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 March 31, 2001 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)
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of April 12, 2001.
Class Number
Common Stock, par value $.02 per share 6,599,436 Shares
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
March 31, December 31,
2001 2000
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ASSETS
Current assets:
Cash......................................................... $ 787 $ 1,825
Accounts receivable, less allowances of $2,284 and $2,230.... 34,214 33,224
Inventories:
Finished goods............................................. 31,299 30,521
Work-in-process............................................ 10,305 9,507
Raw materials.............................................. 14,298 14,395
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55,902 54,423
Prepaid expenses and other current assets.................... 912 568
Deferred income taxes........................................ 2,514 2,514
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Total current assets....................................... 94,329 92,554
Property, plant and equipment, net............................. 69,663 70,455
Goodwill, less accumulated amortization of $4,116 and $4,032... 9,324 9,408
Other assets................................................... 6,648 6,789
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$179,964 $179,206
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LIABILITIES
Current liabilities:
Current maturities of long-term debt......................... $ 6,714 $ 6,714
Accounts payable............................................. 18,118 19,507
Accrued salaries, wages and benefits......................... 10,181 10,779
Other accrued expenses....................................... 3,991 1,795
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Total current liabilities.................................. 39,004 38,795
Long-term debt, exclusive of current maturities................ 42,640 45,455
Deferred income taxes.......................................... 10,651 10,860
Other long-term liabilities.................................... 4,612 4,619
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Total liabilities............................................ 96,907 99,729
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STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
6,599,436 and 6,596,436 issued and outstanding.............. 132 132
Capital in excess of par value................................. 17,653 18,160
Retained earnings.............................................. 67,972 63,907
Stock option loans............................................. (2,700) (2,722)
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Total stockholders' equity................................... 83,057 79,477
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$179,964 $179,206
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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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March 31, April 1,
2001 2000
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Net sales...................................................... $65,109 $70,973
Cost of sales.................................................. 49,836 53,623
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Gross profit................................................. 15,273 17,350
Selling, general and administrative expenses................... 7,833 8,365
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Operating income............................................. 7,440 8,985
Other income, net.............................................. 7 25
Interest expense............................................... 1,069 932
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Income before income taxes................................... 6,378 8,078
Income taxes................................................... 2,312 3,029
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Net income................................................... $ 4,066 $ 5,049
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Earnings per share:
Basic........................................................ $ .62 $ .71
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Diluted...................................................... $ .59 $ .66
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Weighted average shares outstanding:
Basic........................................................ 6,607 7,142
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Diluted...................................................... 6,906 7,597
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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
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March 31, April 1,
2001 2000
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Cash flows from operating activities:
Cash received from customers................................... $ 64,169 $ 64,494
Cash paid to suppliers and employees........................... (59,922) (64,496)
Interest paid.................................................. (937) (829)
Income taxes paid, net......................................... (257) (648)
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Net cash provided (used) by operating activities............. 3,053 (1,479)
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Cash flows from investing activities:
Capital expenditures........................................... (673) (4,807)
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Cash flows from financing activities:
Proceeds from revolving credit facility, net................... 1,472 10,336
Repayment of senior notes...................................... (4,286) (4,286)
Purchase and retirement of common stock........................ (873) (2,002)
Proceeds from exercised stock options.......................... 269 9
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Net cash provided (used) by financing activities............. (3,418) 4,057
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Net decrease in cash........................................... (1,038) (2,229)
Cash at beginning of year...................................... 1,825 3,597
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Cash at end of quarter....................................... $ 787 $ 1,368
======== ========
Reconciliation of net income to net cash provided (used) by operating
activities:
Net income..................................................... $ 4,066 $ 5,049
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization................................ 1,581 1,863
Deferred income taxes........................................ (209)
Loss on disposal of assets................................... 28
Changes in assets and liabilities:
Accounts receivable........................................ (990) (6,388)
Inventories................................................ (1,479) (5,143)
Prepaid expenses and other current assets, net............. (432) 64
Accounts payable........................................... (1,389) 316
Accrued salaries, wages and benefits....................... (598) (93)
Other accrued expenses..................................... 2,315 2,718
Other assets............................................... 167 135
Other long-term liabilities................................ (7)
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Net cash provided (used)by operating activities................ $ 3,053 $ (1,479)
======== ========
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)
March 31, December 31,
2001 2000
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Land and buildings.................................... $ 41,445 $ 41,445
Machinery and equipment............................... 76,720 75,869
Office fixtures and equipment......................... 1,829 1,829
Construction in progress.............................. 339 610
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Property, plant and equipment, at cost.............. 120,333 119,753
Less accumulated depreciation......................... 50,670 49,298
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Property, plant and equipment, net.................. $ 69,663 $ 70,455
======== ========
3. Long-Term Debt
(Unaudited)
March 31, December 31,
2001 2000
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7.28% senior notes due March 15, 2004................. $12,856 $17,143
7.57% senior note due June 30, 2005................... 6,025 6,025
7.43% senior notes due November 18, 2007.............. 10,000 10,000
Revolving credit facility............................. 20,473 19,001
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Total............................................... 49,354 52,169
Less current maturities............................... 6,714 6,714
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Long-term debt, exclusive of current maturities..... $42,640 $45,455
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4. 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):
March 31, April 1,
2001 2000
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Weighted average shares outstanding for basic
calculation....................................... 6,607 7,142
Add: Effect of stock options......................... 299 455
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Weighted average shares outstanding,
adjusted for diluted calculation............... 6,906 7,597
===== =====
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales decreased $5.9 million, or 8.3%, for the three month period ended
March 31, 2001, from the comparable 2000 period. The decrease was due primarily
to lower unit volume in the Company's collections offering (bedroom, dining
room, tables and entertainment units). The Company reduced production during the
first quarter of 2001 in response to order trends through selective downtime at
its facilities. As a result, total inventories of $55.9 million at March 31,
2001 approximated year-end 2000 levels. The Company expects second quarter sales
to decline on a percentage basis in the mid-teens compared to an all time record
second quarter in 2000, as retail furniture activity continued to slow through
the end of the first quarter and into the second quarter of 2001. The Company
does not expect business conditions to improve before the fourth quarter of
2001, which should result in sales for 2001 modestly below last year.
