UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
   
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27,September 26, 2009
or
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
for
For the transition period fromto                    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 incorporation or organization) (I.R.S. Employer Identification No.)
1641 Fairystone Park Highway, Stanleytown, Virginia 24168
(Address of principal executive offices, Zip Code)
(276) 627-2000627- 2000
(Registrant’s telephone number, including area code)
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: Yesþ Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
       
Large accelerated filero Accelerated filerþ Non-accelerated filero Smaller reporting companyo
    (Do not check if a smaller
reporting company)		  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ
As ofJuly 13,October 12, 2009, 10,332,179shares of common stock of Stanley Furniture Company, Inc., par value $.02 per share were outstanding.
 
 

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTSConsolidated Financial Statements
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
ITEM 4. Controls and Procedures
PartPART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security HoldersITEM 1A. Risk Factors
ItemITEM 6. Exhibits
SIGNATURE
EXHIBIT INDEX
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I. FINANCIAL INFORMATION
ITEM 1.
ITEM 1.Consolidated Financial Statements
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
                
 June 27, December 31,  September 26, December 31, 
 2009 2008  2009 2008 
ASSETS  
Current assets:  
Cash $40,715 $44,013  $42,430 $44,013 
Accounts receivable, less allowances of $1,753 and $1,644 19,850 21,873 
Accounts receivable, less allowances of $1,797 and $1,644 18,052 21,873 
Inventories:  
Finished goods 30,401 36,803  23,909 36,803 
Work-in-process 5,016 3,493  5,589 3,493 
Raw materials 5,774 7,048  5,876 7,048 
          
Total inventories 41,191 47,344  35,374 47,344 
  
Prepaid expenses and other current assets 5,773 3,758  9,023 3,758 
Deferred income taxes 3,895 3,906  3,726 3,906 
          
Total current assets 111,424 120,894  108,605 120,894 
  
Property, plant and equipment, net 34,284 35,445  33,255 35,445 
Goodwill 9,072 9,072  9,072 9,072 
Other assets 1,468 460  1,013 460 
          
Total assets $156,248 $165,871  $151,945 $165,871 
          
  
LIABILITIES  
Current liabilities:  
Current maturities of long-term debt $1,429 $1,429  $1,429 $1,429 
Accounts payable 9,586 11,236  10,157 11,236 
Accrued salaries, wages and benefits 7,829 6,280  7,102 6,280 
Other accrued expenses 2,040 4,890  2,837 4,890 
          
Total current liabilities 20,884 23,835  21,525 23,835 
  
Long-term debt, exclusive of current maturities 26,428 27,857  26,428 27,857 
Deferred income taxes 2,472 2,778  2,406 2,778 
Other long-term liabilities 8,218 8,293  8,192 8,293 
          
Total liabilities 58,002 62,763  58,551 62,763 
          
  
STOCKHOLDERS’ EQUITY  
Common stock, $.02 par value, 25,000,000 shares authorized and 10,332,179 shares issued and outstanding 207 207 
Common stock, $.02 par value, 25,000,000 shares authorized 10,332,179 shares issued and outstanding 207 207 
Capital in excess of par value 1,551 1,058  1,750 1,058 
Retained earnings 97,204 102,603  92,131 102,603 
Accumulated other comprehensive loss  (716)  (760)  (694)  (760)
          
Total stockholders’ equity 98,246 103,108  93,394 103,108 
          
Total liabilities and stockholders’ equity $156,248 $165,871  $151,945 $165,871 
          
The accompanying notes are an integral part of the consolidated financial statements.

