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 30, 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.
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(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)
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(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 4, 2000.
Class Number
Common Stock, par value $.02 per share 6,913,531 Shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
(Unaudited)
September December
30, 2000 31, 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash......................................................... $ 2,265 $ 3,597
Accounts receivable, less allowances of $2,404 and $2,050.... 38,213 32,133
Inventories:
Finished goods............................................. 28,619 22,393
Work-in-process............................................ 9,709 8,432
Raw materials.............................................. 14,678 12,755
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53,006 43,580
Prepaid expenses and other current assets.................... 1,638 1,011
Deferred income taxes........................................ 2,463 2,463
-------- --------
Total current assets....................................... 97,585 82,784
Property, plant and equipment, net............................. 71,357 72,100
Goodwill, less accumulated amortization of $3,948 and $3,696... 9,492 9,744
Other assets................................................... 5,341 5,894
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$183,775 $170,522
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt......................... $ 5,286 $ 5,236
Accounts payable............................................. 22,580 25,836
Accrued salaries, wages and benefits......................... 13,371 10,864
Other accrued expenses....................................... 2,153 2,317
-------- --------
Total current liabilities.................................. 43,390 44,253
Long-term debt, exclusive of current maturities................ 44,882 33,168
Deferred income taxes.......................................... 11,072 11,072
Other long-term liabilities.................................... 2,456 2,456
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Total liabilities............................................ 101,800 90,949
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STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
6,913,531 and 7,113,635 shares issued and outstanding........ 138 142
Capital in excess of par value................................. 25,063 35,064
Retained earnings ............................................. 59,593 44,367
Stock option loans............................................. (2,819)
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Total stockholders' equity................................. 81,975 79,573
-------- --------
$183,775 $170,522
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</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Nine Months
Ended Ended
---------------------- -----------------------
September September September September
30, 2000 25, 1999 30, 2000 25, 1999
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<S> <C> <C> <C> <C>
Net sales........................................... $71,440 $65,319 $214,531 $192,364
Cost of sales....................................... 53,948 48,203 161,881 142,758
------- ------- -------- --------
Gross profit.................................... 17,492 17,116 52,650 49,606
Selling, general and administrative expenses........ 8,429 8,400 25,417 25,051
------- ------- -------- --------
Operating income................................ 9,063 8,716 27,233 24,555
Other expense, net.................................. (38) 28 (55) 335
Interest expense.................................... 999 872 2,925 2,619
------- ------- -------- --------
Income before income taxes...................... 8,102 7,816 24,363 21,601
Income taxes........................................ 3,037 2,859 9,137 8,061
------- ------- -------- --------
Net income...................................... $ 5,065 $ 4,957 $ 15,226 $ 13,540
======= ======= ======== ========
Earnings per share:
Basic............................................. $ .71 $ .69 $ 2.12 $ 1.90
======= ======= ======== ========
Diluted........................................... $ .68 $ .64 $ 2.02 $ 1.74
======= ======= ======== ========
Weighted average shares outstanding:
Basic............................................. 7,130 7,141 7,178 7,125
======= ======= ======== ========
Diluted........................................... 7,434 7,762 7,549 7,804
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
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September September
30, 2000 25, 1999
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<S> <C> <C>
Cash flows from operating activities:
Cash received from customers................................... $208,546 $186,058
Cash paid to suppliers and employees........................... (189,832) (156,502)
Interest paid.................................................. (3,092) (2,915)
Income taxes paid, net......................................... (9,154) (6,667)
-------- --------
Net cash provided by operating activities.................... 6,468 19,974
-------- --------
Cash flows from investing activities:
Capital expenditures........................................... (7,685) (15,475)
Other, net..................................................... (38) (157)
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Net cash used by investing activities........................ (7,723) (15,632)
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Cash flows from financing activities:
Purchase and retirement of common stock........................ (12,823) (4,438)
Proceeds from revolving credit facility........................ 17,000
Repayment of Senior Notes...................................... (5,236) (5,135)
Proceeds from insurance policy loans........................... 639 596
Proceeds from exercised stock options.......................... 343 1,139
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Net cash used by financing activities........................ (77) (7,838)
-------- --------
Net decrease in cash........................................... (1,332) (3,496)
Cash at beginning of year...................................... 3,597 6,791
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Cash at end of period........................................ $ 2,265 $ 3,295
======== ========
Reconciliation of net income to net cash provided
by operating activities:
Net income.................................................. $ 15,226 $ 13,540
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........................... 6,061 4,566
Deferred income taxes................................... 407
Other, net.............................................. 54 131
Changes in assets and liabilities:
Accounts receivable................................... (6,080) (6,121)
Inventories........................................... (9,425) 4,243
Prepaid expenses and other current assets............. (1,185) (187)
Accounts payable...................................... (556) 1,224
Accrued salaries, wages and benefits.................. 1,593 817
Other accrued expenses................................ 914 1,466
Other assets.......................................... (134) (112)
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Net cash provided by operating activities................... $ 6,468 $ 19,974
======== ========
</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. 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.
