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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 Number)
Route 57, Stanleytown, Virginia 24168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 627-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.02 per share
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.[ ]
Aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price on January 25, 1995: $16,221,328
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock as of January 25, 1995:
Common Stock, par value $.02 per share 4,726,550
(Class of Common Stock) Number of Shares
Documents incorporated by reference: Portions of the Registrant's Proxy
Statement for its Annual Meeting of Shareholders scheduled for April 20, 1995
are incorporated by reference into Part III.
TABLE OF CONTENTS
Part I Page
Item 1 Business............................. 3
Item 2 Properties........................... 9
Item 3 Legal Proceedings.................... 10
Item 4 Submission of Matters to a Vote
of Security Holders................ 10
Part II
Item 5 Market for Registrant's Common Equity
and Related Stockholder Matters.... 12
Item 6 Selected Financial Data.............. 13
Item 7 Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 15
Item 8 Financial Statements and
Supplementary Data................. 19
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure............... 19
Part III
Items 10 through 13.............................. 19
Part IV
Item 14 Exhibits, Financial Statement
Schedule and Reports on Form 8-K... 19
Signatures....................................... 24
Index to Financial Statements and Schedule....... F-1
Stanley Furniture Company, Inc.
PART I
Item 1. Business
General
Stanley Furniture Company, Inc. ("Stanley" or the "Company")
is a leading designer and manufacturer of furniture exclusively
targeted at the upper-medium price range of the residential market.
The Company is ranked among the top 25 furniture manufacturers in
North America, based on sales, according to Furniture Today, a
trade publication. During 1994, the Company expanded it's product
line offerings to include upholstered furniture. See "Products and
Styles".
The original predecessor of the Company was founded in 1924.
The Company was incorporated in Delaware in 1984. The Company was
acquired by Stanley Holding Corporation, a Delaware corporation
("Holding"), in a leveraged buy out in January 1989. Holding was
owned 60% by the ML-Lee Acquisition Fund, L.P. (the "Lee Fund"),
20% by affiliates of the Thomas H. Lee Company (the "Lee Company")
and 20% by certain members of the Company's management. The Lee
Fund and affiliates of the Lee Company had no relationship with the
Company prior to the leveraged buy out transaction.
In November 1992, the Company completed a comprehensive
financial restructuring which included (i) the exchange of $21.4
million in outstanding principal amount of 14% subordinated notes
of the Company due 1998 and held by the Lee Fund into common stock,
$.02 par value of the Company, and (ii) a merger which resulted in
the conversion into common stock of certain preferred stock held by
the Lee Fund, affiliates of the Lee Company, certain members of the
Company's management, and certain unaffiliated stockholders. As a
result of this restructuring, the Company was the sole surviving
corporation and the only outstanding class of the Company's capital
stock was common stock. The Lee Fund, certain affiliates of the
Lee Company and members of management owned approximately 95% of
the outstanding common stock after the financial restructuring.
In July 1993, the Company completed a public offering of
1,725,000 shares of its common stock at $8.50 per share. The net
proceeds of $13.1 million were used to reduce debt. In connection
with the offering, the Company's Board of Directors authorized a
one-for-two reverse stock split, effective July 1, 1993.
Approximately 61% of the Company's common stock was owned by the
Lee Fund, certain affiliates of the Thomas H. Lee Company, and
management after the public offering.
In connection with the financial restructuring, the Company
pursued an operating restructuring consisting of (i) the closing of
the Waynesboro, Virginia facility in 1992 to eliminate excess
capacity, and (ii) the proposed sale of the Norman's of Salisbury
Division ("Norman's"). In June 1994, the Company ceased operations
at Norman's, and recorded an additional loss provision. See
"Discontinued Operations".
Strategy
The Company's marketing strategy is to penetrate all available
distribution channels compatible with its price niche and to be a
single-source provider by offering a broad range of product lines
and styles. Product lines include bedroom, dining room, youth,
occasional furniture, and the new upholstery line. The Company's
product styling mix reflects current consumer preferences and
covers all major design categories within its price niche. The
Company's operating strategy is based upon providing superior
quality, quick delivery, style and value. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of the Company's sales.
The Company believes its strategy of penetrating all available
distribution channels compatible with its price niche provides it
with flexibility to adapt to market changes. The Company utilized
its distribution network to introduce occasional furniture products
(living room tables, wall units and desks) in the Fall of 1989, and
has increased sales of these products to approximately $22 million
for 1994. The Company is currently utilizing this distribution
network to introduce its new upholstery line. There can be no
assurance that the introduction of the upholstery line will result
in increased sales.
The Company believes that its operating strategy provides its
customers with a competitive advantage. In order to respond to
demand for shorter lead times and improved quality, the Company
implemented a redesigned manufacturing process in 1991 to produce
smaller, more frequent and cost effective production runs. As a
result, the Company achieved its goal of shipping customer orders
in three weeks on average during 1994, and average finished goods
inventory turns have improved to 6.6 times in 1994 from 4.5 times
in 1990. In addition, management believes this operating strategy
has helped to improve product quality. Quick delivery and high
quality reduce the retailer's inventory investment while minimizing
the retailer's re-delivery costs and price markdowns. The Company
uses the marketing theme, "We Just Look Expensive," because it
believes that the design, quality, and style of its furniture
compare favorably with more premium-priced products.
Products and Style
The Company's broad range of product lines and styles provide
retailers a single source for the purchase of upper-medium priced
wood furniture. The Company's strategy is to expand its production
of upholstered furniture products to provide retailers a single
source for the purchase of complete residential furniture
collections.
The range of product lines and number of designs for wood
products currently marketed by the Company is set forth in the
following table.
Number of Designs
Bedroom 27
Dining room 28
Youth bedroom 18
Occasional:
Living room tables 22
Wall systems 13
Home Office 3
The Company's product styling mix reflects current consumer
preferences and covers all major design categories within its
upper-medium price niche including European traditional,
contemporary/transitional, 18th century, country/nostalgia and
mission/shaker designs.
Upholstered furniture products were introduced as part of the
Saturday Evening Post/Norman Rockwell Home Furnishings Collection
in the Fall of 1994, and consist mainly of sofas, sleepers, love
seats and chairs. The Company adapted some of Norman Rockwell's
best-known illustrations to upholstery fabric and offers
approximately 55 fabric selections.
Marketing and Sales
The Company has developed a diverse and extensive nationwide
customer base which the Company believes provides it with
flexibility to adapt to market changes. The Company sells its
furniture products through approximately 60 independent sales
representatives to independent furniture retailers; national
accounts such as Sears and J.C. Penney; national and regional chain
stores such as Homestead House, Huffman-Koos, Robb & Stucky and R
C Willey; major department stores such as Dillards and Federated
Department Stores, and international customers. The Company
currently has approximately 3,700 active customers.
In marketing its products to independent retailers, the
Company utilizes a promotional incentive sales program, the
"Stanley Preferred Retailer". This program is designed to
encourage the independent retailer to commit retail floor space to
the Company's products. The program is designed to be flexible and
is adapted into the marketing plans of retailers by accommodating
geographic, style and promotional preferences. To participate, a
retailer must commit a specified amount of floor space to the
Company's products and achieve a specified sales volume.
The general marketing practice followed in the furniture
industry is to exhibit products at international and regional
furniture markets. In the Spring and Fall of each year, an eight-
day furniture market is held in High Point, North Carolina, which
is regarded by the industry as the international market, attracting
buyers from the United States and abroad. The Company maintains
showroom space at the High Point market and in the San Francisco
regional market. The Company is currently expanding the High Point
space to accommodate it's new upholstery line.
No single customer accounted for more than 10% of the
Company's sales in 1994. No material part of the Company's
business is dependent upon a single customer, the loss of which
would have a material effect on the business of the Company. The
loss of several of the Company's major customers could have a
material effect on the business of the Company. There are no
significant seasonal aspects to the Company's business.
Product Design and Development
The Company's marketing personnel begin the design process by
identifying marketing needs to be fulfilled and conceptualizing
product ideas, generally consisting of a group of related furniture
pieces. A variety of sketches is then produced, usually by Company
designers, from which prototype furniture pieces are prepared in
consultation with marketing personnel, selected dealers and sales
representatives. The Company's engineering department then further
processes the prototype in preparation for actual full-scale
manufacture. Consistent with industry practice, the Company
designs and develops new product groups each year, replacing
collections or items which are discontinued.
Manufacturing
The Company's manufacturing operations complement its
marketing strategy by emphasizing superior quality and quick
delivery. In 1991, the Company implemented a redesigned
manufacturing process to produce smaller, more frequent and cost
effective runs by identifying and eliminating manufacturing
bottlenecks and waste, employing statistical process control,
establishing cellular manufacturing and improving relationships
with suppliers. In addition, a key element of the Company's
current manufacturing process is to involve all Company personnel,
from hourly associates to management, in the improvement of the
manufacturing process by encouraging and responding to suggested
methods to improve quality and reduce manufacturing lead times.
The Company operates manufacturing facilities in North
Carolina and Virginia consisting of an aggregate of approximately
3.0 million square feet. The Company considers its present
equipment to be generally modern, adequate and well maintained.