 

1

STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
                 
  Three Months Ended  Nine Months Ended 
  September 26,  September 27,  September 26,  September 27, 
  2009  2008  2009  2008 
                 
Net sales $38,455  $54,483  $120,545  $176,165 
                 
Cost of sales  39,056   49,493   112,829   150,394 
             
                 
Gross profit (loss)  (601)  4,990   7,716   25,771 
                 
Selling, general and administrative expenses  6,875   10,606   22,345   28,358 
             
Operating loss  (7,476)  (5,616)  (14,629)  (2,587)
                 
Other income (expense), net  45   (22)  133   215 
Interest income  3   158   44   516 
Interest expense  953   957   2,809   2,807 
             
                 
Loss before income taxes  (8,381)  (6,437)  (17,261)  (4,663)
                 
Income tax benefit  (3,308)  (2,948)  (6,789)  (2,154)
             
                 
Net loss $(5,073) $(3,489) $(10,472) $(2,509)
             
                 
Loss per share:                
                 
Basic $(0.49) $(0.34) $(1.01) $(0.24)
             
Diluted $(0.49) $(0.34) $(1.01) $(0.24)
             
                 
Weighted average shares outstanding:                
                 
Basic  10,332   10,332   10,332   10,332 
             
Diluted  10,332   10,332   10,332   10,332 
             
                 
Cash dividend declared and paid per common share $   $.10  $   $.30 
             
The accompanying notes are an integral part of the consolidated financial statements.

2

STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
CASH FLOW
(in thousands, except per share data)thousands)
                 
  Three Months  Six Months 
  Ended  Ended 
  June 27,  June 28,  June 27,  June 28, 
  2009  2008  2009  2008 
                 
Net sales $42,326  $59,148  $82,090  $121,682 
                 
Cost of sales  38,751   49,187   73,773   100,901 
             
                 
Gross profit  3,575   9,961   8,317   20,781 
                 
Selling, general and administrative expenses  7,653   8,982   15,470   17,752 
             
                 
Operating income (loss)  (4,078)  979   (7,153)  3,029 
                 
Other income, net  43   165   88   237 
Interest income  6   153   41   357 
Interest expense  907   930   1,856   1,849 
             
                 
Income (loss) before income taxes  (4,936)  367   (8,880)  1,774 
                 
Income tax expense (benefit)  (1,913)  435   (3,481)  794 
             
                 
Net income (loss) $(3,023) $(68) $(5,399) $980 
             
                 
Earnings (loss) per share:                
 
Basic $(0.29) $(.01) $(0.52) $.09 
             
Diluted $(0.29) $(.01) $(0.52) $.09 
             
                 
Weighted average shares outstanding:                
 
Basic  10,332   10,332   10,332   10,332 
             
Diluted  10,332   10,332   10,332   10,334 
             
                 
Cash dividend declared and paid per common share     $.10      $.20 
               
         
  Nine Months Ended 
  September 26,  September 27, 
  2009  2008 
Cash flows from operating activities:
        
Cash received from customers $124,071  $176,259 
Cash paid to suppliers and employees  (120,262)  (160,516)
Interest paid  (2,725)  (2,143)
Income taxes paid  (2,531)  (4,046)
       
Net cash provided (used) by operating activities  (1,447)  9,554 
       
         
Cash flows from investing activities:
        
Capital expenditures  (1,702)  (1,485)
Purchase of other assets  (55)    
Proceeds from sale of assets  1,303     
       
Net cash provided (used) by investing activities  (454)  (1,485)
       
         
Cash flows from financing activities:
        
Repayment of senior notes  (1,429)  (1,429)
Proceeds from insurance policy loans  1,651   1,550 
Dividends paid      (3,099)
Other, net  96     
       
Net cash provided (used) by financing activities  318   (2,978)
       
         
Net increase (decrease) in cash  (1,583)  5,091 
Cash at beginning of period  44,013   31,648 
       
Cash at end of period
 $42,430  $36,739 
       
 
Reconciliation of net loss to net cash provided (used) by operating activities:
        
Net loss $(10,472) $(2,509)
         
Depreciation and amortization  4,291   7,517 
Deferred income taxes  (192)  (2,021)
Stock-based compensation  692   329 
Other, net      27 
Changes in assets and liabilities:        
Accounts receivable  3,821   266 
Inventories  11,970   10,540 
Prepaid expenses and other current assets  (8,809)  (3,164)
Accounts payable  (1,079)  (4,003)
Accrued salaries, wages and benefits  997   2,351 
Other accrued expenses  (2,161)  698 
Other assets  (404)  (334)
Other long-term liabilities  (101)  (143)
       
Net cash provided (used) by operating activities $(1,447) $9,554 
       
The accompanying notes are an integral part of the consolidated financial statements.

