UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 28,June 27, 2015
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 incorporation or organization) | (I.R.S. Employer Identification No.) |
200 North Hamilton Street, No. 200, High Point, North Carolina, 27260
(Address of principal executive offices, Zip Code)
336-884-7701(336-884-7700)
(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: Yes (X)(x) No ( )
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). Yes (X) No ( )
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, (check one):
Large accelerated filer ( ) | Accelerated filer ( ) | |||
Non-accelerated filer ( ) | Smaller reporting company (X) | |||
(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).Yes ( ) No (X)(x)
As of May 1,July 24, 2015, 14,957,91514,911,453 shares of common stock of Stanley Furniture Company, Inc., par value $.02 per share, were outstanding.
PART I.I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTSFinancial Statements
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
March 28, December 31, 2015 2014 ASSETS Current assets: Cash $ 5,793 $ 5,584 Restricted cash 1,190 1,190 Accounts receivable, less allowances of $339 and $375 6,668 5,853 Inventories: Finished goods 22,872 23,935 Work-in-process 148 268 Raw materials 33 13 Total inventories 23,053 24,216 Assets of discontinued operations 295 1,373 Prepaid expenses and other current assets 803 890 Deferred income taxes 49 66 Total current assets 37,851 39,172 Property, plant and equipment, net 1,944 1,990 Cash surrender value of life insurance policies, net 17,023 15,129 Other assets 3,360 3,416 Total assets $ 60,178 $ 59,707 LIABILITIES Current liabilities: Accounts payable $ 4,700 $ 6,425 Liabilities of discontinued operations 6 93 Accrued salaries, wages and benefits 1,625 1,738 Other accrued expenses 1,233 1,437 Total current liabilities 7,564 9,693 Deferred income taxes 49 66 Pension plans 6,492 6,936 Other long-term liabilities 2,206 2,033 Total liabilities 16,311 18,728 STOCKHOLDERS’ EQUITY Common stock, $.02 par value, 25,000,000 shares authorized, 14,957,915 and 14,780,326 shares issued and outstanding 283 283 Capital in excess of par value 16,936 16,710 Retained earnings 29,338 26,683 Accumulated other comprehensive loss (2,690) (2,697) Total stockholders’ equity 43,867 40,979 Total liabilities and stockholders’ equity $ 60,178 $ 59,707 The accompanying notes are an integral part of the consolidated financial statements.
June 27, 2015 | December 31, 2014 | |||||||
ASSETS |
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Current assets: |
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| |||||
Cash | $ | 4,830 |
| $ | 5,584 | |||
Restricted cash | 663 |
| 1,190 | |||||
Accounts receivable, less allowances of $464 and $375 | 7,334 |
| 5,853 | |||||
Inventories: |
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|
| |||||
Finished goods | 22,628 |
| 23,935 | |||||
Work-in-process | 36 |
| 268 | |||||
Raw materials | 1 |
| 13 | |||||
Total inventories | 22,665 |
| 24,216 | |||||
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Assets of discontinued operations | 100 |
| 1,373 | |||||
Prepaid expenses and other current assets | 935 |
| 890 | |||||
Deferred income taxes | 47 |
| 66 | |||||
Total current assets | 36,574 |
| 39,172 | |||||
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| |||||||
Property, plant and equipment, net | 1,898 |
| 1,990 | |||||
Cash surrender value of life insurance policies, net | 20,517 |
| 15,129 | |||||
Other assets | 3,288 |
| 3,416 | |||||
Total assets | $ | 62,277 |
| $ | 59,707 | |||
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LIABILITIES |
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Current liabilities: |
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Accounts payable | $ | 6,166 |
| $ | 6,425 | |||
Liabilities of discontinued operations | 32 |
| 93 | |||||
Accrued salaries, wages and benefits | 1,691 |
| 1,738 | |||||
Other accrued expenses | 475 |
| 1,437 | |||||
Total current liabilities | 8,364 |
| 9,693 | |||||
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| |||||
Deferred income taxes | 47 |
| 66 | |||||
Pension plans | 6,452 |
| 6,936 | |||||
Other long-term liabilities | 2,059 |
| 2,033 | |||||
Total liabilities | 16,922 |
| 18,728 | |||||
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STOCKHOLDERS’ EQUITY |
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Common stock, $.02 par value, 25,000,000 shares authorized, 14,972,987 and 14,780,326 shares issued and outstanding | 283 |
| 283 | |||||
Capital in excess of par value | 17,116 |
| 16,710 | |||||
Retained earnings | 30,641 |
| 26,683 | |||||
Accumulated other comprehensive loss | (2,685) |
| (2,697) | |||||
Total stockholders’ equity | 45,355 |
| 40,979 | |||||
Total liabilities and stockholders’ equity | $ | 62,277 |
| $ | 59,707 | |||
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2The accompanying notes are an integral part of the consolidated financial statements
.
