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, 1998 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 April 10, 1998.
Class Number
----- ------
Common Stock, par value $.02 per share 3,440,757 Shares
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
(Unaudited)
March 28, December 31,
ASSETS 1998 1997
----------- -------------
<S> <C> <C>
Current assets:
Cash........................................... $ 1,717 $ 756
Accounts receivable, less allowances
of $1,943 and $1,895......................... 31,295 27,427
Inventories:
Finished goods............................... 21,984 21,220
Work-in-process.............................. 7,124 6,997
Raw materials................................ 19,334 17,513
-------- --------
48,442 45,730
Prepaid expenses and other current assets...... 653 1,571
Deferred income taxes.......................... 770 770
-------- --------
Total current assets......................... 82,877 76,254
-------- --------
Property, plant and equipment, at cost........... 85,557 84,545
Less accumulated depreciation.................. 34,138 32,831
-------- --------
51,419 51,714
Goodwill, less accumulated amortization of $3,108
and $3,024..................................... 10,332 10,416
Other assets..................................... 4,729 4,841
-------- --------
$149,357 $143,225
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt........... $ 5,086 $ 5,086
Accounts payable............................... 19,040 18,164
Accrued salaries, wages and benefits........... 9,673 9,687
Other accrued expenses......................... 2,955 1,877
-------- --------
Total current liabilities.................... 36,754 34,814
Long-term debt, exclusive of current maturities.. 48,303 47,491
Deferred income taxes............................ 10,448 10,448
Other long-term liabilities...................... 2,225 2,225
-------- --------
Total liabilities.............................. 97,730 94,978
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares
authorized, 3,440,757 and 3,432,759 shares
issued and outstanding......................... 68 68
Capital in excess of par value................... 37,618 37,508
Retained earnings................................ 13,941 10,671
-------- --------
Total stockholders' equity..................... 51,627 48,247
-------- --------
$149,357 $143,225
======== ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
2
<PAGE>
<TABLE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months
Ended
---------------------
March 28, March 30,
1998 1997
-------- ---------
<S> <C> <C>
Net sales............................ $ 57,691 $ 49,631
Cost of sales........................ 43,546 37,170
-------- --------
Gross profit..................... 14,145 12,461
Selling, general and administrative
expenses........................... 7,752 7,127
-------- --------
Operating income................... 6,393 5,334
Other expense, net................... 34 69
Interest expense..................... 1,084 756
-------- -------
Income before income taxes....... 5,275 4,509
Income taxes......................... 2,005 1,737
-------- -------
Net income........................ $ 3,270 $ 2,772
======== =======
Earnings per share:
Basic............................. .95 .60
Diluted........................... .83 .55
Weighted average shares outstanding:
Basic............................. 3,437 4,584
Diluted........................... 3,949 5,011
</TABLE>
The accompanying notes are an integral
part of the financial statements.
3
<PAGE>
<TABLE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<CAPTION>
Three Months Ended
----------------------
March 28, March 30,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers....................... $53,836 $ 46,323
Cash paid to suppliers and employees............... (51,503) (45,667)
Interest paid...................................... (1,183) (1,038)
Income taxes paid, net............................. (37) (736)
------- --------
Net cash provided (used) by operating
activities..................................... 1,113 (1,118)
------- --------
Cash flows from investing activities:
Capital expenditures............................... (1,012) (270)
Purchase of other assets........................... (24) (65)
------- --------
Net cash used by investing activities............ (1,036) (335)
------- --------
Cash flows from financing activities:
Proceeds from revolving credit facility, net....... 5,098
Repayment of Senior Notes.......................... (4,286)
Proceeds from exercised stock options.............. 72 75
------- --------
Net cash provided by financing activities........ 884 75
------- --------
Net increase (decrease) in cash.................... 961 (1,378)
Cash at beginning of year.......................... 756 8,126
------- --------
Cash at end of quarter............................. $ 1,717 $ 6,748
======= ========
Reconciliation of net income to net cash provided
(used) by operating activities:
Net income......................................... $ 3,270 $ 2,772
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization.................. 1,416 1,350
Changes in assets and liabilities:
Accounts receivable.......................... (3,868) (3,268)
Inventories.................................. (2,712) (3,300)
Prepaid expenses and other current
assets, net................................ 914 8
Accounts payable............................. 876 984
Accrued salaries, wages and benefits......... (14) (477)
Other accrued expenses....................... 1,116 859
Other assets................................. 115 97
Other long-term liabilities.................. (143)
------- --------
Net cash provided (used) by operating activities... $ 1,113 $ (1,118)
======= ========
</TABLE>
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(In thousands)
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 28, December 31,
1998 1997
---------- ------------
Land and buildings.............. $34,150 $33,941
Machinery and equipment......... 49,057 48,180
Office fixtures and equipment... 1,836 1,836
Construction in progress........ 514 588
------- -------
$85,557 $84,545
======= =======
3. Long-Term Debt
(Unaudited)
March 28, December 31,
1998 1997
--------- ------------
7.28% senior notes due March
15, 2004...................... $25,714 $30,000
7.57% senior note due June
30, 2005...................... 8,625 8,625
7.43% senior notes due November
18, 2007...................... 10,000 10,000
Revolving credit facility....... 9,050 3,952
------- -------
Total 53,389 52,577
Less current maturities......... 5,086 5,086
------- -------
$48,303 $47,491
======= =======
5
<PAGE>
4. Earnings Per Common Share and Stock Split
Basic earnings per common share are based upon the weighted average shares
outstanding. Outstanding stock options are treated as common stock equivalents
for purposes of computing diluted earnings per share and represent the
difference between basic and diluted weighted average shares outstanding.
