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Stanley Furniture Company, Inc.
General
WeIncorporated in Delaware in 1924, we are a leading designer, manufacturerdesign, marketing and importer of wood furnituredistribution resource in the premiumupscale segment of the wood residential furniture market. We offer two majora diversified product lines that diversify us across all major style and product categories withinline supported by an overseas sourcing model. We market our segment. Our adultbrands through a network of brick-and-mortar furniture is marketed and sold under the Stanley Furniture brand while our children’s furniture is marketed and sold as Young America. Our product depth and extensive style selection makes us a complete wood furniture resource forretailers, online retailers and interior designers serving the upscale consumer. To support our customersworldwide. We also market and catersell directly to the specific factors that drive consumer demand for furniture, we have developed and implemented operating strategies for each brand. An outsourced manufacturing model serves the demands of the Stanley Furniture customer, whilethrough an internally controlled and domestic manufacturing model supports Young America.omni-channel approach to e-commerce.
Products
Our Stanley Furniture brand isproducts are marketed as upscalefashionable wood residential home furnishings which differentiate from other products in the market through styling and finish execution as well as wide selections for the entire home including dining, bedroom, living room, home office, home entertainment, accent items and accent items. We believe the endnursery and youth furniture. Our target consumer for the Stanley Furniture brand is typicallyranges from an affluent, discerning consumer utilizing the talents of an interior designer, to a more practical consumer driven to purchase by convenience, immediate gratification from stock availability or a particular retail event. Regardless, we target a consumer who values the interior aesthetics of theirthe home.
Our Young America furniture is marketed as the trusted brand for child safety. Controlling production in our North Carolina manufacturing facility allows us to proudly market a product “Made in the USA”, which we believe our customers associate with a higher level of product safety and quality. Additionally, our products have achieved third party certifications for both indoor air quality and product safety. Product selection through color and choice further differentiate the Young America brand and attract the consumer wishing to customize their purchase and make an investment in furniture that grows with their child from crib to college and beyond. While we believe the typical consumer purchasing Young America is a parent between the ages of 25 and 40, grandparents are often involved in the purchase. Further, we believe many consumers of our Stanley Furniture products use Young America furniture in guest bedrooms.
We believe that the diversity of our product lines enables us to anticipate and address changing consumer preferences and provide retailers a complete wood furniture resource in the premium segment. We believe that our products represent good value and that the quality and design of our furniture, combined with our broad selection and dependable service, differentiates our products in the marketplace.
We provide products in a variety of woodswood species and finishes. Our products are designed to appeal to a broad range of consumer tastes in the premiumupscale segment and cover all major style categories including traditional, continental, contemporary, transitional and cottage designs.categories.
We continually design and develop new styles to replace those we discontinue and if desired, to expand our product lines.lines into markets where opportunity for growth exists. Our in-house product designdevelopment process, for both brandswhich normally spans approximately one year but can be shorter or longer based upon the complexity of the concept, begins with identifying customer preferences and marketplace trends and conceptualizing product ideas. Company designers produce a variety of sketches from which prototype furniture pieces are built for review prior to full-scale engineering and production. We consult with our marketing and operations personnel, core suppliers, independent sales representatives and selected customers throughout this process and introduce our new product designs primarily at international furniture markets in High Point, North Carolina and Las Vegas, Nevada, which are each held fourtwo times per year. year for a total of four markets.
Marketing/Brands
We believe that the diversity of our product offerings enables us to anticipate and address changing consumer preferences and provide retailers a complete wood furniture resource in the upscale segment. Our products are marketed under the Stanley Furniture and Stone & Leigh brands, but also under a licensing agreement with Coastal Living® magazine. We market our brand through a series of efforts targeted both to the wholesale trade and directly to the consumer. Coastal Living® is a registered trademark of Time Inc. Lifestyle Group and is used under license.
Distribution
We have developed a broad domestic and international customer base andbase. We sell our furniture mainly through independent sales representatives to independenta variety of wholesale customers such as owner-operated furniture stores, interior designers,design & architecture professionals, decorators, smaller specialty retailers, regional furniture chains, buying clubs and e-tailers.e-commerce retailers. We also market and sell directly to the consumer through an omni-channel approach to eCommerce. We believe this broad network reduces exposure to fluctuations in regional economic conditions, places our brand in as many venues as possible where the consumer may shop and allows us to capitalize on emerging channels of distribution. We offer tailored marketing programs to address each specific distribution channel. Our independent sales representatives along with our customer care managers sell and support both product lines.
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The primary 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, a furniture market is held in High Point, North Carolina, which is attended by the majority of our retail customer base and is regarded by the industry as the most important international market. We utilize showroom space at this market to introduce new products, increase retail placements of existing products and test concepts for future products and services. In addition to displaying at the High Point Furniture Market, in 2013 we began displaying our products at the Las Vegas Market in January and July of each year. products.
In 20162013, we sold product to approximately 1,8502,600 customers and recorded approximately 11% of our sales from international customers. No single customer accounted for more than 10% of our sales in 20132016 and no part of the business is dependent upon a single customer, the loss of which would have a material effect on our business. The loss of several major customers could have a material impact on our business.
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Manufacturing and OffshoreOverseas Sourcing
Stanley Furniture
The Stanley Furniture lineOur product is currently sourced from independentindependently owned factories in Southeast Asia, primarily in IndonesiaVietnam and Vietnam.Indonesia. We operate a support organization in both of these countrieseach country to manage vendor relationships,partner-vendor relationships. In early 2016, we established a strategic manufacturing alliance with one such source in Vietnam outside of Ho Chi Minh City: Starwood Manufacturing VN Corporation. This strategic alliance allowed for the utilization of a stand-alone, dedicated manufacturing facility. While the agreement did not obligate us to utilize the facility should certain market-driven and/or other factors not make this facility our best choice, it did establish clear goals for differentiation in overseas sourcing decisions, as well asfor our company related to production lead times and delivery and warehouse and logistics. Our intentions were to eventually transition substantially all of our overseas production to this facility in order to differentiate in the marketplace through several competitive operational advantages.
As the year progressed, both parties realized that the alliance would not be able to provide engineering and quality control. Additionally,the production requirements previously agreed upon. The facility’s capacity was unable to keep up with growing demand for more recently introduced products. Throughout the year, we operatecontinued sourcing from the same small group of established vendors with which we have conducted business for several years. Over the course of the first half of 2017, we will be utilizing available capacity at these vendors’ factories to align overseas supply with the demand for our newer, more marketable products. Although the facility making our products at Starwood will not be our only supplier, we plan for them to remain a small facility in Indonesia to test product quality and to develop proprietary finishes.vendor going forward.
We are subject to the usual risks inherent in importing products manufactured abroad, including, but not limited to, supply disruptions and delays, currency exchange rate fluctuations, economic and political developments and instability, as well as the laws, policies and actions of foreign governments and the United States affecting trade, including tariffs.
A sudden disruption in our supply chain from any of our key vendors could significantly compromise our ability to fill customers’ orders. If a disruption were to occur,Generally, we believe we would have sufficient inventory to meet a portion of demand for approximately three to four months. Further, we believe that we could source any impacted products from other suppliers and on a limited basis, could manufacture some products in our domestic facility. Service gaps and short-term increases in cost would likely result if a sudden disruption occured.
We enter into standard purchase arrangements with certain overseas suppliers for finished goods inventory to supportwith our Stanley Furniture product line.overseas vendors. The terms of these arrangements are customary for our industry and do not contain any long-term purchase obligations. We generally negotiate firm pricing with our foreign suppliers in U.S. Dollars for a term of one year. We accept exposure to exchange rate movement after this period and do not use any derivative instruments to manage or hedge currency risk. We generally expect to recover any substantial price increases from these suppliers in the price we charge our own customers for these goods.
Young America
The Young America product line is manufactured domestically in a company-owned facility. We believe our operations model supports the Young America product line as the trusted brand for child safety, color and choice, quick delivery, and quality and better differentiates our children’s furniture in the marketplace. Over the last two years we have focused our efforts and capital on modernizing and automating our factory in Robbinsville, North Carolina, which produces the Young America product line.
Domestic manufacturing supports our product and distribution strategy by allowing us to drive continuous improvement in product safety, quality and customer service, while offering maximum choice and customization with minimum inventory. Our manufacturing strategy includes:
·Smaller and more frequent production runs,
·Standardized engineering to improve quality and lower cost,
·Identification and elimination of manufacturing bottlenecks and waste,
·Use of cellular manufacturing in the production of component parts, and
·Improved relationships with a small, core group of suppliers.
In addition, we continue to involve all personnel and vendor partners in the improvement of the manufacturing, assembly and finishing processes by encouraging an open and collaborative environment that embraces continuous improvement.
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Warehousing and DeliveryLogistics
We warehouse our products primarily in domestic warehouses with some warehousing abroad. We consider our facilities to be generally modern, well equipped and well maintained. We use a small group of furniture specific transportation providers for delivery of both product lines.delivery. While most of our products are delivered to retailers from our warehouses, we also ship direct containersdirectly to wholesale customers from Asia as well as provideAsia. Our transportation vendor base includes white-glove delivery services which deliver directly from our domestic warehouses to the endretail consumer.
Production of both product lines is scheduledProducts are ordered from overseas suppliers based upon both actual and forecasted demand. Because of the longerlong lead times are generally associated with overseas operations, we strive to maintain a higher inventory of imported products when compared to those manufactured domestically. We ship the majoritylevels that will service most of our wholesale customers’ orders within a maximum of 30 days from receipt of their order. Our backlog of unshipped orders was $10.4$6.3 million at December 31, 20132016 and $11.5$6.2 million at December 31, 2012.
Raw Materials
Virtually all raw materials used support the domestic manufacturing of our Young America product line. The principal materials used include lumber, plywood, veneers, particle board, hardware, glue, finishing materials, glass products, laminates, and metals. We use two main species of lumber: poplar and maple. Domestic lumber availability and prices fluctuate over time based primarily on supply and demand.
Our five largest raw material suppliers accounted for approximately 43% of our purchases in 2013. We believe we keep adequate inventory of lumber and other supplies to maintain production levels. We believe that our sources of supply for these materials are adequate and that we are not dependent on any one supplier.2015.
Competition
The furniture industry is highly competitive, fragmented, and includes a large number of competitors. The barriers to entry are very low, and there is little feasible intellectual property protection in our industry to prevent competitors nonefrom imitating furniture designs of which dominates the market. In addition, competition has significantly increased as the industry’s worldwide manufacturing capacity remains relatively underutilized due to a lack of demand driven by the ongoing economic downturn and its impact on domestic housing. Significant manufacturing capacity was added to support the housing boom that our economy experienced pre-recession. This excess capacity created downward price pressure as industry participants attempted to generate volume to better utilize the added manufacturing capacity. The vast majorityanother manufacturer. Very few of our competitors own manufacturing facilities abroad or source finished goods from Asian suppliers.manufacture residential wood furniture in the United States.
The markets in which weWe compete includewith a large numberhost of relatively small manufacturers. However, certainvarying business models within the industry including, but not limited to, former manufacturers who have adopted a strictly pass-through model from overseas vendor to wholesale customers; national lifestyle retailers who sell directly to the retail consumer through a vertical model; and overseas vendors who sell directly to wholesale customers. Some competitors have substantially greater sales volume and financial resources when compared to us. and often offer extensively advertised, highly promoted product.
Competitive factors in the premiumupscale segment of the industry include design, quality, service, selection price, and for our Young America brand, child safety.price. We believe the flexibility and relative influence we maintain with overseas vendors, the continued diversification of our operationaldistribution strategy, our long-standing customer relationships, and customerour responsiveness to customers, our consistent support of high-quality and diverse product lines, the heritage of our brand and our experienced management team are all competitive advantages.
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Associates
At December 31, 2013,2016, we employed 495approximately 70 associates domestically and 4948 associates overseas.overseas, all of which are full-time employees. We consider our relationship with our associates to be very good. None of our associates are represented by a labor union.
Trademarks
Our trade names represent many years of continued business, and we believe these names are well recognized and associated with excellent quality and styling in the furniture industry. We own a number of trademarks and design patents, none of which are considered to be material.
Governmental Regulations
We are subject to federal, state and local laws and regulations in the areas of safety, health and environmental protection. Compliance with these laws and regulations has not in the past had any material effect on our earnings, capital expenditures or competitive position. However, the impact of such compliance in the future cannot be predicted. We believe that we are in material compliance with applicable federal, state and local safety, health and environmental regulations.
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,” “estimates,” “expects,” “may,” “will,” “should,” “could”,“could,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect our 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 our success in growing Young America revenue to leverage our domestic manufacturing cost structure, disruptions in foreign sourcing including those arising from supply or distribution disruptions or those arising from changes in political, economic and social conditions, as well as laws and regulations, in countries from which we source products, international trade policies of the United States and countries from which we source products, the inability to raise prices in response to inflation and increasing costs, lower sales due to worsening of current economic conditions, the cyclical nature of the furniture industry, business failures or loss of large customers, the inability to raise prices in response to inflation and increasing costs, failure to anticipate or respond to changes in consumer tastes, fashions and fashionsperceived values in a timely manner, competition in the furniture industry, including competition from lower-cost foreign manufacturers, the inability to obtain sufficient quantities of quality raw materials in a timely manner, environmental, health, and safety compliance costs, extended business interruption at our manufacturing facility, aand failure or interruption of our information technology infrastructure, and the possibility that U.S. Customs and Border Protection may seek to reclaim all or a portion of the $39.9 million of Continued Dumping and Subsidy Offset Act (CDSOA) proceeds received in the second quarter of 2012. In addition, we have made certain forward-looking statements with respect to payments we expect to receive under the CDSOA, which are subject to the risks and uncertainties described in our discussion of those payments that may cause the actual payments to be subject to claims for recovery or to differ materially from those in the forward-looking statements.infrastructure. Any forward-looking statement speaks only as of the date of this filing and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.
Available Information
Our principal Internet address is www.stanleyfurniture.com. We make available free of charge on this web site our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
In addition, you may request a copy of these filings (excluding exhibits) at no cost by writing, telephoning, faxing or e-mailing us at the following address, telephone number, fax number or e-mail address.address:
Stanley Furniture Company, Inc.
200 North Hamilton Street, No. 200
High Point, North Carolina 27260
Attention: Mr. Micah S. GoldsteinMs. Anita W. Wimmer
Telephone: 336-884-7695,336-884-7698, Fax: 336-841-0913336-884-7760
Or e-mail your request to: Investor@Stanleyfurniture.com
Item 1A. Risk Factors
Our results of operations and financial condition can be adversely affected by numerous risks. You should carefully consider the risk factors detailed below in conjunction with the other information contained in this document. Should any of these risks actually materialize, our business, financial condition and future prospects could be negatively impacted.
As a result of our reliance on domestic manufacturing for our Young America product line:
·If we do not grow revenues to leverage fixed costs, our profitability could be adversely impacted, and we may experience asset impairment of other charges.
If we do not grow revenues to leverage fixed costs, we may need to reposition our Young America product line, consider closing our Robbinsville facility and transition the manufacturing of Young America products to other sources, or we may need to cease production and distribution of our Young America product line altogether. In this event, we could experience asset impairment or other restructuring charges. In addition, if any of these actions are necessary, they could affect our ability to meet product demand which may in turn negatively impact customer relations and result in loss of market share, including market share for our Stanley Furniture product line due to shared resources and customer base.
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Our revenues may not grow for a variety of reasons. Emerging, vertically integrated distributors may capture market share at a rate which prevents growth by the traditional channels of retail distribution through which we sell, given that the market for youth furniture is demographically driven and not substantially growing for our market segment. The traditional channels of retail distribution through which we sell may not be properly positioned in the marketplace to substantially support the sale of a differentiated premium casegoods product in the nursery and/or youth segment of the industry. Competitive product of similar design at lower prices may capture too much market share to allow room for us to grow. Too many potential consumers for products within the nursery and/or youth segment may have permanently traded down post-recession. Inflation associated with the raw materials we use to manufacture our product may require that we increase our prices resulting in increased retail prices for our product higher than the level seen by the consumer as a value. Unfair global trading practices could allow prices from overseas suppliers to decrease making those products more competitive in the marketplace.
As a result of our reliance on foreign sourcing for our Stanley Furniture product line:
·Our ability to service customers could be adversely affected and result in lower sales, earnings and liquidity.
