SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 28,June 27, 1998 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)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.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of AprilJuly 10, 1998.
Class Number
----- ------
Common Stock, par value $.02 per share 3,440,7577,054,768 Shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
March 28, December 31,
ASSETSJune 27, December31,
1998 1997
----------- -------------
ASSETS
Current assets:
Cash...........................................Cash..................................................................... $ 1,7171,532 $ 756
Accounts receivable, less allowances of $1,943$2,229 and $1,895......................... 31,295$1,895................ 31,128 27,427
Inventories:
Finished goods............................... 21,984goods........................................................ 24,251 21,220
Work-in-process.............................. 7,124Work-in-process....................................................... 7,108 6,997
Raw materials................................ 19,334materials......................................................... 19,394 17,513
-------- --------
48,442------ ------
50,753 45,730
Prepaid expenses and other current assets...... 653assets................................ 1,625 1,571
Deferred income taxes..........................taxes.................................................... 1,184 770
770
-------- ------------- ---
Total current assets......................... 82,877assets........................................... 86,222 76,254
-------- --------
Property, plant and equipment, at cost........... 85,557 84,545
Less accumulated depreciation.................. 34,138 32,831
-------- --------
51,419net........................................... 51,532 51,714
Goodwill, less accumulated amortization of $3,108$3,192 and $3,024..................................... 10,332$3,024................. 10,248 10,416
Other assets..................................... 4,729assets................................................................. 4,283 4,841
-------- --------
$149,357----- -----
$152,285 $143,225
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt...........debt.................................... $ 5,086 $ 5,086
Accounts payable............................... 19,040payable........................................................ 19,964 18,164
Accrued salaries, wages and benefits........... 9,673benefits.................................... 9,708 9,687
Other accrued expenses......................... 2,955expenses.................................................. 2,352 1,877
-------- ------------- -----
Total current liabilities.................... 36,754liabilities........................................... 37,110 34,814
Long-term debt, exclusive of current maturities.. 48,303maturities.............................. 45,270 47,491
Deferred income taxes............................ 10,448taxes........................................................ 10,357 10,448
Other long-term liabilities......................liabilities.................................................. 2,225 2,225
-------- ------------- -----
Total liabilities.............................. 97,730liabilities........................................................ 94,962 94,978
-------- -------------- ------
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized, 3,440,7577,054,768
and 3,432,7596,865,518 shares issued and outstanding......................... 68 68outstanding............................. 140 137
Capital in excess of par value................... 37,618 37,508value............................................... 39,662 37,439
Retained earnings................................ 13,941earnings ........................................................... 17,521 10,671
-------- -------------- ------
Total stockholders' equity..................... 51,627equity............................................... 57,323 48,247
-------- --------
$149,357------ ------
$152,285 $143,225
======== ========
The accompanying notes are an integral part of
the financial statements.
2
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Six Months
Ended ---------------------
March 28, March 30,Ended
June 27, June 29, June 27, June 29,
1998 1997 1998 1997
---------- --------- ---------- -------- ---------
Net sales............................ $ 57,691 $ 49,631sales......................................................... $61,863 $49,469 $119,554 $99,100
Cost of sales........................ 43,546 37,170
-------- --------sales..................................................... 46,590 36,981 90,136 74,150
------ ------ ------ ------
Gross profit..................... 14,145 12,461profit.............................................. 15,273 12,488 29,418 24,950
Selling, general and administrative expenses........................... 7,752 7,127
-------- --------expenses...................... 8,350 7,199 16,102 14,327
----- ----- ------ ------
Operating income................... 6,393 5,334income........................................... 6,923 5,289 13,316 10,623
Other expense, net................... 34 69net................................................ 48 65 82 134
Interest expense..................... 1,084 756
-------- -------expense.................................................. 1,102 744 2,186 1,500
----- --- ----- -----
Income before income taxes....... 5,275 4,509taxes.................................... 5,773 4,480 11,048 8,989
Income taxes......................... 2,005 1,737
-------- -------taxes...................................................... 2,193 1,724 4,198 3,461
----- ----- ----- -----
Net income........................income........................................................ $ 3,2703,580 $ 2,7722,756 $ 6,850 $ 5,528
======= ======== ======= =======
Earnings per share:
Basic............................. .95Basic........................................................... $ .51 $ .30 $ .99 $ .60
Diluted........................... .83========= ========== ========== ==========
Diluted......................................................... $ .45 $ .28 $ .86 $ .55
========= ========== ========== ==========
Weighted average shares outstanding:
Basic............................. 3,437 4,584
Diluted........................... 3,949 5,011Basic........................................................... 6,978 9,174 6,932 9,172
===== ===== ===== =====
Diluted......................................................... 8,016 9,942 7,968 9,986
===== ===== ===== =====
The accompanying notes are an integral part of
the financial statements.