In April 1998, the Board of Directors approved a two-for-one stock split, to be
effected in the form of a stock dividend, payable to stockholders of record on
May 1, 1998. In connection with the stock dividend, approximately $69,000 will
be transferred to common stock from capital in excess of par value in the second
quarter of 1998. The unaudited pro forma earnings per share, giving retroactive
effect to the stock split were as follows:
Three Months Ended
--------------------------
March 28, March 30,
1998 1997
----------- ---------
Earnings per share:
Basic.................... $ .48 $ .30
Diluted.................. $ .41 $ .28
Weighted average shares
outstanding:
Basic.................... 6,874 9,168
Diluted.................. 7,898 10,022
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net sales increased $8.1 million, or 16.2%, for the three month
period ended March 28, 1998, from the comparable 1997 period. The
increase was due to higher unit volume.
Gross profit margin for the three month period of 1998 decreased to 24.5% from
25.1% for the comparable 1997 period. The decrease resulted from higher raw
material (primarily lumber) costs, partially offset by improved operating
efficiencies.
Selling, general and administrative expenses as a percentage of net sales
decreased to 13.4% for the 1998 period from 14.4% in the comparable 1997 period.
The lower percentage was due principally to higher net sales in the 1998 period.
The majority of the $625,000 increase in 1998 was selling expenses directly
attributable to the sales increase.
6
<PAGE>
As a result of the above, operating income increased to $6.4 million, or 11.1%
of net sales, from $5.3 million, or 10.7% in the comparable 1997 period.
Interest expense for the three month period ended March 28, 1998, increased due
to higher average debt levels resulting from the Company's June and November
1997 repurchases of its common stock.
The Company's effective income tax rate was 38.0% for the 1998 three month
period and total year 1997.
Financial Condition, Liquidity and Capital Resources
At March 28, 1998, long-term debt including current maturities was $53.4
million. Debt service requirements are $800,000 in 1998, $14.2 million in 1999,
$5.2 million in 2000, $6.7 million in 2001, and $6.8 million in 2002. As of
March 28, 1998, approximately $9.7 million of additional borrowings were
available under the Company's 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 $1.1 million in the 1998 first
quarter compared to cash used from operations of $1.1 million in the 1997
period. Cash in the 1998 period was used to fund capital expenditures. Cash was
required in the 1997 period to fund higher payments to suppliers and employees
due to increased production levels and higher tax payments.
Net cash used by investing activities was $1.0 million in the 1998 period
compared to $335,000 in the 1997 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 $884,000 in the 1998 period
compared to $75,000 in the 1997 period. In the 1998 period, borrowings under the
revolving credit facility provided cash for senior debt payments.
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, or by discussions of strategy. These statements
reflect the Company's reasonable judgment with respect to future events and are
subject to risks and uncertainties that could cause
7
<PAGE>
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.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Fourth Amendment, dated February 24, 1998, 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.*
Exhibit 11. Schedule of Computation of Earnings Per
Share.*
Exhibit 27. Financial Data Schedule.*
(b) Reports on Form 8-K
None.
* Filed herewith.
8
<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: April 14, 1998 By: /s/ Douglas I. Payne
-------------------------
Douglas I. Payne
Sr. V.P. - Finance and
Administration,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
9
FOURTH AMENDMENT TO SECOND AMENDED
AND RESTATED REVOLVING CREDIT AGREEMENT
This FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT
FACILITY dated as of February 24, 1998 (the "Fourth Amendment") is by and
between
STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the
"Borrower"); and
NATIONAL BANK OF CANADA, a Canadian chartered bank (the "Lender" or
"NBC").