Our supply of goods could be interrupted for a variety of reasons. Physical damage from a natural disaster or other cause to any one of our sourcing partners’ factories could interrupt production for an extended period of time.Our sourcing partners may not supply goods that meet our manufacturing, quality or safety specifications, in a timely manner and at an acceptable price. We may reject goods that do not meet our specifications, requiring us to find alternative sourcing arrangements at a higher cost, or possibly forcing us to discontinue the product. Also, delivery of goods from our foreign sourcing partners may be delayed for reasons not typically encountered with domestic manufacturing or sourcing, such as shipment delays caused by customs or labor issues.Item 1A. Risk Factors
·Our abilityNot required to properly forecast consumer demand on product with extended lead times could result in lower sales, earnings and liquidity.
Our use of foreign sources exposes us to risks associated with forecasting future demand on product with extended order lead times. Extended order lead times may adversely affect our ability to respond to sudden changes in demand, resulting in the purchase of excess inventory in the face of declining demand, or lost sales due to insufficient inventory in the face of increasing demand, either of which could have an adverse effect on our sales, earnings and liquidity.
·Changes in political, economic and social conditions, as well as laws and regulations, in the countries from which we source products could adversely affect us.
Foreign sourcing is subject to political and social instability in countries where our sourcing partners are located. This could make it more difficult for us to service our customers. Also, significant fluctuations of foreign exchange rates against the value of the U.S. dollar could increase costs and decrease earnings.
·International trade policies of the United States and countries from which we source products could adversely affect us.
Imposition of trade sanctions relating to imports, taxes, import duties and other charges on imports could increase our costs and decrease our earnings.
We may not be able to sustain sales, earnings and liquidity levels due to economic downturns.
The furniture industry historically has been cyclical in nature and has fluctuated with economic cycles. During economic downturns, the furniture industry tends to experience longer periods of recession and greater declines than the general economy. We believe that the industry is significantly influencedprovided by economic conditions generally and particularly by housing activity, consumer confidence, the level of personal discretionary spending, demographics and credit availability. These factors not only affect the ultimate consumer, but also impacta smaller independent brick-&-mortar furniture retailers, which are our primary customers. As a result, a worsening of current conditions could lower our sales and earnings and impact our liquidity. reporting company.
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Business failures, or the loss, of large customers could result in a decrease in our future sales and earnings.
Although we have no single customer representing 10% or more of our total annual sales, the possibility of business failures, or the loss oflarge customers could result in a decrease of our future sales and earnings. Lost sales may be difficult to replace and any amounts owed to us may become uncollectible.
We may not be able to maintain or to raise prices in response to inflation and increasing costs.
Future market and competitive pressures may prohibit us from successfully raising prices to offset increased costs of finished goods, raw materials, freight and other inflationary items. This could lower our earnings.
Failure to anticipate or respond to changes in consumer tastes and fashions in a timely manner could result in a decrease in our sales and earnings.
Residential furniture is a fashion business based upon products styled for a changing marketplace and is sometimes subject to changing consumer trends and tastes. If we are unable to predict or respond to changes in these trends and tastes in a timely manner, we may lose sales and have to sell excess inventory at reduced prices. This could lower our sales and earnings.
We may not be able to sustain current sales and earnings due to the actions and strength of our competitors.
The furniture industry is very competitive and fragmented. We compete with mostly overseas manufacturers and/or retailers who source products from overseas and sell into our markets. Competition from overseas producers has increased dramatically with most residential wood furniture sold in the United States now coming from foreign countires. These overseas producers and/or their wholesale customers who retail sourced products in our markets typically have lower selling prices due to their lower operating costs and often replicate our designs closely enough to attract a portion of our customer base, but not closely enough to warrant legal action that would result in any substantial effect towards thwarting this practice. In addition, some competitors have greater financial resources than we have and often offer extensively advertised, highly promoted products. As a result, we are continually subject to the risk of losing market share, which may lower our sales and earnings.
We may not be able to obtain sufficient quantities of quality raw materials in a timely manner, which could result in a decrease in our sales and earnings.
Because we are dependent on outside suppliers for all of our raw material needs, we must obtain sufficient quantities of quality raw materials from our suppliers at acceptable prices and in a timely manner. We have no long-term supply contracts with our key suppliers. Unfavorable fluctuations in the price, quality and availability of these raw materials could negatively affect our ability to meet the demands of our customers and could result in a decrease in sales and earnings.
Future cost of compliance with environmental, safety and health regulations could reduce our earnings.
We are subject to federal, state and local laws and regulations in the areas of safety, health and environmental protection. The timing and ultimate magnitude of costs for compliance with environmental, health and safety regulations are difficult to predict and could reduce our earnings.
Extended business interruption at our domestic manufacturing facility or our overseas suppliers’ facilities could result in reduced sales.
Furniture manufacturing creates large amounts of highly flammable wood dust and utilizes other highly flammable materials such as varnishes and solvents in our manufacturing processes and are therefore subject to the risk of losses arising from explosions and fires. Our inability to fill customer orders during an extended business interruption could negatively impact existing customer relationships resulting in the loss of market share.
Our business and operations would be adversely impacted in the event of a failure or interruption of our information technology infrastructure.
The proper functioning of our information technology infrastructure is critical to the efficient operation and management of our business. If our information technology systems fail or are interrupted, our operations may be adversely affected and operating results could be harmed. Our information technology systems, and those of third parties providing service to us, may also be vulnerable to damage or disruption caused by circumstances beyond our control. These include catastrophic events, power anomalies or outages, natural disasters, computer system or network failures, viruses or malware, physical or electronic break-ins, unauthorized access and cyber attacks. Any material disruption, malfunction or similar challenges with our information technology infrastructure, or disruptions or challenges relating to the transition to new processes, systems or providers, could have a material adverse effect on the operation of our business and our results of operations.
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Item 1B. Unresolved Staff Comments
None.
Set forth below is certain information with respect to our principal properties. We believe that all these properties are well maintained and in good condition. A majority of our production and distribution facilities are equipped with automatic sprinkler systems and modern fire protection equipment, which we believe are adequate. All facilities set forth below are active and operational. Production capacity and the utilization of our Robbinsville manufacturing facilities are difficult to quantify as we continue to modernize and increase its available capacity.
Approximate Facility Size (Square Feet) | Owned or Leased | |||||
Location | Primary Use | |||||
|
|
|
| |||
|
|
|
| |||
Martinsville, VA |
| Distribution |
| 300,000 |
| Leased |
High Point, NC | Showroom/Office | 56,000 | Leased | |||
Las Vegas, NV |
| Showroom |
| 11,500 |
| Leased |
Vietnam | Distribution | 115,000(1) | Leased | |||
Mocksville, NC |
| Distribution |
| 50,000(1) |
| Leased |
(1)Distribution utilizationEstimated space as of December 31, 2013 was approximately 50%2016. Leased footage is a function of leased square footage. amount of product held with no minimum space commitments.
In the normal course of business, we are involved in claims and lawsuits none of which currently, in our opinion, will have a material adverse affecteffect on our consolidated financial statements.
Item 4. Mine Safety Disclosures
Not Applicable.
Executive Officers of the Registrant
Our executive officers who are elected annually and their ages as of January 1, 20142017 are as follows:
Name | Age | Position | ||
Glenn Prillaman |
|
|
| President and Chief Executive Officer |
|
|
|
|
|
Vice President - Finance/Corporate Controller |
Glenn Prillamanhas been President and Chief Executive Officer since February 2010. Mr. Prillaman was President and Chief Operating Officer from August 2009 until February 2010. He was our Executive Vice President – Marketing and Sales from September 2008 until August 2009. He held the position of Senior Vice President – Marketing and Sales from September 2006 until September 2008 and was our Senior Vice President – Marketing/Sales – Young America® from August 2003 to September 2006. Mr. Prillaman held various management positions in product development from June 1999 to August 2003. Prior to this Mr. Prillaman represented the company as a sales agent from 1993 to 1996.
Micah S. GoldsteinAnita W. Wimmer has been Chief Operating Officerprincipal financial and accounting officer and Secretary since joining the company in August 20102014 and has also served as Chief Financial OfficerVice President – Finance/Corporate Controller since December 2010. From January 2006April 2014 and Assistant Secretary from April 1999 until August 2010, Mr. Goldstein was2014. She served as Vice President – Corporate Controller from April 2012 until April 2014 and Chief Executive Officer of Bri-Mar Manufacturing, LLC, a manufacturer of hydraulic equipment trailers.as Vice President – Controller and Treasurer from April 2005 until April 2012. Prior to this, Mrs. Wimmer held various financial positions since her employment with Stanley in March 1993.
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Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Prices
Our 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.
| 2013 |
| 2012 | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| High |
| Low |
| High |
| Low | ||||
First Quarter | $ | 4.85 |
| $ | 4.25 |
| $ | 5.21 |
| $ | 2.95 |
Second Quarter |
| 4.56 |
|
| 3.72 |
|
| 4.87 |
|
| 3.80 |
Third Quarter |
| 4.10 |
|
| 3.27 |
|
| 5.00 |
|
| 3.84 |
Fourth Quarter |
| 4.03 |
|
| 3.40 |
|
| 5.00 |
|
| 4.08 |
2016 | 2015 | ||||||||||
High | Low | High | Low | ||||||||
First Quarter | $ | 2.88 |
| $ | 2.25 |
| $ | 3.64 |
| $ | 2.71 |
Second Quarter | 2.90 | 2.42 | 3.39 | 2.62 | |||||||
Third Quarter |
| 3.65 |
|
| 1.66 |
|
| 3.31 |
|
| 2.75 |
Fourth Quarter | 1.99 | 0.86 | 3.04 | 2.60 | |||||||
As of January 24, 2014,February 10, 2016, we have approximately 2,0001,762 beneficial stockholders. In 2009,August 2016, our Board of Directors votedauthorized the payment of two special dividends totaling up to suspend quarterly cash$1.50 per share. The initial special dividend payments.of $1.25 per share was paid on August 19, 2016. The second special dividend of $0.25 per share was paid on November 18, 2016. Our dividend policy andrevolving credit facility prohibits the decision to suspend dividend payments is subject to review and revision by the Boarddeclaration or payment of Directors and any future payments will depend upon our financial condition, our capital requirements and earnings, as well as other factors the Board of Directors may deem relevant.additional dividends.
Issuer Purchases of Equity Securities
The following table summarizes the repurchases of our equity securities during the 12-month period ended December 31, 2013:2016:
Period |
|
| Total | Average Share | Total Number | Approximate | ||||
| January 1 to February 2, 2013 |
|
| - |
|
|
| - |
| 4,339,172 |
| February 3 to March 2, 2013 |
|
| 68,438 |
| 4.46 |
| 68,438 |
| 4,033,988 |
| March 3 to March 30, 2013 |
|
| 10,550 |
| 4.53 |
| 10,550 |
| 3,986,203 |
Three months ended March 30, 2013 |
|
| 78,988 |
|
|
| 78,988 |
|
| |
| March 31 to May 4, 2013 |
|
| 1,089 |
| 4.53 |
| 1,089 |
| 3,981,271 |
| May 5 to June 1, 2013 |
|
| - |
|
|
| - |
| 3,981,271 |
| June 2 to June 29, 2013 |
|
| - |
|
|
| - |
| 3,981,271 |
Three months ended June 29, 2013 |
|
| 1,089 |
|
|
| 1,089 |
|
| |
Twelve months ended December 31, 2013 |
|
| 80,077 |
|
|
| 80,077 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
(1) | In July 2012, the Board of Directors authorized the purchase of up to $5.0 million of our common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, at prices the company deems appropriate. | |||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs(1) | ||||
January 1 to February 6, 2016 | - | - | 3,981,271 | |||||
February 7 to March 5, 2016 | 405,468(2) | 2.53 | 400,000 | 2,969,271 | ||||
March 6 to April 2, 2016 | - | - | 2,969,271 | |||||
Three months ended April 2, 2016 | 405,468(2) | 400,000 | ||||||
October 3 to November 5, 2016 | - | - | 2,969,271 | |||||
November 6 to December 3, 2016 | - | - | 2,969,271 | |||||
December 4 to December 31, 2016 | 1,394(2) | 0.98 | - | 2,969,271 | ||||
Three months ended December 31, 2016 | 1,394(2) | - | ||||||
Twelve months ended December 31, 2016 | 406,862(2) | 400,000 |
(1) | In July 2012, the Board of Directors authorized the purchase of up to $5.0 million of our common stock. These repurchases may be made from time to time in the open market, in privately negotiated transactions, or otherwise, at prices the company deems appropriate. |
(2) | Includes 5,468 shares and 1,394 shares tendered by recipients of restricted stock awards on March 1, 2016 and December 20, 2016, respectively, to satisfy tax withholding obligations on vested restricted stock. |
107
Performance Graph
The following graph compares cumulative total stockholder return for our company with a broad performance indicator, the Nasdaq Market index (an industry index) and a Peer group index for the period from December 31, 2008 to December 31, 2013.
(1)The graph shows the cumulative total return on $100 invested at the market close on December 31, 2008, the last trading day in 2008, in common stock or the specified index, including reinvestments of dividends.
(2)Nasdaq Market Index as prepared by Zacks Investment Research, Inc.
(3)Household Furniture Index as prepared by Zacks Investment Research, Inc. consists of SIC Codes 2510 and 2511. At January 21, 2014, Zacks Investment Research, Inc. reported that these two SIC Codes consisted of Bassett Furniture Industries, Inc., Dorel Industries, Inc., Ethan Allen Interiors, Inc., Flexsteel Industries, Inc., Furniture Brands International, Inc., Hooker Furniture Corporation, La-Z-Boy, Inc., Leggett & Platt, Inc., Natuzzi SPA-ADR, Nova Lifestyle, Inc., Select Comfort Corp., Stanley Furniture Company, Inc. and Tempur-Pedic International, Inc.
Equity Compensation Plan Information
The following table summarizes our equity compensation plans as of December 31, 2013:2016:
| Number of shares to be issued upon exercise of outstanding options, warrants and rights |
| Weighted-average exercise price of outstanding options, warrants and rights |
| Number of shares remaining available for future issuance under equity compensation plans |
|
|
| |||
|
|
| |||
|
|
| |||
Equity compensation plans approved by stockholders | 1,944,108 |
| $ 6.06 |
| 1,391,384 |
11
Number of shares to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of shares remaining available for future issuance under equity compensation plans | |||
Equity compensation plans approved by stockholders | 1,129,582 |
| $5.35 |
| 1,482,510 |
Item 6.Selected Financial Data
| Years Ended December 31, | |||||||||||||
| 2013 |
| 2012 |
| 2011 |
| 2010 |
| 2009 | |||||
| (in thousands, except per share data) | |||||||||||||
Income Statement Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales | $ | 96,944 |
| $ | 98,570 |
| $ | 104,646 |
| $ | 137,012 |
| $ | 160,451 |
Cost of sales (1) |
| 87,170 |
|
| 86,368 |
|
| 92,175 |
|
| 153,115 |
|
| 158,695 |
Gross profit (loss) |
| 9,774 |
|
| 12,202 |
|
| 12,471 |
|
| (16,103) |
|
| 1,756 |
Selling, general and administrative expenses (2) |
| 19,966 |
|
| 18,281 |
|
| 19,250 |
|
| 20,625 |
|
| 26,666 |
Goodwill impairment charge |
|
|
|
|
|
|
|
|
|
| 9,072 |
|
|
|
Operating income (loss) |
| (10,192) |
|
| (6,079) |
|
| (6,779) |
|
| (45,800) |
|
| (24,910) |
Income from Continued Dumping and Subsidy Offset Act, net |
|
|
|
| 39,349 |
|
| 3,973 |
|
| 1,556 |
|
| 9,340 |
Other income, net |
| 67 |
|
| 79 |
|
| 112 |
|
| 25 |
|
| 160 |
Interest expense, net |
| 2,669 |
|
| 2,320 |
|
| 2,330 |
|
| 3,534 |
|
| 3,703 |
Income (loss) before income taxes |
| (12,794) |
|
| 31,029 |
|
| (5,024) |
|
| (47,753) |
|
| (19,113) |
Income taxes (benefit) |
| (157) |
|
| 645 |
|
| 1 |
|
| (3,963) |
|
| (7,362) |
Net income (loss) | $ | (12,637) |
| $ | 30,384 |
| $ | (5,025) |
| $ | (43,790) |
| $ | (11,751) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | (.89) |
| $ | 2.12 |
| $ | (.35) |
| $ | (4.11) |
| $ | (1.14) |
Weighted average shares |
| 14,147 |
|
| 14,328 |
|
| 14,345 |
|
| 10,650 |
|
| 10,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (loss) Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | (.89) |
| $ | 2.10 |
| $ | (.35) |
| $ | (4.11) |
| $ | (1.14) |
Weighted average shares |
| 14,147 |
|
| 14,484 |
|
| 14,345 |
|
| 10,650 |
|
| 10,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet and Other Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, restricted cash and short-term investments | $ | 18,955 |
| $ | 37,667 |
| $ | 17,287 |
| $ | 25,532 |
| $ | 41,827 |
Inventories |
| 33,666 |
|
| 35,060 |
|
| 31,084 |
|
| 25,695 |
|
| 37,225 |
Working capital |
| 56,088 |
|
| 72,241 |
|
| 46,066 |
|
| 52,769 |
|
| 87,277 |
Total assets |
| 95,224 |
|
| 110,716 |
|
| 80,608 |
|
| 88,396 |
|
| 150,462 |
Capital leases |
| 581 |
|
| 717 |
|
| 852 |
|
|
|
|
|
|
Long-term debt including |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
current maturities |
|
|
|
|
|
|
|
|
|
|
|
|
| 27,857 |
Stockholders’ equity |
| 75,641 |
|
| 87,239 |
|
| 57,040 |
|
| 61,795 |
|
| 92,847 |
Capital expenditures |
| 2,700 |
|
| 3,820 |
| $ | 4,352 |
| $ | 857 |
| $ | 2,621 |
Stock repurchases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
| 80 |
|
| 146 |
|
|
|
|
|
|
|
|
|
Total cost | $ | 358 |
| $ | 661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not required to be provided by a smaller reporting company.