Raw Materials
The principal materials used by the Company in manufacturing
its products include lumber, veneers, plywood, particle board,
hardware, glue, finishing materials, glass products, laminates,
fabrics, metals, frames for upholstered products, filling and
cushioning materials. The Company uses a variety of species of
lumber, including cherry, oak, ash, poplar, pine, maple, pecan, and
mahogany. The Company's five largest suppliers accounted for
approximately 24% of its purchases in 1994. The Company believes
that its sources of supply for these materials are adequate and
that it is not dependent on any one supplier. In addition, the
furniture industry has experienced increased prices for lumber
during the past several years, the most significant raw material
used by the Company. While the industry has historically increased
prices to reflect such increased costs, there can be no assurance
that, if the trend in lumber prices continues, market and
competitive pressures will permit the Company or its competitors to
increase the prices for their products.
Backlog
The Company schedules furniture production of its various
groups based upon actual or anticipated orders. The Company, and
the furniture industry, generally honor cancellation of orders
prior to shipment, although cancellations generally decrease as
demand increases. The Company's backlog of unshipped orders was
$17.4 million, $26.6 million, and $22.9 million at December 31,
1994, 1993, and 1992, respectively. The Company's manufacturing
process is intended to reduce backlog and to fill orders through
manufacturing rather than inventory. Therefore, management
believes that the size of its backlog is not necessarily indicative
of its operations.
Competition
The furniture market is highly competitive and includes a
large number of manufacturers, both domestic and foreign. The
markets in which the Company competes include a large number of
relatively small manufacturers; however, certain of the Company's
competitors have greater sales volumes and greater financial
resources than the Company. While competition occurs principally
in the areas of style, quality, service, design and price, the
Company believes that its operating strategy, its long-standing
relationships with its customers, its consistent support of
existing product lines over time and its management experience are
competitive advantages.
Associates
At December 31, 1994, the Company employed approximately 2,900
associates. None of the Company's associates are represented by a
labor union. The Company considers its relations with its
associates to be good.
Patents and Trademarks
The trade names of the Company represent many years of
continued business, and the Company believes such names are well
recognized and associated with quality in the furniture industry.
The Company owns a number of patents, trademarks, and licenses,
none of which is considered to be material to the Company.
Environmental Regulation
The Company is regulated under several federal, state and
local environmental laws and regulations concerning air emissions,
water discharges and management of solid and hazardous waste.
Management believes that the Company is in material compliance with
applicable federal, state and local environmental regulations.
Compliance with these regulations has not in the past had any
material effect on the Company's earnings, capital expenditures or
competitive position; however, the effect of such compliance in the
future cannot be determined.
Regulations currently being issued under the Clean Air Act
Amendments of 1990 may require the Company to reformulate certain
furniture finishes or institute process changes to reduce emissions
of volatile organic compounds. The furniture industry and its
suppliers are attempting to develop water-based and other forms of
compliant finishing materials to replace commonly-used organic-
based finishes which are a major source of regulated emissions.
The Company cannot at this time estimate the impact of these new
standards on the Company's operations and future capital
expenditure requirements, or the cost of compliance.
Discontinued Operations
In June 1994, the Company ceased operations at Norman's. The
Company recorded a $2.8 million ($4.5 million pretax) additional
loss provision in 1994 representing costs associated with the
closing and liquidation of the operation, which was completed by
December 31, 1994. Currently, a portion of the Norman's facilities
is being subleased on a short-term basis and a portion is being
utilized in the production of upholstered furniture products.
Item 2. Properties
Set forth below is certain information with respect to the
Company's principal properties. The Company believes that all
these properties are well maintained and in good condition. The
Company believes its manufacturing facilities are being efficiently
utilized and that it could increase production at its facilities if
required by customer demand. Each facility is focused on specific
product lines to optimize efficiency. The Company estimates that
its facilities are presently operating at approximately 90% of
capacity, principally on a one-shift basis. All Company plants are
equipped with automatic sprinkler systems and modern fire
protection equipment. Management believes that the Company's
sprinkler systems and fire protection equipment are adequate. All
facilities set forth below are active and operational.
Approximate Owned Lease
Facility Size or Expiration
Location Primary Use (Square Feet) Leased Date
Stanleytown, VA Manufacturing 1,660,000 Leased October 14, 1999(1)
Stanleytown, VA Sales and
Executive Offices 61,000 Leased October 14, 1999(1)
West End, NC Manufacturing 470,000 Leased October 14, 1999(1)
West End, NC Lumber Yard Leased May 31, 2007
Lexington, NC Manufacturing(2) 635,000 Owned
Robbinsville, NC Manufacturing 540,000 Owned
Salisbury, NC Manufacturing(3) 16,254 Leased April 30, 2000(4)
(1) The Company has the right to renew this lease for two five-year options
through October 14, 2009 and to purchase the property at any time at
its fair market value.
(2) This facility includes approximately 350,000 square feet of warehouse
space.
(3) The Company has an additional 92,869 square feet which is currently
subleased. This was the principal facility of Norman's.
(4) The Company has the right to purchase the property at any time at its
fair market value.
The Company also leases and maintains approximately 60,000
square feet (8,000 square feet is subleased) of showroom space in
High Point, North Carolina and 7,000 square feet of showroom space
in San Francisco, California.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The executive officers of the Company are:
Name Age Position
Albert L. Prillaman 49 Chairman, President and
Chief Executive Officer
and Director
Lawrence E. Webb, Jr. 46 Executive Vice President,
Chief Operating Officer
and Director
C. William Cubberley, Jr. 54 Vice President-Sales and
Marketing
Douglas I. Payne 37 Vice President of Finance,
Treasurer and Secretary
Bobby I. Hodges 57 Vice President-
Manufacturing
William A. Sibbick 38 Vice President-Product
Development
Albert L. Prillaman has been a Director of the Company since
March 1986, President and Chief Executive Officer of the Company
since December 1985 and Chairman of the Board of Directors since
September 1988. Prior thereto, Mr. Prillaman had served as a Vice
President of the Company and President of the Stanley Furniture
division of the Company's predecessor since 1983, and in various
executive and other capacities with predecessors of the Stanley
Furniture division of the Company since 1969.
Lawrence E. Webb, Jr. has been a Director of the Company since
June 1986 and Executive Vice President of the Company and its
predecessor since July 1983 and Chief Operating Officer since
December 1990.
C. William Cubberley, Jr. has been a Vice President of the
Company since December 1990 and Senior Vice President-Sales and
Marketing of the Stanley Furniture division since October 1988.
Mr. Cubberley was Senior Vice President-Sales of the Stanley
Furniture division from January 1986 to October 1988.
Douglas I. Payne has been Vice President of Finance and
Treasurer of the Company since September 1993, was Vice President-
Treasurer of the Company from December 1989 to September 1993, was
Treasurer of the Company from June 1986 to December 1989 and was
Assistant Treasurer of the Company from August 1985 to June 1986.
Mr. Payne has been Secretary of the Company since September 1988.
Bobby I. Hodges has been Vice President since June 1993. He
was Senior Vice President-Manufacturing of the Stanley Furniture
division from January 1986 until June 1993. He was Vice President-
Manufacturing of the Stanley Furniture division from December 1983
until January 1986. Prior to that time, Mr. Hodges was employed by
the Company in various positions related to manufacturing
management.
William A. Sibbick has been Vice President-Product Development
since June 1993. He was Vice President-Senior Product Manager of
the Stanley Furniture division from January 1992 until June 1993.
Prior to that time, he had been Vice President-Product Manager
since his employment in March 1989.
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholders Matters
The Company's common stock is traded on the National
Association of Securities Dealers Automated Quotation (NASDAQ)
National Market under the symbol STLY. The common stock began
trading on the over-the-counter market on November 10, 1992 and
began trading on the NASDAQ National Market on July 1, 1993. The
table below sets forth the high and low bid quotations per share
until June 30, 1993, and thereafter the high and low sales prices
per share as reported by the NASDAQ National Market.
High Low
1994
First Quarter......................... 16 13
Second Quarter........................ 15 11
Third Quarter......................... 12 1/2 9
Fourth Quarter........................ 10 3/4 9 3/4
1993
First Quarter.......................... 10 8
Second Quarter......................... 10 9 1/2
Third Quarter.......................... 9 3/4 8 1/2
Fourth Quarter......................... 14 9
The quotations reflect interdealer prices, without retail
mark-up, mark-down or commissions and may not necessarily represent
actual transactions. As of January 27, 1995, there were
approximately 424 shareholders of record. The Company has not paid
any cash dividends and is prohibited from doing so under its bank
credit facility.
Item 6. Selected Financial Data
The selected financial data for the five years in the period
ended December 31, 1994 are derived from the Company's financial
statements, which have been audited by Coopers & Lybrand L.L.P.
The selected financial data should be read in conjunction with the
Financial Statements including the Notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of
Operations contained elsewhere herein.
Stanley Furniture Company, Inc.