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in (in thousands, except per share data)
(unaudited)
| Three Months |
| Six Months | ||||||||
| Ended |
| Ended | ||||||||
| June 27, |
| June 28, |
| June 27, |
| June 28, | ||||
| 2015 |
| 2014 |
| 2015 |
| 2014 | ||||
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| ||||
Net sales | $ | 15,133 |
| $ | 16,033 |
| $ | 29,805 |
| $ | 30,675 |
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| ||||
Cost of sales | 11,294 |
| 13,308 |
| 22,983 |
| 25,012 | ||||
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| ||||
Gross profit | 3,839 |
| 2,725 |
| 6,822 |
| 5,663 | ||||
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| ||||
Selling, general, and administrative expenses | 3,452 |
| 4,183 |
| 7,098 |
| 8,461 | ||||
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Operating income (loss) | 387 |
| (1,458) |
| (276) |
| (2,798) | ||||
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| ||||
Income from Continued Dumping and Subsidy Offset Act, net | 1,076 | - | 4,896 | - | |||||||
Other income (expense), net | 29 | (19) | 40 | 312 | |||||||
Interest expense, net | 210 |
| 731 |
| 540 |
| 1,457 | ||||
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Income (loss) from continuing operations before taxes | 1,282 | (2,208) | 4,120 | (3,943) | |||||||
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Income tax expense (benefit) | 14 |
| (11) |
| 79 |
| (21) | ||||
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Net income (loss) from continuing operations | 1,268 |
| (2,197) |
| 4,041 |
| (3,922) | ||||
Net income (loss) from discontinued operations | 35 |
| (17,303) |
| (83) |
| (20,204) | ||||
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Net income (loss) | $ | 1,303 |
| $ | (19,500) |
| $ | 3,958 |
| $ | (24,126) |
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Basic income (loss) per share: |
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Income (loss) from continuing operations | $ | .09 |
| $ | (.16) |
| $ | .29 |
| $ | (.28) |
Income (loss) from discontinued operations | - |
| (1.22) |
| (.01) |
| (1.42) | ||||
Net income (loss) | $ | .09 |
| $ | (1.38) |
| $ | .28 |
| $ | (1.70) |
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Diluted income (loss) per share: |
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Income (loss) from continuing operations | $ | .09 |
| $ | (.16) |
| $ | .28 |
| $ | (.28) |
Income (loss) from discontinued operations | - |
| (1.22) |
| (.01) |
| (1.42) | ||||
Net income (loss) | $ | .09 |
| $ | (1.38) |
| $ | .27 |
| $ | (1.70) |
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Weighted average shares outstanding: |
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Basic | 14,260 |
| 14,167 |
| 14,250 |
| 14,165 | ||||
Diluted | 14,497 |
| 14,167 |
| 14,461 |
| 14,165 | ||||
Three Months Ended March 28, March 29, 2015 2014 Net sales $ 14,672 $ 14,642 Cost of sales 11,689 11,704 Gross profit 2,983 2,938 Selling, general and administrative expenses 3,646 4,278 Operating loss (663) (1,340) Income from Continued Dumping and Subsidy Offset Act, net 3,820 - Other income, net 11 331 Interest expense, net 330 726 Income (loss) from continuing operations before income taxes 2,838 (1,735) Income tax expense (benefit) 65 (10) Net income (loss) from continuing operations 2,773 (1,725) Net loss from discontinued operations (118) (2,901) Net income (loss) $ 2,655 $ (4,626) Basic income (loss) per share: Income (loss) from continuing operations $ .20 $ (.12) Loss from discontinued operations (.01) (.21) Net income (loss) $ .19 $ (.33) Diluted income (loss) per share: Income (loss) from continuing operations $ .19 $ (.12) Loss from discontinued operations (.01) (.21) Net income (loss) $ .18 $ (.33) Weighted average shares outstanding: Basic 14,236 14,163 Diluted 14,464 14,163 The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
3
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(unaudited)
Three Months Ended March 28, March 29, 2015 2014 Net income (loss) $ 2,655 $ (4,626) Other comprehensive income (loss): Amortization of prior service cost 23 38 Amortization of actuarial loss (30) (18) Adjustments to net periodic postretirement benefit cost (7) 20 Comprehensive income (loss) $ 2,662 $ (4,646) The accompanying notes are an integral part of the consolidated financial statements.
4
| Three Months |
| Six Months | ||||||||
| Ended |
| Ended | ||||||||
| June 27, |
| June 28, |
| June 27, |
| June 28, | ||||
| 2015 |
| 2014 |
| 2015 |
| 2014 | ||||
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Net income (loss) | $ | 1,303 |
| $ | (19,500) |
| $ | 3,958 |
| $ | (24,126) |
Other comprehensive income (loss): |
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Amortization of prior service cost | 23 |
| 39 |
| 46 |
| 77 | ||||
Amortization of actuarial loss | (28) |
| (20) |
| (58) |
| (38) | ||||
Adjustments to net periodic benefit cost | (5) |
| 19 |
| (12) |
| 39 | ||||
Comprehensive income (loss) | $ | 1,308 |
| $ | (19,519) |
| $ | 3,970 |
| $ | (24,165) |
The accompanying notes are an integral part of the consolidated financial statements.
