UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ------- Securities Exchange Act of 1934
For the quarterly period ended September 29, 2001March 30, 2002 or
--------------------------------
Transition report pursuant to Section 13 or 15(d) of the
------- Securities
Exchange Act of 1934
For the transition period from to .
---------- ----------------------- --------------
Commission file number 0-14938.
STANLEY FURNITURE COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1272589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1641 Fairystone Park Highway, Stanleytown, Virginia 24168
---------------------------------------------------------
(Address of principal executive offices, Zip Code)
(540)(276) 627-2000
-------------------------------------------------------
(Registrant's telephone number, including area code)
-------------------------------------------------------------------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.days:
YES X NO
----- ------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of OctoberApril 12, 2001.2002.
Class Number
Common Stock, par value $.02 per share 6,579,7886,711,690 Shares
---------
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(in(In thousands, except share data)
(unaudited)
September 29,(Unaudited)
March 30, December 31,
2002 2001 2000
-------- --------
ASSETS
Current assets:
Cash...............................................................Cash......................................................... $ 1,9482,308 $ 1,8251,955
Accounts receivable, less allowances of $2,366$2,296 and $2,230.......... 31,174 33,224$2,024.... 29,999 23,862
Inventories:
Finished goods................................................... 35,923 30,521
Work-in-process.................................................. 8,558 9,507goods............................................. 30,747 31,287
Work-in-process............................................ 6,761 7,833
Raw materials.................................................... 10,769 14,395materials.............................................. 10,835 10,402
-------- --------
Total inventories 55,250 54,42348,343 49,522
Prepaid expenses and other current assets.......................... 1,285 568assets..................... 1,213 2,354
Deferred income taxes.............................................. 2,514 2,514taxes........................................ 3,153 3,153
-------- --------
Total current assets............................................. 92,171 92,554assets....................................... 85,016 80,846
Property, plant and equipment, net..................................... 69,919 70,455net............................. 63,284 66,708
Goodwill, less accumulated amortization of $4,284 and $4,032........... 9,156 9,408$4,368.............. 9,072 9,072
Other assets...........................................................assets................................................... 6,215 6,377 6,789
-------- --------
$177,623 $179,206$163,587 $163,003
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt...............................debt......................... $ 6,839 $ 6,7146,839
Accounts payable................................................... 16,586 19,507payable............................................. 14,701 11,841
Accrued salaries, wages and benefits............................... 10,028 10,779benefits......................... 8,149 9,060
Other accrued expenses............................................. 2,466 1,795expenses....................................... 2,400 1,835
-------- --------
Total current liabilities........................................ 35,919 38,795liabilities.................................. 32,089 29,575
Long-term debt, exclusive of current maturities........................ 40,043 45,455maturities................ 25,329 30,214
Deferred income taxes.................................................. 10,651 10,860taxes.......................................... 11,251 11,251
Other long-term liabilities............................................ 4,584 4,619liabilities.................................... 4,588 4,669
-------- --------
Total liabilities.................................................. 91,197 99,729liabilities............................................ 73,257 75,709
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
6,579,7886,711,690 and 6,596,436 shares6,643,388 issued and outstanding.................. 132 132outstanding................. 134 133
Capital in excess of par value......................................... 16,951 18,160value................................. 18,766 17,537
Retained earnings ..................................................... 72,044 63,907earnings.............................................. 74,095 72,228
Stock option loans..................................................... (2,701) (2,722)loans............................................. (2,665) (2,604)
-------- --------
Total stockholders' equity......................................... 86,426 79,477equity................................... 90,330 87,294
-------- --------
$177,623 $179,206$163,587 $163,003
======== ========
The accompanying notes are an integral part of the
financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(unaudited)
(in(Unaudited)
(In thousands, except per share data)
Three Months Nine Months
Ended
Ended
--------------------- ---------------------
September September September September
29,------------------------
March 30, March 31,
2002 2001
30, 2000 29, 2001 30, 2000