|
|
|
|
12
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operation
Overview
The market for residential wood furniture has been significantly impacted by declines in housing activity, consumer confidence and disposable income over the last few years.Although some areas of home furnishing are beginning to see improvements in the market place, the upper end of the residential wood furniture segment continues to be depressed. During the economic downturn, we tookWe have taken a number of strategic steps over the last several years to reposition our companycompany. We have closed domestic manufacturing facilities and moved to an overseas sourcing model. We discontinued an unprofitable product line, and we are in the process of launching a new one. We implemented a new enterprise operating system, opened new trade showrooms and consolidated corporate offices. We attempted to establish a strategic overseas manufacturing alliance that did not meet our immediate demands for product, so we have reverted back to a multi-sourcing model that is meeting our costs and quality requirements. In addition, we have taken strategic steps to align our cost structure and operating models with thein response to lower sales volume related to these changes.
In January 2015, we announced our re-entry into the nursery and youth product category with the launch of a new brand, Stone & Leigh. New designs were introduced to the trade at the High Point Market in April 2015. Our experience developing and marketing nursery and youth product, our relationships with wholesale customers within the nursery and youth furniture segment and the changing marketplace. Major restructuring action was takenminimal investment required for the launch should allow us to consolidate facilities and ultimately reduce our domestic manufacturing footprint. Atreenter this part of the same time,market successfully. This product line began shipping in late 2015, but due to production delays, we shifted our operating strategy so thatdid not realize the product line’s expected growth potential in 2016. Once we could respondbegin to properly service this product line, we expect it to be a source of growth in 2017.
In addition to the demands of a changing marketplaceconsumer marketing efforts to launch our new Stone & Leigh youth and position our company for growth. Accordingly,nursery furniture brand, we transitioned the manufacturingare beginning new consumer advertising and wholesale customer support plans to increase revenue and more effectively reach target consumers of the Stanley Furnitureadult product lines. These efforts, along with more valuable product should produce growth for the adult furniture product lines under the Stanley and Coastal Living® brands.
In the first quarter of 2016, we made the decision to liquidate our twenty-seven corporate-owned life insurance policies with a fully overseas sourced model and ceased domestic manufacturing operations for this product in late 2010. This transition of our Stanley Furniture product line was successfully completed in 2011. For our Young America product line, we implemented a strategy to differentiate us in the marketplace by ensuring safety, quality, selection and service. This led us to shift the production of sourced Young America items from overseas to our domestic operation. Over the past three years we have invested approximately $9.0$28.1 million cash surrender value. We received $22.4 million in proceeds, comprised of the modernizationcash surrender value net of our manufacturing facility in Robbinsville, North Carolinaoutstanding loans and accrued interest. The decision to enable usliquidate was made after continued review of the financial stability of the issuer of the policies and the limited risk we were willing to be competitiveaccept.
During 2016, the Board of Directors engaged Stephens Inc. as a domestic producerfinancial advisor to assist with its consideration of potential strategic and capital allocation opportunities. As part of this product. In addition, we upgradedstrategic review, the quality standards of this product during 2012. The operational disruption created by these activities, which negatively impacted our financial performance over the last three years, is now complete. The last phase of our Company’s transformation occurred in 2013 with the consolidation of our corporate office and showroom in High Point, North Carolina and the implementation of a new Enterprise Resource Planning (ERP) system. The relocation of our corporate office along with the implementation of a new ERP system was a significant undertaking that had a short-term negative impact on incoming orders and our financial performance during 2013. With the major issues addressed by the end of 2013, the final phase of the Company’s strategic overhaul was complete. The strength of our Balance Sheet and proceeds received from the Continued Dumping and Subsidy Offset Act (CDSOA) allowed us to act on strategic decisions that we believe have positioned usBoard decided to return excess cash to growthshareholders and profitability. that the company leverage its operating assets to fund fluctuations in working capital. As a result, the Board declared an initial special dividend of $1.25 per share which was distributed to shareholders in August 2016. A second dividend of $.25 per share was distributed to shareholders in November 2016 after a revolving credit facility was obtained to fund potential fluctuations in working capital.
8
Results of Operations
The following table sets forth the percentage relationship to net sales of certain items included in the Consolidated Statements of Operations:
| For the Years Ended | For the Years Ended December 31, | |||||||||||
| December 31, | ||||||||||||
| 2013 |
| 2012 |
| 2011 | 2016 | 2015 | ||||||
Net sales | 100.0 | % |
| 100.0 | % |
| 100.0 | % | 100.0 | % | 100.0 | % | |
Cost of sales | 89.9 |
| 87.6 |
| 88.1 | 81.1 |
| 76.1 |
| ||||
Gross profit | 10.1 |
| 12.4 |
| 11.9 | ||||||||
Selling, general and administrative expenses | 20.6 |
| 18.6 |
| 18.4 | 31.4 |
| 22.1 |
| ||||
Operating loss | (10.5) |
| (6.2) |
| (6.5) | ||||||||
Operating (loss) income | |||||||||||||
CDSOA income, net | - |
| 39.9 |
| 3.8 | ||||||||
Other income, net | .1 |
| .1 |
| .1 | ||||||||
Interest expense, net | 2.8 |
| 2.3 |
| 2.2 | .2 |
| 1.7 |
| ||||
Income before income taxes | (13.2) |
| 31.5 |
| (4.8) | ||||||||
Income taxes (benefit) | (.2) |
| .7 |
| |||||||||
Net income (loss) | (13.0) | % |
| 30.8 | % |
| (4.8) | % | |||||
(Loss) income from continuing operations before income taxes | |||||||||||||
Income tax expense | 1.6 |
| .1 |
| |||||||||
(Loss) income from continuing operations | |||||||||||||
Loss from discontinued operations | - |
| - |
| |||||||||
Net (loss) income | (11.8 | )% | 9.3 | % | |||||||||
20132016 Compared to 20122015
Net sales decreased $1.6$12.8 million, or 1.6%22.3%, in 20132016 compared to 2012. 2015. The decrease was primarily due to lower unit volume for our Stanley Furniture product line. Partially offsetting the unit decline on the Stanley Furniture product line was increased sales and lower average selling prices. Lower unit volume fromwas primarily a result of delays in shipping new product introduced in 2015 as the Young Americaproduction ramp up of the new factory in Vietnam dedicated solely to our new product line, along with higherhas taken longer than originally anticipated. The initial orders of 2015 introductions are shipping and should begin to generate orders on retail floors in the near term. Lower average selling prices onwere the Stanley Furnitureresult of aggressive discounting to move older discontinued product. Additionally, inline product line following a second quarter price increase.was discounted to achieve additional floor space to fuel future sales and generate cash.
Gross profit as a percentagedecreased to $8.4 million, or 18.9% of net sales, decreased to 10.1%from $13.7 million, or 23.9% of net sales, in 2013 from 12.4% in 2012.2015. The decrease in gross profit for 2013 compared to 2012 resulted fromand gross margin was driven by lower sales volume, higher discounting, higher quality costs, and from inflationthe decrease in cash surrender value growth on both sourced items and raw materials.corporate owned life insurance policies. Partially offsetting the impact of these cost increases were pricing actions taken on the Stanley Furniture product line, operational improvements at our manufacturing facility in Robbinsville, NC anditems was lower medical claims. Included in our 2012 gross profit is $474,000 in restructuring charges, which consist mostly of a charge against future lease obligations in Virginia as we concluded that only a portion of the leased warehouse space was required. ocean freight costs. The prior year contained higher freight costs resulting from West Coast port issues.
13
Selling, general and administrative expenses for 20132016 were $20.0$14.0 million, or 20.6%31.4% of net sales, compared to $18.3$12.7 million, or 18.6%22.1% of net sales, in 2012. The2015. Higher expenses in the current year were primarily due to the decline in cash surrender value growth of corporate-owned life insurance policies as we continued to pay down policy loans throughout 2015 and then the surrendering of these polices in the first quarter of 2016. The decline in cash surrender value growth of corporate-owned life insurance policies, net of expenses, include $770,000was $1.3 million in 2016. Approximately 60% of restructuring charges associated with relocationthe cash surrender value growth was in selling, general and administrative expenses and the remaining 40% was in cost of our corporate office. Excluding these one-time costs, higher current year expenditures were driven primarilygoods sold. The elimination of this cash surrender value growth was partially offset by coststhe elimination of interest expense on the policy loans taken against the cash surrender value. Selling, general and administrative expenses also increased as a result of fees related to the relocationengagement of our High Point showroomStephens, Inc. to review strategic and our new showroom in Las Vegas. In addition, we had higher supportcapital allocation opportunities for the company, increased advertising cost and amortization coststhe cost related to adopting a stockholder’s right plan. The higher selling, general and administrative percentages in the implementation of our new ERP system.current year were due to higher expenditures and lower sales impairing absorption for fixed costs.
As a result of the above, our operating loss increased to $10.2was $5.6 million, or (12.5%) of net sales, in 20132016, compared to an operating lossincome of $6.1$1.0 million, or 1.8% of net sales, in 2012.2015.
In 2013,During the current year we did not receive anyreceived $1.1 million in funds under the CDSOA involving wooden bedroom furniture imported from China. In 2012, we recorded income, net of legal expenses, of $39.3compared to $5.3 million from CDSOA receipts.in 2015.
Interest expense in 2013 increased $350,000 over 2012. for 2016 decreased $846,000 from the comparable 2015 period. Interest expense is primarily composed of interest on loans against cash surrender value of insurance policy loans from apolicies used to fund our legacy deferred compensation plan, which increases annually based on growthplan. The decrease in expense was due to paying down these outstanding loans with excess cash surrender value.starting in late 2015 and eventually paying them off when we liquidated our corporate-owned life insurance policies in the first quarter of 2016.
9
Our 20132016 effective tax rate was essentially zero sincenegative 15.8%. As indicated above, we have established a valuation allowance forsurrendered our deferred tax assetscorporate-owned life insurance policies during the first quarter of 2016, which resulted in excesstaxable income. The premiums paid and the growth in surrender value of our deferred tax liabilities.these policies were excludable from taxable income over the life of these polices when held until death of the covered lives, but this growth, net of premiums paid, became taxable when we surrendered the policies. The benefitaggregate impact of the surrender of these policies in the currentfirst quarter of this year was primarily related to the release$24.0 million in taxable income. Most of reserves due to lapse of statute of limitations. Our effective tax rate for 2012this income was 2.1%.offset by net operating loss carryforwards. The income tax expense in 2012associated with the surrender of the corporate-owned life insurance policies was primarilylargely recognized during the first quarter when the policies were surrendered. The income tax expense recognized was the result of federal alternative minimum tax onliability associated with the receiptsurrender of proceeds from the CDSOA funds distributed by U.S. Customscorporate-owned life insurance policies and Border Protection. Federalstate income taxes. The alternative minimum tax regulations limit thelimits our ability to offset all of theour income generated in the period with net operating loss carry forwards.
2012 Compared to 2011
Net sales decreased $6.1 million, or 5.8%, in 2012 compared to 2011. The decrease was primarily due to lower unit volume for our Young America product line as we completed the modernization efforts in our factory and transitioned the entire product line to higher quality standards. Partially offsetting the volume declines on the Young America product line was increased sales and unit volume on the Stanley Furniture product line, as we believe we regained market share lost during our transition to a sourced model in early 2011.
Gross profit as a percentage of net sales improved to 12.4% in 2012 from 11.9% in 2011. The improvement in gross profit for 2012 compared to 2011 resulted from higher sales volume on the Stanley Furniture product line and operational improvements from our Young America product line. Included in gross profit in 2012 and 2011 is $474,000 and $416,000, respectively, in restructuring and related charges. These charges consisted mostly of charges against future lease obligations as evaluations in each year indicated that only a portion of a leased warehouse space would be required.
Selling, general and administrative expenses for 2012 were $18.3 million, or 18.6% of net sales, compared to $19.3 million, or 18.4% of net sales, in 2011. The decline in these expenses were primarily due to the impact that lower sales had on variable selling expenses, lower spending on marketing related expenses and a decrease in bad debt expense.
As a result of the above, operating loss improved to $6.1 million in 2012 compared with an operating loss of $6.8 million in 2011.
We recorded income, net of legal expenses, of $39.3 million in 2012 from the receipt of funds under the CDSOA involving wooden bedroom furniture imported from China and other related payments compared with $4.0 million in 2011.
Interest expense in 2012 remained flat with 2011. Interest expense for both periods is composed of interest on insurance policy loans from a legacy deferred compensation plan and imputed interest on a lease related obligation in 2011.
carryforwards. Our 2015 effective tax rate for 2012expense was 2.1%. The tax expense in 2012 is1.4% and was primarily generated from the result of federal alternative minimum tax on the receipt of proceeds from the CDSOA distributed by U.S. Customs and Border Protection. Federal alternative minimum tax regulations limit the ability to offset all of the income generated in the period with net operating loss carry forwards. Our 2011 effective tax rate was essentially zero as we had established a valuation allowance for our deferred tax assets in excess of our deferred tax liabilities.
14
Financial Condition, Liquidity and Capital Resources
Sources of liquidity include cash on hand, revolving credit facility and cash generated from operations. While we believe that our business strategy and restructuring efforts will be successful, we cannot predict with certainty the ultimate impact on our revenues, operating costs and cash flowsflow from operations. The CDSOA proceeds of $39.9 million received in 2012 strengthened our balance sheet and allowed us to invest in and focus on the execution of our long-term strategy. We expect cash on hand and borrowings under the revolving credit facility to be adequate for ongoing expendituresoperational and capital investments forexpenditures over the foreseeable future, as we return to normal capital spending and improve financial performance.next twelve months. At December 31, 20132016, we had $7.2$4.2 million in cash $1.7 millionand $663,000 in restricted cash and $10.0 million of short-term investments.cash.
Working capital, excluding cash on hand and restricted cash, and short-term investments, increaseddecreased during 20132016 to $37.1$18.8 million from $34.6$21.2 million onat December 31, 2012.2015. The increasedecrease was primarily the result of a decrease in accounts receivable as a result of our lower sales volumes, increase in accounts payable as our vendor terms improved and increase in deferred revenue. Partially offsetting these factors was an increase in accounts receivable and reductionsinventories. Inventories have increased even as sales have decreased mainly due to the receipt of partial orders from overseas. As a result, customer orders cannot be shipped if all items are not received, resulting in accounts payable, accrued compensation costs and other accruals. Partially offsettinghigher inventories until these delinquent items was a decrease in inventories.have been received.