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months | Six Months Ended | |||||||||
| March 28, |
| March 29, | June 27, |
| June 28, | ||||
| 2015 |
| 2014 | 2015 |
| 2014 | ||||
Cash flows from operating activities: |
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Cash received from customers | $ | 13,876 | $ | 13,480 | $ | 28,042 |
| $ | 29,197 | |
Cash paid to suppliers and employees | (16,562) | (15,274) | (30,309) |
| (34,709) | |||||
Cash from Continued Dumping and Subsidy Offset Act | 3,820 | - | 4,896 |
| - | |||||
Interest (paid) received, net | (398) | 3 | ||||||||
Interest paid, net | (670) |
| (2,882) | |||||||
Income taxes paid | (90) |
| - | |||||||
Net cash provided (used) by operating activities | 736 | (1,791) | 1,869 |
| (8,394) | |||||
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Cash flows from investing activities: | ||||||||||
Sale of short-term securities | - | 5,000 |
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Decrease in restricted cash | 527 |
| 547 | |||||||
Sale of short-term securities | - |
| 10,000 | |||||||
Purchase of other assets | - | (44) | - |
| (44) | |||||
Net cash provided by investing activities | - | 4,956 | 527 |
| 10,503 | |||||
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Cash flows from financing activities: | ||||||||||
Payments on insurance policy loans | (1,400) | - |
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Net cash used by financing activities | (1,400) | - | ||||||||
Payments on insurance policy loans | (4,279) |
| - | |||||||
Proceeds from insurance policy loans | - |
| 2,701 | |||||||
Net cash (used) provided by financing activities | (4,279) |
| 2,701 | |||||||
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Cash flows from discontinued operations: | ||||||||||
Cash provided (used) by operating activities | 873 | (400) |
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Cash provided (used) by operating activities | 1,129 |
| (83) | |||||||
Cash used by investing activities | - | (19) | - |
| (51) | |||||
Net cash provided (used) by discontinued operations | 873 | (419) | 1,129 |
| (134) | |||||
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Net increase in cash | 209 | 2,746 | ||||||||
Net (decrease) increase in cash | (754) |
| 4,676 | |||||||
Cash at beginning of period | 5,584 | 7,218 | 5,584 |
| 7,218 | |||||
Cash at end of period | $ | 5,793 | $ | 9,964 | $ | 4,830 |
| $ | 11,894 | |
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Reconciliation of net loss to net cash provided (used) by operating activities: | ||||||||||
Net income (loss) | $ | 2,655 | $ | (4,626) | Reconciliation of net loss to net cash provided (used) by operating activities: | |||||
Net income (loss) | $ | 3,958 | $ | (24,126) | ||||||
Loss from discontinued operations | 118 | 2,901 | 83 | 20,204 | ||||||
Depreciation and amortization | 116 | 151 | 234 | 323 | ||||||
Stock-based compensation | 226 | 223 | 406 | 455 | ||||||
Changes in assets and liabilities: | ||||||||||
Accounts receivable | (1,481) | (1,726) | ||||||||
Accounts receivable | (815) | (1,437) | ||||||||
Inventories | 1,163 | 94 | 1,551 | 19 | ||||||
Prepaid expenses and other assets | (406) | 1,149 | (1,153) | (3,803) | ||||||
Accounts payable | (1,725) | 78 | (259) | (640) | ||||||
Accrued salaries, wages and benefits | (121) | 12 | (48) | 1,093 | ||||||
Other accrued expenses | (204) | 75 | (964) | 327 | ||||||
Other long-term liabilities | (271) | (411) | (458) | (520) | ||||||
Net cash provided (used) by operating activities | $ | 736 | $ | (1,791) | $ | 1,869 | $ | (8,394) | ||
The accompanying notes are an integral part of the consolidated financial statements.
5
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
(unaudited)
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 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. We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in our latest Annual Report on Form 10-K.
Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted.
2.
Property, Plant and Equipment
| March 28, | December 31, | June 27, 2015 | December 31, 2014 | |||||
| 2015 | 2014 | |||||||
Machinery and equipment | $ 3,883 | $ 3,883 | $ | 3,869 |
| $ | 3,883 | ||
Leasehold improvements | 1,833 | 1,833 |
| 1,833 |
| 1,833 | |||
Property, plant and equipment, at cost | 5,716 | 5,716 |
| 5,702 |
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| 5,716 | ||
Less accumulated depreciation | 3,772 | 3,726 |
| 3,804 |
| 3,726 | |||
Property, plant and equipment, net | $ 1,944 | $ 1,990 | $ | 1,898 |
| $ | 1,990 |
3.
Income taxes
During the first threesix months of 2015, we utilized $2.4 million$3,357 of our net operating loss carry-forwards against income from the Continued Dumping and Subsidy Offset Act distributed by U.S. Customs and Border Protection in March and April of this year (see Note 7). The income tax expense recognized during the current three and six month period isperiods was primarily generated from the federal alternative minimum tax. The alternative minimum tax limits our ability to offset income generated during the period with net operating loss carry-forwards. During the first threesix months of 2015, we reduced our valuation allowance against deferred tax assets from $21.7 million$21,724 to $20.9 million$20,565 at March 28,June 27, 2015.
We maintain a valuation allowance against deferred tax assets that currently exceed our deferred tax liabilities. The primary assets covered by this valuation allowance are net operating loss carry-forwards. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance. Our results over the most recent three-year period were heavily affected by our business restructuring activities. Our cumulative loss in the most recent three-year period, in our view, represented sufficient negative evidence to require a valuation allowance under the provisions of ASC 740, Income Taxes. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. Although realization is not assured, we have concluded that the remaining net deferred tax asset in the amount of $49$47 will be realized based on the reversal of existing deferred tax liabilities. The amount of the deferred tax assets actually realized, however, could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities. Should we determine that we will not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per share data)
(unaudited)
3.