-------- -------- -------- --------------- -------
Net sales.................................................. $60,007 $71,440 $177,972 $214,531sales...................................................... $59,574 $65,109
Cost of sales.............................................. 46,195 53,948 136,635 161,881sales.................................................. 45,106 49,836
Restructuring and related charges (note 2)..................... 2,905
------- -------
-------- --------
Gross profit........................................... 13,812 17,492 41,337 52,650profit................................................. 11,563 15,273
Selling, general and administrative expenses............... 7,856 8,429 22,791 25,417
Unusual charge (Note 5).................................... 2,800expenses................... 7,917 7,833
------- -------
-------- --------
Operating income....................................... 5,956 9,063 15,746 27,233income............................................. 3,646 7,440
Other expense (income), net................................ 6 (38) 24 (55)income, net.............................................. 82 7
Interest expense........................................... 1,010 999 3,095 2,925expense............................................... 834 1,069
------- ------- -------- --------
Income before income taxes............................. 4,940 8,102 12,627 24,363taxes................................... 2,894 6,378
Income taxes............................................... 1,704 3,037 4,490 9,137taxes................................................... 1,027 2,312
------- -------
-------- --------
Net income.............................................income................................................... $ 3,2361,867 $ 5,065 $ 8,137 $ 15,2264,066
======= ======= ======== ========
Earnings per share:
Basic..................................................Basic........................................................ $ .49.28 $ .71 $ 1.23 $ 2.12.62
======= =======
======== ========
Diluted................................................Diluted...................................................... $ .47.27 $ .68 $ 1.18 $ 2.02.59
======= ======= ======== ========
Weighted average shares outstanding:
Basic.................................................. 6,615 7,130 6,611 7,178Basic........................................................ 6,668 6,607
======= =======
======== ========
Diluted................................................ 6,884 7,434 6,914 7,549Diluted...................................................... 6,902 6,906
======= ======= ======== ========
The accompanying notes are an integral part of the
financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
(in(Unaudited)
(In thousands)
NineThree Months Ended
---------------------------
September September
29,-----------------------
March 30, March 31,
2002 2001
30, 2000
--------- ----------------- --------
Cash flows from operating activities:
Cash received from customers...........................................customers................................... $ 177,34653,233 $ 208,54664,169
Cash paid to suppliers and employees................................... (159,382) (189,832)employees........................... (48,512) (59,922)
Interest paid.......................................................... (3,033) (3,092)paid.................................................. (472) (937)
Income taxes paid, net................................................. (4,927) (9,154)
--------- ---------net......................................... 277 (257)
-------- --------
Net cash provided by operating activities.......................... 10,004 6,468
--------- ---------activities.................... 4,526 3,053
-------- --------
Cash flows from investing activities:
Capital expenditures................................................... (3,883) (7,723)
--------- ---------expenditures........................................... (67) (673)
Other, net..................................................... 14
-------- -------
Net cash used by investing activities (53) (673)
-------- -------
Cash flows from financing activities:
Issuance of senior notes............................................... 10,000
Proceeds from (repayment of) revolving credit facility, net............ (10,001) 17,000net.... (600) 1,472
Repayment of senior notes.............................................. (5,286) (5,236)notes...................................... (4,286) (4,286)
Purchase and retirement of common stock................................ (1,973) (12,823)stock........................ (873)
Proceeds from exercised stock options.................................. 543 343
Proceeds from insurance policy loans................................... 719 639
--------- ---------options.......................... 766 269
-------- -------
Net cash used by financing activities.................................. (5,998) (77)
--------- ---------activities........................ (4,120) (3,418)
-------- -------
Net increase (decrease) in cash........................................ 123 (1,332)cash................................ 353 (1,038)
Cash at beginning of period............................................year...................................... 1,955 1,825
3,597
--------- ----------------- -------
Cash at end of period..............................................quarter....................................... $ 1,9482,308 $ 2,265
========= =========787
======== =======