 

3

STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
         
  Six Months Ended 
  June 27,  June 28, 
  2009  2008 
Cash flows from operating activities:
        
Cash received from customers $83,912  $121,163 
Cash paid to suppliers and employees  (82,979)  (110,287)
Interest paid  (2,729)  (2,291)
Income taxes paid  (2,463)  (3,810)
       
Net cash provided (used) by operating activities  (4,259)  4,775 
       
         
Cash flows from investing activities:
        
Capital expenditures  (637)  (584)
Purchase of other assets  (23)    
Proceeds from sale of assets  1,303     
       
Net cash provided (used) by investing activities  643   (584)
       
         
Cash flows from financing activities:
        
Repayment of senior notes  (1,429)  (1,429)
Proceeds from insurance policy loans  1,651   1,550 
Dividends paid      (2,066)
Other, net  96     
       
Net cash provided (used) by financing activities  318   (1,945)
       
 
Net increase (decrease) in cash  (3,298)  2,246 
Cash at beginning of period  44,013   31,648 
       
Cash at end of period
 $40,715  $33,894 
       
         
Reconciliation of net income to net cash provided (used) by operating activities:
        
Net income (loss) $(5,399) $980 
Depreciation and amortization  2,194   2,869 
Deferred income taxes  (295)  (1,223)
Stock-based compensation  493   368 
Changes in assets and liabilities:        
Accounts receivable  2,023   (524)
Inventories  6,153   6,970 
Prepaid expenses and other current assets  (5,560)  (1,437)
Accounts payable  (1,650)  (3,675)
Accrued salaries, wages and benefits  1,676   2,705 
Other accrued expenses  (2,932)  (1,394)
Other assets  (887)  (784)
Other long-term liabilities  (75)  (80)
       
Net cash provided (used) by operating activities $(4,259) $4,775 
       
The accompanying notes are an integral part of the consolidated financial statements.

4

STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1.Preparation of Interim Unaudited Consolidated Financial Statements
The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, 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, we believe that the disclosures made are adequate for a fair presentation of our results of operations and our financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in our 2008 Annual Report on Form 10-K. Subsequent events were evaluated through JulyOctober 15, 2009, the date these financial statements were issued.
2.Property, Plant and Equipment
                
 June 27, December 31,  September 26, December 31, 
 2009 2008  2009 2008 
Land and buildings $38,851 $41,615  $38,851 $41,615 
Machinery and equipment 63,468 76,451  63,468 76,451 
Office furniture and equipment 1,284 1,384  1,284 1,384 
Construction in process 592 120  1,656 120 
          
Property, plant and equipment, at cost 104,195 119,570  105,259 119,570 
Less accumulated depreciation 69,911 84,125  72,004 84,125 
          
Property, plant and equipment, net $34,284 $35,445  $33,255 $35,445 
          
3.Debt
         
  June 27,  December 31, 
  2009  2008 
6.73% senior notes due through May 3, 2017 $25,000  $25,000 
6.94% senior notes due through May 3, 2011  2,857   4,286 
       
Total  27,857   29,286 
Less current maturities  1,429   1,429 
       
Long-term debt, exclusive of current maturities $26,428  $27,857 
       
Our long-term debt, shown below, is recorded at historical cost, which approximates its fair value, based primarily on estimated current rates available to us for debt of the same remaining duration and adjusted for nonperformance risk and credit risk.
         