Cash used by operationsoperating activities was $15.6$2.6 million in 20132016 compared to cash providedgenerated from operations of $25.4$4.6 million in 2012 and cash used of $7.3 million in 2011. 2015. The cash useduse in 2016 was due to lower sales volumes, elimination of cash surrender value from company-owned life insurance policies, decrease in CDSOA proceeds and higher tax payments on the taxable income from the surrender of our corporate-owned life insurance policies. These were partially offset by operations in 2013 was the result of operating losseslower freight costs and funding the increase in working capital.lower interest payments on loans against corporate owned life insurance policies. The cash provided by operations during 2012in 2015 was mostly from the receipt of $39.9$5.3 million in proceeds from the CDSOA, partialy offset by operating losses. CDSOA proceeds of $4.6 million were received in 2011, while no proceeds were received in 2013. During 2012, we paid income taxes of $768,000, largely driven by the income related to the CDSOA proceeds compared to income tax refunds of $3.6 million in 2011. The increase in cash used by operations in 2013 compared to 2012, excluding the CDSOA receipts, was primarily due to larger operating losses driven by lower sales, higher discounting and material cost inflation, partially offset by continued savings related to operational improvements. $988,000 of interest paid on loans against corporate-owned life insurance policies.
Net cashCash generated from investing activities in 2016 was due to $28.1 million in proceeds from the surrender of corporate-owned life insurance policies. Cash provided by investing activities was $9.9 millionof $516,000 in 2013 compared to cash used of $31.6 million in 2012 and $4.4 million in 2011. During 2013, we invested $2.1 million in capital expenditures for the consolidation of our corporate offices and High Point showroom and $500,000 in final equipment payments as part of the modernization of our manufacturing operation in Robbinsville, North Carolina that started in early 2011. Over the last two years we have invested $5.1 million in a new Enterprise Resource Planning System and improved websites, of which $2.4 million was spent in 2013 and $2.7 million in 2012. Offsetting these uses of cashprior year was the maturityresult of a short term investment of $15.0 million. During 2012 we invested $25.0 million of our CDSOA proceeds in short-term investments. In addition, we invested $3.8 million in 2012 and $4.4 million in 2011 in capital expenditures, a majority of which was for the modernization of our Young America manufacturing operation in Robbinsville, North Carolina. Included in 2011 investing activities was a $1.6 million transfer of cash to restricted cash decreasing due to securea reduction in outstanding letters of credit. Sale of assets provided cash of $81,000 and $1.6 million in 2012 and 2011, respectively. Capital expenditurescredit required by our insurance company for 2014 should return back to normal maintenance capital of approximately $1.4 million, with most occurring in the later part of the year.potential workers compensation claims.
Net cash providedused by financing activities in 2016 was $2.0$27.8 million compared to $5.5 million in 2013 compared2015. During the current year we used $21.3 million for a special dividend, $5.5 million to $1.5pay off the remaining outstanding life insurance policy loans in conjunction with our decision to surrender these corporate-owned life insurance policies and $1.0 million in 2012 and $1.9 million in 2011. In 2013 and 2012, $358,000 and $661,000, respectively, were used for the purchaserepurchase and retirement of 400,000 shares of our common stock. In 2013, 2012 and 2011, proceeds from2015 we used $5.5 million to pay-down life insurance policy loans provided cashloans.
We have a secured $6 million revolving credit facility with Wells Fargo Bank, National Association with an excess availability requirement of $2.4$2 million $2.2resulting in maximum borrowings of $4.0 million under the facility, subject to borrowing base eligibility requirements. The credit facility matures in October 2018 and $2.0 million, respectively.is secured by our accounts receivable, inventory and certain other assets. Borrowings under the credit facility bear interest at a variable per annum rate equal to the daily three month London Bank Interbank Offered Rate plus 3.5%.
The following table sets forthcredit facility contains covenants that, among other things limits our contractual cash obligationsability to incur certain types of debt or liens, pay dividends, enter into mergers and consolidations or use proceeds of borrowing for other commercial commitmentsthan permitted uses. The credit facility also includes a covenant requiring us to maintain a minimum fixed charge ratio of not less than 1.10 to 1.0 with an initial compliance date at December 31, 2013 (in thousands):2017. We were in compliance with all covenants under the credit facility as of December 31, 2016.
10
| Payment due or commitment expiration | |||||||||||||
|
|
|
| Less Than 1 year |
|
|
|
|
|
|
| Over 5 years | ||
| Total |
|
| 1-3 years |
| 4-5 years |
| |||||||
Contractual cash obligations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement benefits (1) | $ | 3,002 |
| $ | 301 |
| $ | 544 |
| $ | 494 |
| $ | 1,663 |
Operating leases |
| 8,875 |
|
| 1,530 |
|
| 2,870 |
|
| 1,687 |
|
| 2,788 |
Capital lease |
| 600 |
|
| 147 |
|
| 294 |
|
| 159 |
|
| - |
Total contractual cash obligations | $ | 12,477 |
| $ | 1,978 |
| $ | 3,708 |
| $ | 2,340 |
| $ | 4,451 |
Other commercial commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit | $ | 1,737 |
| $ | 1,737 |
|
|
|
|
|
|
|
|
|
(1)The RP-2000 Combined Health Mortality Table with generational mortality improvements was used in estimating future benefit payments, and, for the non-pension related postretirement benefits, the health care cost trend rate for determining payments is 8.0% for 2013 and gradually declines to 5.5% in 2018 where it is assumed to remain constant for the remaining years.
Not included in the above table are unrecognized tax benefits of $351,000, due to the uncertainty of the date of occurrence.
Continued Dumping and Subsidy Offset Act(CDSOA)
(“CDSOA”)
The CDSOA provides for distribution of monies collected by U.S. Customs and Border Protection (“Customs”) for imports covered by antidumping duty orders entering the United States through September 30, 2007 to eligible domestic producers that supported a successful antidumping petition (“Supporting Producers”) for wooden bedroom furniture imported from China. Antidumping duties for merchandise entering the U.S. after September 30, 2007 have remained with the U.S. Treasury.
Certain manufacturers who did not support the antidumping petition (“Non-Supporting Producers”) filed actions in the United States Court of International Trade, challenging the CDSOA’s “support requirement” and seeking to share in the distributions. As a result, Customs held back a portion of those distributions (the “Holdback”) pending resolution of the Non-Supporting Producers’ claims. The Court of International Trade dismissed all of the actions of the Non-Supporting Producers, who appealed to the United States Court of Appeals for the Federal Circuit. Customs advised that it expected to distribute the Holdback to the Supporting Producers after March 9, 2012. The Non-Supporting Producers sought injunctions first from the Court of International Trade and, when those efforts were unsuccessful, from the Federal Circuit directing Customs to retain the Holdback until the Non-Supporting Producers’ appeals were resolved.
On March 5, 2012, the Federal Circuit denied the motions for injunction, “without prejudicing the ultimate disposition of these cases.” As a result, we received a CDSOA distribution of $39.9 million in April 2012. On August 19, 2013, the Federal Circuit issued a decision affirming the dismissal of the claims of two of the four Non-Supporting Producers. On January 3, 2014, the Federal Circuit denied those Non-Supporting Producers’ petitions for rehearing en banc. Those Non-Supporting Producers have until April 4, 2014 to file a petition for a writ of certiorari with the U.S. Supreme Court. If the Supreme Court were to accept such petitions for certiorari review and thereafter to reverse the decisions of the Federal Circuit and determine that the Non-Supporting Producers were entitled to CDSOA distributions, it is possible that Customs may seek to have us return all or a portion of our company’s share of that distribution. Based on what we know today, we believe that the chance Customs will seek and be entitled to obtain a return of our CDSOA distribution is remote.
In addition, according toNovember 2015 and 2016, Customs asdistributed $1.2 million and $3.3 million in collected duties that were available for distribution in 2015 and 2016, respectively. Our portion of these distributions were $412,000 and $1.1 million, respectively, representing 33.6% of the balance available for distribution in 2015 and 33.5% of the balance available for distribution in 2016. As of October 1, 2013,2016, Customs reported that approximately $3.2$1.4 million in duties had been secured by cash deposits and bondsor other security paid at the time of import on unliquidatedsubject entries of wooden bedroom furniture that are subject to the CDSOA, and this amount isremains in a clearing account balance, which potentially may become available for distribution under the CDSOA to eligible domestic producersmanufacturers in connection with the case involving wooden bedroom furniture imported from China.The amount ultimately distributed will be impacted by appeals concerning the results of the annual administrative review process, which can retroactively increase or decrease the actual duties owed on entries secured by cash deposits and bonds, by collection efforts concerning duties thatChina. The final amounts available for distribution may be owed,higher or lower than the preliminary amounts reported in the clearing account due to liquidations, reliquidations, protests, and by any applicable legislation and Customs’ interpretation of that legislation.other events affecting entries. Assuming that such funds are distributed and that our percentage allocation in the future years is the same as it was in 2011 whenfor the last annual2016 distribution was made (approximately 30%33.5% of the funds distributed) and that the $3.2$1.4 million securedcollected by the government as of October 1, 2016 does not change, as a result of appeals from the annual administrative review process or otherwise, we could receive approximately $1.0 million$460,000 in CDSOA funds.
In November 2012, Customs disclosed that it withheld $3.0 million in funds related to the antidumping duty order on wooden bedroom furniture from China that was otherwise available for distribution in 2012 until the amounts at issuesome point in the pending litigation have been resolved. In December 2013, Customs disclosed that it withheld another $6.4 million in funds related to the antidumping duty order on wooden bedroom furniture from China that was otherwise available for distribution in 2013 until the amounts at issue in the pending litigation have been resolved. It is expected that Customs will continue withholding such funds until a final decision is reached in the pending litigation.Therefore, no distributions were made in December 2012 or in December 2013 for the case involving wooden bedroom furniture from China. Assuming our historic allocation of approximately 30%, the portion of these undistributed funds that may be allocated to us is approximately $2.8 million.future.
Due to the uncertainty of the various legal and administrative processes, we cannot provide assurances as to the amountfuture amounts of additional CDSOA funds that ultimately will be received, if any, and we cannot predict when we may receive any additional CDSOA funds.
16New Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2019, however early application is permitted for reporting periods beginning after December 15, 2018. The Company does not anticipate ASU 2016-13 to have a material impact to the consolidated financial statements.
In February 2016, the FASB issued its final lease accounting standard, FASB Accounting Standard Codification ("ASC"), Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of -use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring lases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). Our leases as of December 31, 2016, principally relate to real estate leases for corporate office, showrooms and warehousing. The new standard will be effective for the first quarter of our fiscal year ending December 31, 2019. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 by reviewing all long-term leases and determining the potential impact it will have on our consolidated financial statements and related disclosures. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of the new guidance for all periods presented.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The amendments in ASU 2016-09 simplify several aspects of the accounting for share-based payment transactions. The new guidance requires that excess tax benefits (which represent the excess of actual tax benefits receive at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) be recorded in the income statement as a reduction of income or income taxes when the awards vest or are settled. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. The new standard will be effective for the first quarter of our fiscal year ending December 31, 2017. The adoption of this new standard will reduce our reported income taxes and will increase cash flows from operating activities; however, the amounts of that reduction/increase is dependent upon the underlying vesting or exercise activity and related future stock prices.
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New Accounting PronouncmentsIn August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The guidance is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard will be effective for the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted, provided all amendments are adopted in the same period. In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. We have reviewed the standard and determined that our statement of cash flows will include changes in restricted cash with related disclosures. The guidance requires application using a retrospective transition method. We do not anticipate ASU 2016-15 or ASU 2016-18 to have a material impact to our consolidated financial statements.
In July 2013,2015, the Financial Accounting Standards BoardFASB issued Accounting Standards Update No. 2013-11, “Income TaxesASU 2015-11, Inventory (Topic 740)330): PresentationSimplifying the Measurement of Inventory (“ASU 2015-11”). The amendments in ASU 2015-11 require an Unrecognized Tax Benefit When aentity to measure in scope inventory at the lower of cost and net realizable value. Net Operating Loss Carryforward, a Similar Tax Loss,realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or a Tax Credit Carryforward Exists,”the retail inventory method. The amendments do not apply to LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. The amendment is effective for public entities for fiscal years, and interim periods within those years beginning after December 15, 2013. We2016 and should be applied prospectively, however early adoption is permitted. The Company does not anticipate ASU 2015-11 to have a material impact to the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is intended to improve, and converge with international standards, the financial reporting requirements for revenue from contracts with customers. The new standard will adopt this guidance as required inbe effective for the first quarter of 2014.our fiscal year ending December 31, 2018. Early adoption is permitted but we do not expect to early adopt this new accounting pronouncement. In preparation for this new standard, we are identifying all forms of agreements with our customers and will begin to evaluate the provisions in such agreements in light of the five-step model specified by the new guidance. The adoptionfive-step model includes: 1) determination of this update willwhether a contract – an agreement between two or more parties that creates legally enforceable rights and obligations exists; 2) identification of the performance obligations in the contract; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligations in the contract; and 5) recognition of revenue when (or as) the performance obligation is satisfied. We are also evaluating the impact of the new standard on certain common practices currently employed by us and others in our industry, such as co-operative advertising, pricing allowances and consumer coupons. We are in the initial phases and have not have a material effectyet determined the impact of the new standard on our financial statements or whether we will adopt on a full or modified retrospective basis in the first quarter of operations, financial position or cash flows.our fiscal year ending December 31, 2018.
Critical Accounting Policies
We have chosen accounting policies that are necessary to accurately and fairly report our operational and financial position. Below are the critical accounting policies that involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Cash Revenue Recognition - Sales are recognized when title and equivalents – We consider highly liquid investments with maturitiesrisk of 90 days or less when purchasedloss pass to the customer, which typically occurs at the time of shipment. In some cases, however, title does not pass until the shipment is delivered to the customer. Revenue includes amounts billed to customers for shipping. Provisions are made at the time revenue is recognized for estimated product returns and for incentives that may be cash equivalents. Cash equivalentsoffered to customers. Amounts collected in advance of shipment are stated at cost, which approximates fair market value. Our cashreflected as deferred revenue on the consolidated balance sheet and cash equivalents are primarily in bank deposits, money market funds and certificatethen recognized as revenue as the risk of deposits.loss passes to the customer.
Short-term investments– We consider investments with maturities of greater than three months and less than one year at the time of purchase as short-term investments. Our investments are in certificates of deposits, which we intend to hold until maturity. We report the investments at cost with earnings recognized through interest income.
Allowance for doubtful accounts – We maintain an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. We perform ongoing credit evaluations of our customers and monitor their payment patterns. Should the financial condition of our customers deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would reduce our earnings.
Inventory valuation– Inventory is valued at the lower of cost or market. Cost for all inventories is determined using the first-in, first-out (FIFO) method. We evaluate our inventory to determine excess or slow moving items based on current order activity and projections of future demand. For those items identified, we estimate our market value based on current trends. Those items having a market value less than cost are written down to their market value. If we fail to forecast demand accurately, we could be required to write off additional non-saleable inventory, which would also reduce our earnings.
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Deferred Taxestaxes --- We recognize deferred tax assets and liabilities based on the estimated future tax effects of differences between the financial statements and the tax basis of assets and liabilities given the enacted tax laws. We evaluate the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that the company will realize its deferred tax assets in the future. The assessment of whether or not a valuation allowance is required often requires significant judgment, including the forecast of future taxable income. Adjustments to the deferred tax valuation allowance are made to earnings in the period when such assessment is made.
In preparation of the company’sour consolidated financial statements, management exercises judgmentswe exercise judgment in estimating the potential exposure to unresolved tax matters and appliesapply a more likely than not criteria approach for recording tax benefits related to uncertain tax positions. While actual results could vary, in management’s judgment, the company haswe believe we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters.
Long-lived assets– Property, plant and equipment is reviewed for possible impairment when events indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods that would lower our earnings. Our depreciation policy reflects judgments on the estimated remaining useful lives of assets.
Accruals for Self- Insurance Reservesself-insurance reserves – Accruals for self-insurance reserves (including workers’ compensation and employee medical) are determined based on a number of assumptions and factors, including historical payment trends and claims history, actuarial assumptions and current and estimated future economic conditions. These estimated liabilities are not discounted. If actual trends differ from these estimates, the financial results could be impacted. Historical trends have not differed materially from these estimates.