Reconciliation of net income to net cash provided
by operating activities:
Net income.............................................................income..................................................... $ 8,1371,867 $ 15,2264,066
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization...................................... 4,815 6,061
Unusual charge..................................................... 2,800amortization................................ 1,553 1,581
Noncash restructuring and related charges.................... 1,967
Deferred income taxes..............................................taxes........................................ (209)
Loss on saledisposal of assets.............................................assets................................... 14 28 54
Changes in assets and liabilities:
Accounts receivable............................................ (750) (6,080)
Inventories.................................................... (827) (9,425)receivable........................................ (6,137) (990)
Inventories................................................ 1,179 (1,479)
Prepaid expenses and other current assets...................... (1,050) (1,185)assets, net............. 1,462 (432)
Accounts payable............................................... (2,921) (556)payable........................................... 2,860 (1,389)
Accrued salaries, wages and benefits........................... (751) 1,593benefits....................... (911) (598)
Other accrued expenses......................................... 913 914expenses..................................... 565 2,315
Other assets andassets............................................... 187 167
Other long-term liabilities......................... (181) (134)
--------- ---------liabilities................................ (80) (7)
-------- -------
Net cash provided byprovidedby operating activities..............................activities....................... $ 10,0044,526 $ 6,468
========= =========3,053
======== =======
The accompanying notes are an integral part of
the financial statements.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands)
1. Preparation of Interim Financial Statements
The financial statements of Stanley Furniture Company, Inc. (referred to as
"Stanley" or the "Company") have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission ("SEC"). In the opinion of
management, these statements include all adjustments necessary for a fair
presentation of the results of all interim periods reported herein. All such
adjustments are of a normal recurring nature. Certain information and footnote
disclosures prepared in accordance with generally accepted accounting principles
have been either condensed or omitted pursuant to SEC rules and regulations.
However, management believes that the disclosures made are adequate for a fair
presentation of results of operations and financial position. Operating results
for the interim periodsperiod reported herein may not be indicative of the results
expected for the year. It is suggested that these financial statements be read
in conjunction with the financial statements and accompanying notes included in
Stanley's latest Annual Report on Form 10-K.
2. Restructuring and Related Charges
In the fourth quarter of 2001, the Company approved a plan to close a factory
and consolidate production from this facility into other Company facilities as a
result of excess capacity created by expanded offshore sourcing. For the first
quarter 2002, the Company recorded restructuring and related charges of $2.9
million pretax, or $.27 per diluted share, that included $2.0 million for fixed
asset write-downs (through higher depreciation charges due to shorter useful
lives, since the facility is not deemed impaired) and $924,000 for other exit
costs, including plant operating inefficiencies and severance cost. During the
first quarter, manufacturing operations were completely phased out including
approximately 90% of the work force. Certain warehousing and other activities
will continue into the second quarter of 2002.
The following summarizes the 2002 restructuring and related charges (in
thousands):
2.Reserve Total Reserve
Balance Total Non-cash Cash Balance
12/31/01 Charges Charges Payments 3/30/02
-------- ------- ------ ------ -------
Increased depreciation due to shorter lives $1,981 $1,981
Other exit costs.............................. $733 924 $802 $855
---- ------ ------ ---- ----
Total......................................... $733 $2,905 $1,981 $802 $855
==== ====== ====== ==== ====
3. Property, Plant and Equipment
(Unaudited)
SeptemberMarch 30, December 31,
29,2002 2001 2000
-------- --------
Land and buildings.................................. $ 42,21642,763 $ 41,44542,763
Machinery and equipment............................. 78,980 75,86979,016 79,139
Office fixtures and equipment....................... 1,829 1,829
Construction in progress............................ 516 61067
-------- --------
Property, plant and equipment, at cost.......... 123,541 119,753cost............ 123,675 123,731
Less accumulated depreciation....................... 53,622 49,29860,391 57,023
-------- --------
Property, plant and equipment, net................ $ 69,91963,284 $ 70,45566,708
======== ========
Land and buildings include the West End, North Carolina facility, which ceased
production in March 2002. As of March 30, 2002, all West End property, plant and
equipment was adjusted to its fair market value through accelerated
depreciation. See Note 2.