Selected Financial Data
(In thousands, except per share data)
1994 1993 1992 1991 1990
Operating Results:
Net sales.......................$184,342 $167,091 $166,501 $144,169 $153,050
Cost of sales:
From products sold............ 148,453 134,972 132,984 121,027 119,672
Business interruption
insurance (1)............... (5,036)
Gross profit.............. 35,889 37,155 33,517 23,142 33,378
Selling, general and admin-
istrative expenses............ 26,483 25,976 25,117 22,877 24,035
Restructuring charge
(credit)(2)................... (2,078) 14,051
Operating income (loss)..... 9,406 11,179 10,478 (13,786) 9,343
Other expense, net.............. 444 1,346 686 1,252 1,175
Gain on insurance settlement (3) (2,379) (2,186)
Interest expense................ 2,969 3,048 7,058 8,581 10,159
Income (loss) from continu-
ing operations before
income taxes................ 8,372 8,971 2,734 (23,619) (1,991)
Income tax provision (benefit).. 3,256 3,691 1,053 (9,088) (975)
Income (loss) from continu-
ing operations(4)...........$ 5,116 $ 5,280 $ 1,681 $(14,531)$ (1,016)
Income from continuing
operations per common share(4)$ 1.08 $ 1.39 $ .56
Weighted average number of
shares (5) (6)................ 4,725 3,792 2,996
Financial Position:
Inventories.....................$ 39,905 $ 37,684 $ 33,343 $ 34,355 $ 44,531
Working capital................. 42,912 40,833 34,650 25,396 41,684
Total assets.................... 124,519 124,859 114,302 113,724 133,135
Long-term debt.................. 33,395 32,022 46,543 41,221 48,723
Subordinated notes payable to
majority stockholder (5)...... 20,000 30,000
Mandatorily redeemable pre-
ferred stock (5).............. 12,662 11,359
Preferred stock (5)............. 15,023
Common stockholders' equity
(5) (6) (7)................... 50,830 47,204 29,959 (18,748) 697
Selected Financial Data (continued)
(1) In 1993, the Company recorded $5.0 million of business interruption
insurance replacing the gross profit on lost sales due to the fire which
occurred on February 12, 1993 at its Stanleytown, Virginia facility. See
Note 3 of the Notes to Financial Statements.
(2) In 1991, the Company recorded pretax charges of $14.1 million in
anticipation of the closing of the Waynesboro, Virginia facility to eliminate
excess capacity and the transfer of certain product lines to other
manufacturing facilities. Operating income for 1992 includes a restructuring
credit of $2.1 million from lower than anticipated costs of closing the
Waynesboro facility in June 1992. See Note 5 of the Notes to Financial
Statements.
(3) In 1994, the Company recorded a pretax gain of $2.4 million as part of
the final insurance settlement. Also, in 1993 a $2.2 million pretax gain was
recorded since proceeds exceeded the book value of leasehold improvements and
equipment destroyed in the fire.
(4) Income from continuing operations before insurance related gains was
$3.7 million (77 cents per share) in 1994, compared to $4.3 million (90 cents
per share) on a proforma basis in 1993.
(5) In November 1992, the Company completed a financial restructuring which
resulted in the exchange of certain long-term debt and preferred stock for
common stock. See Note 1 of the Notes to Financial Statements.
(6) In July 1993, the Company completed a public offering of 1,725,000
shares of common stock at $8.50 per share. The net proceeds of $13.1 million
were used to reduce debt. See Note 9 of the Notes to Financial Statements.
(7) No dividends have been paid on common stock during any of the years
presented.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with
the Selected Financial Data and the Financial Statements and Notes
thereto contained elsewhere herein.
General
The Company has operated under a strategy designed to focus on
customer service by providing improved quality and shorter lead
times from initial customer order until delivery of the
merchandise. This strategy was implemented through the combination
of reduced batch sizes and reduced set-up times and an improved
manufacturing logistical system. The Company believes that its
operating strategy has resulted in increased revenues due to higher
quality and customer satisfaction, and a more efficient utilization
of its manufacturing capacity. As a part of the operating
strategy, inventory levels were reduced from historical levels.
In November 1992, the Company completed a comprehensive
financial restructuring which reduced indebtedness and interest
expense in order to provide the Company with sufficient financial
flexibility to operate its business.
On February 12, 1993, a fire damaged a portion of the
Stanleytown, Virginia manufacturing complex, representing
approximately 12% of the Company's total manufacturing facilities.
Reconstruction of the damaged facility was completed in November
1993 and normal production resumed in January 1994. Because of the
Company's insurance coverage, the fire did not have a material
adverse impact on the financial condition of the Company, although
1993 net sales were adversely affected.
Results of Operations
1994 Compared to 1993
Net sales increased $17.3 million, or 10.3%, from 1993 levels
due principally to higher average selling prices and higher unit
volume. Lower unit volume in the 1993 period was due principally
to the disruption in production caused by the 1993 fire.
Gross profit margin decreased to 19.5% from 22.2% in 1993,
representing a $1.3 million decrease in gross profit. The higher
gross profit percentage for 1993 was due principally to the
recognition of $5.0 million of business interruption insurance
without the related sales revenue. This $5.0 million represented
the estimated settlement proceeds for gross profits lost and other
direct costs related to lost sales from the Stanleytown fire.
Gross profit margin for 1994 was negatively affected by startup
expenses related to the introduction of upholstered furniture.
Selling, general and administrative expenses as a percentage
of net sales was 14.4% and 15.5% for 1994 and 1993, respectively.
The lower percentage was due principally to an increase in net
sales and containment of cost. The lower percentage for 1994 was
partially offset by upholstery startup expenses.
As a result of the above, operating income decreased to $9.4
million from $11.2 million. Operating income was reduced by
upholstery startup costs of approximately $1.0 million in 1994.
Operating income as a percentage of net sales decreased to 5.1%
from 6.7% in 1993.
In 1994, the Company reached a final insurance settlement on
the 1993 fire and recorded a pretax gain of $2.4 million.
Interest expense approximated the 1993 period due principally
to lower average debt levels, which was offset by higher interest
rates.
The Company's effective income tax rate decreased to 39% from
41% in 1993. The higher 1993 rate was due principally to the
effect of the 1% federal statutory rate increase on the prior
years' deferred tax balances.
1993 Compared to 1992
Net sales increased .4% from 1992 levels. Overall unit volume
declined due principally to the phase out of the hotel/motel market
segment. Sales in this product line declined from $8.0 million in
1992 to $1.3 million in 1993. Unit volume was also adversely
affected due to the disruption of production following the
Stanleytown fire. Higher average selling prices offset the lower
unit volume. Sales of residential furniture products increased
4.6% from 1992.
The gross profit margin increased to 22.2% from 20.1% in 1992,
representing a $3.6 million increase in gross profit. The increase
in the margin percentage is due principally to $5.0 million of
business interruption insurance without the related sales revenue.
Margins were also negatively affected by higher raw material
costs, principally lumber. As a result of competitive pressures,
not all of these cost increases were passed on to customers.
However, cost reductions and productivity gains diminished the
potential unfavorable impact of these raw material cost increases
on gross profit.
Selling, general and administrative expenses increased 3.4% to
$26.0 million from $25.1 million in 1992. Increases were due
primarily to higher salaries and benefits, and consulting costs
related to the fire insurance claim.
As a result of the above, operating income increased to $11.2
million from $8.4 million (before the 1992 restructuring credit),
an increase of 33%. The restructuring credit of $2.1 million in
1992 resulted from lower than anticipated costs of closing the
Waynesboro, Virginia production facility in June 1992.
In 1993, the Company recorded a $2.2 million pretax gain from
insurance since proceeds exceeded the book value of leasehold
improvements and equipment destroyed in the 1993 fire.
Other expense, net, increased to $1.3 million from $686,000 in
1992 due principally to the amortization of deferred financing fees
related to borrowing arrangements that were refinanced.
Interest expense decreased $4.0 million from 1992 due
principally to lower interest rates after the expiration of the
LIBOR-based interest rate collar agreement in January 1993; and,
lower debt levels resulting from the November 1992 restructuring
and the July 1993 public offering.
The Company's effective income tax rate increased to 41.0%
compared to 38.5% in 1992. This was due principally to the effect
of the 1% federal statutory rate increase on prior years' deferred
tax balances.
Financial Condition, Liquidity and Capital Resources
In February 1994, the Company completed the private placement
of $30.0 million of 7.28% senior notes due 2004 and the refinancing
of its revolving credit facility. The proceeds from the senior
notes were used to repay the existing term note and a portion of
the revolving credit facility. Long-term debt outstanding at
December 31, 1994 was $33.4 million. Debt service requirements
will be $3.2 million in 1996, $161,000 in 1997 and $4.3 million in
each of the years 1998 through 2004. As of December 31, 1994,
approximately $17 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.
During 1994, cash generated from operations of $4.1 million
and net borrowings of $1.2 million were used to fund capital
expenditures. The decrease in cash generated from operations was
due principally to higher tax payments of $4.4 million compared to
$321,000 in 1993. Tax payments were lower in 1993 due principally
to the utilization of net operating loss carryforwards.
Cash generated from operations in 1993 of $6.5 million was
used to fund capital expenditures and to reduce borrowings under
the senior credit facility.
