<PAGE>
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 June 29, 1997 or
Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to .
Commission file number 0-14938.
STANLEY FURNITURE COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1272589
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1641 Fairystone Park Highway, Stanleytown, Virginia 24168
(Address of principal executive offices, Zip Code)
(540) 627-2000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of July 11, 1997.
Class Number
Common Stock, par value $.02 per share 3,837,444 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
<TABLE>
(Unaudited)
June 29, December 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 8,330 $ 8,126
Accounts receivable, less allowances
of $2,131 and $1,945 respectively.............. 23,727 23,096
Inventories:
Finished goods................................. 26,012 20,953
Work-in-process................................ 6,487 6,142
Raw materials.................................. 15,465 13,144
47,964 40,239
Prepaid expenses and other current assets........ 824 486
Deferred income taxes............................ 1,718 1,886
Total current assets......................... 82,563 73,833
Property, plant and equipment, at cost............. 81,176 80,737
Less accumulated depreciation.................... 30,337 28,024
50,839 52,713
Goodwill, less accumulated amortization of $2,856
and $2,688....................................... 10,584 10,752
Other assets....................................... 3,815 4,212
$147,801 $141,510
LIABILITIES
Current liabilities:
Current maturities of long-term debt............. $ 5,811 $ 725
Accounts payable................................. 16,150 14,630
Accrued salaries, wages and benefits............. 9,447 9,584
Other accrued expenses........................... 2,493 2,669
Total current liabilities...................... 33,901 27,608
Long-term debt, exclusive of current maturities.... 33,539 38,625
Deferred income taxes.............................. 11,116 11,673
Other long-term liabilities........................ 1,987 1,987
Total liabilities................................ 80,543 79,893
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares
authorized, 4,587,444 and 4,579,042 shares
issued and outstanding........................... 91 91
Capital in excess of par value..................... 62,555 62,442
Retained earnings (deficit)........................ 4,612 (916)
Total stockholders' equity....................... 67,258 61,617
$147,801 $141,510
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
Three Months Six Months
Ended Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales.......................... $49,469 $47,282 $99,100 $95,472
Cost of sales...................... 36,981 36,195 74,150 73,617
Gross profit................... 12,488 11,087 24,950 21,855
Selling, general and administrative
expenses......................... 7,199 7,308 14,327 14,354
Operating income............... 5,289 3,779 10,623 7,501
Other expense, net................. 65 145 134 393
Interest expense................... 744 838 1,500 1,717
Income before income taxes....... 4,480 2,796 8,989 5,391
Income taxes....................... 1,724 1,092 3,461 2,104
Net income......................... $ 2,756 $ 1,704 $ 5,528 $ 3,287
Net income per share:
Primary.......................... $ .55 $ .35 $ 1.11 $ .69
Fully Diluted.................... $ .55 $ .35 $ 1.10 $ .68
Weighted average number of shares:
Primary.......................... 4,971 4,842 4,993 4,775
Fully Diluted.................... 5,021 4,842 5,019 4,801
</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> Six Months Ended
June 29, June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers......................... $ 98,443 $94,276
Cash paid to suppliers and employees................. (92,047) (86,331)
Interest paid........................................ (968) (1,662)
Income taxes paid, net............................... (4,520) (2,343)
Net cash provided by operating activities.......... 908 3,940
Cash flows from investing activities:
Capital expenditures................................. (696) (2,305)
Purchase of other assets............................. (88) (25)
Proceeds from sale of assets......................... - 9
Net cash used by investing activities.............. (784) (2,321)
Cash flows from financing activities:
Repayment of revolving credit facility............... (914)
Proceeds from insurance policy loans................. 430
Proceeds from exercised stock options................ 80
Net cash provided (used) by financing activities... 80 (484)
Net increase in cash................................. 204 1,135
Cash at beginning of year............................ 8,126 298
Cash at end of quarter............................... $ 8,330 $ 1,433
Reconciliation of net income to net cash provided
(used) by operating activities:
Net income........................................ $ 5,528 $ 3,287
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................. 2,704 2,559
Loss on sale of assets........................ 75 268
Changes in assets and liabilities:
Accounts receivable......................... (631) (977)
Inventories................................. (7,725) (2,469)
Prepaid expenses and other current assets... (88) (648)
Accounts payable............................ 1,520 85
Accrued salaries, wages and benefits........ (137) 1,499
Other accrued expenses...................... (143) 405
Deferred income taxes....................... (389) 275
Other assets.................................. 194 (166)
Other long-term liabilities................... (178)
Net cash provided by operating activities......... $ 908 $ 3,940
</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
<TABLE>
(Unaudited)
June 29, December 31,
1997 1996
<S> <C> <C>
Land and buildings............. $33,802 $33,694
Machinery and equipment........ 45,135 45,120
Office fixtures and equipment.. 1,817 1,794
Construction in progress....... 422 129
$81,176 $80,737
3. Long-Term Debt
(Unaudited)
June 29, December 31,
1997 1996
7.28% senior notes due March
15, 2004..................... $30,000 $30,000
7.57% senior note due June 30,
2005......................... 9,350 9,350
Total 39,350 39,350
Less current maturities........ 5,811 725
$33,539 $38,625
</TABLE>
<PAGE>
4. Subsequent Event
On June 30, 1997, the Company purchased 750,000 shares of its
Common Stock for an aggregate purchase price of $15 million which
was funded from available cash and borrowings under its revolving
credit facility. The shares were purchased from the ML-Lee
Acquisition Fund, L.P. and its affiliates. The following pro forma
information assumes the repurchase of Common Stock is financed
entirely by borrowings under the revolving credit facility at an
assumed interest rate of 7.25%.