17Actuarially valued benefit accruals and expenses – We maintain three actuarially valued benefit plans. These are our deferred compensation plan, our supplemental employee retirement plan and our postretirement health care benefits program. The liability for these programs and the majority of their annual expense are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and mortality projections, which are usually updated on an annual basis near the beginning of each year. We are required to consider current market conditions, including changes in interest rates in making these assumptions. Changes in projected liability and expense may occur in the future due to changes in these assumptions. The key assumptions used in developing the projected liabilities and expenses associated with the plans are outlined in Note 7 of the consolidated financial statements.
TableStock-Based Compensation - We record share-based payment awards at fair value on the grant date of Contentsthe awards, based on the estimated number of awards that are expected to vest, over the vesting period. The fair value of stock options was determined using the Black-Scholes option-pricing model. The fair value of the restricted stock awards was based on the closing price of the Company’s common stock on the date of the grant. For awards with performance conditions, we recognize compensation cost over the expected period to achieve the performance conditions, provided achievement of the performance conditions are deemed probable.
Off-Balance Sheet Arrangements
We do not have transactions or relationships with “special purpose” entities, and we do not have any off-balance sheet financing other than normal operating leases primarily for warehousing, showroom and office space, and certain technology equipment.
Item 7A.Quantitative and Qualitative Disclosures about Market Risk
None of our foreign sales or purchases are denominated in foreign currency and we do not have any foreign currency hedging transactions. While our foreign purchases are denominated in U.S. dollars,Not required to be provided by a relative decline in the value of the U.S. dollar could result in an increase in the cost of products obtained from offshore sourcing and reduce our earnings, unless we are able to increase our prices for these items to reflect any such increased cost.smaller reporting company.
Item 8.Financial Statements and Supplementary Data
The consolidated financial statements and schedule listed in items 15(a) (1) and (a) (2) hereof are incorporated herein by reference and are filed as part of this report.
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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that due to a material weakness in our internal control over financial reporting described below, our disclosure controls and procedures were not effective as of December 31, 2013, the end of the period covered by this annual report. This material weakness did not result in any audit adjustments or misstatements.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (1992)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework (1992), our management determined that a material weakness in internal control over financial reporting existed as of December 31, 2013 as described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As a result of the material weakness, management has concluded that our internal control over financial reporting was not effective as of December 31, 2013. 2016.
A material weakness in internal control over financial reporting was identified as we did not design and maintain effective controls over access of key accounting personnel to initiate, modify and record transactions and standing data in our financial systems that impact key accounts and disclosures. Specifically, some key accounting personnel had this access, including the ability to both prepare and post manual journal entries without an independent review by someone without this access.
The material weakness did not result in any audit adjustments or misstatements. However, this material weakness could result in a misstatement of the consolidated financial statements of disclosures that would result in a material misstatement of the annual or interim consolidated financial statements that would not have been prevented or detected.
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in their report, which is included on page F-2 of this Annual Report on Form 10-K.
Remediation
Subsequent to December 31, 2013, we have removed the access of key accounting personnel and established access limitations specific to job functions and roles that we believe will address segregation of duties risks which included removing system access for the key accounting personnel who previously had the ability to create and post journal entries and also had the responsibility for independently reviewing journal entries of others. We believe the design and implementation of this control, which will be tested by management during the first quarter of the year ended December 31, 2014, will remediate the material weakness.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the the fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B.Other Information
None.
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Item 10.Directors, Executive Officers and Corporate Governance
Information related to our directors is set forth under the caption “Election of Directors” of our proxy statement (the “2014“2017 Proxy Statement”) for our annual meeting of shareholders scheduled for April 17, 2014.May 25, 2017. Such information is incorporated herein by reference.
Information relating to compliance with section 16(a) of the Exchange Act is set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of our 20142017 Proxy Statement and is incorporated herein by reference.
Information relating to the Audit Committee and Board of Directors’ determinations concerning whether a member of the Audit Committee of the Board is a “financial expert” as that term is defined under Item 407(d) (5) of Regulation S-K is set forth under the caption “Board and Board Committee Information” of our 20142017 Proxy Statement and is incorporated herein by reference.
Information concerning our executive officers is included in Part I of this report under the caption “Executive Officers of the Registrant.”
We have adopted a code of ethics that applies to our associates, including the principal executive officer, principal financial officer, principal accounting officer or controller, or personpersons performing similar functions. Our code of ethics is posted on our website at www.stanleyfurniture.com.www.stanleyfurniture.com. Amendments to and waivers from our code of ethics will be posted to our website when permitted by applicable SEC and NASDAQ rules and regulations.
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Item 11.Executive Compensation
Information relating to our executive compensation is set forth under the captions “Compensation of Executive Officers,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report”caption “Executive Compensation” of our 20142017 Proxy Statement. Such information is incorporated herein by reference.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Our information relating to this item is set forth under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”Management” of our 20142017 Proxy Statement. Such information is incorporated herein by reference.
Information concerning our equity compensation plan is included in Part II of this report under the caption “Equity Compensation Plan Information.”
Item 13.Certain Relationships and Related Transactions, and Director Independence
Our information relating to this item is set forth under the caption “Compensationcaptions “Corporate Governance – Review of Executive Officers – Employment AgreementsTransactions with Related Persons” and Related Transactions” and “Board“Corporate Governance - Board and Board Committee Information” of our 20142017 Proxy Statement. Such information is incorporated herein by reference.
Item 14.Principal Accounting Fees and Services
Our information relating to this item is set forth under the caption “Independent Registered Public Accountants”Auditors” of our 20142017 Proxy Statement. Such information is incorporated herein by reference.
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Item 15.Exhibits, Financial Statement Schedules
(a) Documents filed as a part of this Report:
(a) | Documents filed as a part of this Report: | |
(1) | The following consolidated financial statements are included in this report on Form 10-K: | |
Report of Independent Registered Public Accounting Firm | ||
Consolidated Balance Sheets as of December 31, | ||
| Consolidated Statements of Operations for each of the | |
| Consolidated Statements of Comprehensive (Loss) Income for each of the | |
Consolidated Statements of Changes in Stockholders’ Equity for each of the | ||
| Consolidated Statements of Cash | |
| Notes to Consolidated Financial Statements | |
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(2) | Financial Statement Schedule: | |
Schedule II – Valuation and Qualifying Accounts for each of the | ||
(b) | Exhibits: | |
3.1 | The Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q (Commission File No. 0-14938) for the quarter ended July 2, 2005). | |
3.2 | By-laws of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed | |
3.3 | Certificate of Designation of Series A Participating Preferred Stock of Stanley Furniture Company, Inc. (incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K (Commission Rule No. 0-14938) filed December 6, 2016). | |
4.1 | The Certificate of Incorporation, By-laws and | |
4.2 | Rights Agreement, dated as of December 5, 2016, between Stanley Furniture Company, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Registrant’s Form 8-K (Commission Rule No. 0-14938) filed December 6, 2016). | |
4.3 | Amendment No. 1, dated as of January 30, 2017, to the Rights Agreement, dated as of December 5, 2016, between Stanley Furniture Company, Inc. and Continental Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.1 to Registrant’s Form 8-K (Commission Rule No. 0-14938) filed January 30, 2017). | |
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10.1 | 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).(1) | |
10.2 | 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).(1) | |
10.3 | 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 | |
10.4 | 2000 Incentive Compensation Plan (incorporated 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).(1) | |
10.5 | Second Amendment to Supplemental Retirement Plan of Stanley Furniture Company, Inc. effective January 1, 2002 (incorporated by reference to Exhibit 10.33 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2002).(1) | |
10.6 | Form of Stock Option Award under 2000 Incentive Plan (ISO) (incorporated by reference to Exhibit 10.23 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2004).(1) | |
|
| |
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10.7 | Form of Stock Option Award under 2000 Incentive Plan (ISO/NSO) (incorporated by reference to Exhibit 10.24 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2004).(1) | |
10.8 | Form of Stock Option Award under 2000 Incentive Plan (Directors) (incorporated by reference to Exhibit 10.25 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2004).(1) | |
10.9 | Form of Indemnification Agreement between the Registrant and each of its Directors (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed on September 25, 2008). | |
10.10 | Change in Control Protection Agreement, originally dated December 11, 2009, by and between Stanley Furniture Company, Inc. and Glenn Prillaman and amended and restated effective December 11, 2015 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (commission File No. 0-14938) filed on December | |
10.11 | Change in Control Protection Agreement, dated December 11, 2015, by and between Stanley Furniture Company, Inc. and Anita Wimmer (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K (commission File No. 0-14938) filed on December 11, 2015).(1) | |
10.12 | 2008 Incentive Compensation Plan (incorporated by reference to Exhibit A to the Registrant’s Proxy Statement (Commission File No. 0-14938) for the annual meeting of stockholders held on April 15, 2008).(1) | |
| Management contract or compensatory plan |
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10.13 | Form of Stock Option Award under 2008 Incentive Plan (Officers) (incorporated by reference to Exhibit 10.21 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2008).(1) | |
| Form of Stock Option Award under 2008 Incentive Plan (Directors) (incorporated by reference to Exhibit 10.22 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2008).(1) | |
|
| |
10.15 |
| |
| Form of Restricted Stock Grant under 2008 Incentive Plan (Officers) (incorporated by reference to Exhibit 10.16 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, | |
| Form of Restricted Stock Award under 2008 Incentive Plan (Directors) (incorporated by reference to Exhibit 10.17 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2012).(1) | |
| 2012 Incentive Compensation Plan (incorporated by reference to Exhibit A to the Registrant’s Proxy Statement (Commission File No. 0-14938) for the annual meeting of stockholders held on April 18, 2012).(1) | |
| Form of Stock Option Award under 2012 Incentive Plan (Officers) (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, 2012).(1) | |
| Form of Restricted Stock Award under 2012 Incentive Plan (Officers) (time vesting) (incorporated by reference to Exhibit 10.20 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2012).(1) | |
10.20 | Form of Restricted Stock Award under 2012 Incentive Plan (Directors) (incorporated by reference to Exhibit 10.21 to Registrant’s Form 10-K (Commission File No. 0-14938) for year ended December 31, 2014). (1) | |
10.21 | Form of Restricted Stock Award under 2012 Incentive Plan (Officers) (time and performance vesting) (incorporated by reference to Exhibit 10.22 to Registrant’s Form 10-K (Commission File No. 0-14938) for year ended December 31, 2014).(1) | |
10.22 | Form of Restricted Stock Award under 2012 Incentive Plan (Officers) (performance vesting) (incorporated by reference to Exhibit 10.23 to Registrant’s Form 10-K (Commission File No. 0-14938) for year ended December 31, 2014).(1) | |
10.23 | Agreement dated February 12, 2015 by and among Stanley Furniture Company, Inc. and the entities and natural persons listed on Exhibit A thereto (incorporated by reference to Exhibit 99.1 to Registrant’s Form 8-K (Commission File No. 0-14938) filed February 12, 2015). | |
10.24 | Agreement dated January 7, 2016 by and among Stanley Furniture Company, Inc. and the entities and natural persons listed on Exhibit A thereto (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K (Commission File No. 0-14938) filed January 8, 2016). | |
10.25 | Credit Agreement, dated as of October 25, 2016, by and between Stanley Furniture Company, Inc. and Well Fargo Bank, National Association (incorporated by reference to Exhibit 10.1 to Registrant’s Form 10-Q (Commission Rule No. 0-14938) for the quarter ended October 1, 2016). | |
10.26 | Security Agreement, dated as of October 25, 2016, by and among Stanley Furniture Company, Inc., Stanley Furniture Company 2.0, LLC and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to Registrant’s Form 10-Q (Commission Rule No. 0-14938) for the quarter ended October 1, 2016). | |
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(1)
| Management contract or compensatory plan
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10.27 | Amendment effective as of November 30, 2016 to Employment Agreement between Stanley Furniture Company, Inc. and Glenn Prillaman dated July 22, 2016 (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K (Commission Rule No. 0-14938) filed December 2, 2016).(1) | |
10.28 | Amendment effective as of November 30, 2016 to Change in Control Protection Agreement between Stanley Furniture Company, Inc. and Anita Wimmer effective as of December 11, 2015 (incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K (Commission Rule No. 0-14938) filed December 2, 2016).(1) | |
10.29 | Agreement, dated as of January 30, 2017, by and among Stanley Furniture Company, Inc. and the entities and natural persons listed on Exhibit A thereto (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K (Commission Rule No. 0-14938) filed January 30, 2017). | |
10.30 | Amendment No. 1, dated as of January 30, 2017, to the Agreement, dated as of January 7, 2016, by and among Stanley Furniture Company, Inc. and the entities and natural persons listed on Exhibit A thereto (incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K (Commission Rule No. 0-14938) filed January 30, 2017). | |
21 | List of Subsidiaries.(2) | |
| Consent of | |
31.1 | Certification by Glenn Prillaman, our Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (2) | |
31.2 | Certification by | |
32.1 | Certification by Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification by | |
101 | The following financial statements from the Company's Annual Report on Form 10-K for the year ended December 31, | |
| ||
(1)
| Management contract or compensatory plan | |
(2) | Filed Herewith | |
(3) | Furnished Herewith |
22Item 16.10-K Summary
None.
18
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 ourits behalf by the undersigned, thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC. | ||||
February | By: |
| ||
Glenn Prillaman | ||||
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 |
| ||
/s/John D. Lapey | Chairman and Director |
| ||
(John D. “Ian” Lapey) | ||||
/s/Glenn Prillaman | President and Chief Executive Officer (Principal Executive Officer) and Director | February 22, 2017 | ||
(Glenn Prillaman) | ||||
/s/Anita W. Wimmer | Vice-President – Finance/Corporate Controller (Principal Financial and Accounting Officer) | February 22, 2017 | ||
(Anita W. Wimmer) | ||||
/s/Michael P. Haley | Director | February 22, 2017 | ||
(Michael P. Haley) | ||||
/s/T. Scott McIlhenny, Jr. | Director | February 22, 2017 | ||
(T. Scott McIlhenny, Jr.) | ||||
/s/Jeffrey S. Gilliam | Director | February 22, 2017 | ||
(Jeffrey S. Gilliam) | ||||
/s/Justyn R. Putnam | Director | February 22, 2017 | ||
(Justyn R. Putnam) | ||||
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/s/
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| February |
(Steven A. Hale) |
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2319
STANLEY FURNITURE COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 20132016
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page | ||
F-2 | ||
Consolidated Financial Statements | ||
Consolidated Balance Sheets as of December 31, |
| |
| ||
| ||
| ||
| ||
| ||
Financial Statement Schedule | ||
S-1 |
F-1
Report of Independent Registered Public Accounting Firm
To the Board of the Directors and Stockholders
Stanley Furniture Company, Inc.
High Point, North Carolina
We have audited the accompanying consolidated balance sheets of Stanley Furniture Company, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position as of Stanley Furniture Company, Inc.and its subsidiariesat December 31, 20132016 and December 31, 2012,2015 and the resultsrelated consolidated statements of their operations and theircomprehensive (loss) income, stockholders’ equity, and cash flows for eachthe years ended December 31, 2016 and 2015. In connection with our audits of the three years in the period ended December 31, 2013in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,financial statements, we have also audited the financial statement schedule listed in the accompanying indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidatedfinancial statements. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting resulted as management did not design and maintain effective controls over access of key accounting personnel to initiate, modify and record transactions and standing data in their financial systems that impact key accounts and disclosures. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing and extent of audit tests applied in our audit of the 2013 consolidatedindex. These financial statements and our opinion regardingschedule are the effectivenessresponsibility of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above.management. Our responsibility is to express opinionsan opinion on these financial statements on the financial statementand schedule and on the Company's internal control over financial reporting based on our integratedaudits.
audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effectivemisstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.Our audits included consideration of internal control over financial reporting was maintainedas a basis for designing audit procedures that are appropriate in all material respects. Our auditsthe circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial statements includedreporting. Accordingly, we express no such opinion. An audit also 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, andas well as evaluating the overall presentation of the financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,statements and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.schedule. We believe that our audits provide a reasonable basis for our opinions.opinion.