Operating cash flows in both 1994 and 1993 include proceeds of
$4.6 and $23.2 million, respectively, received from insurance in
connection with the fire. Cash paid to suppliers in 1994 and 1993
include costs of $2.7 million and $25.2 million, respectively,
incurred in connection with the fire. Excluding the effect of the
fire, cash was required in the 1994 period to support higher
accounts receivable requirements reflecting higher sales levels,
higher payments to suppliers and employees as a result of higher
production levels and higher tax payments. These higher payments
in the 1994 period were partially offset by lower interest payments
due principally to lower debt levels. Excluding the cash flow
impact from the fire, cash provided by operating activities
improved $12.1 million in 1993 principally from higher customer
receipts, lower payments for the restructuring program and lower
interest payments. In 1992, proceeds from the revolving credit
facility were used in operating activities due primarily to paying
$3.4 million for restructuring costs incurred in 1991.
Net cash used by investing activities was $5.2 million in 1994
compared to $4.3 million and $3.1 million in 1993 and 1992,
respectively. Expenditures in the 1994 period include the purchase
of equipment and other capital expenditures for the new upholstery
operation of approximately $727,000. Except for fire related
expenditures in 1993 which were reimbursed by insurance,
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 $1.2 million in
1994 compared to net cash used by financing activities of $2.7
million in 1993 and cash provided by financing activities of $7.1
million in 1992. Cash provided by financing activities in the 1994
period was used to fund capital expenditures. In 1993, cash
provided by the public offering ($13.1 million) and from operations
enabled the Company to redeem $3.1 million of outstanding senior
subordinated debentures and to reduce borrowings under the senior
credit facility by $12.8 million. In 1992, net borrowings on the
revolving credit facility increased by $7.4 million and proceeds
from insurance policy loans were $1.1 million. Repayments of long-
term debt were $990,000 and fees paid in connection with the
restructuring were $439,000.
Discontinued Operations
In June 1994, the Company ceased operations at Norman's. The
Company recorded a $2.8 million ($4.5 million pretax) additional
loss provision in 1994 representing costs associated with the
closing and liquidation of the operation, which was completed by
December 31, 1994. Currently, a portion of the Norman's
facilities is being subleased on a short-term basis and a portion
is being utilized in the production of upholstered furniture
products.
Item 8. Financial Statements and Supplementary Data
The financial statements and schedule listed in Items 14(a)(1)
and (a)(2) hereof are incorporated herein by reference and are
filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
In accordance with general instruction G(3) of Form 10-K, the
information called for by items 10, 11, 12, and 13 of Part III is
incorporated by reference to the registrant's definitive Proxy
Statement for its Annual Meeting of Shareholders scheduled for
April 20, 1995, except for information concerning the executive
officers of the registrant which is included in Part I of this
report under the caption "Executive Officers of the Registrant."
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on
Form 8-K
(a) Documents filed as a part of this Report:
(1) The following financial statements are included in this
report on Form 10-K:
Report of Independent Accountants
Balance Sheets - as of December 31, 1994 and 1993
Statements of Income - for each of the three years in the
period ended December 31, 1994
Statement of Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 1994
Statements of Cash Flows - for each of the three years in the
period ended December 31, 1994
Notes to Financial Statements
(2) Financial Statement Schedule:
Schedule VIII - Valuation of Qualifying Accounts - for each
of the three years in the period ended December 31, 1994
(b) The following reports on Form 8-K were filed by the Registrant
during the last quarter of the period covered by this report:
None.
(c) Exhibits:
2.1 Agreement and Plan of Merger dated as of July 24, 1992 by and
among the Registrant, Stanley Holding Corporation, Stanley
Acquisition Corporation, the ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P., and the persons listed on
Schedules I and II thereto (incorporated by reference to
Exhibit 2.1 to the Registrant's Registration Statement on
Form S-4 No. 33-50050).
3.1 The Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1, No. 33-7300).
3.2 The By-laws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1, No. 33-7300).
3.3 Amendment adopted March 21, 1988 to the By-laws of the
Registrant (incorporated by reference to Exhibit 3.3 to the
Registrant's Form 10-K (Commission File No. 0-14938) for the
year ended December 31, 1987).
3.4 Amendments adopted February 8, 1993 to the By-laws of the
Registrant (incorporated by reference to Exhibit 3.4 to the
Registrant's Registration Statement on Form S-1 No. 33-
57432).
3.5 Certificate of Stock Designation dated May 1, 1991 of the
Registrant as modified by an Amendment to Certificate of
Designation dated May 31, 1991 (incorporated by reference to
Exhibit 3.6 to the Registrant's Form 10-K for the year ended
December 31, 1991).
3.6 Certificate of Merger dated as of November 9, 1992
(incorporated by reference to Exhibit 3.6 to the Registrant's
Statement on Form S-1 No. 33-57432).
3.7 Certificate of Amendment dated June 30, 1993.(1)
4.1 The Certificate of Incorporation and By-laws of the
Registrant as currently in effect incorporated by reference
as Exhibits 3.1 through 3.7 (incorporated by reference to
(1) Filed herewith
Exhibit 4.2 to the Registrant's Registration Statement on
Form S-1 No. 33-57432).
4.2 Registration Rights Agreement dated as of November 9, 1992
by and among the Registrant, ML-Lee Acquisition Fund, L.P.,
ML - Lee Acquisition Fund II, L.P., ML-Lee Acquisition Fund
(Retirement Accounts) II, L.P., Lee Stockholders (as defined
therein) and Management Stockholders (as defined therein)
(incorporated by reference to Exhibit 4.3 to the Registrant's
Statement on Form S-1 No. 33-57432).
4.3 Form of Indenture (including the Form of the Debenture)
(incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-1, No. 33-12746).
4.4 First Supplemental Indenture dated as of January 17, 1989
(incorporated by reference to Exhibit 4.2 to the Registrant's
Form 10-K for the year ended December 31, 1988).
4.5 Second Supplemental Indenture dated as of November 9, 1992
(incorporated by reference to Exhibit 4.5 to the Registrant's
Form 10-K for the year ended December 31, 1993).
4.6 Note Agreement dated February 15, 1994 between the Registrant
and the Prudential Insurance Company of America.
(incorporated by reference to Exhibit 4.6 to the Registrant's
Form 10-K for the year ended December 31, 1993).
10.1 Employment Agreement made as of January 1, 1991 between
Albert L. Prillaman and the Company (incorporated by
reference to Exhibit 10.1 to the Registrant's Form 10-K for
the year ended December 31, 1991).(2)
10.2 Employment Agreement made as of January 1, 1991 between
Lawrence E. Webb, Jr. and the Company (incorporated by
reference to Exhibit 10.2 to the Registrant's Form 10-K for
the year ended December 31, 1991).(2)
10.3 Lease dated October 15, 1979 between SIC and The Mead
Corporation ("Mead"), as amended (the "Mead Lease")
(incorporated by reference to Exhibit 10.16 to the
Registrant's Registration Statement on Form S-1, No. 33-
7300).
10.4 Lease dated May 1, 1970 between E. E. Lampert, Trustee under
the Will of R. W. Norman, as lessor, and R. W. Norman
Company, Inc., as lessee, as amended (the "Norman Lease")
(2) Management contract or compensatory plan
(incorporated by reference to Exhibit 10.18 to the
Registrant's Registration Statement on Form S-1, No. 33-
7300).
10.5 Lease dated February 23, 1987 between SIC Corporation and
Southern Furniture Exposition Building, Inc. d/b/a Southern
Furniture Market Center (incorporated by reference to Exhibit
10.10 to the Registrant's Form 10-K for the year ended
December 31, 1987).
10.6 Lease dated June 30, 1987 between A. Allan McDonald,
Virginia Cary McDonald, C. R. McDonald, Dorothy V. McDonald,
and Lillian S. McDonald, as lessor, and SIC, as lessee
(incorporated by reference to Exhibit 10.14 to the
Registrant's Form 10-K for the year ended December 31, 1987).
10.7 The Stanley Retirement Plan, as restated effective January 1,
1989, adopted December 15, 1993. (incorporated by reference
to Exhibit 10.7 to the Registrant's Form 10-K for the year
ended December 31, 1993).(2)
10.8 Supplemental Retirement Plan of Stanley Furniture Company,
Inc. as restated effective January 1, 1993. (incorporated by
reference to Exhibit 10.8 to the Registrant's Form 10-K for
the year ended December 31, 1993).(2)
10.9 Stanley Interiors Corporation Deferred Compensation Capital
Enhancement Plan effective January 1, 1986 (incorporated by
reference to Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1, No. 33-7300).(2)
10.10 Stanley Furniture Company, Inc. Associates' Savings and
Protection Plan, as amended and restated effective January
1, 1993. (incorporated by reference to Exhibit 10.10 to the
Registrant's Form 10-K for the year ended December 31,
1993).(2)
10.11 Management Agreement with Thomas H. Lee Company entered into
September 29, 1988 by and among the Registrant, as successor
to Interiors Acquisition Corporation, Stanley Holding
Corporation, Stanley Acquisition Corporation and Thomas H.
Lee Company (incorporated by reference to Exhibit (c)(9) to
the Registrant's Rule 13e-3 Transaction Statement filed
October 14, 1988).
10.12 Lease dated June 20, 1990 by and among Security Bank and
Trust Company, Substitute Trustee under the Will of R. W.
Norman, as lessor, and Stanley Interiors Corporation, as
(2) Management contract or compensatory plan
lessee (the "Norman Lease") (incorporated by reference to
Exhibit 10.34 to the Registrant's Form 10-K for the year
ended December 31, 1990).
