................... 25 32 41
---- ---- ----
Net periodic postretirement benefit cost.. $440 $419 $454
==== ==== ====
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Employee Benefit Plans (continued)
The weighted-average discount rates used in determining the actuarial
present value of the projected benefit obligation were 7.60%, 8.00% and 6.65%
for 2000, 1999 and 1998, respectively. The rate of increase in future health
care benefit cost used in determining the obligation for 2000 was 7.5% gradually
decreasing to 5.5% beginning in 2004, for 1999 was 8% gradually decreasing to
5.5% beginning in 2004 and for 1998 was 9% gradually decreasing to 5.5%
beginning in 2004.
An increase or decrease in the assumed health care cost trend rate of one
percentage point in each future year would affect the accumulated postretirement
benefit obligation at December 31, 2000, by approximately $80,000 and the annual
postretirement benefit cost by approximately $13,000.
Deferred Compensation
The Company has a deferred compensation plan, funded with life insurance
policies, which permits certain management employees to defer portions of their
compensation and earn a fixed rate of return. The accrued liabilities relating
to this plan of $1.5 million and $1.4 million at December 31, 2000 and 1999,
respectively, are included in accrued salaries, wages and benefits and other
long-term liabilities. The cash surrender value, net of policy loans, is
included in other assets.
8. Leases
The Company leases showroom space and certain other equipment. Rental
expenses charged to operations were $1.6 million, $1.5 million and $1.2 million
in 2000, 1999 and 1998, respectively. Future minimum lease payments are
approximately as follows: 2001 - $970,000; 2002 - $743,000; 2003 - $536,000; and
2004 - $476,000.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Supplemental Cash Flow Information
(in thousands)
2000 1999 1998
---- ---- ----
Net income............................................ $19,540 $19,213 $14,483
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation....................................... 7,546 5,801 5,328
Amortization....................................... 595 546 447
Deferred income taxes.............................. (263) (105) (964)
Other, net......................................... 86 140 555
Changes in assets and liabilities:
Accounts receivable.............................. (1,091) (2,992) (1,714)
Inventories...................................... (10,842) 2,933 (784)
Prepaid expenses and other current assets........ (1,852) (201) 315
Accounts payable................................. (3,629) 1,299 3,673
Accrued salaries, wages and benefits............. (999) (1,075) 2,125
Other accrued expenses........................... 564 1,710 1,760
Other assets..................................... 27 40 36
Other long-term liabilities...................... 2,163 468 (237)
------- ------- --------
Net cash provided by operating activities...... $11,845 $27,777 $ 25,023
======= ======= ========
10. Quarterly Results of Operations (Unaudited)
(in thousands, except per share data)
2000 Quarters: First Second Third Fourth
----- ------ ----- ------
Net sales............................ $70,973 $72,118 $71,440 $68,561
Gross profit......................... 17,350 17,808 17,492 15,943
Net income........................... 5,049 5,111 5,065 4,313
Net income per share:
Basic............................. $ .71 $ .70 $ .71 $ .64
Diluted........................... .66 .67 .68 .61
(in thousands, except per share data)
1999 Quarters: First Second Third Fourth
----- ------ ----- ------
Net sales............................ $63,661 $63,384 $65,319 $72,353
Gross profit......................... 16,046 16,444 17,116 18,480
Net income........................... 4,188 4,395 4,957 5,674
Net income per share:
Basic............................. $ .59 $ .62 $ .69 $ .80
Diluted........................... .54 .56 .64 .74
-----------------------------------
STANLEY FURNITURE COMPANY, INC.
SCHEDULE II - VALUATION AND QUALIFYING
ACCOUNTS For each of the Three Years in the Period
Ended December 31, 2000
(In thousands)
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------
Charged
Balance at (Credited) Balance
Beginning to Costs & at End of
Descriptions of Period Expenses Deductions Period
2000
Doubtful receivables.... $1,177 $549 $449(a) $1,277
Discounts, returns,
and allowances........ 873 80(b) 953
------ ---- ---- ------
$2,050 $629 $449 $2,230
====== ==== ==== ======
1999
Doubtful receivables.... $1,163 $270 $256(a) $1,177
Discounts, returns,
and allowances........ 743 130(b) 873
------ ---- ---- ------
$1,906 $400 $256 $2,050
====== ==== ==== ======
1998
Doubtful receivables.... $1,116 $435 388(a) $1,163
Discounts, returns,
and allowances........ 779 (36)(b) 743
------ ---- ---- ------
$1,895 $399 $388 $1,906
====== ==== ==== ======
- ------------------------------------
(a) Uncollectible receivables written off, net of recoveries.
(b) Represents net increase (decrease) in the reserve.
S-1