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 26, 1999 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 1, 1999.
Class Number
Common Stock, par value $.02 per share 7,106,192 Shares
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
(Unaudited)
June 26, December 31,
1999 1998
__________ ___________
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................... $ 1,920 $ 6,791
Accounts receivable, less allowances of $2,165 and $1,906.......... 33,546 29,141
Inventories:
Finished goods................................................... 24,074 22,853
Work-in-process.................................................. 7,214 7,495
Raw materials.................................................... 12,855 16,166
__________ ___________
44,143 46,514
Prepaid expenses and other current assets.......................... 1,009 903
Deferred income taxes.............................................. 2,429 1,980
__________ ___________
Total current assets............................................. 83,047 85,329
Property, plant and equipment, net................................... 60,539 52,474
Goodwill, less accumulated amortization of $3,528 and $3,360......... 9,912 10,080
Other assets......................................................... 6,263 6,491
__________ ___________
$ 159,761 $ 154,374
========== ===========
LIABILITIES
Current liabilities:
Current maturities of long-term debt............................... $ 5,136 $ 5,136
Accounts payable................................................... 20,812 21,837
Accrued salaries, wages and benefits............................... 12,694 11,939
Other accrued expenses............................................. 2,696 2,009
__________ ___________
Total current liabilities........................................ 41,338 40,921
Long-term debt, exclusive of current maturities...................... 34,968 38,403
Deferred income taxes................................................ 11,143 10,694
Other long-term liabilities.......................................... 1,988 1,988
__________ ___________
Total liabilities.................................................. 89,437 92,006
__________ ___________
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
7,106,192 and 7,069,715 shares issued and outstanding.............. 142 141
Capital in excess of par value....................................... 36,445 37,073
Retained earnings ................................................... 33,737 25,154
__________ ___________
Total stockholders' equity......................................... 70,324 62,368
__________ ___________
$ 159,761 $ 154,374
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Months Six Months
Ended Ended
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
_______ _______ ________ ________
<S> <C> <C> <C> <C>
Net sales................................................... $63,384 $61,863 $127,045 $119,554
Cost of sales............................................... 46,940 46,590 94,555 90,136
_______ _______ ________ ________
Gross profit.............................................. 16,444 15,273 32,490 29,418
Selling, general and administrative expenses................ 8,410 8,350 16,651 16,102
_______ _______ ________ ________
Operating income.......................................... 8,034 6,923 15,839 13,316
Other expense, net.......................................... 129 48 306 82
Interest expense............................................ 875 1,102 1,748 2,186
_______ _______ ________ ________
Income before income taxes................................ 7,030 5,773 13,785 11,048
Income taxes................................................ 2,635 2,193 5,202 4,198
_______ _______ ________ ________
Net income................................................ $ 4,395 $ 3,580 $ 8,583 $ 6,850
Earnings per share:
Basic..................................................... $ .62 $ .51 $ 1.21 $ .99
Diluted................................................... $ .56 $ .45 $ 1.10 $ .86
Weighted average shares outstanding:
Basic..................................................... 7,139 6,978 7,113 6,932
Diluted................................................... 7,829 8,016 7,823 7,968
</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)
<CAPTION>
Six Months Ended
June 26, June 27,
1999 1998
_________ _________
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers......................................... $ 122,522 $ 115,643
Cash paid to suppliers and employees................................. (105,936) (105,969)
Interest paid........................................................ (1,306) (1,725)
Income taxes paid, net............................................... (4,416) (3,388)
_________ _________
Net cash provided by operating activities.......................... 10,864 4,561
_________ _________
Cash flows from investing activities:
Capital expenditures................................................. (10,954) (2,460)
Purchase of other assets............................................. (44) (41)
_________ _________
Net cash used by investing activities.............................. (10,998) (2,501)
_________ _________
Cash flows from financing activities:
Proceeds from revolving credit facility.............................. 850 2,065
Repayment of Senior Notes............................................ (4,285) (4,286)
Proceeds from exercised stock options................................ 633 937
Purchase and retirement of common stock.............................. (1,935)