  September 26,  December 31, 
  2009  2008 
6.73% senior notes due through May 3, 2017 $25,000  $25,000 
6.94% senior notes due through May 3, 2011  2,857   4,286 
       
Total  27,857   29,286 
Less current maturities  1,429   1,429 
       
Long-term debt, exclusive of current maturities $26,428  $27,857 
       

4

4.Employee Benefit Plans
Components of other postretirement benefit cost:
                
 Three Months Six Months                 
 Ended Ended  Three Months Ended Nine Months Ended 
 June 27, June 28, June 27, June 28,  September 26, September 27, September 26, September 27, 
 2009 2008 2009 2008  2009 2008 2009 2008 
Service cost $20 $22 $39 $44  $19 $22 $58 $66 
Interest cost 71 72 142 143  71 71 213 214 
Amortization of transition obligation 32 33 65 65  33 32 98 97 
Amortization of prior service cost  (2)  (2)  (4)  (4)  (2)  (2)  (6)  (6)
Amortization of accumulated loss 4 8 9 16  5 8 14 24 
                  
Net periodic postretirement benefit cost $125 $133 $251 $264  $126 $131 $377 $395 
                  

5

5.Stockholders’ Equity
Basic earnings per common share are based upon the weighted average shares outstanding. Outstanding stock options are treated as potential common stock for purposes of computing diluted earnings per share. Basic and diluted earnings per share are calculated using the following share data:
                
 Three Months Six Months                 
 Ended Ended  Three Months Ended Nine Months Ended 
 June 27, June 28, June 27, June 28,  September 26, September 27, September 26, September 27, 
 2009 2008 2009 2008  2009 2008 2009 2008 
Weighted average shares outstanding for basic calculation 10,332 10,332 10,332 10,332  10,332 10,332 10,332 10,332 
Add: Effect of dilutive stock options (1) 2  
                  
 
Weighted average shares outstanding
Adjusted for diluted calculation		 10,332 10,332 10,332 10,334  10,332 10,332 10,332 10,332 
                  
   
(1) The dilutive effect of stock options is not recognized in periods in which a net loss has occurred.
Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted earnings (loss)loss per share calculation because they were anti-dilutive, were 1.71.9 million and 1.1 million for the three months ending June 27,September 26, 2009 and June 28,September 27, 2008, respectively; and 1.51.6 million and 870,0001.1 million for the sixnine months ended June 27,September 26, 2009 and June 28,September 27, 2008, respectively.
A reconciliation of the activity in Stockholders’ Equity accounts for the quarternine months ended June 27,September 26, 2009 is as follows:
                                
 Accumulated  Accumulated 
 Capital in Other  Capital in Other 
 Common Excess of Retained Comprehensive  Common Excess of Retained Comprehensive 
 Stock Par Value Earnings Loss  Stock Par Value Earnings Loss 
Balance, December 31, 2008 $207 $1,058 $102,603 $(760) $207 $1,058 $102,603 $(760)
Net loss
  (5,399)   (10,472) 
Stock-based compensation
 493  692 
Adjustment to net periodic benefit cost
 44  66 
                  
Balance, June 27, 2009
 $207 $1,551 $97,204 $(716)
Balance, September 26, 2009
 $207 $1,750 $92,131 $(694)
                  

5

The components of other comprehensive income or loss are as follows:
                 
  Three Months  Six Months 
  Ended  Ended 
  June 27,  June 28,  June 27,  June 28, 
  2009  2008  2009  2008 
Net income (loss) $(3,023) $(68) $(5,399) $980 
Adjustment to net periodic benefit cost  22   38   44   77 
             
Comprehensive income (loss) $(3,001) $30  $(5,355) $1,057 
             
                 
  Three Months Ended  Nine Months Ended 
  September 26,  September 27,  September 26,  September 27, 
  2009  2008  2009  2008 
Net loss $(5,073) $(3,489) $(10,472) $(2,509)
Adjustment to net periodic benefit cost  22   (5)  66   71 
             
Comprehensive loss $(5,051) $(3,494) $(10,406) $(2,438)
             
6.Restructuring and Related Charges
In 2008, we took steps to improve our cost structure by consolidating our North Carolina manufacturing operations from two facilities to one and offered a voluntary early retirement incentive for qualified salaried associates. Restructuring and related charges in the sixnine months of 2009 was $165,000$172,000 and consisted of ongoing cost at our Lexington, North Carolina facility until it was sold in the first quarter of 2009.

6

During the third quarter of 2009, we began consolidating our Lexington, North Carolina warehouse operation into other owned facilities and recorded accelerated depreciation of $1.0 million and other related charges of $20,000.