A company’s internal control overIn our opinion, the consolidated financial reporting is a process designedstatements referred to provide reasonable assurance regardingabove present fairly, in all material respects, the reliabilityfinancial position of financial reportingStanley Furniture Company, Inc. at December 31, 2016 and 2015, and the preparationresults of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements for external purposestaken as a whole, present fairly, in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain toall material respects, the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.information set forth therein.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers/s/ BDO USA, LLP
Greensboro,Raleigh, North Carolina
February 11, 201422, 2017
F-2
STANLEY FURNITURE COMPANY, INC.
(in thousands, except share data)
December 31,
December 31,
2013
2012
2016
2015
ASSETS
Current assets:
Cash
$
7,218
$
10,930
$
4,212
$
6,497
Restricted cash
1,737
1,737
663
663
Short-term investments
10,000
25,000
Accounts receivable, less allowances of $716 and $654
12,002
10,028
Inventories:
Finished goods
30,830
30,980
Work-in-process
832
1,845
Raw materials
2,004
2,235
Total inventories
33,666
35,060
Accounts receivable, less allowances of $272 and $404
3,492
6,925
Inventory, net
22,951
20,934
Prepaid expenses and other current assets
3,964
3,438
729
959
Deferred income taxes
699
962
Total current assets
69,286
87,155
32,047
35,978
Property, plant and equipment, net
20,144
19,870
1,606
1,787
Cash surrender value of life insurance policies, net
-
22,253
Other assets
5,794
3,691
2,868
3,128
Total assets
$
95,224
$
110,716
$
36,521
$
63,146
LIABILITIES
Current liabilities:
Accounts payable
$
7,897
$
8,667
$
5,674
$
5,441
Accrued salaries, wages and benefits
3,350
3,826
1,371
1,367
Deferred revenue
759
442
Other accrued expenses
1,951
2,421
593
334
Total current liabilities
13,198
14,914
8,397
7,584
Deferred income taxes
699
962
Deferred compensation
4,219
4,301
Supplemental retirement plan
1,724
1,797
Other long-term liabilities
5,686
7,601
2,199
1,812
Total liabilities
19,583
23,477
16,539
15,494
Commitments and Contingencies
Commitments and Contingencies (Footnote 10)
STOCKHOLDERS’ EQUITY
Common stock, $0.02 par value, 25,000,000 shares authorized,14,520,083 and 14,566,099 shares issued and outstanding, respectively
283
284
Common stock, $0.02 par value, 25,000,000 shares authorized,
14,730,805 and 14,906,831 shares issued and outstanding at December 31, 2016 and 2015, respectively
275
283
Capital in excess of par value
15,732
15,018
16,840
17,521
Retained earnings
59,784
72,421
5,129
32,023
Accumulated other comprehensive loss
(158)
(484)
(2,262)
(2,175)
Total stockholders’ equity
75,641
87,239
19,982
47,652
Total liabilities and stockholders’ equity
$
95,224
$
110,716
$
36,521
$
63,146
The accompanying notes are an integral part of the consolidated financial statements.
F-3
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31,
2016
2015
Net sales
$
44,574
$
57,364
Cost of sales
36,160
43,679
Gross profit
8,414
13,685
Selling, general and administrative expenses
13,982
12,661
Operating (loss) income
(5,568)
1,024
Income from Continued Dumping and Subsidy Offset Act, net
1,103
5,308
Other income, net
26
42
Interest expense, net
101
947
(Loss) income from continuing operations before income taxes
(4,540)
5,427
Income tax expense
718
76
Net (loss) income from continuing operations
(5,258)
5,351
Net (loss) from discontinued operations
-
(11)
Net (loss) income
$
(5,258)
$
5,340
Basic (loss) income per share:
(Loss) income from continuing operations
$
(0.37)
$
0.37
(Loss) from discontinued operations
-
-
Net (loss) income
$
(0.37)
$
0.37
Diluted (loss) income per share:
(Loss) income from continuing operations
$
(0.37)
$
0.37
(Loss) from discontinued operations
-
-
Net (loss) income
$
(0.37)
$
0.37
Weighted average shares outstanding:
Basic
14,139
14,273
Diluted
14,139
14,542
Dividend per share:
Special dividend
$
1.50
-
For the Years Ended December 31,
2013
2012
2011
Net sales
$
96,944
$
98,570
$
104,646
Cost of sales
87,170
86,368
92,175
Gross profit
9,774
12,202
12,471
Selling, general and administrative expenses
19,966
18,281
19,250
Operating loss
(10,192)
(6,079)
(6,779)
Income from Continued Dumping and Subsidy Offset Act, net
-
39,349
3,973
Other income, net
67
79
112
Interest income
60
82
25
Interest expense
2,729
2,402
2,355
(Loss) income before income taxes
(12,794)
31,029
(5,024)
Income tax (benefit) expense
(157)
645
1
Net (loss) income
$
(12,637)
$
30,384
$
(5,025)
(Loss) income per share:
Basic
$
(.89)
$
2.12
$
(.35)
Diluted
$
(.89)
$
2.10
$
(.35)
Weighted average shares outstanding:
Basic
14,147
14,328
14,345
Diluted
14,147
14,484
14,345
The accompanying notes are an integral part of the consolidated financial statements.
F-4
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
(in thousands)
For the Years Ended December 31,
2013
2012
2011
Net (loss) income
$
(12,637)
$
30,384
$
(5,025)
Other comprehensive (income) loss:
Amortization of prior service cost
167
177
177
Amortization of actuarial (gain) loss
(493)
125
18
Adjustments to net periodic postretirement (benefit) loss
(326)
302
195
Comprehensive (loss) income
$
(12,311)
$
30,082
$
(5,220)
For the Years Ended
December 31,
2016
2015
Net (loss) income
$
(5,258)
$
5,340
Other comprehensive (loss) income:
Amortization of prior service credit
-
92
Actuarial loss (gain)
174
(497)
Amortization of actuarial loss
(87)
(117)
Adjustments to net periodic postretirement loss (benefit)
87
(522)
Comprehensive (loss) income
$
(5,345)
$
5,862
The accompanying notes are an integral part of the consolidated financial statements.
F-5
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For each of the threetwo years in the period ended December 31, 20132016
(in thousands)
Capital in
Excess of
Par Value
Accumulated
Other
Comprehensive
Income (Loss)
Common Stock
Retained
Earnings
Shares
Amount
Accumulated
Other
Comprehensive
Income (Loss)
Total
Shares
Amount
Par Value
Earnings
(Loss) Income
Total
Balance at December 31, 2010
14,345
$
287
$
14,433
$
47,062
$
13
61,795
Balance at December 31, 2014
14,780
283
16,710
26,683
(2,697)
40,979
Net income
-
-
-
5,340
-
5,340
Other comprehensive income
-
-
-
-
522
522
Restricted stock grants
229
-
-
-
-
-
Restricted stock forfeited
(98)
-
-
-
-
-
Stock purchase and retirement for tax withholdings on vesting of restricted awards
(4)
-
(13)
-
-
(13)
Stock-based compensation
-
-
824
-
-
824
Balance at December 31, 2015
14,907
$
283
$
17,521
$
32,023
$
(2,175)
$
47,652
Net loss
(5,025)
(5,025)
-
-
-
(5,258)
-
(5,258)
Other comprehensive loss
(195)
(195)
-
-
-
-
(87)
(87)
Fees related to issuance of common stock
(40)
(40)
Special dividends declared
-
-
-
(21,636)
-
(21,636)
Restricted stock grants
179
231
-
-
-
-
-
Stock purchase and retirement
(400)
(8)
(1,004)
-
-
(1,012)
Stock purchase and retirement for tax withholdings on vesting of restricted awards
(7)
-
(15)
-
-
(15)
Stock-based compensation
505
505
-
-
338
-
-
338
Balance at December 31, 2011
14,524
287
14,898
42,037
(182)
57,040
Net income
30,384
30,384
Other comprehensive loss
(302)
(302)
Fees related to issuance of common stock
(1)
(1)
Restricted stock grants
188
Purchase and retirement of common stock
(146)
(3)
(658)
(661)
Stock-based compensation
779
779
Balance at December 31, 2012
14,566
284
15,018
72,421
(484)
87,239
Net loss
(12,637)
(12,637)
Other comprehensive income
326
326
Exercise of stock options
35
1
111
112
Restricted stock grants
28
Restricted stock forfeited
(29)
Purchase and retirement of common stock
(80)
(2)
(356)
(358)
Stock-based compensation
959
959
Balance at December 31, 2013
14,520
$
283
$
15,732
$
59,784
$
(158)
$
75,641
Balance at December 31, 2016
14,731
$
275
$
16,840
$
5,129
$
(2,262)
$
19,982
The accompanying notes are an integral part of the consolidated financial statements.
F-6
Report of Independent Registered Public Accounting Firm
To the Board of the Directors and Stockholders
Stanley Furniture Company, Inc.
High Point, North Carolina
We have audited the accompanying consolidated balance sheets of Stanley Furniture Company, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position as of Stanley Furniture Company, Inc.and its subsidiariesat December 31, 20132016 and December 31, 2012,2015 and the resultsrelated consolidated statements of their operations and theircomprehensive (loss) income, stockholders’ equity, and cash flows for eachthe years ended December 31, 2016 and 2015. In connection with our audits of the three years in the period ended December 31, 2013in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,financial statements, we have also audited the financial statement schedule listed in the accompanying indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidatedfinancial statements. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control - Integrated Framework (1992)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting resulted as management did not design and maintain effective controls over access of key accounting personnel to initiate, modify and record transactions and standing data in their financial systems that impact key accounts and disclosures. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing and extent of audit tests applied in our audit of the 2013 consolidatedindex. These financial statements and our opinion regardingschedule are the effectivenessresponsibility of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in management's report referred to above.management. Our responsibility is to express opinionsan opinion on these financial statements on the financial statementand schedule and on the Company's internal control over financial reporting based on our integratedaudits.
audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effectivemisstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.Our audits included consideration of internal control over financial reporting was maintainedas a basis for designing audit procedures that are appropriate in all material respects. Our auditsthe circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial statements includedreporting. Accordingly, we express no such opinion. An audit also 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, andas well as evaluating the overall presentation of the financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,statements and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances.schedule. We believe that our audits provide a reasonable basis for our opinions.opinion.
A company’s internal control overIn our opinion, the consolidated financial reporting is a process designedstatements referred to provide reasonable assurance regardingabove present fairly, in all material respects, the reliabilityfinancial position of financial reportingStanley Furniture Company, Inc. at December 31, 2016 and 2015, and the preparationresults of its operations and its cash flows for each of the two years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements for external purposestaken as a whole, present fairly, in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain toall material respects, the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.information set forth therein.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers/s/ BDO USA, LLP
Greensboro,Raleigh, North Carolina
February 11, 201422, 2017
F-2
STANLEY FURNITURE COMPANY, INC.
(in thousands, except share data)
| December 31, |
December 31, | ||||||||
| 2013 |
| 2012 | 2016 | 2015 | |||||
ASSETS |
|
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
| ||||||
Cash | $ | 7,218 |
| $ | 10,930 | $ | 4,212 |
| $ | 6,497 |
Restricted cash |
| 1,737 |
|
| 1,737 | 663 | 663 | |||
Short-term investments |
| 10,000 |
|
| 25,000 | |||||
Accounts receivable, less allowances of $716 and $654 |
| 12,002 |
|
| 10,028 | |||||
Inventories: |
|
|
|
|
| |||||
Finished goods |
| 30,830 |
|
| 30,980 | |||||
Work-in-process |
| 832 |
|
| 1,845 | |||||
Raw materials |
| 2,004 |
|
| 2,235 | |||||
Total inventories |
| 33,666 |
|
| 35,060 | |||||
|
|
|
|
|
| |||||
Accounts receivable, less allowances of $272 and $404 |
| 3,492 |
| 6,925 | ||||||
Inventory, net | 22,951 | 20,934 | ||||||||
Prepaid expenses and other current assets |
| 3,964 |
|
| 3,438 |
| 729 |
|
| 959 |
Deferred income taxes |
| 699 |
|
| 962 | |||||
Total current assets |
| 69,286 |
|
| 87,155 | 32,047 | 35,978 | |||
|
|
|
|
|
|
|
|
|
| |
Property, plant and equipment, net |
| 20,144 |
|
| 19,870 | 1,606 | 1,787 | |||
Cash surrender value of life insurance policies, net |
| - |
| 22,253 | ||||||
Other assets |
| 5,794 |
|
| 3,691 |
| 2,868 |
| 3,128 | |
Total assets | $ | 95,224 |
| $ | 110,716 | $ | 36,521 |
| $ | 63,146 |
|
|
|
|
|
| |||||
LIABILITIES |
|
|
|
|
|
|
|
|
| |
Current liabilities: |
|
|
|
|
| |||||
Accounts payable | $ | 7,897 |
| $ | 8,667 | $ | 5,674 |
| $ | 5,441 |
Accrued salaries, wages and benefits |
| 3,350 |
|
| 3,826 | 1,371 | 1,367 | |||
Deferred revenue |
| 759 |
| 442 | ||||||
Other accrued expenses |
| 1,951 |
|
| 2,421 |
| 593 |
| 334 | |
Total current liabilities |
| 13,198 |
|
| 14,914 |
| 8,397 |
| 7,584 | |
|
|
|
|
|
| |||||
Deferred income taxes |
| 699 |
|
| 962 | |||||
Deferred compensation |
| 4,219 |
| 4,301 | ||||||
Supplemental retirement plan | 1,724 | 1,797 | ||||||||
Other long-term liabilities |
| 5,686 |
|
| 7,601 |
| 2,199 |
|
| 1,812 |
Total liabilities |
| 19,583 |
|
| 23,477 |
| 16,539 |
| 15,494 | |
|
|
|
|
|
|
|
|
| ||
Commitments and Contingencies |
|
|
|
| ||||||
Commitments and Contingencies (Footnote 10) | ||||||||||
|
|
|
|
|
|
|
|
| ||
STOCKHOLDERS’ EQUITY |
|
|
|
| ||||||
Common stock, $0.02 par value, 25,000,000 shares authorized,14,520,083 and 14,566,099 shares issued and outstanding, respectively | 283 |
| 284 | |||||||
Common stock, $0.02 par value, 25,000,000 shares authorized, |
|
|
|
| ||||||
14,730,805 and 14,906,831 shares issued and outstanding at December 31, 2016 and 2015, respectively |
| 275 |
| 283 | ||||||
Capital in excess of par value |
| 15,732 |
| 15,018 | 16,840 | 17,521 | ||||
Retained earnings |
| 59,784 |
| 72,421 |
| 5,129 |
| 32,023 | ||
Accumulated other comprehensive loss |
| (158) |
|
| (484) |
| (2,262) |
| (2,175) | |
Total stockholders’ equity |
| 75,641 |
|
| 87,239 |
| 19,982 |
|
| 47,652 |
Total liabilities and stockholders’ equity | $ | 95,224 |
| $ | 110,716 | $ | 36,521 | $ | 63,146 | |
|
|
|
|
| ||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-3
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
For the Years Ended December 31, 2016 2015 Net sales $ 44,574 $ 57,364 Cost of sales 36,160 43,679 Gross profit 8,414 13,685 Selling, general and administrative expenses 13,982 12,661 Operating (loss) income (5,568) 1,024 Income from Continued Dumping and Subsidy Offset Act, net 1,103 5,308 Other income, net 26 42 Interest expense, net 101 947 (Loss) income from continuing operations before income taxes (4,540) 5,427 Income tax expense 718 76 Net (loss) income from continuing operations (5,258) 5,351 Net (loss) from discontinued operations - (11) Net (loss) income $ (5,258) $ 5,340 Basic (loss) income per share: (Loss) income from continuing operations $ (0.37) $ 0.37 (Loss) from discontinued operations - - Net (loss) income $ (0.37) $ 0.37 Diluted (loss) income per share: (Loss) income from continuing operations $ (0.37) $ 0.37 (Loss) from discontinued operations - - Net (loss) income $ (0.37) $ 0.37 Weighted average shares outstanding: Basic 14,139 14,273 Diluted 14,139 14,542 Dividend per share: Special dividend $ 1.50 -
| For the Years Ended December 31, | |||||||
| 2013 |
| 2012 |
| 2011 | |||
Net sales | $ | 96,944 |
| $ | 98,570 |
| $ | 104,646 |
|
|
|
|
|
|
|
|
|
Cost of sales |
| 87,170 |
|
| 86,368 |
|
| 92,175 |
|
|
|
|
|
|
|
|
|
Gross profit |
| 9,774 |
|
| 12,202 |
|
| 12,471 |
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
| 19,966 |
|
| 18,281 |
|
| 19,250 |
|
|
|
|
|
|
|
|
|
Operating loss |
| (10,192) |
|
| (6,079) |
|
| (6,779) |
|
|
|
|
|
|
|
|
|
Income from Continued Dumping and Subsidy Offset Act, net |
| - |
|
| 39,349 |
|
| 3,973 |
Other income, net |
| 67 |
|
| 79 |
|
| 112 |
Interest income |
| 60 |
|
| 82 |
|
| 25 |
Interest expense |
| 2,729 |
|
| 2,402 |
|
| 2,355 |
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes |
| (12,794) |
|
| 31,029 |
|
| (5,024) |
|
|
|
|
|
|
|
|
|
Income tax (benefit) expense |
| (157) |
|
| 645 |
|
| 1 |
|
|
|
|
|
|
|
|
|
Net (loss) income | $ | (12,637) |
| $ | 30,384 |
| $ | (5,025) |
|
|
|
|
|
|
|
|
|
(Loss) income per share: |
|
|
|
|
|
|
|
|
Basic | $ | (.89) |
| $ | 2.12 |
| $ | (.35) |
Diluted | $ | (.89) |
| $ | 2.10 |
| $ | (.35) |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
Basic |
| 14,147 |
|
| 14,328 |
|
| 14,345 |
Diluted |
| 14,147 |
|
| 14,484 |
|
| 14,345 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-4
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (LOSS)
(in thousands)
| For the Years Ended December 31, | |||||||
| 2013 |
| 2012 |
| 2011 | |||
|
|
|
|
|
|
|
|
|
Net (loss) income | $ | (12,637) |
| $ | 30,384 |
| $ | (5,025) |
Other comprehensive (income) loss: |
|
|
|
|
|
|
|
|
Amortization of prior service cost |
| 167 |
|
| 177 |
|
| 177 |
Amortization of actuarial (gain) loss |
| (493) |
|
| 125 |
|
| 18 |
Adjustments to net periodic postretirement (benefit) loss |
| (326) |
|
| 302 |
|
| 195 |
Comprehensive (loss) income | $ | (12,311) |
| $ | 30,082 |
| $ | (5,220) |
For the Years Ended | |||||
2016 | 2015 | ||||
Net (loss) income | $ | (5,258) |
| $ | 5,340 |
Other comprehensive (loss) income: | |||||
Amortization of prior service credit |
| - |
|
| 92 |
Actuarial loss (gain) | 174 | (497) | |||
Amortization of actuarial loss |
| (87) |
|
| (117) |
Adjustments to net periodic postretirement loss (benefit) |
| 87 |
| (522) | |
Comprehensive (loss) income | $ | (5,345) |
| $ | 5,862 |
The accompanying notes are an integral part of the consolidated financial statements.
