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 27, 1994 or
Transition report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to .
Commission file number 0-14938.
STANLEY FURNITURE COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1272589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 57, Stanleytown, Virginia 24168
(Address of principal executive offices, Zip Code)
(703) 627-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 4, 1994.
Class Number
Common Stock, par value $.02 per share 4,725,880 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands except share data)
(Unaudited)
ASSETS March 27, December 31,
1994 1993
<S> <C> <C>
Current assets:
Cash................................. $ 219 $ 200
Accounts receivable, less allowances
of $1,135 and $827, respectively... 26,763 22,749
Inventories:
Finished goods..................... 19,539 17,398
Work-in-process.................... 6,672 6,076
Raw materials...................... 13,631 14,210
39,842 37,684
Prepaid expenses and other current
assets............................. 404 554
Insurance claim receivable........... 4,600 1,966
Deferred income taxes................ 3,040 3,229
Net assets of discontinued operations 591 1,994
Total current assets............ 75,459 68,376
Property, plant and equipment, at cost. 60,722 60,211
Less accumulated depreciation........ 17,160 16,277
43,562 43,934
Excess of cost over fair value of net
assets acquired, less accumulated
amortization of $1,764 and $1,680,
respectively...................... 11,676 11,760
Other assets........................... 911 789
$131,608 $124,859
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS (CONTINUED)
(In thousands except share data)
<TABLE>
(Unaudited)
March 27, December 31,
1994 1993
<S> <C> <C>
LIABILITIES
Current liabilities:
Current maturities of long-term
debt........................... $ 625
Accounts payable.................... $ 14,839 15,411
Accrued salaries, wages and
benefits....................... 8,831 8,183
Other accrued expenses.............. 4,072 3,324
Total current liabilities...... 27,742 27,543
Long-term debt, exclusive of
current maturities............... 38,683 32,022
Deferred income taxes................. 11,423 12,828
Other long-term liabilities........... 6,862 5,262
Total liabilities.............. 84,710 77,655
STOCKHOLDERS' EQUITY
Common stock, $.02 par value,
10,000,000 shares authorized,
4,725,880 and 4,720,768 shares
issued and outstanding,
respectively......................... 94 94
Capital in excess of par value........ 64,447 64,381
Adjustment for minimum pension
liability........................... (1,122) (1,122)
Deficit............................... (16,521) (16,149)
Total stockholders' equity....... 46,898 47,204
$131,608 $124,859
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
<TABLE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands)
Three Months
Ended
March 27, March 28,
1994 1993
<S> <C> <C>
Net sales........................ $44,737 $35,636
Cost of sales:
From products sold............. 36,060 29,675
Business interruption insurance (1,637)
36,060 28,038
Gross profit................. 8,677 7,598
Selling, general and
administrative expenses........ 6,245 5,772
Operating income............. 2,432 1,826
Gain on insurance settlement..... (2,379)
Other expense, net............... 140 239
Interest expense................. 727 1,067
Income from continuing opera-
tions before income taxes.. 3,944 520
Income tax provision............. 1,558 215
Income from continuing operations 2,386 305
Discontinued operations:
Loss on disposal of fabric div-
ision, including an addition-
al provision of $1,329 for
operating losses during phase-
out period (less applicable
income tax benefit of $1,736) (2,758)
Net income (loss)................ $ (372) $ 305
Earnings (loss) per common share:
Continuing operations.......... $ .49 $ .10
Discontinued operations........ (.57)
Net income (loss)........... $ (.08) $ .10
Weighted average number of shares 4,823 2,996
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
Three Months
Ended
March 27, March 28,
1994 1993
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers........... $40,595 $38,352
Cash paid to suppliers and employees... (43,497) (37,690)
Interest paid.......................... (539) (1,323)
Income taxes paid, net................. (1,291) (7)
Advances received on insurance coverage 25 7,296
Operating activities of discontinued
operations........................... (599) (215)
Net cash provided (used) by
operating activities............ (5,306) 6,413
Cash flows from investing activities:
Capital expenditures................... (573) (413)
Purchase of other assets............... (198) (116)
Proceeds from sale of assets........... 37 18
Investing activities of discontinued
operations........................... (43) (9)
Net cash used by investing activities (777) (520)
Cash flows from financing activities:
Issuance of senior notes............... 30,000
Repayment of term note................. (16,569) (539)
Repayment of revolving credit facility. (7,395) (5,273)
Proceeds from issuance of stock options 66
Net cash provided (used) by financing
activities......................... 6,102 (5,812)
Net increase in cash..................... 19 81
Cash at beginning of year................ 200 649
Cash at end of quarter................... $ 219 $ 730
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands except share and per share data)
1. Preparation of Interim Financial Statements
The financial statements of Stanley Furniture Company, Inc. (referred to as
"Stanley" or the "Company") have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission ("SEC"). In the
opinion of management, these statements include all adjustments necessary for
a fair presentation of the results of all interim periods reported herein.
