UNITED STATES
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 July 1, 2000 or
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Transition report pursuant to Section 13 or 15(d) of the Securities
------- Exchange Act of 1934
For the transition period from to .
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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
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(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, 2000.
Class Number
Common Stock, par value $.02 per share 7,348,983 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
(unaudited)
July 1, December 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash......................................................... $ 1,323 $ 3,597
Accounts receivable, less allowances of $2,320 and $2,050.... 35,998 32,133
Inventories:
Finished goods............................................. 28,626 22,393
Work-in-process............................................ 9,542 8,432
Raw materials.............................................. 16,201 12,755
-------- --------
54,369 43,580
Prepaid expenses and other current assets.................... 1,525 1,011
Deferred income taxes........................................ 2,463 2,463
-------- --------
Total current assets....................................... 95,678 82,784
Property, plant and equipment, net............................. 71,741 72,100
Goodwill, less accumulated amortization of $3,864 and $3,696... 9,576 9,744
Other assets................................................... 5,503 5,894
-------- --------
$182,498 $170,522
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt......................... $ 5,286 $ 5,236
Accounts payable............................................. 23,814 25,836
Accrued salaries, wages and benefits......................... 11,975 10,864
Other accrued expenses....................................... 2,358 2,317
-------- --------
Total current liabilities.................................. 43,433 44,253
Long-term debt, exclusive of current maturities................ 37,882 33,168
Deferred income taxes.......................................... 11,072 11,072
Other long-term liabilities.................................... 2,456 2,456
-------- --------
Total liabilities............................................ 94,843 90,949
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
7,348,983 and 7,113,655 shares issued and outstanding....... 147 142
Capital in excess of par value................................. 35,851 35,064
Retained earnings ............................................. 54,527 44,367
Stock option loans ............................................ (2,870)
-------- --------
Total stockholders' equity................................... 87,655 79,573
-------- --------
$182,498 $170,522
======== ========
</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>
<CAPTION>
Three Months Six Months
Ended Ended
------------------- ------------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $72,118 $63,384 $143,091 $127,045
Cost of sales................................... 54,310 46,940 107,933 94,555
------- ------- -------- --------
Gross profit................................ 17,808 16,444 35,158 32,490
Selling, general and administrative expenses.... 8,623 8,410 16,988 16,651
------- ------- -------- --------
Operating income............................ 9,185 8,034 18,170 15,839
Other expense, net.............................. 9 129 (16) 306
Interest expense................................ 994 875 1,926 1,748
------- ------- -------- --------
Income before income taxes.................. 8,182 7,030 16,260 13,785
Income taxes.................................... 3,071 2,635 6,100 5,202
------- ------- -------- --------
Net income.................................. $ 5,111 $ 4,395 $ 10,160 $ 8,583
======= ======= ======== ========
Earnings per share:
Basic....................................... $ .70 $ .62 $ 1.41 $ 1.21
======= ======= ======== ========
Diluted..................................... $ .67 $ .56 $ 1.33 $ 1.10
======= ======= ======== ========
Weighted average shares outstanding:
Basic....................................... 7,346 7,139 7,230 7,113
======= ======= ======== ========
Diluted..................................... 7,643 7,829 7,624 7,823
======= ======= ======== ========
</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>
<CAPTION>
Six Months Ended
-------------------------
July 1, June 26,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers................................... $ 139,236 $ 122,522
Cash paid to suppliers and employees........................... (131,007) (105,936)
Interest paid.................................................. (2,277) (1,306)
Income taxes paid, net......................................... (5,754) (4,416)
--------- ---------
Net cash provided by operating activities.................. 198 10,864
--------- ---------
Cash flows from investing activities:
Capital Expenditures........................................... (6,137) (10,998)
--------- ---------
Net cash used by investing activities...................... (6,137) (10,998)
--------- ---------
Cash flows from financing activities:
Proceeds from revolving credit facility, net................... 10,000 850
Repayment of Senior Notes...................................... (5,236) (4,285)
Purchase and retirement of common stock........................ (2,002) (1,935)
Proceeds from exercised stock options.......................... 264 633
Proceeds from insurance policy loans........................... 639
--------- ---------
Net cash used by financing activities.......................... 3,665 (4,737)
--------- ---------
Net decrease in cash........................................... (2,274) (4,871)
Cash at beginning of period.................................... 3,597 6,791
--------- ---------
Cash at end of period...................................... $ 1,323 $ 1,920
========= =========
Reconciliation of net income to net cash provided
by operating activities:
Net income..................................................... $ 10,160 $ 8,583
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............................. 3,944 3,016
Loss on sale of assets..................................... 54 131
Changes in assets and liabilities:
Accounts receivable.................................... (3,865) (4,405)
Inventories............................................ (10,788) 2,371
Prepaid expenses and other current assets.............. (985) (185)
Accounts payable....................................... 678 (1,025)
Accrued salaries, wages and benefits................... 197 755
Other accrued expenses................................. 1,104 1,362
Other assets........................................... (301) 261
--------- ---------
Net cash provided by operating activities...................... $ 198 $ 10,864
========= =========
</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)
July 1, December 31,
2000 1999
-------- --------
<S> <C> <C>
Land and buildings.................................... $ 41,254 $ 35,871
Machinery and equipment............................... 74,245 62,120
Office fixtures and equipment......................... 1,819 1,732
Construction in progress.............................. 886 15,528
-------- --------
Property, plant and equipment, at cost.............. 118,204 115,251
Less accumulated depreciation......................... 46,463 43,151
-------- --------
$ 71,741 $ 72,100
======== ========
</TABLE>
3. Long-Term Debt
<TABLE>
<CAPTION>
(Unaudited)
July 1, December 31,
2000 1999
------- -------
<S> <C> <C>
7.28% senior notes due March 15, 2004................. $17,143 $21,429
7.57% senior note due June 30, 2005................... 6,025 6,975
7.43% senior notes due November 18, 2007.............. 10,000 10,000
Revolving credit facility......................... 10,000
------- -------
Total......................................... 43,168 38,404
Less current maturities........................... 5,286 5,236
------- -------
$37,882 $33,168
======= =======
</TABLE>
In March 2000, the Revolving Credit Facility was amended to increase available
borrowings from $25 million to $35 million.