F-5
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For each of the threetwo years in the period ended December 31, 20132016
(in thousands)
|
|
|
|
| Capital in Excess of Par Value |
|
|
| Accumulated Other Comprehensive Income (Loss) |
|
| |||||||||||||||||||||
| Common Stock |
|
| Retained Earnings |
|
|
| |||||||||||||||||||||||||
| Shares |
| Amount |
| Accumulated Other Comprehensive Income (Loss) | Total | Shares |
| Amount | Par Value | Earnings | (Loss) Income | Total | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance at December 31, 2010 | 14,345 |
| $ | 287 |
| $ | 14,433 |
| $ | 47,062 |
| $ | 13 | 61,795 | ||||||||||||||||||
Balance at December 31, 2014 | 14,780 |
|
| 283 |
| 16,710 |
| 26,683 |
| (2,697) |
| 40,979 | ||||||||||||||||||||
Net income | - |
|
| - |
| - |
| 5,340 |
| - |
| 5,340 | ||||||||||||||||||||
Other comprehensive income | - | - | - | - | 522 | 522 | ||||||||||||||||||||||||||
Restricted stock grants | 229 |
|
| - |
| - |
| - |
| - |
| - | ||||||||||||||||||||
Restricted stock forfeited | (98) | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock purchase and retirement for tax withholdings on | ||||||||||||||||||||||||||||||||
vesting of restricted awards | (4) |
|
| - |
| (13) |
| - |
| - |
| (13) | ||||||||||||||||||||
Stock-based compensation | - |
| - |
| 824 |
| - |
| - |
| 824 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Balance at December 31, 2015 | 14,907 | $ | 283 | $ | 17,521 | $ | 32,023 | $ | (2,175) | $ | 47,652 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net loss |
|
|
|
|
|
|
|
| (5,025) |
|
|
| (5,025) | - | - | - | (5,258) | - | (5,258) | |||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
| (195) |
| (195) | - |
|
| - |
| - |
|
| - |
| (87) |
| (87) | ||||||
Fees related to issuance of common stock |
|
|
|
|
| (40) |
|
|
|
|
|
| (40) | |||||||||||||||||||
Special dividends declared | - | - | - | (21,636) | - | (21,636) | ||||||||||||||||||||||||||
Restricted stock grants | 179 |
|
|
|
|
|
|
|
|
|
|
|
| 231 |
|
| - |
| - |
|
| - |
| - |
| - | ||||||
Stock purchase and retirement | (400) | (8) | (1,004) | - | - | (1,012) | ||||||||||||||||||||||||||
| Stock purchase and retirement for tax withholdings | ||||||||||||||||||||||||||||||||
on vesting of restricted awards | (7) |
|
| - |
| (15) |
|
| - |
| - |
| (15) | |||||||||||||||||||
Stock-based compensation |
|
|
|
|
| 505 |
|
|
|
|
|
|
|
| 505 | - |
| - |
| 338 |
| - |
| - |
| 338 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at December 31, 2011 | 14,524 |
| 287 |
|
| 14,898 |
|
| 42,037 |
| (182) |
| 57,040 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net income |
|
|
|
|
|
|
|
| 30,384 |
|
|
| 30,384 | |||||||||||||||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
| (302) |
| (302) | |||||||||||||||||||
Fees related to issuance of common stock |
|
|
|
|
| (1) |
|
|
|
|
|
| (1) | |||||||||||||||||||
Restricted stock grants | 188 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Purchase and retirement of common stock | (146) |
| (3) |
|
| (658) |
|
|
|
|
|
| (661) | |||||||||||||||||||
Stock-based compensation |
|
|
|
|
| 779 |
|
|
|
|
|
|
|
| 779 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Balance at December 31, 2012 | 14,566 |
| 284 |
|
| 15,018 |
|
| 72,421 |
| (484) |
| 87,239 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Net loss |
|
|
|
|
|
|
|
| (12,637) |
|
|
| (12,637) | |||||||||||||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
| 326 |
| 326 | |||||||||||||||||||
Exercise of stock options | 35 |
| 1 |
|
| 111 |
|
|
|
|
|
| 112 | |||||||||||||||||||
Restricted stock grants | 28 |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Restricted stock forfeited | (29) |
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Purchase and retirement of common stock | (80) |
| (2) |
|
| (356) |
|
|
|
|
|
| (358) | |||||||||||||||||||
Stock-based compensation |
|
|
|
|
| 959 |
|
|
|
|
|
|
|
| 959 | |||||||||||||||||
Balance at December 31, 2013 | 14,520 |
| $ | 283 |
| $ | 15,732 |
| $ | 59,784 |
| $ | (158) |
| $ | 75,641 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Balance at December 31, 2016 | 14,731 |
| $ | 275 |
| $ | 16,840 |
| $ | 5,129 |
| $ | (2,262) |
| $ | 19,982 | ||||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-6
STANLEY FURNITURE COMPANY, INCINC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| For the Years Ended | |||||||
| December 31, | |||||||
| 2013 |
| 2012 |
| 2011 | |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Cash received from customers | $ | 94,951 |
| $ | 99,064 |
| $ | 103,295 |
Cash paid to suppliers and employees |
| (108,028) |
|
| (110,185) |
|
| (116,763) |
Cash from Continued Dumping and Subsidy Offset Act, net |
| - |
|
| 39,466 |
|
| 4,615 |
Interest paid |
| (2,516) |
|
| (2,218) |
|
| (2,094) |
Income tax (payments) refunds |
| (42) |
|
| (768) |
|
| 3,640 |
Net cash provided (used) by operating activities |
| (15,635) |
|
| 25,359 |
|
| (7,307) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Sale of short-term securities |
| 15,000 |
|
|
|
|
|
|
Purchase of short-term securities |
| - |
|
| (25,000) |
|
|
|
Increase in restricted cash |
| - |
|
| (150) |
|
| (1,587) |
Capital expenditures |
| (2,700) |
|
| (3,820) |
|
| (4,352) |
Proceeds from sale of assets |
| - |
|
| 81 |
|
| 1,570 |
Purchase of other assets |
| (2,415) |
|
| (2,730) |
|
| (38) |
Net cash (used) provided by investing activities |
| 9,885 |
|
| (31,619) |
|
| (4,407) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Capital lease payments |
| (132) |
|
| (132) |
|
| (121) |
Purchase and retirement of common stock |
| (358) |
|
| (661) |
|
| - |
Proceeds from exercise of stock options |
| 112 |
|
| - |
|
| - |
Proceeds from insurance policy loans |
| 2,416 |
|
| 2,283 |
|
| 2,003 |
Net cash provided (used) by financing activities |
| 2,038 |
|
| 1,490 |
|
| 1,882 |
|
|
|
|
|
|
|
| |
Net decrease in cash |
| (3,712) |
|
| (4,770) |
|
| (9,832) |
Cash at beginning of year |
| 10,930 |
|
| 15,700 |
|
| 25,532 |
Cash at end of year | $ | 7,218 |
| $ | 10,930 |
| $ | 15,700 |
|
|
|
|
| ||||
Reconciliation of net loss to net cash used by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) income | $ | (12,637) |
| $ | 30,384 |
| $ | (5,025) |
Adjustments to reconcile net (loss) income to net cash used by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
| 1,886 |
|
| 1,753 |
|
| 1,614 |
Amortization |
| 350 |
|
| 14 |
|
| 29 |
Stock-based compensation |
| 959 |
|
| 779 |
|
| 505 |
Other, net |
| 4 |
|
| (62) |
|
| 468 |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
| (1,974) |
|
| 224 |
|
| (364) |
Inventories |
| 1,394 |
|
| (3,976) |
|
| (5,389) |
Prepaid expenses and other current assets |
| (2,793) |
|
| (2,363) |
|
| 2,917 |
Accounts payable |
| (574) |
|
| (1,652) |
|
| 847 |
Accrued salaries, wages and benefits |
| 117 |
|
| (1,044) |
|
| (205) |
Other accrued expenses |
| (737) |
|
| 374 |
|
| (2,330) |
Other assets |
| 153 |
|
| 146 |
|
| 130 |
Other long-term liabilities |
| (1,783) |
|
| 782 |
|
| (504) |
Net cash provided (used) by operating activities | $ | (15,635) |
| $ | 25,359 |
| $ | (7,307) |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Capital lease |
|
|
|
|
|
| $ | 973 |
Asset purchases in accounts payable | $ | 80 |
| $ | 255 |
|
|
|
For the Years Ended December 31, | |||||
2016 | 2015 | ||||
Cash flows from operating activities: |
|
|
|
|
|
Cash received from customers | $ | 48,248 | $ | 56,271 | |
Cash paid to suppliers and employees |
| (51,243) |
|
| (55,898) |
Cash from Continued Dumping and Subsidy Offset Act, net | 1,103 | 5,308 | |||
Interest paid, net |
| (191) |
|
| (987) |
Income tax payments |
| (510) |
| (105) | |
Net cash (used in) provided by operating activities |
| (2,593) |
|
| 4,589 |
Cash flows from investing activities: |
|
|
|
|
|
Proceeds from surrender of corporate-owned life insurance policies | 28,139 | - | |||
Decrease in restricted cash |
| - |
|
| 527 |
Proceeds from sale of assets | - | 4 | |||
Purchase of other assets |
| (14) |
|
| (15) |
Net cash provided by investing activities |
| 28,125 |
| 516 | |
|
|
|
|
|
|
Cash flows from financing activities: | |||||
Stock purchase and retirement for tax withholdings on vesting of restricted awards |
| (15) |
|
| (13) |
Payments on insurance policy loans | (5,495) | (5,461) | |||
Payment of dividends |
| (21,282) |
|
| - |
Purchase and retirement of common stock |
| (1,012) |
| - | |
Net cash used by financing activities |
| (27,804) |
|
| (5,474) |
Cash flows from discontinued operations: |
|
|
|
|
|
Cash (used in) provided by operating activities |
| (13) |
| 1,282 | |
Net cash (used in) provided by discontinued operations |
| (13) |
|
| 1,282 |
Net (decrease) increase cash |
| (2,285) |
|
| 913 |
Cash at beginning of year |
| 6,497 |
| 5,584 | |
Cash at end of year | $ | 4,212 |
| $ | 6,497 |
Reconciliation of net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
Net (loss) income | $ | (5,258) |
| $ | 5,340 |
Loss from discontinued operations | - | 11 | |||
Depreciation |
| 181 |
|
| 185 |
Amortization | 289 | 285 | |||
Stock-based compensation |
| 338 |
|
| 824 |
Other, net | - | 14 | |||
Changes in assets and liabilities: |
|
|
|
|
|
Accounts receivable | 3,433 | (1,072) | |||
Inventories |
| (2,017) |
|
| 3,282 |
Prepaid expenses and other assets | (176) | (1,747) | |||
Accounts payable |
| 233 |
|
| (542) |
Accrued salaries, wages and benefits | (250) | 177 | |||
Other accrued expenses |
| 235 |
|
| (1,109) |
Other long-term liabilities |
| 399 |
| (1,059) | |
Net cash (used in) provided by operating activities | $ | (2,593) |
| $ | 4,589 |
The accompanying notes are an integral part of the consolidated financial statementsstatements.
F-7
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
The consolidated financial statements include Stanley Furniture Company, Inc. and our wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. We are a leading designer, manufacturerdesign, marketing and importersourcing resource in the middle-to-upscale segment of the wood furniture exclusively targeted at the premium price range of the residential market.
For financial reporting purposes, we operate in one reportable segment where substantially all revenues are from the sale of residential wood furniture products. This reportable segment consists of two product lines that are branded as Stanley Furniture and Young America. Sales from these two groups of products for the three years ended are as follows:
| 2013 |
| 2012 |
| 2011 |
Stanley Furniture | 60% |
| 62% |
| 56% |
Young America | 40% |
| 38% |
| 44% |
Total net sales | 100% |
| 100% |
| 100% |
Subsequent events were evaluated through the date these financial statements were issued.
Cash Equivalents
Cash and short-term, highly-liquidWe consider all highly liquid investments with original maturitiesa maturity of three months or less are considered cash andwhen purchased to be cash equivalents.
Short-term InvestmentsRestricted Cash
InvestmentsRestricted cash includes collateral deposits required under the Company’s line of credit agreement, to guarantee the Company’s workers compensation insurance policy. The restricted cash balance is expected to mature over the next twelve months.
Accounts Receivable
Substantially all of our accounts receivable are due from retailers and dealers that sell residential home furnishings, which consist of a large number of entities with maturitiesa broad geographic dispersion. We continually perform credit evaluations of greater than three monthsour customers and less than one year atgenerally do not require collateral. Once we have determined the time of purchase are considered short-term investments. Our investments are in certificates of deposits, whichreceivable is uncollectible, it is charged against the allowance for doubtful accounts. In the event a receivable is determined to be potentially uncollectible, we intendengage collection agencies to hold until maturity. We report the investments at cost with earnings recognized through interest income.attempt to collect amounts owed to us after all internal collection attempts have ended.
Revenue Recognition
Sales are recognized when title and risk of loss pass to the customer, which typically occurs at the time of shipment. In some cases, however, title does not pass until the shipment is delivered to the customer. Revenue includes amounts billed to customers for shipping. Provisions are made at the time revenue is recognized for estimated product returns and for incentives that may be offered to customers. Amounts collected in advance of shipment are reflected as deferred revenue on the consolidated balance sheet and then recognized as revenue as the risk of loss passes to the customer.