10.13 Employment Agreement made as of January 1, 1991 between
William Cubberley, Jr. and the Registrant (incorporated by
reference to Exhibit 10.42 to the Registrant's Form 10-K for
the year ended December 31, 1991).(2)
10.14 Split Dollar Insurance Agreement dated as of March 21, 1991
between Albert L. Prillaman and the Registrant (incorporated
by reference to Exhibit 10.43 to the Registrant's Form 10-K
for the year ended December 31, 1991).(2)
10.15 Split Dollar Insurance Agreement dated as of March 31, 1991
between Lawrence E. Webb, Jr. and the Registrant
(incorporated by reference to Exhibit 10.44 to the
Registrant's Form 10-K for the year ended December 31,
1991).(2)
10.17 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 10.181992 Stock Option Plan (incorporated by
reference to Registrant's Registration Statement on Form S-
8, No. 33-58396).
10.18 1994 Stock Option Plan.(1)(2)
10.19 1994 Executive Loan Plan.(1)(2)
10.20 Loan and Stock Purchase Agreement dated as of December 2,
1994 by Albert L. Prillaman.(1)(2)
10.21 Loan and Stock Purchase Agreement dated as of December 2,
1994 by Lawrence E. Webb, Jr.(1)(2)
10.22 First Amendment dated July 1, 1993 to Mead Lease.(1)
11 Schedule of Computation of Earnings Per Share.(1)
21 Listing of Subsidiaries:
Charter Stanley Foreign Sales Corporation, a United States
Virgin Islands Corporation.
24 Consent of Coopers & Lybrand L.L.P.(1)
27 Financial Data Schedule.(1)
(1) Filed herewith
(2) Management contract or compensatory plan
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
STANLEY FURNITURE COMPANY, INC.
February 15, 1995 By: /s/ Albert L. Prillaman
Albert L. Prillaman
President, Chief Executive
Officer, and Chairman of the
Board
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Albert L. Prillaman President, Chief February 15, 1995
(Albert L. Prillaman) Executive Officer,
Chairman of the
Board, and Director
(Principal Executive
Officer)
/s/ Lawrence E. Webb, Jr. Executive Vice February 15, 1995
(Lawrence E. Webb, Jr.) President, Chief
Operating Officer,
and Director
/s/ Douglas I.Payne Vice President of February 15, 1995
(Douglas I. Payne) Finance, Treasurer
and Secretary
(Principal Financial
and Accounting
Officer)
/s/ David V. Harkins Director February 15, 1995
(David V. Harkins)
/s/ C. Hunter Boll Director February 15, 1995
(C. Hunter Boll)
/s/ Edward J. Mack Director February 15, 1995
(Edward J. Mack)
STANLEY FURNITURE COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FOR THE YEAR ENDED DECEMBER 31, 1994
Financial Statements Page
Report of Independent Accountants......................... F- 2
Balance Sheets as of December 31, 1994 and 1993........... F- 3
Statements of Income for each of the three years
in the period ended December 31, 1994................... F- 5
Statement of Changes in Stockholders' Equity for each
of the three years in the period ended
December 31, 1994...................................... F- 6
Statements of Cash Flows for each of the three years
in the period ended December 31, 1994................... F- 7
Notes to Financial Statements............................. F- 8
Financial Statement Schedule
Schedule VIII - Valuation and Qualifying Accounts for
each of the three years in the period ended
December 31, 1994....................................... S- 1
F-1
To The Board of Directors and Shareholders Of
Stanley Furniture Company, Inc.
We have audited the financial statements and financial statement
schedule of Stanley Furniture Company, Inc. as listed in the index
to financial statements and schedule on page F-1. These financial
statements are the responsibility of the management of Stanley
Furniture Company, Inc. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Stanley
Furniture Company, Inc. as of December 31, 1994 and 1993, and the
results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994 in conformity with
generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in Note 10 of the Notes to Financial Statements,
effective as of the beginning of 1993, the Company changed its
method of accounting for postretirement benefits other than
pensions to conform with Statement of Financial Accounting
Standards No. 106.
Richmond, Virginia
January 31, 1995
F-2
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(In thousands, except share data)
December 31,
1994 1993
ASSETS
Current assets:
Cash........................... $ 301 $ 200
Accounts receivable, less
allowances of $933 and $827.. 23,760 22,749
Inventories:
Finished goods............... 20,893 17,398
Work-in-process.............. 5,957 6,076
Raw materials................ 13,055 14,210
39,905 37,684
Prepaid expenses and other
current assets............... 1,446 554
Insurance claim receivable..... 1,966
Deferred income taxes.......... 2,003 3,229
Net assets of discontinued
operations................... 1,994
Total current assets....... 67,415 68,376
Property, plant and equipment, at
cost........................... 64,827 60,211
Less accumulated depreciation 20,049 16,277
44,778 43,934
Excess of cost over fair value
of net assets acquired, less
accumulated amortization of
$2,016 and $1,680.............. 11,424 11,760
Other assets..................... 902 789
$124,519 $124,859
The accompanying notes are an integral part
of the financial statements.
F-3
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS (CONTINUED)
(In thousands, except share data)
December 31,
1994 1993
LIABILITIES
Current liabilities:
Current maturities of long-
term debt.................... $ 625
Accounts payable............... $ 14,659 15,411
Accrued salaries, wages and
benefits..................... 7,119 8,183
Other accrued expenses......... 2,725 3,324
Total current liabilities.... 24,503 27,543
Long-term debt, exclusive of
current maturities............. 33,395 32,022
Deferred income taxes............ 11,541 12,828
Other long-term liabilities...... 4,250 5,262
Total liabilities.............. 73,689 77,655
STOCKHOLDERS' EQUITY
Common stock, $.02 par value,
10,000,000 shares authorized,
4,726,550 and 4,721,438 shares
issued and outstanding......... 94 94
Capital in excess of par value... 64,527 64,381
Adjustment for minimum pension
liability...................... (1,122)
Deficit.......................... (13,791) (16,149)
Total stockholders' equity..... 50,830 47,204
$124,519 $124,859
The accompanying notes are an integral part
of the financial statements.
F-4
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(In thousands, except per share data)
For the Years Ended
December 31,
1994 1993 1992
Net sales........................... $184,342 $167,091 $166,501
Cost of sales:
From products sold................ 148,453 134,972 132,984
Business interruption insurance... (5,036)
148,453 129,936 132,984
Gross profit................... 35,889 37,155 33,517
Selling, general and administrative
expenses.......................... 26,483 25,976 25,117
Restructuring credit................ (2,078)
Operating income ................. 9,406 11,179 10,478
Gain on insurance settlement........ (2,379) (2,186)
Other expense, net.................. 444 1,346 686
Interest expense.................... 2,969 3,048 7,058
Income from continuing
operations before income taxes.. 8,372 8,971 2,734
Income taxes........................ 3,256 3,691 1,053
Income from continuing operations... 5,116 5,280 1,681
Discontinued operations, including
provisions for operating losses
of $1,721 in 1994 and $1,884 in
1992, net of income taxes......... (2,758) (1,621)
Net income ..................... $ 2,358 $ 5,280 $ 60
Earnings (loss) per common share:
Continuing operations............. $ 1.08 $ 1.39 $ .56
Discontinued operations........... (.58) (.54)
Net income...................... $ .50 $ 1.39 $ .02
Weighted average number of shares... 4,725 3,792 2,996
The accompanying notes are an integral part
of the financial statements.
F-5
STANLEY FURNITURE COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the three years in the period ended December 31, 1994
(In thousands, except share data)
Adjust-
Capital ment for
in Minimum
Common Stock Excess of Pension
Shares Amount Par Value Liability Deficit
Balance at December
31, 1991............. 1,935,616 $39 $ -0- $ -0- $(18,787)
Net income............. 60
Preferred stock divi-
dends and accretion.. (2,702)
Cancellation of common
stock outstanding prior
to restructuring..... (1,935,616) (39)
Issuance of common stock
in connection with
restructuring........ 2,996,438 60 51,328
Balance at December 31,
1992............... 2,996,438 60 51,328 -0- (21,429)
Public offering........ 1,725,000 34 13,053
Adjustment for minimum
pension liability.... (1,122)
Net income............. 5,280
Balance at December 31,
1993............... 4,721,438 94 64,381 (1,122) (16,149)
Exercise of stock
options.............. 5,112 66
Adjustment for minimum
pension liability.... 1,122
Compensation expense
related to executive
loan plan............ 80
Net income............. 2,358
Balance at December 31,
1994............... 4,726,550 $94 $64,527 $ -0- $(13,791)
The accompanying notes are an integral
part of the financial statements.