<TABLE>
<CAPTION>
2. Property, Plant and Equipment
(Unaudited)
September December
30, 2000 31, 1999
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<S> <C> <C>
Land and buildings.................................... $ 41,300 $ 35,871
Machinery and equipment............................... 75,115 62,120
Office fixtures and equipment......................... 1,830 1,732
Construction in progress.............................. 1,538 15,528
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Property, plant and equipment, at cost............ 119,783 115,251
Less accumulated depreciation......................... 48,426 43,151
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$ 71,357 $ 72,100
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</TABLE>
<TABLE>
<CAPTION>
3. Long-Term Debt
(Unaudited)
September December
30, 2000 31, 1999
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<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............................. 17,000
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Total........................................... 50,168 38,404
Less current maturities............................... 5,286 5,236
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$ 44,882 $ 33,168
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</TABLE>
In March 2000, the Revolving Credit Facility was amended to increase the
borrowing limit 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 September
30, 2000, approximately $2.8 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 Nine Months
Ended Ended
----------------------- ---------------------
September September September September
30, 2000 25, 1999 30, 2000 25,1999
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Weighted average shares outstanding
for basic calculation..................... 7,130 7,141 7,178 7,125
Add: Effect of stock options.................. 304 621 371 679
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Weighted average shares outstanding,
adjusted for diluted calculation...... 7,434 7,762 7,549 7,804
===== ===== ===== =====
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales increased $6.1 million, or 9.4%, for the three month period ended
September 30, 2000 from the comparable 1999 period. For the nine month period,
net sales increased $22.2 million, or 11.5%, from the comparable 1999 period.
The increase was due primarily to higher unit volume in the Company's Young
America(TM) youth bedroom and home office product lines. The Company has
recently experienced a softening in overall demand and expects slower sales
growth in the fourth quarter and into next year.
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. The Company has experienced consistent improvement in
operating performance at this new facility and expects continued improvement
going forward. However, as product is moved to the new facility, some temporary
operating inefficiencies are anticipated in the fourth quarter, due to a change
in product mix at several other factories.
Gross profit margin for both the three and nine month periods of 2000 decreased
to 24.5% from 26.2% and 25.8%, respectively, 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, higher raw
material cost and increased labor cost. The Company continues to experience
higher raw material cost, principally lumber, and expects this trend to continue
into 2001.
Selling, general and administrative expenses for both the three and nine month
periods of 2000 as a percentage of net sales decreased to 11.8% from 12.9% and
13.0%, respectively, 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 both the three and nine month periods of 2000 compared to 13.3% and
12.8%, respectively, for the comparable prior year periods.
Interest expense for the 2000 three and nine month periods increased due
primarily to higher average debt levels, resulting from increased inventories
and accounts receivable, and repurchases of the Company's common stock.
The Company's effective income tax rate was 37.5% for the 2000 nine 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
Cash generated from operations decreased to $6.5 million in the 2000 period
compared to $20.0 million in the 1999 period. This decrease was attributable to
increased inventory levels and higher tax payments. The cash generated in the
1999 period was used to fund capital requirements, reduce borrowings and
repurchase the Company's common stock.
Net cash used by investing activities was $7.7 million in the 2000 period
compared to $15.6 million in the 1999 period. Net cash used for capital
expenditures in the 2000 period was $7.7 million, reflecting $2.7 million of
prior year capital expenditures included in accounts payable at December 31,
1999 and $5.0 million of capital expenditures in the 2000 period. In the current
year, capital expenditures were primarily for plant and equipment and other
assets in the normal course of business. In 1999, capital expenditures were made
for capacity expansion projects in addition to expenditures for plant and
equipment and other assets in the normal course of business. Capital
expenditures in 2000, excluding carryover from 1999, are anticipated to be
approximately $6.5-$7.5 million.
Net cash used by financing activities was $77,000 in the 2000 period compared to
$7.8 million in the 1999 period. In the 2000 period, cash from operations and
borrowings under the revolving credit facility provided cash for the purchase
and retirement of the Company's common stock, senior debt payments and capital
expenditures. During the nine months ended September 30, 2000, the Company
purchased 549,400 shares of its stock on the open market at an average price of
$23.34. In August 2000, the Company's Board of Directors increased the
authorization to repurchase shares of its common stock by $10 million to $30
million. Since October 1998, the Company has utilized $23.1 million, of the
$30.0 million authorization, to purchase a total of 1,091,150 shares of its
common stock at an average price of $21.156 per share.
At September 30, 2000, long-term debt including current maturities was $50.2
million. Debt service requirements are $6.7 million in 2001, $23.8 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 September 30, 2000, approximately $16.4
million of additional borrowings were available under the Company's revolving
credit facility, after adjusting for outstanding letter of credits of $1.6
million. 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 3. Legal Proceedings
On July 9, 1999, the United States Environmental Protection Agency
("EPA") served the Company with an administrative complaint citing the alleged
failure of a July 1998 compliance test of one boiler at the Stanleytown,
Virginia facility and seeking a civil fine in the amount of $175,000. In
September 2000, the Company reached a settlement with the EPA in which the
Company agreed to pay a $57,000 penalty and complete a special $237,000
five-year project to install filtration systems for certain spray booths on its
furniture finishing line. The costs related to the settlement are not expected
to have a material adverse effect on the Company's financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
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(a) A special meeting of the Company's stockholders was held on August 24,
2000.
(c)(i) The stockholders of the Company approved the Stanley Furniture Company,
Inc. 2000 Incentive Compensation Plan by the following vote:
FOR 4,269,332
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AGAINST 922,148
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ABSTAIN 14.918
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 2000 Incentive Compensation Plan (incorporate by
reference to Registration Statement on Form S-8
No. 333-45402).
Exhibit 10.2 Amendment No. 2 to The Stanley Furniture Company, Inc.
1992 Stock Option Plan dated as of July 1, 2000.*
Exhibit 10.3 Amendment No. 1 to The Stanley Furniture Company, Inc.
1994 Stock Option Plan dated as of July 1, 2000.*
Exhibit 27 Financial Data Schedule. *
(b) Reports on Form 8-K
A report on Form 8-K was filed on August 25, 2000 to announce the
Company's Board of Directors' authorization to use an additional $10
million to repurchase the Company's common stock.
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* 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: October 17, 2000 By: /s/Douglas I. Payne
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Douglas I. Payne
Sr. V.P. - Finance and Administration,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
