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 September 28, 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 October 10, 1997.
Class Number
Common Stock, par value $.02 per share 3,845,944 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
September 28, December 31,
1997 1996
ASSETS
<S> <C> <C>
Current assets:
Cash........................................... $ 1,299 $ 8,126
Accounts receivable, less allowances of
$1,928 and $1,945 respectively............... 30,308 23,096
Inventories:
Finished goods............................... 23,879 20,953
Work-in-process.............................. 7,031 6,142
Raw materials................................ 14,958 13,144
45,868 40,239
Prepaid expenses and other current assets...... 995 486
Deferred income taxes.......................... 1,634 1,886
Total current assets....................... 80,104 73,833
Property, plant and equipment, at cost........... 81,837 80,737
Less accumulated depreciation.................. 31,578 28,024
50,259 52,713
Goodwill, less accumulated amortization of
$2,940 and $2,688.............................. 10,500 10,752
Other assets..................................... 4,207 4,212
$145,070 $141,510
LIABILITIES
Current liabilities:
Current maturities of long-term debt........... $ 5,086 $ 725
Accounts payable............................... 16,315 14,630
Accrued salaries, wages and benefits........... 9,856 9,584
Other accrued expenses......................... 1,985 2,669
Total current liabilities.................... 33,242 27,608
Long-term debt, exclusive of current maturities.. 43,736 38,625
Deferred income taxes............................ 10,786 11,673
Other long-term liabilities...................... 1,987 1,987
Total liabilities.............................. 89,751 79,893
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares
authorized, 3,845,944 and 4,579,042 shares
issued and outstanding......................... 76 91
Capital in excess of par value................... 47,696 62,442
Retained earnings (deficit)...................... 7,547 (916)
Total stockholders' equity..................... 55,319 61,617
$145,070 $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 Nine Months
Ended Ended
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
<S> <C> <C> <C> <C>
Net sales.......................... $54,270 $52,550 $153,370 $148,023
Cost of sales...................... 40,982 39,772 115,133 113,389
Gross profit................... 13,288 12,778 38,237 34,634
Selling, general and administrative
expenses......................... 7,501 7,619 21,828 21,973
Operating income............... 5,787 5,159 16,409 12,661
Other expense, net................. 94 90 227 485
Interest expense................... 992 852 2,493 2,569
Income from continuing operations
before income taxes............ 4,701 4,217 13,689 9,607
Income taxes....................... 1,766 1,602 5,227 3,706
Income from continuing operations 2,935 2,615 8,462 5,901
Gain from discontinued operations,
net of taxes..................... 246 246
Net income......................... $ 2,935 $ 2,861 $ 8,462 $ 6,147
Primary earnings per share:
Continuing operations............ $ .68 $ .53 $ 1.77 $ 1.22
Discontinued operations.......... .05 .05
Net income.................... $ .68 $ .58 $ 1.77 $ 1.27
Weighted average number of shares.. 4,315 4,954 4,794 4,848
Fully diluted earnings per share:
Continuing operations............ $ .68 $ .52 $ 1.75 $ 1.17
Discontinued operations.......... .05 .05
Net income.................... $ .68 $ .57 $ 1.75 $ 1.22
Weighted average number of shares.. 4,315 5,051 4,839 5,052
</TABLE>
The accompanying notes are an integral part
of the financial statements.