3.4. Long-Term Debt
(Unaudited)
SeptemberMarch 30, December 31,
29,2002 2001
2000
--------------- -------
7.28% senior notes due March 15, 2004...................2004............... $ 8,572 $12,857 $17,143
7.57% senior note due June 30, 2005.....................2005................. 5,025 6,0255,025
7.43% senior notes due November 18, 2007................ 10,000 10,0002007............ 8,571 8,571
6.94% senior notes due May, 3, 2011......................2011.................... 10,000 10,000
Revolving credit facility............................... 9,000 19,001facility........................... 600
------- -------
Total........................................... 46,882 52,169Total............................................. 32,168 37,053
Less current maturities............................. 6,839 6,7146,839
------- -------
$40,043 $45,455Long-term debt, exclusive of current maturities... $25,329 $30,214
======= =======
4. Stock Option Plan
The Company maintains a stock option plan under which holders of certain
exercisable stock options may obtain interest-bearing loans from the Company to
facilitate their exercise of stock options. Such loans are evidenced by
promissory notes and are collateralized by the shares of stock. As of September
29, 2001, approximately $2.7 million in stock option loans are outstanding.
5. Unusual Charge
In the second quarter, the Company recorded an unusual charge net of taxes of
$1.8 million ($2.8 million pre-tax) or $.26 per diluted share to write-off the
entire receivable due from Homelife, the Company's largest customer. On July 16,
2001, Homelife announced closure of its stores and filed for protection under
Chapter 11 of the Federal Bankruptcy Code. Historically, sales to Homelife have
accounted for approximately 7% of total sales.
6. Earnings Per Common Share
Basic earnings per common share are based upon the weighted average shares
outstanding. Outstanding stock options are treated as potential common stock equivalents for
purposes of computing diluted earnings per share. Basic and diluted earnings per
share are calculated using the following share data (unaudited):
Three Months Nine Months
Ended Ended
--------------------- --------------------
September September September September
29,March 30, March 31,
2002 2001
30, 2000 29, 2001 30, 2000
-------- -------- -------- -------------- ------
Weighted average shares outstanding for basic
calculation...................... 6,615 7,130 6,611 7,178calculation....................................... 6,668 6,607
Add: Effect of stock options.................. 269 304 303 371
----- -----options......................... 234 299
----- -----
Weighted average shares outstanding,
adjusted for diluted calculation....... 6,884 7,434 6,914 7,549
===== =====calculation............... 6,902 6,906
===== =====
Item6. Goodwill
On January 1, 2002 the Company adopted Statement of Financial Accounting
Standard No. 142, ("SFAS 142"), "Goodwill and Other Intangible Assets". In
accordance with SFAS 142, the Company discontinued goodwill amortization and
tested goodwill for impairment as of January 1, 2002 determining that no
impairment loss was necessary. The Company will continue to test goodwill for
impairment at least annually. Goodwill was $9.1 million as of March 30, 2002,
and was unchanged for the quarter then ended. The following table presents net
income on a comparable basis, after adjustment for goodwill amortization (in
thousands, except per share amounts):
March 30, March 31,
2002 2001
------ ------
Net income:
As reported............................................. $1,867 $4,066
Goodwill amortization (net of tax)...................... 84
------ ------
Adjusted net income..................................... $1,867 $4,150
====== ======
Basic earnings per share:
As reported............................................. $ .28 $ .62
====== ======
As adjusted............................................. $ .28 $ .63
====== ======
Diluted earnings per share:
As reported............................................. $ .27 $ .59
====== ======
As adjusted............................................. $ .27 $ .60
====== ======
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the percentage relationship to net sales of
certain items included in the Statements of Income:
Three Months Nine Months
Ended
Ended
------------------- --------------------
September September September September
29,---------------------
March March
30, 2002 31, 2001 30, 2000 29, 2001 30, 2000
-------- --------
-------- --------
Net sales............................. 100.0% 100.0%sales................................. 100.0% 100.0%
Cost of sales......................... 77.0 75.5 76.8 75.5