3
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
ThreeSix Months Ended
----------------------
March 28, March 30,June 27, June 29,
1998 1997
--------- ---------
Cash flows from operating activities:
Cash received from customers....................... $53,836customers.................................................. $ 46,323115,643 $98,443
Cash paid to suppliers and employees............... (51,503) (45,667)employees.......................................... (105,969) (92,047)
Interest paid...................................... (1,183) (1,038)paid................................................................. (1,725) (968)
Income taxes paid, net............................. (37) (736)
-------net........................................................ (3,388) (4,520)
--------- --------
Net cash provided (used) by operating activities..................................... 1,113 (1,118)
-------activities................................... 4,561 908
--------- --------
Cash flows from investing activities:
Capital expenditures............................... (1,012) (270)expenditures.......................................................... (2,460) (696)
Purchase of other assets........................... (24) (65)
-------assets...................................................... (41) (88)
--------- --------
Net cash used by investing activities............ (1,036) (335)
-------activities....................................... (2,501) (784)
--------- --------
Cash flows from financing activities:
Proceeds from revolving credit facility, net....... 5,098facility....................................... 2,065
Repayment of Senior Notes..........................Notes..................................................... (4,286)
Proceeds from exercised stock options.............. 72 75
-------options......................................... 937 80
--------- --------
Net cash (used) provided by financing activities........ 884 75
-------activities............................ (1,284) 80
--------- --------
Net increase (decrease) in cash.................... 961 (1,378)cash.......................................................... 776 204
Cash at beginning of year..........................year..................................................... 756 8,126
---------------- --------
Cash at end of quarter.............................quarter...................................................... $ 1,7171,532 $ 6,748
=======8,330
========== ========
Reconciliation of net income to net cash provided
(used) by operating activities:
Net income.........................................income................................................................. $ 3,2706,850 $ 2,7725,528
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization.................. 1,416 1,350amortization.......................................... 2,854 2,704
Loss on sale of assets................................................. 8 75
Changes in assets and liabilities:
Accounts receivable.......................... (3,868) (3,268)
Inventories.................................. (2,712) (3,300)receivable.................................................. (3,701) (631)
Inventories.......................................................... (5,023) (7,725)
Prepaid expenses and other current assets, net................................ 914 8assets............................ 263 (88)
Accounts payable............................. 876 984payable..................................................... 1,800 1,520
Accrued salaries, wages and benefits......... (14) (477)benefits................................. 21 (137)
Other accrued expenses....................... 1,116 859expenses............................................... 1,764 (143)
Deferred income taxes................................................ (505) (389)
Other assets................................. 115 97
Other long-term liabilities.................. (143)
------- --------assets........................................................... 230 194
--- ---
Net cash provided (used) by operating activities...activities.................................. $ 1,1134,561 $ (1,118)
======= ========908
========= =========
The accompanying notes are an integral part of the
financial statements.
4
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands)thousands, except share and per share data)
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 periods reported herein may not be indicative of the results
expected for the year. It is suggested that these financial statements be read
in conjunction with the financial statements and accompanying notes included in
Stanley's latest annual report on Form 10-K.
2. Property, Plant and Equipment
(Unaudited)
March 28, December 31,
1998 1997
---------- ------------
Land and buildings.............. $34,150 $33,941
Machinery and equipment......... 49,057 48,180
Office fixtures and equipment... 1,836 1,836
Construction in progress........ 514 588
------- -------
$85,557 $84,545
======= =======
3. Long-Term Debt
(Unaudited)
March 28, December 31,
1998 1997
--------- ------------
7.28% senior notes due March
15, 2004...................... $25,714 $30,000
7.57% senior note due June
30, 2005...................... 8,625 8,625
7.43% senior notes due November
18, 2007...................... 10,000 10,000
Revolving credit facility....... 9,050 3,952
------- -------
Total 53,389 52,577
Less current maturities......... 5,086 5,086
------- -------
$48,303
(Unaudited)
June 27, December 31,
1998 1997
Land and buildings............................................... $34,150 $33,941
Machinery and equipment.......................................... 50,123 48,180
Office fixtures and equipment.................................... 1,836 1,836
Construction in progress......................................... 879 588
------- -------
Property, plant and equipment, at cost...................... 86,988 84,545
Less accumulated depreciation.................................... 35,456 32,831
------- -------
$51,532 $51,714
======= =======
3. Long-Term Debt
(Unaudited)
June 27, December 31,
1998 1997
7.28% senior notes due March 15, 2004............................ $25,714 $30,000
7.57% senior note due June 30, 2005.............................. 8,625 8,625
7.43% senior notes due November 18, 2007......................... 10,000 10,000
Revolving credit facility........................................ 6,017 3,952
------- -------
Total.......................................................... 50,356 52,577
Less current maturities.......................................... 5,086 5,086
------- -------
$45,270 $47,491
======= =======
5
4. Earnings Per Common Share and Stock Split
Basic earnings per common share are based upon the weighted average shares
outstanding. Outstanding stock options are treated as common stock equivalents
for purposes of computing diluted earnings per share and represent the
difference between basic and diluted weighted average shares outstanding.