<PAGE>
<TABLE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
September September
28, 1997 29, 1996
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers.................... $ 146,302 $141,887
Cash paid to suppliers and employees............ (137,431) (127,917)
Interest paid................................... (2,880) (3,169)
Income taxes paid, net.......................... (6,461) (3,409)
Net cash (used) provided by operating
activities.................................. (470) 7,392
Cash flows from investing activities:
Capital expenditures............................ (1,369) (2,706)
Purchase of other assets........................ (100) (181)
Proceeds from sale of assets.................... 12
Net cash used by investing activities......... (1,469) (2,875)
Cash flows from financing activities:
Purchase and retirement of common stock......... (15,000)
Proceeds from (repayment of) revolving
credit facility, net.......................... 10,197 (914)
Repayment of senior note........................ (725) (650)
Proceeds from insurance policy loans............ 480 430
Proceeds from exercise of stock options......... 160 24
Net cash used by financing activities......... (4,888) (1,110)
Net (decrease) increase in cash................. (6,827) 3,407
Cash at beginning of year....................... 8,126 298
Cash at end of quarter.......................... $ 1,299 $ 3,705
Supplemental cash flow information:
Net income...................................... $ 8,462 $ 6,147
Adjustments to reconcile net income to
net cash (used) provided by operating
activities:
Depreciation and amortization............... 4,070 3,865
Loss on sale of assets...................... 76 265
Other....................................... (246)
Changes in assets and liabilities:
Accounts receivable....................... (7,212) (5,441)
Inventories............................... (5,629) 1,362
Prepaid expenses and other current assets. (873) (1,101)
Accounts payable.......................... 1,685 539
Accrued salaries, wages and benefits...... 272 2,183
Other accrued expenses.................... (605) 41
Deferred income taxes..................... (635) 114
Other assets.............................. (81) (69)
Other long-term liabilities............... (267)
Net cash (used) provided by operating
activities.................................... $ (470) $ 7,392
</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)
September 28, December 31,
1997 1996
Land and buildings............. $33,802 $33,694
Machinery and equipment........ 45,643 45,120
Office fixtures and equipment.. 1,825 1,794
Construction in progress....... 567 129
$81,837 $80,737
3. Long-Term Debt
(Unaudited)
September 28, December 31,
1997 1996
7.28% senior notes due March
15, 2004..................... $30,000 $30,000
7.57% senior note due June 30,
2005......................... 8,625 9,350
Revolving credit facility...... 10,197
Total 48,822 39,350
Less current maturities........ 5,086 725
$43,736 $38,625
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(In thousands, except share and per share data)
4. Common Stock Repurchase
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.
Assuming the shares were repurchased on January 2, 1997 and
financed entirely by borrowings under the revolving credit facility
at an assumed interest rate of 7.25%, the pro forma fully diluted
earnings per share would have been $1.86, for the nine month period
ended September 28, 1997.
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 Nine Months Ended
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
<S> <C> <C> <C> <C>
Basic earnings per share:
Continuing operations... $.76 $.56 $1.94 $1.25
Discontinued operations. .05 .05
Net income............ $.76 $.61 $1.94 $1.30
Diluted earnings per share:
Continuing operations... $.68 $.53 $1.77 $1.22
Discontinued operations. .05 .05
Net income............ $.68 $.58 $1.77 $1.27
</TABLE>
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales increased $1.7 million, or 3.3%, for the three month
period ended September 28, 1997 from the comparable 1996 period.
For the nine month period, net sales increased $5.3 million, or
3.6%, from the comparable 1996 period. The increase was due
primarily to higher average selling prices.
Gross profit margin for the three and nine month periods of 1997
increased to 24.5% and 24.9%, respectively, from 24.3% and 23.4%
for the comparable 1996 periods. Gross profit margin for the third
quarter approximates the comparable prior year quarter. The higher
gross profit margin for the nine month period of 1997 was due
primarily to lower raw material costs as a percentage of net sales
and improved operating efficiencies. However, gross profit margin
declined from 25.2% for the first half of 1997 to 24.5% for the
third quarter of 1997, due primarily to rising lumber cost, and
management expects this trend to continue in the fourth quarter and
into 1998.
Selling, general and administrative expenses for the three and nine
month periods of 1997 as a percentage of net sales decreased to
13.8% and 14.2%, respectively, from 14.5% and 14.8% for the
comparable 1996 periods. These expenses were lower in the 1997
periods, due primarily to a higher provision for bad debts in the
prior year periods.
As a result of the above, operating income for the three and nine
month periods of 1997 increased to $5.8 million, or 10.7% of net
sales, and $16.4 million, or 10.7% of net sales, respectively, from
$5.2 million, or 9.8% of net sales, and $12.7 million, or 8.6% of
net sales, for the comparable 1996 periods.
Interest expense for the 1997 three month period increased due to
higher debt levels resulting from the Company's June 1997
repurchase of 750,000 shares of its common stock. For the 1997
nine month period, interest expense decreased due primarily to
lower net borrowing levels.
The Company's effective income tax rate was 38.2% and 38.6% for the
nine month periods of 1997 and 1996, respectively.
Financial Condition, Liquidity and Capital Resources
At September 28, 1997, long-term debt including current maturities
was $48.8 million. 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. Debt service requirements for the
next five years are $5.1 million in 1998, $15.3 million in 1999,
$5.2 million in 2000, $5.3 million in 2001, and $5.4 million in
2002. As of September 28, 1997, approximately $13.0 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 used cash from operations of $482,000 in the 1997
period compared to cash generated from operations of $7.4 million
during the 1996 period. Cash was required in the 1997 period to
fund higher payments to suppliers and employees due to increased
production. Cash was also required for higher tax payments
resulting from higher taxable income in 1997. The cash generated
by operations in 1996 was used to fund capital expenditures and
reduce borrowings.