----- -----sales............................. 75.7 76.6
Restructuring and related charges (Note 2) 4.9
----- -----
Gross profit........................ 23.0 24.5 23.2 24.5profit............................ 19.4 23.4
Selling, general and administrative
expenses............................ 13.1 11.8 12.8 11.8
Unusual charge........................ 1.6
----- -----expenses................................ 13.3 12.0
----- -----
Operating income.................... 9.9 12.7 8.8 12.7income........................ 6.1 11.4
Other income.............................. .1
Interest expense...................... 1.7expense.......................... 1.4 1.7 1.4
----- -----1.6
----- -----
Income before income taxes.......... 8.2 11.4 7.1 11.4taxes.............. 4.8 9.8
Income taxes.......................... 2.8 4.3 2.5 4.3
----- -----taxes.............................. 1.7 3.6
----- -----
Net income............................ 5.4% 7.1% 4.6% 7.1%
===== =====income.............................. 3.1% 6.2%
===== =====
Net sales decreased $11.4$5.5 million, or 16.0%8.5%, for the three month period ended
September 29, 2001March 30, 2002, from the comparable 2000 period. For the nine month period,
net sales decreased $36.6 million, or 17.0%, from the comparable 20002001 period. The decrease wasis due primarily
to lower unit volume in all product lines except Young America(R) youth bedroom,
which increased slightly compared to the Company's collections
offering (bedroom, dining room, tables and entertainment units). An unusual
charge of $2.8 million pre-tax was recorded in the second quarter of 2001 to
write-off the receivable due from the Company's former largest customer that
filed for protection under Chapter 11 of the Federal Bankruptcy Code and has
pursued a complete liquidation of its assets. The elimination of shipments to
this customer, which historically accounted for about 7% of total sales, reduced
net sales for both the three and nine month periods ended September 29, 2001.prior year first quarter. The Company
expects a slight improvement insecond quarter sales comparisons for the fourth
quarter of 2001, resulting in a sales decline on a percentage basis in the mid
to upper single digitsincrease 10% to 14% compared to the fourth quarter of 2000. In response to
order trends the Company reduced production during 2001 through selective
downtime at its facilities. As a result, total inventories approximate year end
levels and declined $3.6 million from the second quarter
of 2001. The Company will continue to monitor order trends to manage inventory levels untilexpects business conditions improve.to gradually improve throughout
2002, which should result in a 5% to 8% increase in sales for 2002 compared to
last year.
Gross profit margin, excluding restructuring and related charges, for the three
and nine month periodsmonths of 2001 decreased2002 increased to 23.0% and 23.2%, respectively,24.3% from 24.5%23.4% for each of the comparable 2000
periods.2001 period. The
decreaseincrease resulted primarily from lower salesraw material costs and production in the
three and nine month periods of 2001. Start-up costs associated with the new
home office factory, which began production in March 2000, reduced gross profit
in the prior year periods. Improved performanceto a lesser extent
improved margins from this facilitysourcing initiatives, partially offset the impact ofby lower sales and
production levels in the threelevels. Including restructuring and nine
month periods of 2001.related charges, gross profit
margin declined to 19.4% from 23.4%
Selling, general and administrative expenses excluding the second quarter
unusual charge, for the three and nine month periods of 2001 as a percentage of net sales
increased to 13.1% and 12.8%, respectively,13.3% for the 2002 period from 11.8% for each of12.0% in the comparable 2000 periods. These percentages were2001 period.
The higher percentage was due principally to lower net sales.sales in the 2002 period.
Selling, general and administrative expenditures declined $573,000
and $2.6 million, respectively, in the three and nine month periods of 2001
primarily as a result of lower selling expenses directly attributablewere comparable to the
decrease in sales.prior year
expenditures.
As a result of the above, operating income excluding the second quarter unusual
charge, as a percentage(excluding restructuring and related
charges) decreased to $6.6 million, or 11.0% of net sales, was 9.9% and 10.4%, respectively, for the
three and nine month periodsfrom $7.4 million, or
11.4% of 2001, compared to 12.7% for each ofnet sales in the comparable 2000 periods.2001 period.