All such adjustments are of a normal recurring nature. Certain information
and footnote disclosures prepared in accordance with generally accepted
accounting principles have been either condensed or omitted pursuant to SEC
rules and regulations. However, management believes that the disclosures
made are adequate for a fair presentation of results of operations and
financial position. It is suggested that these financial statements be read
in conjunction with the financial statements and accompanying notes included
in Stanley's latest annual report on Form 10-K.
2. Property, Plant and Equipment
(Unaudited)
March 27, December 31,
1994 1993
Land and buildings............. $17,300 $16,923
Machinery and equipment........ 38,491 37,552
Leasehold improvements......... 2,921 2,914
Furniture, fixtures and office
equipment.................... 1,028 1,026
Construction in progress....... 982 1,796
$60,722 $60,211
3. Long-Term Debt
(Unaudited)
March 27, December 31,
1994 1993
7.28% senior notes due March
15, 2004..................... $30,000
Revolving credit facility...... 8,524 $15,919
Term note payable.............. 16,569
7% convertible subordinated
debentures due April 1, 2012. 159 159
Total 38,683 32,647
Less current maturities........ 625
$38,683 $32,022
In February 1994, the Company completed the private placement of $30.0
million of 7.28% senior notes due 2004 and the refinancing of its revolving
credit facility. The proceeds from the senior notes were used to repay the
existing term note and a portion of the revolving credit facility.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands except share and per share data)
4. Discontinued Operations
In April 1994, the Company announced the closing of its Norman's of Salisbury
division ("Norman's"), scheduled for June 1994. As a result, the Company
recorded a $2.8 million ($4.5 million pretax) additional loss provision in
the first quarter. Steps taken by management designed to improve Norman's
profitability had resulted in improved operating results in 1993. However,
Norman's incurred a significant operating loss in the first quarter of 1994
from continued erosion of its market share. In early April 1994, after
renewing contacts with several potential buyers, management concluded that
Norman's could not be sold as an ongoing operation and decided to close the
division.
The loss provision primarily represents factory closing costs including the
write down of related assets and estimated operating losses through closure,
employee benefits and long-term lease commitments. The Company plans to
utilize a portion of the Norman's facilities as a cut and sew operation in
the production of the upholstery furniture products which are planned for
introduction in the fall of 1994.
Sales applicable to Norman's were $2.2 million and $3.0 million for the three
months ended March 27, 1994 and March 28, 1993, respectively. The adjusted
net realizable value of Norman's net assets of $591 is included in "Net
assets of discontinued operations".
5. Insurance Claim Accounting
The Company reached a final settlement with its insurance carrier in
connection with the February 1993 fire at the Stanleytown facility.
Consequently, the Company recorded a gain on insurance settlement of $2.4
million in the first quarter of 1994. In connection with the fire, the
Company incurred costs of $30.5 million and has received advances from
insurance coverage of $25.9 million through the first quarter of 1994. The
insurance claim receivable of $4.6 million recorded at March 27, 1994 was
collected in April 1994.