4. Stock Option Plan
The Company maintains a stock option plan under which holders of certain
exercisable stock options may obtain interest-bearing loans from the Company to
facilitate their exercise of stock options. Such loans are evidenced by
promissory notes and are collateralized by the shares of stock. As of July 1,
2000, approximately $2.9 million in stock option loans are outstanding.
5. 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
-------------------- ------------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Weighted average shares outstanding
for basic calculation..................... 7,346 7,139 7,230 7,113
Add: Effect of stock options................ 297 690 394 710
------ ----- ----- -----
Weighted average shares outstanding,
adjusted for diluted calculation....... 7,643 7,829 7,624 7,823
===== ===== ===== =====
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales increased $8.7 million, or 13.8%, for the three month period ended
July 1, 2000 from the comparable 1999 period. For the six month period, net
sales increased $16 million, or 12.6%, from the comparable 1999 period. The
increase was due primarily to higher unit volume in the Company's Young
America(TM) youth bedroom, home office and bedroom product lines. During 1999,
the Company completed expansion projects to increase production in response to
the growing demand for its bedroom and Young America(TM) youth bedroom product
lines. During the first quarter of 2000, the Company commenced operations at its
new manufacturing facility in response to the growing demand for home office
furniture. This facility should provide $50-$60 million of sales capacity on an
annualized basis when in full production in two to three years.
Gross profit margin for the three and six month periods of 2000 decreased to
24.7% and 24.6%, respectively, from 25.9% and 25.6% for the comparable 1999
periods. The decrease resulted primarily from start-up expenses associated with
the new facility dedicated to the production of home office furniture, partially
offset by improved operating efficiencies at other manufacturing facilities and
to a lesser extent, stable raw material cost. However, the Company began
experiencing higher raw material cost, principally lumber, during the second
quarter of 2000 and expects this trend to continue in the second half of 2000.
Selling, general and administrative expenses for the three and six month periods
of 2000 as a percentage of net sales decreased to 12.0% and 11.9%, respectively,
from 13.3% and 13.1% for the comparable 1999 periods. The lower percentages in
2000 were due principally to higher net sales. The increased expenditures in
2000 were primarily selling expenses directly attributable to the sales
increase.
As a result of the above, operating income as a percentage of net sales was
12.7% for the three and six month periods of 2000 and approximated the
comparable prior year periods.
Interest expense for the 2000 three and six month periods increased due
primarily to higher average debt levels.
The Company's effective income tax rate was 37.5% for the 2000 six month period
and 36.9% for total year 1999. The lower 1999 percentage was due to state income
tax credits related to expansion projects.
Financial Condition, Liquidity and Capital Resources
During the first half of 2000, the Company used cash generated from operations
to fund start-up of the new manufacturing facility dedicated to the production
of home office furniture, increased inventory levels and increased interest and
tax payments. These items were partially offset by increased receipts due to
higher sales. In 1999, cash generated from operations of $10.9 million was used
to fund capital requirements and reduce borrowings.
Net cash used by investing activities was $6.1 million in the 2000 period
compared to $11.0 million in the 1999 period. Net cash used for capital
expenditures in the 2000 period was $6.1 million, reflecting $2.7 million of
prior year capital expenditures included in accounts payable at December 31,
1999 and $3.4 million of capital expenditures in the 2000 period. Capital
expenditures in each year were primarily for plant and equipment and other
assets in the normal course of business. Capital expenditures in 2000 are
anticipated to be approximately $6-$7 million.
Net cash provided by financing activities was $3.7 million in the 2000 period
compared to cash used by financing activities of $4.7 million in the 1999
period. In the 2000 period, borrowings under the revolving credit facility
provided cash for senior debt payments, capital expenditures and the purchase
and retirement of the Company's common stock. During the six months ended July
1, 2000, the Company purchased 112,000 shares of its stock on the open market at
an average price of $17.88. Since October 1998, the Company has utilized $12.3
million, of the $20.0 million authorization, to purchase a total of 653,750
shares of its common stock at an average price of $18.76 per share.
At July 1, 2000, long-term debt including current maturities was $43.2 million.
Debt service requirements are $6.7 million in 2001, $16.8 million in 2002, $6.9
million in 2003, and $7.0 million in 2004. In March 2000, the revolving credit
facility was amended to increase available borrowings from $25.0 million to
$35.0 million. As of July 1, 2000, approximately $24.0 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.
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
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(a) The annual meeting of the Company's stockholders was held on
April 19, 2000.
(c)(i) The stockholders of the Company elected two directors for a three-year
term expiring at the Annual Meeting of Stockholders to be held in 2003.
The election was approved by the following vote:
<TABLE>
<CAPTION>
For Withheld
--------- --------
<S> <C> <C>
David V. Harkins 6,019,968 27,850
Albert L. Prillaman 6,020,075 27,743
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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 18, 2000 By: /s/ Douglas I. Payne
------------------------
Douglas I. Payne
Sr. V.P. - Finance and Administration,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