F-6
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(In thousands)
For the Years Ended
December 31
1994 1993 1992
Cash flows from operating activities:
Cash received from customers.............. $183,458 $166,706 $161,631
Cash paid to suppliers and employees...... (176,194) (179,218) (157,840)
Interest paid............................. (2,464) (3,529) (6,413)
Income taxes (paid) recovered, net........ (4,463) (321) 954
Proceeds received on insurance coverage... 4,625 23,196
Operating activities of discontinued
operations.............................. (867) ( 285) (1,954)
Net cash provided (used) by operating
activities............................ 4,095 6,549 (3,622)
Cash flows from investing activities:
Capital expenditures...................... (4,968) (6,392) (2,148)
Proceeds received on insurance coverage... 2,679
Purchase of other assets.................. (650) (591) (898)
Proceeds from sale of assets.............. 108 91 56
Investing activities of discontinued
operations.............................. 357 (47) ( 80)
Net cash used by investing activities... (5,153) (4,260) (3,070)
Cash flows from financing activities:
Proceeds from issuance of common stock.... 13,087
Issuance of senior notes.................. 30,000
Redemption of senior subordinated
debentures.............................. (3,093)
Repayment of term note.................... (16,569) (2,616) (990)
Proceeds from (repayment of) revolving
credit facility, net.................... (12,685) (10,229) 7,446
Proceeds from insurance policy loans...... 345 292 1,053
Fees paid in connection with the issuance
of common stock......................... (439)
Other, net................................ 68 (179) (17)
Net cash provided (used) by financing
activities............................ 1,159 (2,738) 7,053
Net increase (decrease) in cash............. 101 (449) 361
Cash at beginning of year................... 200 649 288
Cash at end of year....................... $ 301 $ 200 $ 649
The accompanying notes are an integral part
of the financial statements.
F-7
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Organization and Financial Restructuring
Stanley Furniture Company, Inc. (formerly Stanley Interiors
Corporation) (the "Company") was acquired in a leveraged buy out
transaction through stock purchases in 1988 and a merger in 1989.
On November 9, 1992, the Company completed a comprehensive
financial restructuring which included (i) the exchange of $21.4
million in outstanding principal amount of 14% subordinated notes
of the Company due 1998 for common stock and (ii) a merger which
resulted in the conversion of certain preferred stock of the
merging corporations into common stock. As a result of this
restructuring, the Company is the sole surviving corporation.
Effective November 9, 1992, the Company's name was changed to
Stanley Furniture Company, Inc.
Prior to the November 1992 financial restructuring, the
Company was a wholly owned subsidiary of an intermediate
corporation which was a wholly owned subsidiary of Stanley Holding
Corporation ("Holding"). Accordingly, transactions of Holding and
the intermediate corporation as they related to the Company were
"pushed-down" in accordance with applicable purchase accounting
principles for periods prior to November 1992.
2. Summary of Significant Accounting Policies
Basis of Presentation
The Company operates predominantly in one business segment.
Substantially all revenues result from the sale of home
furnishings, primarily residential furniture products.
Substantially all of the Company's trade accounts receivable are
due from retailers in this market, which consist of a large number
of entities with a broad geographical dispersion.
Inventories
Inventories are valued at the lower of cost or market. Cost
for all inventories is determined using the first-in, first-out
(FIFO) method.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed
using the straight-line method based upon the estimated useful
lives of the assets and amounted to $4.0 million, $3.7 million and
$3.4 million for 1994, 1993 and 1992, respectively.
F-8
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment (continued)
Depreciable lives are as follows:
Years
Buildings................................. 40 to 50
Machinery and equipment................... 5 to 12
Leasehold improvements.................... 3 to 20
Furniture, fixtures and office equipment.. 3 to 10
Gains and losses related to dispositions and retirements are
included in income. Maintenance and repairs are charged to income
as incurred; renewals and betterments are capitalized.
Excess of Cost over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired
is being amortized on a straight-line basis over 40 years. The
Company continually evaluates the existence of impairment of the
excess cost over fair value of net assets acquired on the basis of
whether it is fully recoverable from projected, undiscounted net
cash flows of the Company.
Income Taxes
Deferred income taxes are determined based on the difference
between the financial statement and income tax bases of assets and
liabilities using enacted tax rates in effect in the years in which
the differences are expected to reverse. Deferred tax expense
represents the change in the deferred tax asset/liability balance.
Income tax credits are reported as a reduction of federal income
tax expense in the year in which the credits are generated.
Fair Value of Financial Instruments
The fair value of the Company's long-term debt is estimated
using discounted cash flow analysis based on the incremental
borrowing rates currently available to the Company for loans with
similar terms and maturity.
The fair value of trade receivables, the revolving credit
facility and trade payables approximate the carrying amount because
of the short maturity of these instruments.
F-9
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Summary of Significant Accounting Policies (continued)
Pension Plans
The Company's funding policy is to contribute to all qualified
plans annually an amount equal to the normal cost and a portion of
the unfunded liability but not to exceed the maximum amount that
can be deducted for federal income tax purposes.
Earnings Per Common Share
Earnings per common share are based upon the weighted average
number of shares outstanding.
The Company was a wholly owned subsidiary until the November
9, 1992 financial restructuring. As described in Note 1, this
financial restructuring resulted in a complete change in the
Company's capital structure, including the cancellation of the
previously outstanding shares of common stock and the conversion of
preferred stocks and subordinated notes payable into common stock.
For the period from January 1 to November 9, 1992, 2,996,438 shares
are considered outstanding, the number of shares issued in the
financial restructuring.
Supplementary earnings per common share for the years ended
December 31, 1994, 1993 and 1992 are presented below. Income from
continuing operations for the 1994 and 1993 periods reflect a non-
recurring gain from insurance proceeds. The 1993 period reflects
the effect of proforma adjustments for the public offering. The
1992 period reflects the effect of proforma adjustments for both
the November 9, 1992 financial restructuring and the public
offering. It is assumed that the transactions took effect at the
beginning of each year. The 1994 per share information is included
for comparison purposes.
1994 1993 1992
Supplementary earnings per common share:
Continuing operations:
Before non-recurring gain........... $ .77 $ .90 $ .68
Non-recurring gain on insurance..... .31 .29
As reported....................... 1.08 1.19 .68
Discontinued operations............... (.58) (.34)
Net income.......................... $ .50 $ 1.19 $ .34
F-10
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. Insurance Claim Accounting
On February 12, 1993 a fire at the Stanleytown, Virginia
facility damaged approximately 12% of the Company's total
manufacturing facilities. The Company's insurance coverage
provided for the complete replacement of the damaged building
(which is leased), equipment and inventory and reimbursement for
business interruption losses.
The Company recorded business interruption insurance in 1993
based on estimated profits attributed to lost sales since the fire.
The amount recognized represents the estimated gross profit that
would have been realized on lost sales. Accordingly, $5.0 million
of estimated income from business interruption insurance is
included in gross profit in 1993. Also, a $2.2 million pretax gain
was recorded in 1993 since proceeds from insurance exceeded the
book value of leasehold improvements and equipment destroyed in the
fire. In the first quarter of 1994, the Company reached a final
insurance settlement and recorded a gain of $2.4 million.
4. Discontinued Operations
During December 1991, the Company adopted a plan to sell its
Norman's of Salisbury fabric division ("Norman's"). Accordingly,
beginning in 1991, Norman's was reflected as a discontinued
operation. In 1992, the Company recorded additional provisions
totaling $1.6 million ($2.6 million pretax) based on revised
estimates after negotiations for the sale of the division were
terminated.
Further efforts to sell the division were unsuccessful.
Accordingly, in the first quarter of 1994, the Company decided to
cease operations at Norman's, effective in June 1994, and recorded
a $2.8 million ($4.5 million pretax) additional loss provision
representing costs associated with the closing and liquidation of
the operation, which was completed by December 31, 1994.
Currently, a portion of the Norman's facilities is being subleased
on a short-term basis and a portion is being utilized in the
production of upholstered furniture products.
Net sales applicable to Norman's were $4.1 million, $12.1
million and $13.4 million for 1994, 1993 and 1992, respectively.
At December 31, 1993, net assets of $2.0 million ($1.1 million of
net current assets and $900,000 of net noncurrent assets) were
included in net assets held for sale.
F-11
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Restructuring
In 1991, the Company recorded a $14.1 million pretax
restructuring charge in anticipation of the closing of the
Waynesboro, Virginia manufacturing facility to eliminate excess
capacity and the discontinuance of certain products. Operating
income for 1992 included a restructuring credit of $2.1 million
from lower than anticipated costs of closing the facility in June
1992.
6. Property, Plant and Equipment at December 31
(in thousands)
1994 1993
Land and buildings.................... $17,853 $16,923
Machinery and equipment............... 41,059 37,552
Leasehold improvements................ 3,986 2,914
Furniture, fixtures and office
equipment........................... 1,289 1,026
Construction in progress.............. 640 1,796
$64,827 $60,211
7. Long-Term Debt at December 31
(in thousands)
1994 1993
7.28% Senior notes due March 15, 2004. $30,000
Revolving credit facility............. 3,234 $15,919
Term note payable..................... 16,569
7% Convertible subordinated debentures
due April 1, 2012................... 161 159
Total............................. 33,395 32,647
Less current maturities............... 625
$33,395 $32,022
Revolving Credit Facility and Senior Note
In February 1994, the Company completed the private placement
of $30.0 million of 7.28% senior notes due in 2004, and the
refinancing of its revolving credit facility. The proceeds from
the senior notes were used to repay the existing term note and a
portion of the revolving credit facility. The notes are subject to
annual sinking fund payments of $4.3 million beginning March 1998.
The revolving credit facility provides for borrowings of up to
$25.0 million through February 1996, automatically renewable
thereafter for one year periods unless terminated by either party.