InOn April 7, 1998, the Board of Directors approved a two-for-one stock split to
be effecteddistributed in the form of a stock dividend, payablewhich was distributed on May 15,
1998 to stockholders of record on May 1, 1998. In connection with the stock dividend,Accordingly, 3,478,462 shares
were issued, and approximately $69,000 will
be$70,000 was transferred to common stock from
capital in excess of par value, inrepresenting the second
quarteraggregate par value ($.02 per
share) of 1998. The unaudited pro forma earnings per share, giving retroactive
effectthe shares issued. All related amounts have been retroactively
adjusted to reflect the stock split were as follows:
Three Months Ended
--------------------------
March 28, March 30,
1998 1997
----------- ---------
Earnings per share:
Basic.................... $ .48 $ .30
Diluted.................. $ .41 $ .28
Weighted average shares
outstanding:
Basic.................... 6,874 9,168
Diluted.................. 7,898 10,022
ITEMsplit.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales increased $8.1$12.4 million, or 16.2%25.1%, for the three month period ended
March 28,June 27, 1998 from the comparable 1997 period. For the six month period, net
sales increased $20.5 million, or 20.6%, from the comparable 1997 period. The
increase was due primarily to higher unit volume.
Gross profit margin for the three and six month periodperiods of 1998 decreased to
24.5%24.7% and 24.6%, respectively, from 25.1%25.2% for the comparable 1997 period.periods. The
decrease resulted from higher raw material (primarily lumber) costs, primarily lumber, partially
offset by improved operating efficiencies.
Selling, general and administrative expenses for both the three and six month
periods of 1998 as a percentage of net sales decreased to 13.4%13.5% from 14.6% and
14.5%, respectively, for the 1998 period from 14.4% in the comparable 1997 period.periods. The lower percentage waspercentages in
1998 were due principally to higher net sales in the 1998 period.sales. The majority of the $625,000 increaseincreased
expenditures in 1998 waswere selling expenses directly attributable to the sales
increase.
6
As a result of the above, operating income for the three and six month periods
of 1998 increased to $6.4$6.9 million, or 11.2% of net sales, and $13.3 million, or
11.1% of net sales, respectively, from $5.3 million, or 10.7% inof net sales, and
$10.6 million, or 10.7% of net sales, for the comparable 1997 period.periods.
Interest expense for the 1998 three and six month period ended March 28, 1998,periods increased due
primarily to higher average debt levels resulting from the Company's June and
November 1997 repurchases of its common stock.
The Company's effective income tax rate was 38.0% for the 1998 threesix month period
and total year 1997.
Financial Condition, Liquidity and Capital Resources
At March 28,June 27, 1998, long-term debt including current maturities was $53.4$50.4 million.
Debt service requirements are $800,000 in 1998, $14.2$11.2 million in 1999, $5.2
million in 2000, $6.7 million in 2001, and $6.8 million in 2002. As of March 28,June 27,
1998, approximately $9.7$18.0 million of additional borrowings were available under
the Company's revolving credit facility. The Company believes that its financial resources are adequatecash flows
from operations and funds available under existing credit facilities will be
sufficient to support itsfund capital needsexpenditures and debt service requirements.
The CompanyCash generated cash from operations of $1.1increased to $4.6 million in the 1998 first
quarterperiod
compared to cash used from operations of $1.1 million in$908,000 during the 1997 period.period, due primarily to increased sales.
Cash provided in the 1998 period was used to fund capital expenditures. Cash was
requiredexpenditures and
reduce borrowings. The cash generated in the 1997 period was used to fund
higher payments to suppliers and employees
due to increased production levels and higher tax payments.capital expenditures.