Income taxes (continued)
Our effective tax raterates for the current quarter was 2.2%three and six month periods were 1.1% and 2.0%, respectively, driven by the impact of the alternative minimum tax outlined above. The effective tax rate in the prior year quarterthree and six month periods was essentially zero since we had established a valuation allowance for our deferred tax assets in excess of our deferred tax liabilities. The major reconciling items between our effective income tax rate and the federal statutory rate are the change in our valuation allowance and the cash surrender value on life insurance policies.
6
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per share data)
(unaudited)
4.
Employee Benefit Plans
Components of other postretirement benefit cost:
Three Months |
| Six Months | ||||||||||||
| Three Months Ended | Ended |
| Ended | ||||||||||
| March 28, | March 29, | June 27, |
| June 28, |
| June 27, |
| June 28, | |||||
| 2015 |
| 2014 | 2015 |
| 2014 |
| 2015 |
| 2014 | ||||
Interest cost | $ 70 | $ 75 | $ | 70 |
| $ | 74 |
| $ | 140 |
| $ | 149 | |
Amortization of prior service benefit | (23) | (38) | (23) |
| (39) |
| (46) |
| (77) | |||||
Amortization of actuarial loss | 30 | 18 | 28 |
| 20 |
| 58 |
| 38 | |||||
Net periodic postretirement benefit cost | $ 77 | $ 55 | $ | 75 |
| $ | 55 |
| $ | 152 |
| $ | 110 |
5.
Stockholders’ Equity
Basic earnings per common share are based upon the weighted average shares outstanding. Outstanding stock options and restricted stock 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 Ended | ||
| March 28, | March 29, | |
| 2015 |
| 2014 |
Weighted average shares outstanding for basic calculation | 14,236 |
| 14,163 |
Add: Effect of dilutive stock options | 228 | - | |
Weighted average shares outstanding,adjusted for diluted calculation | 14,464 | 14,163 |
| Three Months |
| Six Months | ||||
| Ended |
| Ended | ||||
| June 27, |
| June 28, |
| June 27, |
| June 28, |
| 2015 |
| 2014 |
| 2015 |
| 2014 |
Weighted average shares outstanding for basic calculation | 14,260 | 14,167 | 14,250 | 14,165 | |||
Add: Effect of dilutive stock awards
| 237 |
| - |
| 211 |
| - |
Weighted average shares outstanding, adjusted for diluted calculation | 14,497 |
| 14,167 |
| 14,461 |
| 14,165 |
In the three and six month periodperiods ended March 28,June 27, 2015, approximately 9261,378 and 1,361 stock options respectively, were excluded from the diluted per share calculation as they would be anti-dilutive. In the 2014 first quarter period,three and six month periods, the dilutive effect of stock options is not recognized since we had a net loss. Approximately 1.8 million1,765 shares in the three and six month periods of 2014 were issuable upon the exercise of stock options, which were not included in the diluted per share calculation because they were anti-dilutive. Also, 677707 shares in 2014 of restricted stock were not included because they were anti-dilutive.
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per share data)
(unaudited)
5.
Stockholders’ Equity (continued)
A reconciliation of the activity in Stockholders’ Equity accounts for the quarterfirst six months ended March 28,June 27, 2015 is as follows:
|
|
| Accumulated | ||||
|
| Capital in | Other | ||||
| Common |
| Excess of |
| Retained |
| Comprehensive |
| Stock |
| Par Value | Earnings |
| Loss | |
Balance at December 31, 2014 | $ 283 | $ 16,710 | $ 26,683 | $ (2,697) | |||
Net income | 2,655 | ||||||
Stock-based compensation | 226 | ||||||
Adjustment to net periodic benefit cost |
|
|
| 7 | |||
Balance at March 28, 2015 | $ 283 | $ 16,936 | $ 29,338 | $ (2,690) |
7
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per share data)
(unaudited)
|
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|
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| Accumulated | ||
|
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| Capital in |
|
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| Other | ||
| Common |
| Excess of |
| Retained |
| Comprehensive | ||||
| Stock |
| Par Value |
| Earnings |
| Loss | ||||
Balance at December 31, 2014 | $ | 283 |
| $ | 16,710 |
| $ | 26,683 |
| $ | (2,697) |
Net income | - |
|
| - |
|
| 3,958 |
|
| - | |
Stock-based compensation | - |
|
| 406 |
|
| - |
|
| - | |
Adjustment to net periodic benefit cost | - |
|
| - |
|
| - |
|
| 12 | |
Balance at June 27, 2015 | $ | 283 |
| $ | 17,116 |
| $ | 30,641 |
| $ | (2,685) |
6.
Restructuring and Related Charges
During 2014, we completed the exit of our Stanleytown warehouse facility and took a charge for the remaining payments on the lease, which expires in December 2015.
During 2013, we recorded restructuring charges in selling, general and administrative expenses for severance and relocation costs associated with the consolidation of our corporate office and High Point showroom into a single multi-purpose facility. All of these expenses were paid out in 2014.