Interest expense for the three-month period of 2002 decreased over the 2001
three and nine month periods approximated prior
year periods as highercomparable three-month period due to lower average debt levels were offset by lower average interest
rates.levels.
The Company's effective income tax rate was 35.6%35.5% for the 2001 nine month2002 three-month
period and 37.0%34.0% for the total year 2000.2001. The lowerincrease in the effective tax rate
foris due primarily to higher state income taxes.
In December 2001, the Company announced a plan to expand offshore sourcing,
realign manufacturing capacity and significantly lower operating costs.
Integration of selected imported component parts and finished items in its
product line will lower costs, provide design flexibility and offer a better
value to its customers. This initiative created excess capacity in the Company's
manufacturing facilities. Accordingly, the Company decided to close its West
End, North Carolina factory and consolidate production from this facility into
other Company facilities. Closing the West End facility is expected to reduce
costs by $4 to $5 million annually and will affect approximately 13%, or 400, of
the Company's employees. Manufacturing operations at the West End facility were
completely phased out during the first quarter of 2002, including approximately
90% of the work force. Certain warehousing and other activities will continue
into the second quarter of 2002.
As a result of closing the West End facility, the Company expects to record
total restructuring and related charges of approximately $7.0 million (compared
to a previously anticipated range of $7 to $9 million) consisting of asset
write-downs (through increased state tax credits.depreciation) and other plant closing costs.
To-date the Company has recorded $5.9 million of these charges including $2.9
million in the first quarter of 2002.
Financial Condition, Liquidity and Capital Resources
Cash generated from operations increased to $10.0was $4.5 million in the 2002 first nine
months of 2001quarter
compared to $6.5cash generated by operations of $3.1 million in the 2000 period2001 period. The
increase in 2002 was due primarily to lower interest and tax payments resulting from lower taxable income levels. Working capital
increased only $2.5 million incompared
to the 2001 period compared to an increase of $15.6
million in the comparable 2000 period.
Net cash used byfor investing activities was $3.9 million$53,000 in the 2001 periodfirst three months of 2002
compared to $7.7 million$673,000 in the 2000comparable 2001 period. CashThe closure of the West End,
North Carolina factory is expected to reduce capital requirements were higher inas a
significant portion of the 2000 period duemachinery and equipment will be relocated from West
End to other Company facilities. As a result, capital expenditures related to a new manufacturing
facility. Included in the 2000 capital expenditures on the Statements of Cash
Flows was $2.7 million of 1999 capital purchases included in accounts payable at
December 31, 1999 and $5.0 million of capital purchases in the 2000 period.
These purchases were primarily for plant and equipment and other assets in the
normal course of business. Capital expenditures in 20012002 are
anticipated to be approximately $4.5$2 to $3 million.
Net cash used by financing activities was $6.0$4.1 million in the 2002 period
compared to cash used by financing activities of $3.4 million in the 2001
period
compared to $77,000 in the 2000 period. In the 20012002 period, cash from operations and proceeds from the issuanceexercise
of $10.0 million in senior notesstock options provided cash for reductionsenior debt payments and repayment of borrowings under the
revolving credit facility, senior debt
payments, capital expenditures and purchase and retirement of the Company's
common stock.facility. In the 20002001 period, cash from operations and
borrowings under the revolving credit facility provided cash for senior debt
payments, the purchase and retirement of the Company's common stock and capital
expenditures and senior debt payments. During
the nine months ended September 29, 2001, the Company purchased 86,000 shares of
its stock on the open market at an average price of $22.94.expenditures.
At September 29,
2001, approximately $8.0 million remains authorized by the Company's Board of
Directors to repurchase shares of the Company's common stock.
In April 2001, the Company issued $10.0 million of 6.94% senior notes due in
2011. At September 29, 2001,March 30, 2002, long-term debt including current maturities was $46.9$32.2
million. Debt service requirements are $1.4$2.6 million in 2001, $6.8 millionremaining in 2002, $6.9
million in 2003, $7.0 million in 2004, and $4.3 million in 2005.2005, and $2.9 million in
2006. As of September 29, 2001,March 30, 2002, approximately $24.7$33.9 million of additional borrowings
were available under the Company's revolving credit facility. The Company
believes that its financial resources are adequate to support its capital needs
and debt service requirements.