6. Common Stock and Stock Options
During the three month period ended March 27, 1994, stock options for 5,112
shares of common stock were exercised at prices ranging from $8.50 to $12.86
per share.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands except share and per share data)
7. Supplemental Cash Flow Information
Following is a reconciliation of net income (loss) to net cash provided
(used) by operating activities for the three months ended (in thousands):
March 27, March 28,
1994 1993
Net income.......................... $ (372) $ 305
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization.... 1,070 1,059
Loss (gain) on sale of assets.... 65 (10)
Loss on disposal of fabric divi-
sion........................... 2,758
Change in assets and liabilities:
Accounts receivable............ (4,014) 2,803
Inventories.................... (2,158) 560
Income taxes recoverable....... 23
Prepaid expenses and other
current assets, net.......... 150 428
Operating assets of dis-
continued operations......... (599) (215)
Accounts payable............... (761) 314
Accrued salaries, wages and
benefits..................... 370 196
Other accrued expenses......... 1,021 607
Advances received from
insurance, net of estimated
claim........................ (2,571) 746
Accrued restructuring costs.... (108)
Deferred income taxes.......... (260) (72)
Other assets..................... 59 49
Other long-term liabilities...... (64) (272)
Net cash provided (used) by
operating activities............. $(5,306) $6,413
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Net sales increased $9.1 million or 25.6% for the three month period ended
March 27, 1994 from the comparable 1993 period due principally to higher unit
volume and higher average selling prices. Lower unit volume in the 1993
period was due principally to the disruption in production caused by the
February 1993 fire at the Stanleytown facility.
Gross profit margin decreased to 19.4% in the 1994 period from 21.3% in the
comparable 1993 period. The higher gross profit percentage in the 1993
period was due principally to the recognition of $1.6 million of business
interruption insurance without the related sales revenue.
Selling, general and administrative expenses increased 8.2% to $6.2 million
in the 1994 period from $5.8 million in the 1993 period. Increases were due
principally to higher selling expenses resulting from higher sales in the
1994 period. Selling, general and administrative expenses as a percentage of
net sales decreased to 14.0% from 16.2% in the 1993 period principally as a
result of higher net sales.
As a result of the above, first quarter 1994 operating income increased to
$2.4 million from $1.8 million in the comparable 1993 period, an increase of
33.2%. Operating income as a percentage of net sales increased to 5.4% in
the 1994 period from 5.1% in the comparable 1993 period.
Interest expense in the 1994 period decreased $340,000 from the 1993 period
due principally to lower debt levels resulting from the July 1993 public
offering.
The Company's effective income tax rate decreased to 39.5% for the three
month period ended March 27, 1994 from 41.0% for total year 1993. The
effective tax rate was higher in 1993 due principally to the effect of the 1%
federal statutory rate increase on the prior years' deferred tax balances
recorded for 1993.
Financial Condition, Liquidity and Capital Resources
In February 1994, the Company completed the private placement of $30.0
million of 7.28% senior notes due 2004 and the refinancing of its revolving
credit facility. The proceeds from the senior notes were used to repay the
existing term notes and a portion of the revolving credit facility. Long-
term debt at March 27, 1994 was $38.7 millon. The Company has no debt
service requirements for the remainder of 1994 or in 1995. Debt service
requirements will be $8.5 million in 1996, $159,000 in 1997 and $4.3 million
in each of 1998 through 2004. As of March 27, 1994, approximately $9.6
million of additional borrowings were available under the revolving credit
facility. The Company believes that its financial resources are adequate to
support its capital needs and debt service requirements.