Restructuring accrual activity for the threesix months ending March 28,ended June 27, 2015 was as follows:
Lease | ||
Accrual at January 1, 2015 | $ | 480 |
Charges to expense | - | |
Cash payments | (240) | |
Accrual at June 27, 2015 | $ | 240 |
Lease Obligations 480 (120)Accrual at January 1, 2015 $ Charges to expense - Cash payments Accrual at March 28, 2015 $ 360
Restructuring accrual activity for the threesix months ending March 29,ended June 28, 2014 was as follows:
| Lease Obligations |
| Severance and other termination costs |
| Total | Lease | Severance | Total | |||||
Accrual at January 1, 2014 | $ 488 |
| $ 169 |
| $ 657 | $ | 488 | $ | 169 | $ | 657 | ||
Charges to expense | - |
| - |
| - | 354 | (39) | 315 | |||||
Cash payments | (61) |
| (104) |
| (165) | (122) | (116) | (238) | |||||
Accrual at March 29, 2014 | $ 427 |
| $ 65 |
| $ 492 | ||||||||
Accrual at June 28, 2014 | $ | 720 | $ | 14 | $ | 734 |
The restructuring accrual is classified as “Other accrued expenses”.
STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per share data)
(unaudited)
7.
Income from Continued Dumping and Subsidy Offset Act (CDSOA)
We recorded income of $3.8 million$1,076 and $4,896 in Marchthe three and six month periods ended June 27, 2015, respectively, from CDSOA distributions previously withheld by Customs pending resolution of non-supporting producers’ claims seeking to share in these distributions. No funds were received in the prior year. Subsequent to the quarter end, we received additional distributions of $1.1 million from the previously withheld funds. year six month period.
8.
Discontinued Operations
During the second quarter of 2014, we concluded that revenue on our Young America product line remained below the level needed to reach profitability and that the time frame needed to assure sustainable profitability was longer than we felt was economically justified. Therefore, we made the decision to cease manufacturing operations at our Robbinsville, North Carolina facility and sell the related assets of this facility. Manufacturing operations were ceased in the third quarter of 2014 and as a result this product line was reflected as a discontinued operation pursuant to the provisions of Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08) for all periods presented.
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STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except per share data)
(unaudited)
8.
Discontinued Operations (continued)
Loss from discontinued operations, net of taxes, comprised the following:
| Three Months | ||
| Ended | ||
| March 28, | March 29, | |
| 2015 | 2014 | |
Net sales | $ 207 | $ 7,249 | |
Cost of sales | 393 | 9,010 | |
Selling, general and administrative expenses | (68) | 1,140 | |
Loss from discontinued operations before income taxes | (118) | (2,901) | |
Income tax | - | - | |
Loss from discontinued operations, net of income taxes | $ (118) | $ (2,901) |
| Three Months |
| Six Months | ||||||||
| Ended |
| Ended | ||||||||
| June 27, |
| June 28, |
| June 27, |
| June 28, | ||||
| 2015 |
| 2014 |
| 2015 |
| 2014 | ||||
Net sales | $ | 331 |
| $ | 8,005 |
| $ | 538 |
| $ | 15,254 |
Cost of sales | 326 |
| 23,196 |
| 719 |
| 32,206 | ||||
Selling, general and administrative expenses, net | (30) |
| 2,112 |
| (98) |
| 3,252 | ||||
Income (loss) from discontinued operations before income taxes | 35 |
| (17,303) |
| (83) |
| (20,204) | ||||
Income taxes | - |
| - |
| - |
| - | ||||
Income (loss) from discontinued operations, net of income taxes | $ | 35 |
| $ | (17,303) |
| $ | (83) |
| $ | (20,204) |
Loss from discontinued operations includes accelerated depreciation and amortization, write-down of inventories and other assets, severance and other termination costs and operating losses related to final manufacturing production.
Net assets for discontinued operations are as follows:
| March 28, | December 31, | June 27, |
| December 31, | ||||
| 2015 | 2014 | 2015 |
| 2014 | ||||
Accounts receivable, net |
| $ 61 |
| $ 695 | $ | 100 |
| $ | 695 |
Inventory, net | 234 | 678 | - |
| 678 | ||||
Total assets | 295 | 1,373 | 100 |
| 1,373 | ||||
Accounts payable and other liabilities | 6 | 93 | 32 |
| 93 | ||||
Net assets | $ 289 | $ 1,280 | $ | 68 |
| $ | 1,280 | ||
The only ongoing costs for discontinued operations will be warehouse and shipping for distribution of discontinued inventory.