RECITALS
- --------
A. National Canada Finance Corp., a Delaware corporation ("NCFC"), and
the Lender made a certain credit facility available to the Borrower pursuant to
the terms and conditions contained in that certain Second Amended and Restated
Revolving Credit Agreement dated as of February 15, 1994 among the Borrower,
NCFC and the Lender, as amended by a First Amendment to Second Amended and
Restated Credit Agreement dated as of August 21, 1995, a Second Amendment to
Second Amended and Restated Credit Agreement dated as of October 14, 1996 and a
Third Amendment to Second Amended and Restated Revolving Credit Facility dated
as of June 24, 1997 (as amended, the "Loan Agreement").
B. The Lender has been assigned the rights of NCFC under the Loan
Agreement and the documents related thereto pursuant to the terms of an
Agreement and Transfer Agreement.
C. The Borrower has requested that the Lender make certain changes to
the Loan Agreement.
D. The Lender has agreed to make these changes to the Loan Agreement as
set forth herein.
NOW, THEREFORE, the Borrower and the Lender hereby agree as follows:
A. The Loan Agreement is amended as follows:
1. A definition for "Funded Indebtedness" is added to Section
1.01 in correct alphabetical order to read as follows:
"Funded Indebtedness" means Indebtedness excluding the maximum
amount of all letters of credit issued or acceptance facilities
established for the account of any Person and, without duplication, all
drafts drawn thereunder."
2. Section 8.01(h) is amended to read as follows:
"(h) Leverage Ratio. The Borrower will not at any time have a
ratio of (i) Funded Indebtedness to (ii) Total Capitalization in excess of .55
to 1.0;".
B. The Borrower represents and warrants that, as of the date hereof, it
is not in default of the terms of the Loan Agreement, as amended hereby, or any
of the other documents executed between the Borrower and the Lender in
connection therewith.
C. This Fourth Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original.
D. This Fourth Amendment and the Loan Agreement, as amended hereby,
shall be deemed to be contracts made under, and for all purposes shall be
construed in accordance with the laws of the State of North Carolina.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused this
instrument to be executed under seal as of the day and year first above written.
STANLEY FURNITURE COMPANY, INC.
ATTEST
By/s/R. Gary Armbrister By/s/Douglas I. Payne
Title Asst. Sec & Treas Title Senior VP - Finance & Adm
(Corporate Seal)
NATIONAL BANK OF CANADA
By/s/Charles Collie
Title VP & Manager
By/s/Alex Councial
Title Vice President
Exhibit 11
STANLEY FURNITURE COMPANY, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share data)
March 28, March 30,
1998 1997
--------- ---------
Net income used in calculating basic
and diluted earnings per common share.. $3,270 $2,772
====== ======
Basic earnings per common share:
Weighted average shares outstanding...... 3,437 4,584
====== ======
Basic earnings per common share.......... $ .95 $ .60
====== ======
Diluted earnings per common share:
Weighted average shares outstanding.... 3,437 4,584
Add shares issuable assuming excer-
cise of stock options................ 512 427
------ ------
Weighted average number of shares
used in calculating diluted
earnings per common share........ 3,949 5,011
====== ======
Diluted earnings per common
share............................. $ .83 $ .55
====== ======
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1998
<PERIOD-END> mar-28-1998
<CASH> 1717
<SECURITIES> 0
<RECEIVABLES> 31295
<ALLOWANCES> 1943
<INVENTORY> 48442
<CURRENT-ASSETS> 82877
<PP&E> 85557
<DEPRECIATION> 34138
<TOTAL-ASSETS> 149357
<CURRENT-LIABILITIES> 36754
<BONDS> 0
0
0
<COMMON> 68
<OTHER-SE> 51559
<TOTAL-LIABILITY-AND-EQUITY> 149357
<SALES> 57691
<TOTAL-REVENUES> 57691
<CGS> 43546
<TOTAL-COSTS> 51298
<OTHER-EXPENSES> 34
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 1084
<INCOME-PRETAX> 5275
<INCOME-TAX> 2005
<INCOME-CONTINUING> 3270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3270
<EPS-PRIMARY> .95
<EPS-DILUTED> .83
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-30-1997
<CASH> 6748
<SECURITIES> 0
<RECEIVABLES> 26364
<ALLOWANCES> 2059
<INVENTORY> 43539
<CURRENT-ASSETS> 78891
<PP&E> 81007
<DEPRECIATION> 29270
<TOTAL-ASSETS> 145496
<CURRENT-LIABILITIES> 33230
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 64403
<TOTAL-LIABILITY-AND-EQUITY> 145496
<SALES> 49631
<TOTAL-REVENUES> 49631
<CGS> 37170
<TOTAL-COSTS> 44297
<OTHER-EXPENSES> 69
<LOSS-PROVISION> 90
<INTEREST-EXPENSE> 756
<INCOME-PRETAX> 4509
<INCOME-TAX> 1737
<INCOME-CONTINUING> 2772
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2772
<EPS-PRIMARY> .60
<EPS-DILUTED> .55
</TABLE>