During the three month period ended March 27, 1994, the Company used cash of
$5.3 million in operations funded by net borrowings from the revolving credit
facility. Cash generated from operations in the comparable 1993 period of
$6.4 million was used to fund capital expenditures and reduce borrowings
under the Company's senior credit facility by $5.8 million. Cash was
required in the 1994 period to support higher accounts receivable and
inventory levels as well as higher payments to suppliers, employees, and for
income taxes. These higher payments were partially offset by lower interest
payments. The Company generated cash from operations in the 1993 period
principally due to lower payments to suppliers and employees resulting from
the decreased production levels caused by the February 1993 Stanleytown fire
and the resulting lower accounts receivable and inventory levels.
Net cash flow used by investing activities was $777,000 in the 1994 period
compared to $520,000 in the comparable 1993 period. Expenditures in each
year were primarily for plant and equipment and other assets in the normal
course of business.
Net cash provided by financing activities was $6.1 million in the 1994 period
compared to net cash used by financing activities of $5.8 million in the 1993
period. In February 1994, the Company completed the private placement of
$30.0 million of 7.28% senior notes due 2004 and the refinancing of its
revolving credit facility. The proceeds from the senior notes were used to
repay the existing term note and a portion of the revolving credit facility.
Cash provided by financing activities in the 1994 period was used to fund
operations and capital expenditures. In the 1993 period, cash provided by
operations enabled the Company to reduce borrowings under its senior credit
facility by $5.8 million.
Discontinued Operations
In April 1994, the Company announced the closing of its Norman's of Salisbury
division ("Norman's"), scheduled for June 1994. As a result, the Company
recorded a $2.8 million ($4.5 million pretax) additional loss provision in
the first quarter. Steps taken by management designed to improve Norman's
profitability had resulted in improved operating results in 1993. However,
Norman's incurred a significant operating loss in the first quarter of 1994
from continued erosion of its market share. In early April 1994, after
renewing contacts with several potential buyers, management concluded that
Norman's could not be sold as an ongoing operation and decided to close the
division.
The loss provision primarily represents factory closing costs including the
write down of related assets and estimated operating losses through closure,
employee benefits and long-term lease commitments. The Company plans to
utilize a portion of the Norman's facilities as a cut and sew operation in
the production of the upholstery furniture products which are planned for
introduction in the fall of 1994.
Sales applicable to Norman's were $2.2 million and $3.0 million for the three
months ended March 27, 1994 and March 28, 1993, respectively. The adjusted
net realizable value of Norman's net assets of $591,000 is included in "Net
assets of discontinued operations".
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11. Schedule of Computation of Earnings Per Share.*
(b) Reports on Form 8-K
None.
* Filed herewith.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC.
Date: May 6, 1994 By: /s/ Douglas I. Payne
Douglas I. Payne
Vice President of Finance,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
EXHIBIT 11
STANLEY FURNITURE COMPANY, INC.
SCHEDULE OF COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
FOR THE THREE MONTHS ENDED
(In thousands, except per share data)
March 27, March 28,
1994 1993
Earnings used in calculating
primary and fully diluted earnings
(loss) per common share:
Income from continuing operations...... $2,386 $ 305
Loss on disposal of discontinued
operations........................... (2,758)
Net income (loss) used in calcu-
lating primary and fully diluted
earnings (loss) per common share. $ (372) $ 305
Primary earnings (loss) per common
share:
Weighted average shares outstanding.... 4,723 2,996
Add shares issuable assuming excercise
of stock options..................... 100
Weighted average number of shares
used in calculating primary
earnings (loss) per common share. 4,823 2,996
Income from continuing operations...... $ .49 $ .10
Loss on disposal of discontinued
operations........................... (.57)
Net income (loss)...................... $ (.08) $ .10
Fully diluted earnings (loss) per
common share:
Weighted average shares outstanding.... 4,723 2,996
Add shares issuable assuming excer-
cise of stock options................ 122
Weighted average number of shares
used in calculating fully diluted
earnings (loss) per common share. 4,845 2,996
Income from continuing operations...... $ .49 $ .10
Loss on disposal of discontinued
operations........................... (.57)
Net income (loss)...................... $ (.08) $ .10