Net cash used by investing activities was $1.0$2.5 million in the 1998 period
compared to $335,000$784,000 in the 1997 period. Expenditures in each year were
primarily for plant and equipment and other assets in the normal course of
business.
Net cash providedused by financing activities was $884,000$1.3 million in the 1998 period
compared to $75,000net cash provided by financing activities of $80,000 in the 1997
period. In the 1998 period, borrowings undercash generated from operations and proceeds from the
revolving credit facility provided cashwere used to fund senior note payments.
Year 2000
The Company recognizes that the year 2000 presents many challenges for
senior debt payments.information systems. The Company has established a cross-functional team to
identify and address any internal hardware and software compliance issues. All
critical applications are expected to be compliant prior to the end of calendar
year 1999. The cost of updating systems is believed to be incrementally
immaterial because the Company has been upgrading information systems technology
since 1996 to support the Company's sales, manufacturing and administrative
functions. In addition, the Company is communicating with customers, suppliers
and others with whom it does business to determine Year 2000 compliance.
However, there can be no assurance that the systems of other companies will be
timely converted and will not have an adverse effect on the Company.
Forward-Looking Statements
Certain statements made in this report are not based on historical facts, but
are forward-looking statements. These statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy. These statements
reflect the Company's reasonable judgment with respect to future events and are
subject to risks and uncertainties that could cause 7
actual results to differ
materially from those in the forward- lookingforward-looking statements. Such risks and
uncertainties include the cyclical nature of the furniture industry,
fluctuations in the price for lumber which is the most significant raw material
used by the Company, competition in the furniture industry, capital costs and
general economic conditions.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
At the 1998 annual meeting, the holders of the Company's Common Stock,
par value $.02 per share, approved an amendment to the Company's
Certificate of Incorporation to require unanimous written consent for
action taken without a meeting of stockholders. A Certificate of
Amendment was filed on May 26, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company's stockholders was held on April 30,
1998, adjourned to and completed on May 20. 1998. The record date for
the Company's annual meeting occurred prior to the two-for-one stock
split, distributed in the form of a stock dividend, and accordingly the
votes reported below do not reflect this stock split.
(c)(i) The stockholders of the Company elected two directors for three-year
terms expiring at the Annual Meeting of Stockholders to be held in
2001. The elections were approved by the following vote:
For Withheld
Edward J. Mack 2,704,031 288,170
Thomas L. Millner 2,704,258 287,943
(ii) The stockholders approved the proposal to amend the Company's
Certificate of Incorporation to require unanimous written consent for
stockholder action taken without a meeting. The proposal received the
following vote:
FOR 1,823,345
AGAINST 995,764
ABSTAIN 18,988
BROKER NON-VOTES 211,985
(iii) The stockholders did not approve the proposal to amend the Company's
Certificate of Incorporation to increase the percentage of shares of
common stock required to approve mergers and certain other corporate
transactions to two-thirds of the shares of common stock then
outstanding. The proposal received the following vote:
FOR 1,365,437
AGAINST 1,456,205
ABSTAIN 16,455
BROKER NON-VOTES 211,985
(iv) The stockholders approved the ratification of the selection of Coopers
& Lybrand L.L.P. as the independent public accountants for the Company
for the current fiscal year. The ratification was approved by the
following vote:
FOR 2,975,457
AGAINST 888
ABSTAIN 15,856
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Fourth Amendment, dated February 24, 1998, to the
Second Amended and Restated Revolving Credit Facility and
Term Loan Agreement dated February 15, 1994 between the
Registrant, National Canada Finance Corp., and the National
Bank2. Certificate of Canada.Incorporation as amended.*
Exhibit 11. Schedule of Computation of Earnings Per Share.*
Exhibit 27.27.1 Financial Data Schedule.Schedule for the quarters ended June 27,
1998 and restated March 28, 1998.*
27.2 Restated financial data schedule for the quarters
ended March 30, 1997, June 29, 1997, September 28,
1997 and December 31, 1997.*
27.3 Restated financial data schedule for the quarters
ended March 31, 1996, June 30, 1996, September 29,
1996 and December 31, 1996.*
27.4 Restated financial data schedule for the year ended
December 31, 1995.*
(b) Reports on Form 8-K
None.
* Filed herewith.
8
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: AprilJuly 14 , 1998 By: /s/Douglas I. Payne
-------------------------
Douglas I. Payne
Sr. V.P. - Finance and
Administration,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
9