Accordingly, the Company anticipates continued downtime to manage inventory
levels until business conditions improve.
Gross profit margin for the three months of 2001 decreased to 23.5% from 24.4%
for the comparable 2000 period. The decrease resulted primarily from lower sales
and production levels in the first quarter of 2001. Start-up costs associated
with the new factory, which began production of home office furniture in March
2000, reduced gross profit in the year ago quarter. Improved productivity from
this facility partially offset the impact of lower sales and production levels
in the first quarter of 2001.
Selling, general and administrative expenses as a percentage of net sales
increased to 12.0% for the 2001 period from 11.8% in the comparable 2000 period.
The higher percentage was due principally to lower net sales in the 2001 period.
Selling, general and administrative expenditures declined $532,000 in the 2001
period primarily as a result of lower selling expenses directly attributable to
the decrease in sales.
As a result of the above, operating income decreased to $7.4 million, or 11.4%
of net sales, from $9.0 million, or 12.7% of net sales in the comparable 2000
period.
Interest expense for the three-month period of 2001 increased over the 2000
comparable three-month period due to higher average debt levels.
The Company's effective income tax rate was 36.3% for the 2001 three-month
period and 37.0% for the total year 2000.
Financial Condition, Liquidity and Capital Resources
Cash generated from operations was $3.1 million in the 2001 first quarter
compared to cash used by operations of $1.5 million in the 2000 period. Working
capital increased $1.6 million in the 2001 first quarter compared to an increase
of $8.7 million in the comparable 2000 period.
Net cash used for capital expenditures was $673,000 in the first three months of
2001 compared to $4.8 million in the comparable 2000 period. Cash requirements
were higher in the 2000 period due to capital expenditures related to a new
manufacturing facility. Included in the 2000 capital expenditure was $2.7
million of 1999 capital expenditures included in accounts payable at December
31, 1999 and $2.1 million of capital expenditures from the 2000 period. These
expenditures 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 $3.4 million in the 2001 period
compared to cash provided by financing activities of $4.1 million in the 2000
period. In the 2001 period, cash from operations and borrowings under the
revolving credit facility provided cash for senior debt payments, the purchase
and retirement of the Company's common stock and capital expenditures. 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 March 31, 2001, the Company purchased 36,000 shares of its stock on the
open market at an average price of $24.25. At March 31, 2001, approximately $9.0
million remains authorized by the Company's Board of Directors to repurchase
shares of the Company's common stock.
At March 31, 2001, long-term debt including current maturities was $49.4
million. Debt service requirements are $2.4 million remaining in 2001, $6.8
million in 2002, $6.9 million in 2003, $7.0 million in 2004, and $2.8 million in
2005. As of March 31, 2001, approximately $12.9 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.
Future results may be adversely impacted by potential credit issues with a
customer whose average accounts receivable balance typically ranges from $2.5
million to $3.5 million. The Company is in discussions with this customer, who
has indicated it is pursuing alternatives to resolve these potential credit
issues. There can be no assurance these efforts will be successful.
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, credit exposure to customers in the current economic
climate, competition in the furniture industry, capital costs and general
economic conditions.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
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 a material impact on earnings during the first quarter of 2001.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A report on Form 8K was filed on March 14, 2001, to comment on the
Registrant's outlook for the first quarter and full year 2001.
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 17, 2001 By: /s/ Douglas I. Payne
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Douglas I. Payne
Executive V.P. - Finance & Administration and
Secretary
(Principal Financial and Accounting Officer)