_________ _________
Net cash used by financing activities.............................. (4,737) (1,284)
_________ _________
Net increase (decrease) in cash...................................... (4,871) 776
Cash at beginning of period.......................................... 6,791 756
_________ _________
Cash at end of period.............................................. $ 1,920 $ 1,532
========= =========
Reconciliation of net income to net cash provided
by operating activities:
Net income........................................................... $ 8,583 $ 6,850
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization...................................... 3,016 2,854
Loss on sale of assets............................................. 131 8
Changes in assets and liabilities:
Accounts receivable.............................................. (4,405) (3,701)
Inventories...................................................... 2,371 (5,023)
Prepaid expenses and other current assets........................ (185) 263
Accounts payable................................................. (1,025) 1,800
Accrued salaries, wages and benefits............................. 755 21
Other accrued expenses........................................... 1,362 1,764
Deferred income taxes............................................ (505)
Other assets..................................................... 261 230
_________ ________
Net cash provided by operating activities............................ $ 10,864 $ 4,561
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<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. Operating results
for the interim periods reported herein may not be indicative of the results
expected for the year. 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>
<CAPTION>
(Unaudited)
June 26, December 31,
1999 1998
_________ __________
<S> <C> <C>
Land and buildings.................................. $ 34,583 $34,699
Machinery and equipment............................. 53,623 51,728
Office fixtures and equipment....................... 1,772 1,772
Construction in progress............................ 10,757 1,876
_________ __________
Property, plant and equipment, at cost............ 100,735 90,075
Less accumulated depreciation....................... 40,196 37,601
_________ __________
$ 60,539 $52,474
========= ==========
3. Long-Term Debt
(Unaudited)
June 26, December 31,
1999 1998
_________ __________
7.28% senior notes due March 15, 2004............... $21,429 $25,714
7.57% senior note due June 30, 2005................. 7,825 7,825
7.43% senior notes due November 18, 2007............ 10,000 10,000
Revolving credit facility......................... 850
_________ __________
Total......................................... 40,104 43,539
Less current maturities........................... 5,136 5,136
_________ __________
$34,968 $38,403
========= ==========
</TABLE>
4. Earnings Per Common Share
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. Basic and diluted earnings
per share are calculated using the following share data (unaudited):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
_______ _______ _______ _______
<S> <C> <C> <C> <C>
Weighted average shares outstanding
for basic calculation...................... 7,139 6,978 7,113 6,932
Add: Effect of stock options................ 690 1,038 710 1,036
_______ _______ _______ _______
Weighted average shares outstanding,
Adjusted for diluted calculation......... 7,829 8,016 7,823 7,968
======= ======= ======= =======
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales increased $1.5 million, or 2.5%, for the three month period ended June
26, 1999 from the comparable 1998 period. For the six month period, net sales
increased $7.5 million, or 6.3%, from the comparable 1998 period. The Company
closed its upholstery operations in the second half of 1998. Excluding
upholstery sales for the three and six month periods of 1998, wood furniture
sales increased 5.4% and 9.6% in the 1999 periods, respectively. The increase
was due to higher unit volume and to a lesser extent higher average selling
prices. Also impacting second quarter 1999 results were capacity constraints
which limited shipments.
Gross profit margin for the three and six month periods of 1999 increased to
25.9% and 25.6%, respectively, from 24.7% and 24.6% for the comparable 1998
periods. The increase resulted primarily from stable raw material cost and
improved operating efficiencies. These comparisons were also favorably impacted
by the phase out of upholstered products.
Selling, general and administrative expenses for the three and six month periods
of 1999 as a percentage of net sales decreased to 13.3% and 13.1%, respectively,
from 13.5% for both comparable 1998 periods. The lower percentages in 1999 were
due principally to higher net sales. Expenditures in 1999 were higher due
principally to selling expenses directly attributable to increased sales.
However, the majority of the increase was offset by the elimination of
expenditures related to upholstered products, which were phased out in the
second half of 1998.
As a result of the above, operating income as a percentage of net sales for the
three and six month periods of 1999 increased to 12.7% and 12.5%, respectively,
from 11.2% and 11.1% for the comparable 1998 periods.
Interest expense for the 1999 three and six month periods decreased due to lower
average debt levels.
The Company's effective income tax rate declined to 37.7% for the 1999 six month
period from 38.0% in 1998, due to lower state tax expense.