Restructuring activity for the sixnine months ending June 27,ended September 26, 2009 was as follows:
                        
 Severance and other      Severance and other     
 termination costs Other Cost Total  termination costs Other Cost Total 
Accrual at January 1, 2009 $1,446 $1,446  $1,446 $1,446 
Charges to expense 79 $82 161  109 $82 191 
Cash payments 1,386 82 1,468  1,385 82 1,467 
              
Accrual at June 27, 2009 $139 $0 $139 
Accrual at September 26, 2009 $170 $  $170 
              
The restructuring accrual for severance and other employee termination cost is classified as “Other accrued expenses”.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 Consolidated Statements of Income:
                 
  Three Months  Six Months 
  Ended  Ended 
  June 27,  June 28,  June 27,  June 28, 
  2009  2008  2009  2008 
Net sales  100.0%  100.0%  100.0%  100.0%
Cost of sales  91.6   83.2   89.9   82.9 
             
Gross profit  8.4   16.8   10.1   17.1 
Selling, general and administrative expenses  18.0   15.2   18.8   14.6 
             
Operating income (loss)  (9.6)  1.6   (8.7)  2.5 
Other income, net  .1   .3   .1   .2 
Interest income      .3       .3 
Interest expense  2.1   1.6   2.3   1.5 
             
Income (loss) before income taxes  (11.6)  0.6   (10.8)  1.5 
Income taxes  4.5   (0.7)  4.2   (0.7)
             
Net income (loss)  (7.1)  (0.1)  (6.6)  .8 
             
Net sales decreased $16.8$16.0 million, or 28.4%29.4%, for the three month period ended June 27,September 26, 2009, from the comparable 2008 period. For the sixnine month period, net sales decreased $39.6$55.6 million, or 32.5%31.6% from the comparable 2008 sixnine month period. The decrease was due primarily to lower unit volume, resulting from continued weakness in demand, which we believe is due primarily to the current economic recession and is consistent with industry trends. Higher average unit prices of less than 1% partially offset this lower unit volume.
Gross profit marginsin 2009 decreased to a loss of $601,000 for the three month period and a gross profit of $7.7 million for the nine month period. This compares to a gross profit of $5.0 million and $25.8 million, respectively, for the comparable three and nine month periods of 2008. Accelerated depreciation of $1.0 million related to the closing of our warehouse facility in Lexington, North Carolina is included in the three and nine month periods of 2009. Cost of sales for the three and sixnine month periods of 2009 were 8.4%2008 include restructuring and 10.1%, respectively, comparedrelated charges of $3.8 million and $4.1 million, respectively.
The lower gross profit and margins are primarily due to 16.8% and 17.1%, for the comparable 2008 periods. Lower margins resulted primarily from lowersignificant decline in sales and production levels. Sales have declined at a faster rate in 2009 than we have been able to adjust our cost structure. The much lower production levels have led to significant unfavorable factory overhead variances and plant inefficiencies. Cost associated with the transition of approximately one-third of our Young America product line (infant-to-teen furniture) from off-shore sourcing to our domestic manufacturing facilities and higher selling discounts also contributed to lower gross profit in 2009. These factors were partially offset by cost savings primarily from restructuring steps taken in 2008 which resulted in approximately $2.0an estimated $3 million to $3.0$4 million in savings during the first halfnine months of 2009. The operating loss increased in the second quarter of 2009 over the first quarter of 2009, primarily due to plant inefficiencies, higher selling discounts and increased factory overhead variances due to lower production levels.

6

Selling, general and administrative expenses for the three and sixnine month periods of 2009 as a percentage of net sales were 18.0% and 18.8%, respectively, compared to 15.2% and 14.6% for the comparable 2008 periods. The higher percentage for the 2009 periods is primarily due to lower sales. Selling, general and administrative expenses for the three and six months periods decreased $1.3$3.7 million and $2.3$6.0 million, respectively, compared to the 2008 period,periods, due primarily to lower selling expenses resulting from decreased sales and cost reduction initiatives. Restructuring and related charges of $1.4 million are included in the three and nine month periods of 2008.