Recently Issued StatementsCritical Accounting Policies
The SEC recently issued release FR-60 related to "Disclosure of FinancialCritical
Accounting Standards
RecentlyPolicies".
Management has chosen accounting policies that are necessary to accurately and
fairly report the Financial Accounting Standards Board issued SFAS No. 141 "Business
Combinations"Company's operational and SFAS No. 142 "Goodwillfinancial position. Below are the
critical accounting policies that involve the most significant judgments and
Other Intangible Assets", which are
requiredestimates used in the preparation of the Company's financial statements.
Restructuring and related charges - The Company has provided restructuring and
related charges for closure of the West End, North Carolina facility. These
charges require judgment about the net realizable value of assets to be
adopted bydisposed, and other exit costs to be incurred. The most significant judgments
relate to estimated realizable values of property held for disposition. If
actual amounts differ from the estimates, adjustments will be required in future
statements of income.
Allowance for doubtful accounts - The Company maintains an allowance for
doubtful receivables for estimated losses resulting from the inability of our
trade customers to make required payments. We provide an allowance for specific
customer accounts where collection is doubtful and also provide a general
allowance for other accounts based on historical collection and write-off
experience. Judgment is critical because some customers have experienced
financial difficulties. If their financial condition were to worsen, additional
allowances might be required.
Inventory valuation - Inventory is valued at the beginninglower of 2002. SFAS No. 141
requires that the purchase method of accounting be usedcost or market. Cost
for all business
combinations subsequentinventories is determined using the first-in, first-out (FIFO) method.
We evaluate our inventory to June 30, 2000. SFAS No. 142 requires that goodwilldetermine excess or slow moving items based on
current order activity and projections of future demand. For those items
identified, we estimate their market value or net sales value based on current
trends. An allowance is created for those items having a net sales value less
than cost. This process recognizes projected inventory losses when they become
evident rather than at the time they are sold.
Long-lived assets - Property and intangible assets with indefiniteare 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. Our depreciation and amortization policies reflect
judgments on the estimated useful lives no longer be amortized, but
instead be tested for impairment at least annually.of assets.
The Company believesdoes not have transactions or relationships with "special purpose"
entities, and the effect of SFAS No. 142 will be to increase earnings per share by approximately
$.03Company does not have any off balance sheet financing other
than normal operating leases primarily for fiscal 2002.showroom and computer equipment.
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," or "anticipates" or the negative thereof or other variations
thereon or comparable terminology, or by discussions of strategy. These
statements reflect the Company's reasonable judgment with respect to future
events and are subject to risks and uncertainties that could cause actual
results to differ materially from those in the forward-looking statements. Such
risks and uncertainties include competition in the furniture industry including
competition from lower-cost foreign manufacturers, successful implementation of
expanded offshore sourcing, the cyclical nature of the furniture industry,
fluctuations in the price for lumber which is the most significant raw material
used by the Company, credit exposure to customers in the current economic
climate, competition in the furniture industry, capital costs and general economic conditions. Any forward lookingforward-looking
statement speaks only as of the date of this filing, and the Company undertakes
no obligation to update or revise any forward-looking statements, whether as a
result of new developments or otherwise.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Because the Company's obligation under its Revolving Credit Facility bears
interest at a variable rate, the Company is sensitive to changes in prevailing
interest rates. A one-percentage point fluctuation in market interest rates
would not have a material impact on earnings during the first nine monthsquarter of 2001.2002.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Option Agreement, dated April 30, 2001, between the
Registrant and Jeffrey R. Scheffer. (1) (2)None
(b) Reports on Form 8-K
None
---------------------------
(1) Filed herewith.
(2) Management contract.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC.
Date: OctoberApril 16, 20012002 By: /s/ Douglas I. Payne
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Douglas I. Payne
Executive V.P. - Finance & Administration and
Secretary
(Principal Financial and Accounting Officer)