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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 Operations:
| Three Months Ended | Three Months Ended |
| Six Months Ended | ||||||
| March 28, | March 29, | June 27, |
| June 28, |
| June 27, |
| June 28, | |
| 2015 | 2014 | 2015 |
| 2014 |
| 2015 |
| 2014 | |
Net sales | 100.0% | 100.0% | 100.0% |
| 100.0% |
| 100.0% |
| 100.0% | |
Cost of sales | 79.7 | 79.9 | 74.6 |
| 83.0 |
| 77.1 |
| 81.5 | |
Gross profit | 20.3 | 20.1 | 25.4 |
| 17.0 |
| 22.9 |
| 18.5 | |
Selling, general and administrative expenses | 24.8 | 29.2 | 22.8 |
| 26.1 |
| 23.8 |
| 27.6 | |
Operating loss | (4.5) | (9.1) | ||||||||
Operating income (loss) | 2.6 |
| (9.1) |
| (.9) |
| (9.1) | |||
CDSOA income | 26.0 | - | 7.1 |
| - |
| 16.4 |
| - | |
Other income, net | .1 | 2.3 | ||||||||
Other income (expense), net | .2 |
| (.1) |
| .1 |
| 1.0 | |||
Interest expense, net | 2.3 | 5.0 | 1.4 |
| 4.6 |
| 1.8 |
| 4.8 | |
Income (loss) from continuing operations before income taxes | 19.3 | (11.8) | 8.5 |
| (13.8) |
| 13.8 |
| (12.9) | |
Income tax expense (benefit) | .4 | - | .1 |
| (.1) |
| .2 |
| (.1) | |
Net income (loss) from continuing operations | 18.9 | (11.8) | 8.4 |
| (13.7) |
| 13.6 |
| (12.8) | |
Net loss from discontinued operations | (.8) | (19.8) | ||||||||
Net income (loss) from discontinued operations | .2 |
| (107.9) |
| (.3) |
| (65.9) | |||
Net income (loss) | 18.1% | (31.6)% | 8.6% |
| (121.6)% |
| 13.3% |
| (78.7)% |
Net sales of $14.7$15.1 million for the three month period ended March 28,June 27, 2015, were basically flatdecreased $900,000, or 5.6%, compared to the comparable 2014 period. For the six month period asended June 27, 2015, net sales decreased $870,000, or 2.8%, from the comparable 2014 period. The decrease in both periods was driven by lower unit volume, partially offset by higher average selling prices resulting from a favorable product mix, offset a slight decline in units.mix.
Gross profit for the firstcurrent three months of 2015month period increased to $3.0$3.8 million, or 20.3%25.4% of net sales, from $2.9$2.7 million, or 20.1%17.0% of net sales, for the comparable three months of 2014. Gross profit for the current six month period increased to $6.8 million, or 22.9% of net sales, from $5.7 million, or 18.5% of net sales, for the comparable six months of 2014. The increase in gross profit in both the three and six month periods was driven by lower sales discounts and lower operation support costs,costs. Partially offsetting these improvements in the second quarter was lower sales and partially offset byoffsetting these improvements for the six month period was higher ocean freight costs resulting from West Coast port issues. These higher freight costs are expected to continue into the second quarterThe prior year three and six month periods reflect a restructuring charge of 2015. $354,000 for future lease commitments on a warehouse facility that is no longer utilized.
Selling, general and administrative expenses decreased to $3.6for the three and six month periods of 2015 were $3.5 million and $7.1 million, or 24.8%22.8% and 23.8% of net sales, for the three month period of 2015 from $4.3respectively, compared to $4.2 million and $8.5 million, or 29.2%26.1% and 27.6% of net sales, forin the comparable three month period of 2014.2014 periods. The decrease in spending islower percentages were the result of lower expenditures resulting from the lowering of our overall organizational costs by right-sizing our structure to align with the lower volume levels and operations model. Partially offsetting these savings are higher commissionsshowroom expenditures to support the launch of our new nursery and legalyouth line Stone and professional expenditures.Leigh. The right-sizing began after the decision to discontinue the Young America product line atin the endsecond quarter of 2014 and a majority of the first quartersavings were not realized until the second half of 2014.
As a result, operating lossincome as a percentage of net sales was 4.5%2.6% for the three-monthcurrent three month period and an operating loss of 20150.9% for the current six month period compared to a losslosses of 9.1% forin both of the comparable 2014 period.periods.
During the current year three and six month periodperiods we recorded income of $3.8$1.1 million and $4.9 million, respectively, from the receipt of funds under the Continued Dumping and Subsidy Offset Act (CDSOA).
Other income in the prior year quartersix month period was for the reversal of tariff accruals on imported bedroom furniture that U.S. Customs liquidated during thatin the prior year first quarter without assessing any additional liability.
Interest expense for the three and six month periodperiods of 2015 decreased $400,000$521,000 and $917,000, respectively, from the comparable 2014 period.periods. Interest expense is composed of interest on loans against cash surrender value of insurance policies from a legacy deferred compensation plan. The increase in cash surrender value is recorded in operating income to offset our overall benefit cost. In November 2014, we used excess cash to pay down $13.7 million in outstanding loans, andloans. In 2015, we paid down an additional $1.4 million in outstanding loans in March 2015,and $2.9 million in April, lowering our interest expense going forward. Subsequent to the end of current year quarter, we used an additional $3.0 million to pay down outstanding loans and accrued interest. At current outstanding loan levels, interest expense would be approximately $900,000 annually.
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Our effective tax raterates for the current quarter was 2.2%three and six month periods were 1.1% and 2.0%, due to alternative minimum tax limiting our ability to offset all of our income generated during the period with net operating loss carry-forwards. The effective tax rate in the prior year quarter was essentially zero since we had established a valuation allowance for our deferred tax assets in excess of our deferred tax liabilities. The major reconciling items between our effective income tax rate and the federal statutory rate are changes in our valuation allowance and the cash surrender value on life insurance policies. The benefit in the prior year period was primarily from the release of reserves due to lapse of statute of limitations.