Net cash used by investing activities was $1.5 million in the 1997
period compared to $2.9 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 used by financing activities was $4.9 million and $1.1
million in the 1997 and 1996 period, respectively. In the 1997
period cash and borrowings under the revolving credit facility were
used to finance the stock repurchase discussed above.
Discontinued Operations
In 1996, the Company was released from a lease obligation at its
former Norman's of Salisbury division. Accordingly, in the third
quarter of 1996, the Company recorded an after tax gain of
$246,000, or $.05 per share, related to the partial reversal of a
1994 accrual.
Forward-Looking Statements
Certain statements made in this report are not based on historical
facts, but are forward-looking statements. These statements can be
identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should," or "anticipates" or
the negative thereof or other variations thereon or comparable
terminology. These statements reflect the Company's reasonable
judgment with respect to future events and are subject to risks and
uncertainties that could cause actual results to differ materially
from those in the forward-looking statements. Such risks and
uncertainties include the cyclical nature of the furniture
industry, fluctuations in the price for lumber which is the most
significant raw material used by the Company, competition in the
furniture industry, capital costs and general economic conditions.
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 Nine Months Ended
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
<S> <C> <C> <C> <C>
Basic earnings per share:
Continuing operations... $.76 $.56 $1.94 $1.25
Discontinued operations. .05 .05
Net income............ $.76 $.61 $1.94 $1.30
Diluted earnings per share:
Continuing operations... $.68 $.53 $1.77 $1.22
Discontinued operations. .05 .05
Net income............ $.68 $.58 $1.77 $1.27
</TABLE>
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11. Schedule of Computation of Earnings Per
Share.*
Exhibit 27. Financial Data Schedule.*
(b) Reports on Form 8-K
A report on Form 8-K was filed on July 9, 1997, to
disclose the repurchase of 750,000 shares of the Company's
common stock from the ML-Lee Acquisition Fund, L.P. and
its affiliates.
* 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: October 14, 1997 By: /s/ Douglas I. Payne
Douglas I. Payne
Sr. Vice President -
Finance & Administration
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
Exhibit 11
<TABLE>
STANLEY FURNITURE COMPANY, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September September September September
28, 1997 29, 1996 28, 1997 29, 1996
<S> <C> <C> <C> <C>
Earnings used in calculating
primary and fully diluted
earnings per common share:
Income from continuing operations... $2,935 $2,615 $8,462 $5,901
Gain from discontinued operations... 246 246
Net income used in calculating
primary and fully diluted
earnings per common share......... $2,935 $2,861 $8,462 $6,147
Primary earnings per common share:
Weighted average shares outstanding. 3,846 4,728 4,364 4,727
Add shares issuable assuming
exercise of stock options......... 469 226 430 121
Weighted average number of shares
used in calculating primary
earnings per common share......... 4,315 4,954 4,794 4,848
Income from continuing operations... $ .68 $ .53 $ 1.77 $ 1.22
Gain from discontinued operations... .05 .05
Net income.......................... $ .68 $ .58 $ 1.77 $ 1.27
Fully diluted earnings per common
share:
Weighted average shares outstanding. 3,846 4,728 4,364 4,727
Add shares issuable assuming
excercise of stock options........ 469 323 475 325
Weighted average number of shares
used in calculating fully diluted
earnings per common share......... 4,315 5,051 4,839 5,052
Income from continuing operations... $ .68 $ .52 $ 1.75 $ 1.17
Gain from discontinued operations... .05 .05
Net income.......................... $ .68 $ .57 $ 1.75 $ 1.22
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
STANLEY FURNITURE COMPANY, INC.
ARTICLE 5
FINANCIAL DATA SCHEDULE
FOR PERIOD ENDING SEPTEMBER 28, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-28-1997
<CASH> 1,299
<SECURITIES> 0
<RECEIVABLES> 30,308
<ALLOWANCES> 1,928
<INVENTORY> 45,868
<CURRENT-ASSETS> 80,104
<PP&E> 81,837
<DEPRECIATION> 31,578
<TOTAL-ASSETS> 145,070
<CURRENT-LIABILITIES> 33,242
<BONDS> 0
76
0
<COMMON> 0
<OTHER-SE> 55,243
<TOTAL-LIABILITY-AND-EQUITY> 145,070
<SALES> 153,370
<TOTAL-REVENUES> 153,370
<CGS> 115,133
<TOTAL-COSTS> 136,961
<OTHER-EXPENSES> 227
<LOSS-PROVISION> 270
<INTEREST-EXPENSE> 2,493
<INCOME-PRETAX> 13,689
<INCOME-TAX> 5,227
<INCOME-CONTINUING> 8,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,462
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.75
</TABLE>