7

As a result of the above, operating loss as a percentage of net sales was 9.6%$7.5 million and 8.7%$14.6 million for the three and sixnine month periods of 2009 compared to operating income as a percentageloss of net sales of 1.6%$5.6 million and 2.5%,$2.6 million, for the comparable 2008 periods.
Interest income for the three and sixnine month periods of 2009 decreased over the comparable prior year periods due primarily to lower earnings on invested cash.
The effective tax rate for 2009 is expected to be 39.2%39.3%, compared to 21.1% for total year 2008. The higher effective tax rate is due to the impact of permanent differences on loss before income taxes. The primary permanent difference is the increasesincrease in the cash surrender value of life insurance policies which are used to fund our deferred compensation plan. We expect this relationship to continue, but the percentage impact on the effective tax rate will depend on the level of future losses or earnings.
On July 15, 2009, we announced plans to consolidateThe consolidation of our Lexington, North Carolina warehouse operation into other owned warehouse space primarily at our Robbinsville, North Carolina facility.is progressing slightly ahead of schedule and should be completed in the fourth quarter of 2009. As noted above, we recorded $1.0 million of accelerated depreciation for the three month period ended September 26, 2009 and we expect to record approximately $700,000 of additional accelerated depreciation in the final quarter of 2009. The transitionwarehouse consolidation is expected to be completed by the end of 2009 and is expected to improvelower our annual operating incomeexpenses by approximately $1.3 million startingbeginning in 2010.
We expectwill continue to record accelerated depreciationevaluate our total cost structure, including our manufacturing capacity, considering current and anticipated demand for our products, overall market conditions, offshore sourcing opportunities and other factors we consider relevant. The outcome of approximately $1.7 million overthis evaluation could result in additional restructuring charges in the next two quarters related to the closingfourth quarter of our Lexington warehouse facility.2009 or in future periods.
Financial Condition, Liquidity and Capital Resources
Sources of liquidity include cash on hand and cash generated from operations. We expect these sources of liquidity to be adequate for ongoing expenditures, debt payments and capital expenditures for the foreseeable future. We believe that cash on hand will be adequate during 2009 in the event we do not generate cash from operations. Working capital, excluding cash and current maturities of long-term debt, decreased $3.2$8.4 million during the first halfnine months of 2009 to $51.3$46.1 million from $54.5 million at December 31, 2008. The decrease was primarily due to lower inventories and accounts receivable, in response to lower sales.
Cash used by operations was $4.3$1.4 million in the first halfnine months of 2009 compared to cash generated of $4.8$9.6 million in the comparable 2008 period. The decrease was primarily due to lower receipts from customers due to lower sales.
Net cash provided byused for investing activities was $643,000$454,000 in the 2009 period compared to cash used of $584,000$1.5 million in 2008. Sale of assets provided cash from investing activities during the first halfnine months of 2009, which2009. These assets were included in prepaid expenses and other current assets at December 31, 2008.
Net cash provided by financing activities was $318,000 in the 2009 period compared to cash used of $1.9$3.0 million in the 2008 period. The change is due primarily to the suspension of quarterly cash dividend payments during 2009.

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At June 27,September 26, 2009, long-term debt including current maturities was $27.9 million. Debt service requirements are $1.4 million in 2010, $5.0 million in 2011, and $3.6 million in 2012, 2013 and 2014. In January 2009, we entered into an amendment to our note agreement providing that two financial covenants relating to operating income and earnings not apply during 2009. Instead, this amendment requires that we maintain unrestricted cash of at least $20 million and maintain earnings before interest and taxes (as defined in our note agreement) of not less than a loss of $10 million for each twelve month period ending each quarter in 2009. At June 27,September 26, 2009, our cash on hand was $40.7$42.4 million and our earnings before interest and taxes (as defined in our note agreement) for the twelve months ended June 27,September 26, 2009 was $4.7a loss of $2.4 million. It is likely that we will not meet the covenant requirement on earnings before interest and taxes (as defined in our note agreement) for the twelve months ending December 31, 2009 and will need to seek a waiver or additional amendment of this requirement. In addition, in the event of noncompliance with these amended covenants in 2009 or with the two financial covenants relating to operating income and earnings that will apply after 2009, we would also have to seek waivers or additional amendments. If we are not able to obtain such waivers or amendments from our lenders, then we would need to seek other funding or use our cash on hand to repay the lenders. Cash on hand at June 27, 2009 was $40.7 million and total debt was $27.9 million.