During 2014, we ceased production of our Young America product line and closed our manufacturing operation in Robbinsville, North Carolina. AIncome of $35,000 and a loss of $118,000 was$83,000 were recognized from discontinued operations in the first quarter ofthree and six month periods ended June 27, 2015, as we sold off all remaining inventory and continue to sell off inventory and collect outstanding receivables. The loss from discontinued operations for 2014 was $22.0 million and consisted mostly of asset impairment charges, costs of finalizing operations and severance and other termination costs. Approximately $2.9$17.3 million and $20.2 million of thisthe loss occurred in the first quartercomparable three and six month periods of 2014. Future2014, respectively. No future expenses related to the discontinued operations will result in expenses to support continued warehousing and shipping activities for the remaining finished goodsshould occur since all inventory of this product line, which should be minimal.has been sold.
Financial Condition, Liquidity and Capital Resources
Sources of liquidity include cash on hand, cash generated from operations and cash surrender value of life insurance policies. While we believe that our business strategy will be successful, we cannot predict with certainty the ultimate impact on our revenues, operating costs and cash flow from operations. We expect cash on hand to be adequate for ongoing operational and capital expenditures for the foreseeable future. At March 28,June 27, 2015 we had $5.8$4.8 million in cash, $1.2 million$663,000 in restricted cash and $17.0$20.5 million available in cash surrender value on life insurance policies.
Working capital, excluding cash, restricted cash and net assets of discontinued operations, increased to $23.0$22.6 million at March 28,June 27, 2015 from $21.4 million on December 31, 2014. The increase was primarily the result of an increase inhigher accounts receivable balances as shipping volumes were more heavily weighted near the end of the current quarter and decreases in accounts payable driven by lower in-transit inventory from our vendors and a decline in accrued salaries wagesexpenses resulting predominantly from reductions in deferred revenue and benefits, partially offset byrestructuring accruals. Partially offsetting these increases was a decrease in inventory.inventory resulting from our efforts to properly align our inventory levels with demand.
Cash provided by operations was $736,000$1.9 million in the current quartersix months of 2015 compared to cash used of $1.8$8.4 million in the comparable prior year quarter.period. The cash generation in 2015 was the result of receiving $3.8$4.9 million on CDSOA proceeds during the period. Partially offsetting thoseExcluding the CDSOA receipts, were higherthe improvement in cash flow from operating activities was driven by lower cash payments to suppliers largely driven by timingand employees as the benefits of container shipments and higher freight costs associatedaligning our organizational structure with our new operations model were not realized until the West Coast port issues, andsecond half of last year. In addition, lower interest payments as the payment of $400,000 in accrued interest as partresult of our pay-down onpaying down of loans against the cash surrender value of life insurance policies.policies from a legacy deferred compensation plan of $13.7 million in 2014 and $4.3 million in the current year, improved our cash flow from operations. Partially offsetting these improvements was lower cash receipts due to lower sales volume.
NoCash provided by investing activities occurredwas $527,000 in the current quartersix months with the release of 2015.restricted cash. During the first quartersix month period of 2014, the net cash provided of $10.5 million was the result of the maturity of a short-term investment of $5.0 million.$10.0 million and the release of $547,000 in restricted cash. In both the current and prior year periods, the release of restricted cash was the result of reductions in outstanding letters of credit required by our insurance company for potential workers compensation claims.
Net cash used by financing activities in the first quartersix months of 2015 was $1.4$4.3 million for the pay-down of life insurance policy loans under our legacy deferred compensation plan. No financing activities occurred in prior year quarter. Subsequent to quarter end, we used an additional $3.0Net cash provided of $2.7 million in the six month period of 2014 was from loans against the cash to continuesurrender value of insurance policies. These proceeds were used to pay down the life insuranceinterest due on outstanding policy loans and accrued interest under our deferred compensation plan.which is shown as a use of cash in operating activities.
Continued Dumping and Subsidy Offset Act (“CDSOA”)
The CDSOA provides for distribution of monies collected by U.S. Customs and Border Protection (“Customs”) for imports covered by antidumping duty orders entering the United States through September 30, 2007 to eligible domestic producers that supported a successful antidumping petition (“Supporting Producers”) for wooden bedroom furniture imported from China. Antidumping duties for merchandise entering the U.S. after September 30, 2007 have remained with the U.S. Treasury.
Certain manufacturers who did not support the antidumping petition (“Non-Supporting Producers”) filed actions in the United States Court of International Trade, challenging the CDSOA’s “support requirement” and seeking to share in the distributions. As a result, Customs held back a portion of those distributions (the “Holdback”) pending resolution of the Non-Supporting Producers’ claims. The Court of International Trade dismissed all of the actions of the Non-Supporting Producers, who appealed to the United States Court of Appeals for the Federal Circuit. Customs advised that it expected to distribute the Holdback to the Supporting Producers after March 9, 2012. The Non-Supporting Producers sought injunctions first from the Court of International Trade and, when those efforts were unsuccessful, from the Federal Circuit directing Customs to retain the Holdback until the Non-Supporting Producers’ appeals were resolved.