Interest on the revolving credit facility is payable monthly
F-12
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Long-Term Debt at December 31 (continued)
Revolving Credit Facility and Senior Note (continued)
at .25% above prime (prime was 8.5% on December 31, 1994), or at
the Company's option at a rate equal to the reserve adjusted LIBOR
rate plus 1.375% per annum. The new revolving credit facility is
subject to an unused commitment fee of .25% per annum payable
quarterly. The commitment is subject to a .5% termination penalty
through February 1996. As of December 31, 1994, approximately $17
million of additional borrowings were available under the revolving
credit facility.
Prior to refinancing, the Company was obligated under a senior
credit facility comprised of a revolving credit facility which
provided for borrowings up to $43.0 million; and, a term note in
the principal amount of $16.6 million, requiring quarterly
principal payments of $625,000. Interest on the senior credit
facility was payable monthly at 1.5% above prime, or, at the
Company's option at a rate equal to the reserve adjusted LIBOR rate
plus 3% per annum. Substantially all of the Company's assets were
pledged as collateral for the debt.
Financial Covenants and Future Maturities
Under the terms of the revolving credit facility and senior
notes, the Company is required to maintain certain financial
ratios, including debt to equity and fixed charge coverage. In
addition, the Company is prohibited from paying dividends on,
acquiring or retiring its common stock, is limited with respect to
additional debt it may incur; and, may not pledge or otherwise
encumber any of its assets. The Company has satisfied the
requirements of all debt covenants.
Future maturities of long-term debt are $3.2 million in 1996,
$161,000 in 1997 and $4.3 million in each of the years 1998 through
2004. At December 31, 1994, the carrying amount of debt exceeded
the fair value by approximately $3.0 million.
F-13
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Income Taxes
The provision for income taxes on income from continuing
operations consists of (in thousands):
1994 1993 1992
Current:
Federal......................... $2,314 $1,123 $ 204
State........................... 669 245 114
Total current................. 2,983 1,368 318
Deferred:
Federal......................... 214 1,940 599
State........................... 59 383 136
Total deferred................ 273 2,323 735
Income taxes.................. $3,256 $3,691 $1,053
A reconciliation of the difference between the federal
statutory income tax rate and the effective income tax rate on
income from continuing operations follows:
1994 1993 1992
Federal statutory rate.......... 35.0% 35.0% 34.0%
State income tax, net of federal
tax benefit................... 5.0 4.6 6.0
Amortization of excess purchase
cost.......................... 1.4 1.3 4.2
Tax credits..................... (0.8) ( 1.3) (2.7)
Other, net...................... (1.7) 1.5 (3.0)
Effective income tax rate..... 38.9% 41.1% 38.5%
F-14
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Income Taxes (continued)
The income tax effects of temporary differences that comprise
deferred tax assets and liabilities at December 31 follow (in
thousands):
Current deferred tax assets (liabilities):
1994 1993
Accounts receivable........................ $ 360 $ 350
Inventory.................................. (439) (337)
Employee benefits.......................... 1,305 1,584
Other accrued expenses..................... 777 1,655
Other...................................... (23)
Net current deferred tax asset........... $2,003 $3,229
Noncurrent deferred tax (assets) liabilities:
Inventory.................................. $ 966 $ 1,599
Property, plant and equipment.............. 11,302 13,219
Employee benefits.......................... (785) (903)
Restructuring costs........................ (183) (848)
Other...................................... 241 (239)
Net noncurrent deferred tax liability.... $11,541 $12,828
In prior years, the Company had recognized the tax benefit of
net operating loss carryforwards of $6.0 million by offsetting
future reversals of existing temporary differences. In 1993, these
carryforwards were applied against taxable income. At December 31,
1994 the Company had alternative minimum tax credit carryforwards
of $519,000 which may be carried forward indefinitely.
The Company's federal income tax returns have been examined
and closed by the Internal Revenue Service through 1987. The
Internal Revenue Service completed their examination of tax returns
for the years 1988 through 1992, subject to review by the
Congressional Joint Committee on Taxation. The Company does not
expect any material adverse impact on financial condition or
results of operations.
9. Common Stock, Stock Options and Loan Plan
In July 1993, the Company completed a public offering of
1,725,000 shares of its common stock at $8.50 per share. The net
proceeds of $13.1 million were used to reduce debt. All share and
per share data has been restated to reflect the one-for-two reverse
stock split, effective July 1, 1993.
F-15
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Common Stock, Stock Options and Loan Plan (continued)
In December 1994, the Company adopted the Stanley Furniture
Company, Inc., 1994 Stock Option Plan (the "1994 Plan"). The 1994
Plan and the Company's 1992 Stock Option Plan provides for the
granting of stock options for up to an aggregate of 700,000 shares
of common stock to certain key employees. Options granted may be
either nonqualified or qualified stock options and the exercise
price may not be less than 100% of the fair market value of the
Company's common stock on the date the options are granted.
Granted options vest 20% annually.
At December 31, 1994 and 1993, options to purchase 182,297 and
668,317 shares, respectively, were exercisable and 24,888 were
available for grant at December 31, 1994. Activity for 1994
follows:
Number Option Price
of shares Per share
Outstanding at December 31, 1993... 668,317 $ 8.50 to $12.86
Exercised.......................... (5,112) $ 8.50 to $12.86
Cancelled.......................... (602,834) $12.86
Granted............................ 609,629 $10.00
Outstanding at December 31, 1994. 670,000 $ 8.50 to $10.00
During 1994, the Company established the Executive Loan Plan.
Under the Executive Loan Plan, the Company has entered into
contractual agreements to issue 80,000 shares of common stock to
certain key employees at $10 per share (the market price per share
on the date of the agreement) in exchange for a nonrecourse 7.6%
note receivable from the employees, payable in five annual
installments with the balance due January 2, 1999. The Company has
also agreed to forgive interest plus one half of the contractual
purchase price over the next five years, if the employees remain
employed by the Company. Accordingly, compensation expense of
$80,000 per year plus interest is being recorded over the five year
period beginning in 1994.
F-16
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Employee Benefit Plans
Pension Plans
Effective December 31, 1993, the Company merged its two non-
contributory defined benefit pension plans. The surviving plan
(the "Stanley Retirement Plan") covers substantially all employees.
The benefits provided by the plan are based on years of service and
the employee's average compensation.
The Company also maintains a supplemental retirement plan
covering certain key employees. A participant who retires under
any provision of the Stanley Retirement Plan will receive a
supplemental retirement allowance equal to the excess, if any, of
an eligible employee's benefit under the Stanley Retirement Plan in
effect on January 1, 1987 over his benefit actually received at
retirement. The supplemental plan is unfunded and benefit payments
are made directly out of Company assets.
The following table sets forth the plans' funded status at
December 31 (in thousands):
1994 1993
Actuarial present value of:
Accumulated benefit obligation, including
vested benefits of ($11,086) and
($14,168).................................. $(11,893) $(15,150)
Projected benefit obligation................. $(14,225) $(17,188)
Plan assets at fair value...................... 12,012 11,548
Plan assets less than projected benefit
obligation................................. (2,213) (5,640)
Adjustment for minimum pension liability....... (2,378)
Unrecognized net loss.......................... 2,116 3,867
Unrecognized prior service cost................ 547 549
Net prepaid (accrued) pension cost........... $ 450 $ (3,602)
At December 31, 1993, the Company recorded an additional
minimum pension liability of $2.4 million representing unfunded
accumulated benefit obligation in excess of previously recorded
pension cost as prescribed by SFAS No. 87. The adjustment, which
had no effect on income, was offset by recording an intangible
asset to the extent of unrecognized prior service cost in the
amount of $549,000 and by reducing equity in the amount of $1.1
million, net of deferred taxes.
F-17
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Employee Benefit Plans (continued)
Pension Plans (continued)
Components of net periodic pension cost follow (in thousands):
1994 1993 1992
Service cost.................... $ 904 $ 799 $ 727
Interest cost................... 1,315 1,333 1,227
Actual return on plan assets.... (109) (382) ( 484)
Net amortization and deferral... (589) (444) ( 565)
Net periodic pension cost..... $1,521 $1,306 $ 905
The weighted average discount rates used in determining the
actuarial present value of the projected benefit obligation were
9%, 7.75% and 8.25% for 1994, 1993 and 1992, respectively. The
rate of increase for future compensation levels used in determining
the obligation was 5%, 4% and 5% for 1994, 1993 and 1992,
respectively. The expected long-term rate of return on plan assets
in 1994, 1993 and 1992 was 8%, 8.25% and 8.5%, respectively.
Pension cost for the current year is determined using the discount
rate at the end of the prior year.
The Company also maintains a qualified defined contribution
pension plan for all of its eligible employees. The plan allows
for contributions by employees up to 20% of their salaries and also
permits discretionary contributions by the Company. No
contributions have been made to the plan by the Company.
Postretirement Benefits Other Than Pensions
The Company provides certain health care benefits to eligible
retired employees between the ages of 55 and 65 and provides
certain life insurance benefits to eligible retired employees from
age 55 until death. Prior to 1993, the Company expensed the cost
of these benefits when paid.