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We are including earnings before interest and taxes (as defined in our note agreement) for the twelve months ended June 27,September 26, 2009, which is a financial measure not derived in accordance with generally accepted accounting principles in the United States of America, to quantify our compliance with a financial covenant in our note agreement, and not as a measure of operating results. The following table sets forth a reconciliation of loss before income taxes to earnings before incomeinterest and taxes (as defined in our note agreement) for the twelve months ended June 27,September 26, 2009 (dollars are shown in thousands):
        
 Twelve Months Ending  Twelve Months Ending 
 June 27, 2009  September 26, 2009 
Loss before income taxes $(5,894) $(7,861)
Interest expense, net 3,521  3,685 
Restructuring charge 7,050  1,777 
      
Earnings before interest and taxes (as defined in our note agreement) $4,677 
Earnings (loss) before interest and taxes (as defined in our note agreement) $(2,399)
      
Continued Dumping and Subsidy Offset Act (CDSOA)
According to U.S. Customs and Border Protection (CBP), as of October 1, 2008, approximately $100 million in duties had been secured by cash deposits and bonds on unliquidated entries, and this amount is potentially available for distribution under the CDSOA to eligible domestic manufacturers in connection with the case involving wooden bedroom furniture imported from China. In addition, approximately $99 million of funds available for distribution were set aside by the government over the past three years principally for domestic producers that have requested CDSOA funds and are not eligible to receive funds based on the CDSOA and the government’s historical administration of the CDSOA. The government set aside these CDSOA funds in connection with two lower court cases involving the CDSOA that were decided against the government on constitutional grounds and that have been appealed. The resolution of these legal appeals will have a significant impact on the amount of additional CDSOA funds we receive with respect to the antidumping order on wooden bedroom furniture from China.
There are a number of factors that can affect how much additional CDSOA funds we receive. These factors include:
the annual administrative review process which can retroactively increase or decrease the actual duties owed on entries secured by cash deposits and bonds,
the ultimate resolution of the legal appeals discussed above, and
other administrative and legal challenges that may be instituted.
Assuming our percentage allocation in future years is the same as it was for the 2008 payment (approximately 27% of the funds distributed), that the amount of $100 million collected by the government as of October 1, 2008 does not change as a result of the annual administrative review process or otherwise, and that the government loses the pending appeals based on constitutional issues (reducing our percentage allocation by approximately 62% based on the amount of funds held back for this pending litigation in 2008), we could potentially receive approximately $10 million in additional CDSOA funds. If the government ultimately prevails on the pending constitutional legal challenges and the other assumptions remain the same, we could potentially receive approximately $54 million in additional CDSOA funds.

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Of the approximately $100 million in duties collected by the government as of October 1, 2008, the CBP recently disclosed that $57 million was liquidated as of April 30, 2009 and is available for disbursement in 2009 to eligible domestic manufacturers. However, the CBP did not update the amount of duties collected by the government. The CBP noted in its notice that the final amounts available for distribution may be higher or lower than the preliminary amounts due to additional duties collected on entries that are liquidated before September 30, 2009 or some funds may be removed from the account because of reliquidations or administrative errors. Based on this preliminary amount we expect to receive $6 million to $7 million in the fourth quarter of 2009.
Due to the uncertainty of the various legal and administrative processes, we cannot provide assurances as to the amount of CDSOA funds that ultimately will be received, if any. Furthermore, we cannot predict when we may receive any CDSOA funds after 2009.