Inventories
Inventories are valuedstated at the lower of cost (first-in, first-out) or market. Cost for all inventories is determined usingbased solely on those charges incurred in the first-in, first-out (FIFO) method.acquisition and production of the related inventory (i.e. material, freight, labor and overhead). Management regularly examines inventory to determine if there are indicators that the carrying value exceeds its net realizable value. Experience has shown that the most significant indicators of the need for inventory markdowns are the age of the inventory and the planned discontinuance of certain items. As a result, we provide inventory valuation write-downs based upon established percentages based on age of the inventory and planned discontinuance of certain items. As of December 31, 2016 and 2015, we had approximately $23.0 million and $20.9 million of finished goods, net of a valuation allowance of $1.3 million and $1.4 million, respectively.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed using the straight-line method based upon the estimated useful lives. Depreciation expense is charged to cost of sales or selling, general and administrative expenses based on the nature of the asset. 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. Assets are reviewed for possible impairment when events indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of property, plant and equipment, which could result in impairment charges in future periods. DepreciationOur depreciation policy reflects judgments on the estimated useful lives of assets.
F-8
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Accounting Policies (continued)
Capitalized Software Cost
We amortize purchased computer software costs using the straight-line method over the estimated economic lives of the related products. Unamortized cost at December 31, 20132016 and 20122015 was approximately $4.9$2.4 million and $2.8$2.7 million, respectively, and is included in other assets.
F-8
TableCash Surrender Value of Contents
STANLEY FURNITURE COMPANY, INC.Life Insurance Policies
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)At December 31, 2015, we owned 27 life insurance policies as a funding arrangement for our deferred compensation plan discussed in Note 7. These corporate-owned policies had a net cash surrender value of $22.3 million. We had $5.5 million in loans and accrued interest outstanding against the cash surrender value. The growth in cash surrender value of these corporate-owned policies, net of related premiums and plan administrative costs, is included in operating income. Interest on the insurance policy loans is recorded as interest expense below operating income. In the first quarter of 2016, we liquidated the corporate-owned life insurance policies with cash surrender value of $28.1 million. We received $22.4 million in proceeds, net of outstanding loans and accrued interest.
1. Actuarially valued benefit accruals and expensesSummary
We maintain three actuarially valued benefit plans. These are our deferred compensation plan, our supplemental employee retirement plan and our postretirement health care benefits program. The liability for these programs and the majority of Significant Accounting Policies (continued)their annual expense are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and mortality projections, which are usually updated on an annual basis near the beginning of each year. We are required to consider current market conditions, including changes in interest rates in making these assumptions. Changes in projected liability and expense may occur in the future due to changes in these assumptions. The key assumptions used in developing the projected liabilities and expenses associated with the plans are outlined in Note 7 of the consolidated financial statements.
Income Taxes
Deferred income taxes are determined based on the difference between the consolidated 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. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. Interest and penalties on uncertain tax positions are recorded as income tax expense.
Fair Value of Financial Instruments
Accounting for fair value measurements requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). The fair value of trade receivables tradeand payables and letters of credit approximate the carrying amount because of the short maturity of these instruments.
Earnings per Common Share
Basic earnings per share is computed based on the weighted average number of common shares outstanding. Diluted earnings per share includes any dilutive effect of outstanding stock options and restricted stock calculated using the treasury stock method.
F-9
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation
We record share-based payment awards at fair value on the grant date of the awards, based on the estimated number of awards that are expected to vest.vest, over the vesting period. The fair value of stock options was determined using the Black-Scholes option-pricing model. The fair value of the restricted stock awards was based on the closing price of the Company’s common stock on the date of the grant. For awards with performance conditions, we recognize compensation cost over the expected period to achieve the performance conditions, provided achievement of the performance conditions are deemed probable.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Changes in such estimates may affect amounts reported in future periods.
Reclassifications
As of December 31, 2015, the Company reclassified approximately $442,000 of amounts collected in advance of shipment from accounts payable to deferred revenue. As both accounts payable and deferred revenue are presented as current liabilities, management does not believe there to be a material impact on the consolidated financial statements taken as a whole.
New Accounting Pronouncements
In July 2013,June 2016, the FASB issued ASU 2016-13, Financial Accounting Standards Board issued Accounting Standards Update No. 2013-11, “Income TaxesInstruments – Credit Losses (Topic 740)326): PresentationMeasurement of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists,”Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for fiscal years,financial assets held at the reporting date based on historical experience, current conditions, and interimreasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods within those years, beginning after December 15, 2013. We2019, however early application is permitted for reporting periods beginning after December 15, 2018. The Company does not anticipate ASU 2016-13 to have a material impact to the consolidated financial statements.
In February 2016, the FASB issued its final lease accounting standard, FASB Accounting Standard Codification ("ASC"), Leases (Topic 842) (“ASU 2016-02”), which requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The lease liability will adopt this guidancebe equal to the present value of lease payments and the right-of -use asset will be based on the lease liability, subject to adjustment such as requiredfor initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring lases to be classified as either operating or finance. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). Our leases as of December 31, 2016, principally relate to real estate leases for corporate office, showrooms and warehousing. The new standard will be effective for the first quarter of 2014. Theour fiscal year ending December 31, 2019. Early adoption of this updateis permitted. We are evaluating the effect that ASU 2016-02 by reviewing all long-term leases and determining the potential impact it will not have a material effect on our consolidated financial statements and related disclosures. The standard is to be applied under the modified retrospective method, with elective reliefs, which requires application of operations, financial position or cash flows.the new guidance for all periods presented.
2. Property, Plant and Equipment
F-10
| Depreciable lives (in years) |
|
|
|
| ||
|
| (in thousands) | |||||
| 2013 |
| 2012 | ||||
Land and buildings | 20 to 50 | $ | 13,893 |
| $ | 13,896 | |
Machinery and equipment | 5 to 12 |
| 27,549 |
| 28,406 | ||
Office furniture and equipment | 3 to 15 |
| 1,902 |
| 1,153 | ||
Construction in progress |
|
| 16 |
| 522 | ||
Property, plant and equipment, at cost |
|
| 43,360 |
| 43,977 | ||
Less accumulated depreciation |
|
| 23,216 |
| 24,107 | ||
Property, plant and equipment, net |
| $ | 20,144 |
| $ | 19,870 | |
F-9
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Accounting Policies (continued)
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The amendments in ASU 2016-09 simplify several aspects of the accounting for share-based payment transactions. The new guidance requires that excess tax benefits (which represent the excess of actual tax benefits receive at the date of vesting or settlement over the benefits recognized over the vesting period or upon issuance of share-based payments) be recorded in the income statement as a reduction of income or income taxes when the awards vest or are settled. The new guidance also requires excess tax benefits to be classified as an operating activity in the statement of cash flows rather than as a financing activity. The new standard will be effective for the first quarter of our fiscal year ending December 31, 2017. The adoption of this new standard will reduce our reported income taxes and will increase cash flows from operating activities; however, the amounts of that reduction/increase is dependent upon the underlying vesting or exercise activity and related future stock prices.
In August 2016, FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The guidance is intended to reduce diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This standard will be effective for the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted, provided all amendments are adopted in the same period. In November 2016, FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. We have reviewed the standard and determined that our statement of cash flows will include changes in restricted cash with related disclosures. The guidance requires application using a retrospective transition method. We do not anticipate ASU 2016-15 or ASU 2016-18 to have a material impact to our consolidated financial statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”). The amendments in ASU 2015-11 require an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonable predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using last-in, first-out (“LIFO”) or the retail inventory method. The amendments do not apply to LIFO or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (“FIFO”) or average cost. The amendment is effective for public entities for fiscal years beginning after December 15, 2016 and should be applied prospectively, however early adoption is permitted. The Company does not anticipate ASU 2015-11 to have a material impact to the consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This standard is intended to improve, and converge with international standards, the financial reporting requirements for revenue from contracts with customers. The new standard will be effective for the first quarter of our fiscal year ending December 31, 2018. Early adoption is permitted but we do not expect to early adopt this new accounting pronouncement. In preparation for this new standard, we are identifying all forms of agreements with our customers and will begin to evaluate the provisions in such agreements in light of the five-step model specified by the new guidance. The five-step model includes: 1) determination of whether a contract – an agreement between two or more parties that creates legally enforceable rights and obligations exists; 2) identification of the performance obligations in the contract; 3) determination of the transaction price; 4) allocation of the transaction price to the performance obligations in the contract; and 5) recognition of revenue when (or as) the performance obligation is satisfied. We are also evaluating the impact of the new standard on certain common practices currently employed by us and others in our industry, such as co-operative advertising, pricing allowances and consumer coupons. We are in the initial phases and have not yet determined the impact of the new standard on our financial statements or whether we will adopt on a full or modified retrospective basis in the first quarter of our fiscal year ending December 31, 2018.
F-11
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Property, Plant and Equipment
Depreciable lives (in years) | |||||||
(in thousands) | |||||||
2016 | 2015 | ||||||
Machinery and equipment | 5 to 12 |
| $ | 2,675 |
| $ | 2,675 |
Leasehold improvements | 15 |
| 1,833 |
| 1,833 | ||
Property, plant and equipment, at cost |
|
|
| 4,508 |
|
| 4,508 |
Less accumulated depreciation |
| 2,902 |
| 2,721 | |||
Property, plant and equipment, net |
|
| $ | 1,606 |
| $ | 1,787 |
3. Debt
We have a secured $6.0 million revolving credit facility with Wells Fargo Bank, National Association with an excess availability requirement of $2.0 million resulting in maximum borrowings of $4.0 million under the facility, subject to borrowing base eligibility requirements. The credit facility matures in October 2018 and is secured by our accounts receivable, inventory and certain other assets. Borrowings under the credit facility bear interest at a variable per annum rate equal to the daily three month London Bank Interbank Offered Rate plus 3.5%.
The credit facility contains covenants that, among other things limit our ability to incur certain types of debt or liens, pay dividends, enter into mergers and consolidations or use proceeds of borrowing for other than permitted uses. The credit facility also includes a covenant requiring us to maintain a minimum fixed charge ratio of not less than 1.1 to 1.0 for the trailing twelve months with an initial compliance date at December 31, 2017.
At December 31, 2016, no borrowings were outstanding under this revolving credit facility.
4. Income Taxes
The provision for income tax expense (benefit) consists of (in thousands):
| 2013 |
| 2012 |
| 2011 | 2016 | 2015 | ||||||
Current: |
|
|
|
|
|
|
|
|
|
| |||
Federal | $ | (18) |
| $ | 434 |
| $ | 32 | $ | 525 | $ | 52 | |
State |
| (139) |
|
| 211 |
|
| (31) |
| 193 |
|
| 24 |
Total current |
| (157) |
|
| 645 |
|
| 1 |
| 718 |
| 76 | |
Deferred: |
|
|
|
|
|
| |||||||
Federal |
|
|
|
|
|
| - | - | |||||
State |
|
|
|
|
|
|
|
|
| - |
|
| - |
Total deferred |
|
|
|
|
|
|
|
|
| - |
| - | |
Income tax expense (benefit) | $ | (157) |
| $ | 645 |
| $ | 1 | $ | 718 |
| $ | 76 |
F-12
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED 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:
| 2013 |
| 2012 |
| 2011 | 2016 | 2015 | |||
Federal statutory rate | (35.0)% |
| 35.0% |
| (35.0)% | 35.0 | % |
| 35.0 | % |
State tax, net of federal benefit | (2.9) |
| 2.0 |
| (3.4) | |||||
State tax credits and adjustments | 1.0 |
| .5 |
| .6 | 1.8 |
|
| (1.9) |
|
Increase in cash surrender value of life insurance policies | (5.9) |
| (2.2) |
| (12.3) | |||||
Tax-exempt interest |
|
|
| .7 | ||||||
Change in cash surrender value of life insurance policies | ||||||||||
Valuation allowance increase (decrease) | 43.7 |
| (33.7) |
| 46.7 | 143.2 |
|
| (23.6) |
|
Other, net | (2.1) |
| .5 |
| 2.7 | (4.6) |
| .3 |
| |
Effective income tax rate | (1.2)% |
| 2.1% |
| 0.0% | (15.8) | % |
| 1.4 | % |
The income tax effects of temporary differences that comprise deferred tax assets and liabilities at December 31 follow (in thousands):
| 2013 |
| 2012 | 2016 | 2015 | |||||
Current deferred tax assets: |
|
|
|
| ||||||
Noncurrent deferred tax assets (liabilities): |
|
|
|
| ||||||
Accounts receivable | $ | 268 |
| $ | 243 | $ | 99 | $ | 150 | |
Employee benefits |
| 901 |
| 978 | ||||||
Other accrued expenses |
| 507 |
|
| 278 |
| 587 |
|
| 248 |
Gross current deferred tax asset |
| 1,676 |
| 1,499 | ||||||
Less valuation allowance |
| (977) |
|
| (537) | |||||
Net current deferred tax asset | $ | 699 |
| $ | 962 | |||||
|
|
|
|
| ||||||
Noncurrent deferred tax assets (liabilities) |
|
|
|
| ||||||
Property, plant and equipment | $ | (6,306) |
| $ | (6,211) | (1,190) | (1,255) | |||
Employee benefits |
| 3,339 |
| 3,377 |
| 3,979 |
|
| 4,252 | |
Other noncurrent assets |
| 109 |
| 142 | ||||||
Contribution carryforward | 181 | 278 | ||||||||
AMT credit |
| 631 |
| 649 |
| 1,205 |
|
| 676 | |
Net operating loss |
| 9,578 |
|
| 4,131 |
| 7,727 |
| 14,845 | |
Gross non-current deferred tax assets (liabilities) |
| 7,351 |
| 2,088 | ||||||
Gross non-current deferred tax assets |
| 12,588 |
|
| 19,194 | |||||
Less valuation allowance |
| (8,050) |
|
| (3,050) |
| (12,588) |
| (19,194) | |
Net noncurrent deferred tax assets (liabilities) | $ | (699) |
| $ | (962) | |||||
Net noncurrent deferred tax assets | $ | - |
| $ | - | |||||
F-10
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Income Taxes (continued)
We have U.S. federal and state net operating loss carry-forwardscarryforwards of approximately $25.4$20.6 million which are available to reduce future taxable income. The federal net operating loss will begin expiring in 2031 and the2033. We have combined state net operating lossesloss carryforwards of $18.4 million that will expire at various times beginning in 2026.2027.
During 2013,2016, we recorded a non-cash chargecredit to our valuation allowance of $5.4$6.6 million against our December 31, 20132016 deferred tax assets. The primary assets which are covered by this valuation allowance are employee benefits and net operating losses in excess of the amounts which can be carried back to prior periods. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation
allowance. Our results over the most recent three-year period were heavily affected by our business restructuring activities. Our cumulative loss, excluding income from the Continued Dumping and Subsidy Offset Act, in the most recent three-year period, in our view, represented sufficient negative evidence to require a valuation allowance. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. Although realization is not assured, we have concluded that the remaining netreversal, resulting in no deferred tax asset in the amount of $699,000 will be realized based on the reversal of existing deferred tax liabilities. The amount of the deferred tax assets actually realized, however, could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities.balance being recognized. Should we determine that we will not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.
F-13
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Income Taxes (continued)
The unrecognized tax benefits activity for the year ended December 31 followfollows (in thousands):
| 2013 | 2012 | 2016 | 2015 | ||||||
Unrecognized tax benefits balance at January 1 | $ | 678 | $ | 650 | $ | 307 |
| $ | 309 | |
Gross increases in tax positions of prior years |
| 164 |
| - | ||||||
Lapse of statute of limitations |
| (98) |
| - | - |
| (2) | |||
Gross increases for tax positions of prior years |
| - |
| 81 | ||||||
Gross decreases for tax positions of prior years |
| (229) |
| (53) | ||||||
Unrecognized tax benefits balance at December 31 | $ | 351 | $ | 678 | $ | 471 |
| $ | 307 | |
As of December 31, 20132016 and 2012,2015, we had approximately $57,000$97,000 and $253,000$76,000 of accrued interest related to uncertain tax positions, respectively.
Total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is $228,000$307,000 at December 31, 20132016 and $510,000$200,000 at December 31, 2012.2015. The 2010 2011 and 2012through 2015 tax years remain open to examination by major taxing jurisdictions.
4. 5. Stockholders’ Equity