Financial Condition, Liquidity and Capital Resources
At June 26, 1999, long-term debt including current maturities was $40.1 million.
Debt service requirements are $850,000 remaining in 1999, $6.1 million in 2000,
$6.7 million in 2001, $6.8 million in 2002, and $6.9 million in 2003. As of June
26, 1999, approximately $23.1 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.
Cash generated from operations increased to $10.9 million in the 1999 period
compared to $4.6 million during the 1998 period, due primarily to increased
sales. The cash generated in 1999 was used to fund capital expenditures and
reduce borrowings.
Net cash used by investing activities was $11.0 million in the 1999 period
compared to $2.5 million in the 1998 period. Capital expenditures in 1999 are
anticipated to be approximately $26 million. Approximately $10 million of
capital spending in 1999 will be used to expand production capability at
existing facilities to add $30-$35 million of increased sales capacity on an
annualized basis. This new capacity is expected to be phased in during the
second half of 1999 and will allow the Company to increase production for its
bedroom and Young AmericaTM youth bedroom products. Approximately $15 million of
capital spending in 1999 will be used to purchase and equip a facility dedicated
to the production of home office furniture. This facility is expected to begin
operation early next year and should provide $50-$60 million of sales capacity
on an annualized basis when in full production in two to three years. A majority
of the capital expenditures incurred to-date in 1999 were related to these
capacity expansion projects. The remaining expenditures in the current period
and the expenditures in the 1998 period were primarily for plant and equipment
and other assets in the normal course of business.
Net cash used by financing activities was $4.7 million in the 1999 period
compared to $1.3 million in the 1998 period. In the 1999 period, available cash
was used for senior debt payments and to repurchase its common stock. During the
six months ended June 26, 1999, the Company purchased 89,550 shares of its stock
on the open market at an average price of $21.61 per share. In the 1998 period,
cash generated from operations and proceeds from the revolving credit facility
were used to fund senior note payments.
Year 2000
The Company continues to actively address the business issues associated with
the expected impact of the Year 2000 ("Y2K") on information technology systems
and non-information technology systems, including equipment with embedded
microprocessors, both internally and in relation to the Company's external
customers and suppliers. Factors involved in assessing such business issues
include the evaluation and testing of the Company's systems; evaluation,
upgrading and certifying of automated plant machinery and equipment; and
assessing the compliance strategies of significant customers and vendors and
monitoring the status of their strategies.
The Company has created a cross-functional Y2K team for the purpose of directing
the Company's compliance efforts and identifying and addressing the impact of
noncompliance on information technology systems and non-information technology
systems. An inventory of all the Company's equipment containing date sensitive
embedded technology has been completed. All equipment has been either tested
and/or certified to be Y2K compliant. However, additional testing will continue
for the balance of the year. Since 1996, the Company has been upgrading its
information systems technology with Y2K compliant software to support its sales,
manufacturing and administrative functions. At the present time, the Company
believes it has completed all of the necessary internal software and hardware
implementation required for Y2K compliance. The Company does not believe any
material exposures or contingencies exist with respect to its internal
information systems.
The Company has requested assurances from its major suppliers and business
partners that they will be Y2K compliant so that there will be no disruption of
their products or services as the new century begins. The Company has assessed
the risk of each of its significant suppliers and business partners to determine
the possible impact of their noncompliance, if that should occur. Although the
Company is presently not aware of any material exposures or contingencies
related to the Y2K compliance efforts of its significant vendors and business
partners, if a significant vendor or business partner should be noncompliant
there can be no assurance such an event will not have a material adverse effect
on the Company's financial position, results of operations and cash flows. The
Company believes the actions it is taking (including the continued monitoring of
third-party compliance and the development of appropriate contingency plans)
will minimize these risks and believes it is taking responsible steps to prevent
any major disruptions.
The Company believes the actions it has taken since 1996 with regard to Y2K
issues have minimized Y2K related capital costs and expenses incurred to date
(estimated at less than $1.0 million). Substantially all costs have been
incurred.
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 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 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the Company's stockholders was held on April 29, 1999.