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Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2008 annual report on form 10-K.
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 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 the cyclical nature of the furniture industry, business failures or loss of large customers, competition in the furniture industry including competition from lower-cost foreign manufacturers, our success in transitioning Young America products to our domestic manufacturing facilities, disruptions in offshore 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 China or other countries from which we source products, international trade policies of the United States and countries from which we source products, manufacturing realignment, the inability to obtain sufficient quantities of quality raw materials in a timely manner, the inability to raise prices in response to inflation and increasing costs, failure to anticipate or respond to changes in consumer tastes and fashions in a timely manner, environmental, health and safety compliance costs, and extended business interruption at manufacturing facilities. In addition, we have made certain forward looking statements with respect to payments we expect to receive under the Continued Dumping and Subsidy Offset Act, which are subject to the risks and uncertainties described in our discussion of those payments that may cause the actual payments to differ materially from those in the forward looking statements. 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.
ITEM 3.
ITEM 3.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, a relative decline in the value of the U.S. dollar could result in an increase in the cost of our products obtained from offshore sourcing and reduce our earnings or increase our losses, unless we are able to increase our prices for these items to reflect any such increased cost.

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ITEM 4.
ITEM 4.Controls and Procedures
(a) Evaluation 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 our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
(b) Changes in internal controls over financial reporting. There were no changes in our internal control over financial reporting that occurred during the secondthird quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION
ITEM 1A.
Risk Factors
Our results of operations and financial condition can be adversely affected by numerous risks including those described in Item 4.Submission1A of Mattersour 2008 Annual Report on 10-K. There have been no material changes from those risk factors except as set forth below.
Our strategy to transition Young America Products (infant-to-teen furniture) to our domestic manufacturing facilities has, and will in the near term, increase operating expenses. If we are not successful in the implementation of this strategy, we may continue to experience significant disruptions to our operations that may result in a decline in revenues in addition to a Votecontinued increase in operating expenses.
We believe our decision to bring all Young America production back to our domestic manufacturing facilities was necessary to regain control of Security Holders
(a.)The annual meeting of the Company’s stockholders was held on April 16, 2009.
(c.)The stockholders of the Company elected two directors for a three-year term expiring at the annual meeting of stockholders to be held in 2012. The election was approved by the following vote:
         
  For  Withheld 
         
Michael P. Haley  9,474,884   163,798 
         
Albert L. Prillaman  9,487,544   151,138 
the entire production process so that we can reposition Young America as the trusted childrens’ furniture brand for safety, broad selection, quick delivery and environmental commitment. This transition has, and will in the near term, increase operating expenses due to the disruption caused by the transition of approximately one-third of our Young America product line from off-shore sourcing to our domestic manufacturing facilities. We expect the long-term benefit to be beneficial as we distinguish our Young America product line from the competition in the marketplace. If we are unsuccessful in implementing this strategy, we may continue to experience significant disruptions in our operations that may result in a decline in revenues in addition to a continued increase in operating expenses.
ITEM 6.
Item 6.Exhibits
     
 3.1  Restated Certificate of Incorporation of the Registrant as amended (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 33.1 to the Registrant’s Form 8-K (Commission File No. 0-14938)0-14938 filed September 8, 2008)on August 26, 2009).
     
 31.1  Certification by Albert L. Prillaman, our Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
     
 31.2  Certification by Douglas I. Payne, our Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
     
 32.1  Certification of Albert L. Prillaman, our Chairman and Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
     
 32.2  Certification of Douglas I. Payne, our Chief Financial Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
 
   
(1) Filed herewith.herewith

 

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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.
     
Date: JulyOctober 15, 2009  STANLEY FURNITURE COMPANY, INC.
 		 
 By:  /s/ Douglas I. Payne   
  Douglas I. Payne  
  Executive V.P. — Finance & Administration
And Secretary
(Principal Financial and Accounting Officer) 		 

 

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EXHIBIT INDEX
     
3.1Restated Certificate of Incorporation of the Registrant as amended (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).
  
3.2No. By-laws of the Registrant as amended (incorporated by reference to Exhibit 3 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed September 8, 2008).Description
     
 31.1  Certification by Albert L. Prillaman, our Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
     
 31.2  Certification by Douglas I. Payne, our Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
     
 32.1  
Certification of Albert L. Prillaman, our Chairman and Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
     
 32.2  Certification of Douglas I. Payne, our Chief Financial Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
 
   
(1) Filed herewith.herewith

 

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