The pro forma effects on the Company's financial position assuming
the shares were repurchased on June 29, 1997, is as follows:
Long-term debt including current maturities..... $54,350
Stockholders' equity............................ $52,258
Assuming the shares were repurchased on January 2, 1997, the pro
forma fully diluted earnings per share would have been $0.61 and
$1.22, for the three and six month periods ended June 29, 1997,
respectively.
5. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share" effective for financial statements issued for periods ending
after December 15, 1997. The new standard specifies the
computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock. Since
early adoption of the standard is prohibited, the following pro
forma earnings per share amounts computed using the new standard
are presented below:
<TABLE>
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Basic earnings per
share.............. $.60 $.36 $1.21 $.70
Diluted earnings per
share.............. $.55 $.35 $1.11 $.69
</TABLE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales increased $2.2 million, or 4.6%, for the three month
period ended June 29, 1997 from the comparable 1996 period. For
the six month period, net sales increased $3.6 million, or 3.8%,
from the comparable 1996 period. The increase was due primarily to
higher average selling prices and to a lesser extent higher unit
volume.
Gross profit margin for the three and six month periods of 1997
increased to 25.2%, from 23.4% and 22.9% for the comparable 1996
periods, respectively. The higher gross profit margin was due
primarily to lower raw material costs as a percentage of sales and
improved operating efficiencies. However, in the second quarter of
1997 the Company experienced rising lumber costs which were offset
by lower sales discounts and improved operating efficiencies as
compared to the first quarter of 1997.
Selling, general and administrative expenses for the three and six
month periods of 1997 as a percentage of net sales decreased to
14.6% and 14.5%, respectively, from 15.5% and 15.0% for the
comparable 1996 periods. The lower percentages in 1997 were due
principally to higher net sales and reduced selling expenses.
As a result of the above, operating income for the three and six
month periods of 1997 increased to $5.3 million, or 10.7% of net
sales, and $10.6 million, or 10.7% of net sales, respectively, from
$3.8 million, or 8.0% of net sales, and $7.5 million, or 7.9% of
net sales, for the comparable 1996 periods.
Interest expense for the 1997 three and six month periods decreased
due primarily to lower average debt levels.
The Company's effective income tax rate was 38.5% for both the 1997
and 1996 periods.
<PAGE>
Financial Condition, Liquidity and Capital Resources
At June 29, 1997, long-term debt including current maturities was
$39.4 million. Debt service requirements for the next five years
are $725,000 in 1997, $5.1 million in both 1998 and 1999, $5.2
million in 2000, and $5.3 million in 2001. As of June 29, 1997,
approximately $23.8 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.
The Company generated cash from operations of $908,000 in the 1997
period compared to cash generated from operations of $3.9 million
during the 1996 period. The cash generated in 1997 was used to
fund capital expenditures. The cash generated in 1996 was used to
fund capital expenditures and reduce borrowings under the revolving
credit facility.
Net cash used by investing activities was $784,000 in the 1997
period compared to $2.3 million in the 1996 period. Expenditures
in each year were primarily for plant and equipment and other
assets in the normal course of business.
Net cash generated by financing activities was $80,000 in the 1997
period compared to net cash used by financing activities of
$484,000 in the 1996 period. In the 1996 period, cash generated
from operations reduced borrowings under the revolving credit
facility.
Subsequent Event
On June 30, 1997, the Company purchased 750,000 shares of its
Common Stock for an aggregate purchase price of $15 million which
was funded from available cash and borrowings under its revolving
credit facility. The shares were purchased from the ML-Lee
Acquisition Fund, L.P. and its affiliates. The following pro forma
information assumes the repurchase of Common Stock is financed
entirely by borrowings under the revolving credit facility at an
assumed interest rate of 7.25%.
The pro forma effects on the Company's financial position assuming
the shares were repurchased on June 29, 1997, is as follows:
Long-term debt including current maturities..... $54,350
Stockholders' equity............................ $52,258
Assuming the shares were repurchased on January 2, 1997, the pro
forma fully diluted earnings per share would have been $0.61 and
$1.22, for the three and six month periods ended June 29, 1997,
respectively.
<PAGE>
New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, "Earnings Per
Share" effective for financial statements issued for periods ending
after December 15, 1997. The new standard specifies the
computation, presentation and disclosure requirements for earnings
per share for entities with publicly held common stock. Since
early adoption of the standard is prohibited, the following pro
forma earnings per share amounts computed using the new standard
are presented below:
<TABLE>
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Basic earnings per
share.............. $.60 $.36 $1.21 $.70
Diluted earnings per
share.............. $.55 $.35 $1.11 $.69
</TABLE>
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company's shareholders was
held April 24, 1997.