(c)(i) The stockholders of the Company elected one director for a three-year
term expiring at the Annual Meeting of Stockholders to be held in 2002.
The election was approved by the following vote:
For Withheld
T. Scott McIlhenny, Jr. 5,397,369 26,388
(ii) The stockholders approved the ratification of the selection of
PricewaterhouseCoopers LLP as the independent public accountants for
the Company for the current fiscal year. The ratification was approved
by the following vote:
FOR 5,398,912
AGAINST 1,414
ABSTAIN 23,431
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 4.1 Fourth Amendment, dated as of May 10, 1999, between
the Registrant and The Prudential Insurance Company
of America.*
Exhibit 27 Financial Data Schedule. *
(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: July 13, 1999 By: /s/ Douglas I. Payne
_______________________________
Douglas I. Payne
Sr. V.P. - Finance and Administration,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
Exhibit 4.1
AMENDMENT NO. 4 TO NOTE AGREEMENT
AMENDMENT NO. 4 dated as of May 10, 1999 to Note Agreements dated as of
February 15, 1994 and June 29, 1995 between Stanley Furniture Company, Inc. (the
"Company") and THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential") (as
amended, the "Note Agreements"). Capitalized terms used herein without
definition have the meanings ascribed to such terms in the Agreements.
W I T N E S S E T H:
WHEREAS, Prudential and the Company have executed and delivered the
Note Agreements and Prudential holds the Notes issued thereunder,
WHEREAS, the Company wishes to amend certain terms of the Note
Agreements,
WHEREAS, Prudential is willing to amend such terms of the Note
Agreements, all on the terms and conditions set forth below.
NOW THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment.
The definition of "Cumulative Amounts Available For Restricted
Payments," contained in Paragraph 10B of the Note Agreements is hereby amended
and restated in its entirety as follows:
"'Cumulative Amounts Available For Restricted Payments' shall mean
for the period (taken as one accounting period) beginning on January 1,
1999, and ending as of the last day of the most recently completed
fiscal quarter before any proposed Restricted Payment:
(1) $25,000,000; plus
(2) 50% of the Consolidated Net Earnings or 100% of the
Consolidated Net Loss, as the case may be, during such period;
plus
(3) the total net cash proceeds received by the Company from the
sale of its stock during such period; less
(4) the aggregate amount of all Restricted Payments made during
such period."
2. Miscellaneous.
(a) This Amendment shall be effective as of the date above written upon the
delivery to Prudential of a copy hereof duly executed by the Company and
Prudential. Except as set forth herein, this amendment shall not constitute a
waiver or amendment of any provision of the Note Agreements and the Note
Agreements are and shall continue to be in full force and effect.
(b) This Amendment may be executed in any number of counterparts, each of
which counterparts shall be an original and all of which taken together shall
constitute one and the same Amendment.
(c) On and after the date of this Amendment, each reference in the Note
Agreements and the Notes to the Note Agreements shall mean and be a reference to
the Note Agreements as amended by this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to set their hands as of the day and year first above
written.
STANLEY FURNITURE COMPANY, INC.
By: /s/ Douglas I. Payne
________________________
Name: Douglas I. Payne
Title: Senior Vice President,
Finance & Administration
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ Robert R. Derrick
________________________
Name: Robert R. Derrick
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-26-1999
<CASH> 1,920
<SECURITIES> 0
<RECEIVABLES> 33,546
<ALLOWANCES> 2,165
<INVENTORY> 44,143
<CURRENT-ASSETS> 83,047
<PP&E> 100,735
<DEPRECIATION> 40,196
<TOTAL-ASSETS> 159,761
<CURRENT-LIABILITIES> 41,338
<BONDS> 0
0
0
<COMMON> 142
<OTHER-SE> 70,182
<TOTAL-LIABILITY-AND-EQUITY> 159,761
<SALES> 127,045
<TOTAL-REVENUES> 127,045
<CGS> 94,555
<TOTAL-COSTS> 111,206
<OTHER-EXPENSES> 306
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 1,748
<INCOME-PRETAX> 13,785
<INCOME-TAX> 5,202
<INCOME-CONTINUING> 8,583
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,583
<EPS-BASIC> 1.21
<EPS-DILUTED> 1.10
</TABLE>