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On March 5, 2012, the Federal Circuit denied the motions for injunction, “without prejudicing the ultimate disposition of these cases.” As a result, we received a CDSOA distribution of $39.9 million in April 2012. On August 19, 2013, the Federal Circuit issued a decision affirming the dismissal of the claims of two of the four Non-Supporting Producers. On January 3, 2014, the Federal Circuit denied those Non-Supporting Producers’ petitions for rehearing en banc. On May 2, 2014, these Non-Supporting Producers filed a petition for writ of certiorari, seeking review by the United States Supreme Court. On October 6, 2014, the Supreme Court denied two of three of the Non-Supporting Producers’ petitions for certiorari review, and on December 15, 2014, the Supreme Court denied the third petition for review. Accordingly, Customs should not seek or be entitled to obtain a return of our CDSOA distribution received in April 2012.
In November 2012, December 2013, and November 2014 Customs disclosed that it withheld $3.0 million, $6.4 million, and $5.7 million respectively in each of those years, in funds related to the antidumping duty order on wooden bedroom furniture from China that was otherwise available for distribution until the amounts at issue in the pending litigation had been resolved. In March 2015, following the conclusion of all appeals, Customs began distributing the withheld funds to the Supporting Producers. Our allocated share of the distributed 2012, 2013, and 2014 withheld funds totaled $4.8 million, which we received during late March and early April 2015.
In November 2014, Customs also had announced that 2014 and 2015 CDSOA distributions were subject to sequestration under the Budget Control Act at the rate of 7.2 percent and 7.3 percent, respectively. On March 17, 2015, however, the government concluded that the amounts sequestered during Fiscal Year 2014 and Fiscal Year 2015 would become available in the subsequent fiscal year, and Customs recently announced that it is preparing supplemental disbursements to the Supporting Producers foryear. Our share of the 2014 sequestered funds. Our share of these funds, totaling $147,000, was distributed subsequentreceived in April 2015.
Recently, Customs disclosed that as of April 30, 2015, $626,342 in collected duties was potentially available for distribution in 2015 to eligible manufactures of wooden bedroom furniture. Customs noted that the final amounts available for distribution in 2015 could be higher or lower than the preliminary amounts due to liquidations, re-liquidations, protests, or other events affecting entries. This amount, at least in part, may have come from the secured duties on unliquidated entries in Customs’ clearing account as of October 1, 2014, but Customs has not updated the amount of duties that remain secured by cash deposits and bonds on un-liquidated entries of wooden bedroom furniture. Assuming our percentage allocation in 2015 is the same as it was for the 2014 distributions, the 2014 preliminary CDSOA amount does not change and adjusted for the sequestered amounts noted above, we expect to receive approximately $200,000 in the fourth quarter end. of 2015.
Due to the uncertainty of the various legal and administrative processes, we cannot provide assurances as to the amount of additional CDSOA funds that ultimately will be received, if any, and we cannot predict when we may receive any additional CDSOA funds.
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 2014 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,” “could”, or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect our reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include disruptions in foreign sourcing including those arising from supply or distribution disruptions or those arising from changes in political, economic and social conditions, as well as laws and regulations, in countries from which we source products, international trade policies of the United States and countries from which we source products, the inability to raise prices in response to inflation and increasing costs, lower sales due to worsening of current economic conditions, the cyclical nature of the furniture industry, business failures or loss of large customers, failure to anticipate or respond to changes in consumer tastes, fashions and perceived values in a timely manner, competition in the furniture industry, environmental, health, and safety compliance costs, and failure or interruption of our information technology infrastructure. Any forward-looking statement speaks only as of the date of this filing and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.
12
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.
ITEM 4. Controls and Procedures
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 March 28,June 27, 2015, the end of the period covered by this quarterly report.
Changes in internal controls over financial reporting
As identifiedChanges in our 2014 Annual Report on Form 10-K, management identified a material weakness as we did not appropriately design, document, or maintain effective internal controls over financial reporting. There were no changes in our period-endinternal control over financial reporting processes related tothat occurred during the preparation and analysis of account reconciliations and estimates primarily related to accounts payable and certain expenses. Additionally, our internal controls were not sufficiently designed or maintained to allow a member of the accounting department other than the preparer to perform adequate and timely reviews of information in order to prevent or detect potential errors. The material weakness resulted in revisions to our consolidated financial statements for fiscal years 2013 and 2012, and interim periods in 2014. Additionally, the material weakness was not remediated by December 31, 2014 and could result in a misstatement of the account balances or disclosuressecond quarter that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected. During the three months ended March 28, 2015, internal controls were designed and implemented to ensure proper preparation of these account reconciliations and estimates and timely review by a member of the accounting department other than the preparer in order to prevent and detect potential errors. These changeshave materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. These controls have been tested and we found them to be effective as key reconciliations and controls had been designed and documents during the first quarter of 2015. Therefore, we have concluded the material weakness has been remediated as of March 28, 2015.
Part II. OTHER INFORMATION
ITEMItem 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 3.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed February 3, 2010). | |
31.1 | Certification by Glenn Prillaman, our 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 Anita W. Wimmer, our Principal | |
32.1 | Certification of Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1) | |
32.2 | Certification of Anita W. Wimmer, our Principal | |
101 | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended | |
(1) | Filed herewith |
(1)
Filed herewith
SIGNATURE
14
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: | STANLEY FURNITURE COMPANY, INC. | ||
By: | /s/ Anita W. Wimmer | ||
Anita W. Wimmer | |||
Vice President of Finance | |||
(Principal Financial and Accounting Officer) |
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