(c)(i) The shareholders of the Company elected three
directors for staggered terms expiring at the Annual
Meeting of Shareholders to be held in 1999 and 2000. The
elections were approved by the following vote:
Elected for Three-Year Terms
Ending 2000
For Withheld
David V. Harkins 3,971,596 3,260
Albert L. Prillaman 3,971,500 3,356
Elected for Two-Year Term
Ending 1999
For Withheld
T. Scott McIlhenny, Jr. 3,971,508 3,348
(ii) The shareholders approved the ratification of the
selection of Coopers & Lybrand L.L.P. as the independent
public accountants for the Company for the current
fiscal year. The ratification was approved by the
following vote:
FOR 3,971,096
AGAINST 657
ABSTAIN 3,103
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4.1 Letter Amendment, dated June 16, 1997, to Note
Agreements, dated February 15, 1994 and June 29,
1995, between the Registrant and The Prudential
Insurance Company of America (incorporated by
reference to Exhibit 4.1 to the Registrant's
Statement on Form 8-K filed July 9, 1997).
Exhibit 10.1 Stock Purchase Agreement, dated as of June 27,
1997 among the Registrant and the Selling Stock-
holders named therein (incorporated by reference
to Exhibit 99.1 to the Registrant's Statement on
Form 8-K filed July 9, 1997).
Exhibit 10.2 Amendment No. 1, dated as of June 27, 1997, to
Registration Rights Agreement, dated as of
November 9, 1992, by and among the Registrant,
ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition
Fund II, L.P., ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P., Lee Stockholders
and Management Stockholders (incorporated by
reference to Exhibit 99.2 to the Registrant's
Statement on Form 8-K filed July 9, 1997).
Exhibit 10.3 Amendment No. 3, dated as of June 27, 1997,
between the Company and the Thomas H. Lee
Company to the Management Agreement, dated
September 29, 1988, among the Company's pre-
decessors and the Thomas H. Lee Company
(incorporated by reference to Exhibit 99.3 to
the Registrant's Statement on Form 8-K filed
July 9, 1997).
Exhibit 10.4 Third Amendment, dated as of June 24, 1997, to
the Second Amended and Restated Revolving Credit
Facility and Term Loan Agreement dated February
15, 1994 between the Registrant, National Canada
Finance Corp., and the National Bank of Canada
(incorporated by reference to Exhibit 99.4 to
the Registrant's Statement on Form 8-K filed
July 9, 1997).
Exhibit 11. Schedule of Computation of Earnings Per Share.*
Exhibit 27. Financial Data Schedule.*
(b) Reports on Form 8-K
None.
* Filed herewith.<PAGE>
<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: July 14, 1997 By: /s/ Douglas I. Payne
Douglas I. Payne
Sr. V.P. - Finance and
Administration,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
Exhibit 11
STANLEY FURNITURE COMPANY, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
(In thousands, except per share data)
<TABLE>
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net income used in calcula-
ting primary and fully
diluted earnings per
common share............. $2,756 $1,704 $5,528 $3,287
Primary earnings per common
share:
Weighted average shares
outstanding.............. 4,587 4,727 4,586 4,727
Add shares issuable
assuming exercise of
stock options............ 384 115 407 48
Weighted average number
of shares used in
calculating primary
earnings per common
share................ 4,971 4,842 4,993 4,775
Primary earnings per
common share........... $ .55 $ .35 $ 1.11 $ .69
Fully diluted earnings per
common share:
Weighted average shares
outstanding.............. 4,587 4,727 4,585 4,727
Add shares issuable
assuming excercise of
stock options........... 434 115 434 74
Weighted average number
of shares used in
calculating fully
diluted earnings per
common share......... 5,021 4,842 5,019 4,801
Fully diluted earnings
per common share....... $ .55 $ .35 $ 1.10 $ .68
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STANLEY FURNITURE COMPANY, INC.
ARTICLE 5
FINANCIAL DATA SCHEDULE
FOR PERIOD ENDING JUNE 29, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 8,330
<SECURITIES> 0
<RECEIVABLES> 23,727
<ALLOWANCES> 2,131
<INVENTORY> 47,964
<CURRENT-ASSETS> 82,563
<PP&E> 81,176
<DEPRECIATION> 30,337
<TOTAL-ASSETS> 147,801
<CURRENT-LIABILITIES> 33,901
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 67,167
<TOTAL-LIABILITY-AND-EQUITY> 147,801
<SALES> 99,100
<TOTAL-REVENUES> 99,100
<CGS> 74,150
<TOTAL-COSTS> 88,477
<OTHER-EXPENSES> 134
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 1,500
<INCOME-PRETAX> 8,989
<INCOME-TAX> 3,461
<INCOME-CONTINUING> 5,528
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,528
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
</TABLE>