Effective January 1, 1993, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." This new standard requires the expected cost of retiree
benefits other than pensions to be charged to expense during the
years the employees render service rather than the Company's past
practice of recognizing these costs as claims were incurred.
The Company elected to recognize the January 1, 1993
obligation of $8.1 million through charges to earnings over 20
F-18
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Employee Benefit Plans (continued)
Postretirement Benefits Other Than Pensions (continued)
years. On March 3, 1993 the Company also adopted plan design
changes which reduced the January 1, 1993 obligation to $2.9
million. Such reduction will also be amortized over 20 years. The
plan is unfunded and the following table sets forth its financial
status at December 31 (in thousands):
1994 1993
Retirees.................................... $(4,769) $(1,714)
Fully eligible active plan participants..... (333) (907)
Other active plan participants.............. (634) (776)
Total accumulated postretirement
benefit obligation...................... (5,736) (3,397)
Unrecognized net loss....................... 2,927 649
Unrecognized transition obligation.......... 2,406 2,765
Net prepaid (accrued) postretirement
benefit cost............................ $ (403) $ 17
Components of net periodic postretirement benefit cost were
(in thousands):
1994 1993
Service cost................................ $ 74 $ 72
Interest cost............................... 242 239
Amortization of transition obligation,
after reduction for plan design changes... 359 146
Net amortization and deferral............... 21
$ 696 $ 457
The weighted average discount rates used in determining the
actuarial present value of the projected benefit obligation were 9%
and 7.75% for 1994 and 1993, respectively. The rate of increase in
future health care benefit cost used in determining the obligation
for 1994 was 15% gradually decreasing to 7% beginning in 2005 and
for 1993 was 17% gradually decreasing to 5.75% beginning in 2007.
Increasing the assumed health care cost trend rate by one
percentage point in each future year would increase the accumulated
postretirement benefit obligation at December 31, 1994 and 1993 by
$209,000 and $112,000, respectively; and the aggregate of the
service cost and interest cost components of net periodic
postretirement benefit cost for 1994 and 1993 by $23,000 and
$20,000.
F-19
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. Employee Benefit Plans (continued)
Deferred Compensation
The Company has a deferred compensation plan which permitted
certain management employees to defer portions of their
compensation. The employees earn a fixed rate of interest on the
deferred amounts. The plan is funded through the purchase of whole
life insurance contracts on the employees and the Company borrows
against the cash surrender value of these policy loans to finance
benefit payments to employees. The accrued liability of $1.3
million and $1.2 million at December 31, 1994 and 1993,
respectively, is included in accrued salaries, wages and benefits
and other long-term liabilities. The cash surrender value, net of
policy loans, is included in other assets at December 31, 1994.
11. Leases
The Company leases a substantial portion of its facilities
under operating leases with remaining terms of 1 to 13 years. The
leases generally provide for renewal options and rents are subject
to escalation. Rental expenses charged to operations were $1.9
million, $2.0 million and $2.1 million in 1994, 1993 and 1992
respectively.
Future minimum lease payments, after December 31, 1994, are
approximately as follows: 1995 - $1.7 million, 1996 - $1.6
million, 1997 - $1.6 million, 1998 - $1.5 million and thereafter -
$1.3 million.
12. Related Party Transactions
Approximately 58% of the Company's common stock is owned by
the ML-Lee Acquisition Fund, L.P. (the "Majority Stockholder") and
certain affiliates of the Thomas H. Lee Company.
The Company paid $1.4 million in cash in 1992 to its Majority
Stockholder for interest payments on 14% subordinated notes. The
notes had been issued in connection with the Company's acquisition
in 1988.
The Company provided $1.1 million in unissued pay-in-kind
dividends on its 14% senior cumulative preferred stock in 1992.
The Company also provided $224,000 in unissued pay-in-kind
dividends on its 8% senior cumulative preferred stock in 1992.
Both issues of preferred stock were issued in 1991 to the Company's
Majority Stockholder.
F-20
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. Related Party Transactions (continued)
On November 9, 1992, as part of the financial restructuring,
$21.4 million of the 14% subordinated notes, $12.4 million of the
14% senior cumulative preferred stock and $3.9 million of the 8%
senior cumulative preferred stock held by the Company's Majority
Stockholder and its affiliates were exchanged for 2.7 million
shares of common stock.
In addition, the Company has entered into a management
agreement with an affiliate of its Majority Stockholder. Fees paid
pursuant to this agreement amounted to $250,000 annually in 1994,
1993 and 1992.
13. Commitments and Contingencies
The Company utilizes letters of credit to collateralize
certain insurance policies and inventory purchases. At December
31, 1994, the Company had outstanding letters of credit in the
amount of $1.8 million. The fair value of these letters of credit
approximates the contract values.
F-21
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. Supplemental Cash Flow Information
1994 1993 1992
Net income......................... $2,358 $ 5,280 $ 60
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Depreciation and amortization.. 4,421 4,808 4,109
Other, net..................... 249 295 15
Restructuring.................. (2,078)
Loss on disposal of fabric
division..................... 2,758 1,621
Changes in assets and
liabilities:
Accounts receivable.......... (1,011) (289) (4,604)
Inventories.................. (2,221) (4,147) 1,345
Prepaid expenses and other
current assets............. (892) 374 912
Insurance claim receivable... 2,029 (4,152)
Operating assets of
discontinued operations.... (867) (285) (2,170)
Accounts payable............. (922) 2,082 (1,693)
Accrued salaries, wages and
benefits................... 585 (589) 834
Other accrued expenses....... (87) 526 88
Accrued restructuring costs.. (545) (560) (3,409)
Deferred income taxes........ 189 2,038 733
Other assets................... 22 57 65
Interest paid in kind.......... 1,514
Other long-term liabilities.... (1,971) 1,111 (964)
Net cash provided (used) by
operating activities....... $4,095 $ 6,549 $(3,622)
F-22
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. Supplemental Cash Flow Information (continued)
Noncash investing and financing activities for the years ended
December 31 follow (in thousands):
1992
In connection with the November 1992 restructuring, $51,388 of
common stock, net of issuance costs was issued in exchange for the
following securities:
Subordinated notes payable to majority stockholder.... $21,400
10% Mandatorily redeemable preferred stock, net of
treasury shares..................................... 14,091
14% Senior cumulative preferred stock................. 12,417
8% Senior cumulative preferred stock................. 3,880
Total carrying value of securities exchanged........ 51,788
Cancellation of common stock outstanding prior to
restructuring....................................... 39
Fees paid in connection with the issuance of common
stock............................................... (439)
Carrying value of common stock issued in the
restructuring....................................... $51,388
Additional securities issued in lieu of cash payments:
Senior subordinated debentures as interest............ $ 221
Subordinated notes payable to majority stockholder
as interest......................................... 1,400
Preferred stock issued as stock dividends............. 2,161
F-23
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. Quarterly Results of Operations (Unaudited)
The Company's unaudited quarterly results of operations were
as follows (in thousands, except per share data):
Fiscal 1994 Quarters
First Second Third Fourth
Net sales........... $44,737 $44,101 $43,845 $51,659
Gross profit ....... 8,677 8,544 8,865 9,803
Income from
continuing
operations...... 2,386(a) 957 863 910
Net income (loss)... (372)(b) 957 863 910
Income from
continuing operations
per share....... .49(a) .20 .18 .19
Net income (loss)
per share......... (.08)(b) .20 .18 .19
Fiscal 1993 Quarters
Net sales........... $35,636 $40,855 $42,666 $47,934
Gross profit(c)..... 7,598 8,851 9,201 11,505
Net income.......... 305 2,079(d) 1,226 1,670
Net income
per share(e)...... .10 .70 .26 .35
(a) In the first quarter of 1994, the Company reached a final insurance
settlement and recorded a gain of $1.5 million ($2.4 million pretax) or 31
cents per share.
(b) In the first quarter of 1994, the Company decided to cease operations
at Norman's and recorded a loss from discontinued operations of $2.8 million
($4.5 million pretax) or 58 cents per share.
(c) Business interruption insurance of $1.6 million, $1.6 million, $1.0
million and $864,000 was recorded in each of the fiscal 1993 quarters,
respectively, as a result of the fire described in Note 3.
(d) A $1.3 million ($2.1 million pretax) gain on insurance settlement was
recognized in the second quarter of 1993.
(e) Shares outstanding for all periods prior to July 1993 amounted to
2,996,438, the shares issued in the financial restructuring.
F-24
STANLEY FURNITURE COMPANY, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For each of the Three Years in the Period Ended December 31, 1994
(In thousands)
Column A Column B Column C Column D Column E
Charged
Balance at (Credited) Balance
Beginning to Costs & at End of
Descriptions of Period Expenses Deductions Period
1994
Doubtful receivables... $472 $195 $139(a) $528
Discounts, returns,
and allowances....... 355 50(b) 405
$827 $245 $139 $933
1993
Doubtful receivables... $400 $526 $454(a) $472
Discounts, returns,
and allowances....... 463 (108)(b) 355
$863 $418 $454 $827
1992
Doubtful receivables... $500 $525 $625(a) $400
Discounts, returns,
and allowances....... 387 76(b) 463
$887 $601 $625 $863
(a) Uncollectible receivables written off, net of recoveries.
(b) Represents net increase (decrease) in required reserve.
S-1