UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

Form 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 27, 2015

or

[   ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to  .

Commission file number: 0-14938

STANLEY FURNITURE COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware			54-1272589
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

 

 

200 North Hamilton Street, No. 200, High Point, North Carolina, 27260

(Address of principal executive offices, Zip Code)

 

(336-884-7700)

(Registrant’s telephone number, including area code)

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 whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (X) No ( )

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act, (check one):

 

Large accelerated filer ( )		Accelerated filer ( )
Non-accelerated filer   ( )		Smaller reporting company (X)
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ( ) No (x)

As of July 24, 2015, 14,911,453 shares of common stock of Stanley Furniture Company, Inc., par value $.02 per share, were outstanding.

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PART I.  FINANCIAL INFORMATION

ITEM 1. Financial Statements

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

					June 27, 2015			December 31, 2014
ASSETS
Current assets:
Cash				$	4,830		$	5,584
Restricted cash					663			1,190
Accounts receivable, less allowances of $464 and $375					7,334			5,853
Inventories:
Finished goods					22,628			23,935
Work-in-process					36			268
Raw materials					1			13
Total inventories					22,665			24,216
Assets of discontinued operations					100			1,373
Prepaid expenses and other current assets					935			890
Deferred income taxes					47			66
Total current assets					36,574			39,172
Property, plant and equipment, net					1,898			1,990
Cash surrender value of life insurance policies, net					20,517			15,129
Other assets					3,288			3,416
Total assets				$	62,277		$	59,707
LIABILITIES
Current liabilities:
Accounts payable				$	6,166		$	6,425
Liabilities of discontinued operations					32			93
Accrued salaries, wages and benefits					1,691			1,738
Other accrued expenses					475			1,437
Total current liabilities					8,364			9,693
Deferred income taxes					47			66
Pension plans					6,452			6,936
Other long-term liabilities					2,059			2,033
Total liabilities					16,922			18,728
STOCKHOLDERS’ EQUITY
Common stock, $.02 par value, 25,000,000 shares authorized, 14,972,987 and 14,780,326 shares issued and outstanding					283			283
Capital in excess of par value					17,116			16,710
Retained earnings					30,641			26,683
Accumulated other comprehensive loss					(2,685)			(2,697)
Total stockholders’ equity					45,355			40,979
Total liabilities and stockholders’ equity				$	62,277		$	59,707

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 (in thousands, except per share data)
(unaudited)

 

	Three Months						Six Months
	Ended						Ended
	June 27,			June 28,			June 27,			June 28,
	2015			2014			2015			2014
Net sales	$	15,133		$	16,033		$	29,805		$	30,675
Cost of sales		11,294			13,308			22,983			25,012
Gross profit		3,839			2,725			6,822			5,663
Selling, general, and administrative expenses		3,452			4,183			7,098			8,461
Operating income (loss)		387			(1,458)			(276)			(2,798)
Income from Continued Dumping and Subsidy Offset Act, net		1,076			-			4,896			-
Other income (expense), net		29			(19)			40			312
Interest expense, net		210			731			540			1,457
Income (loss) from continuing operations before taxes		1,282			(2,208)			4,120			(3,943)
Income tax expense (benefit)		14			(11)			79			(21)
Net income (loss) from continuing operations		1,268			(2,197)			4,041			(3,922)
Net income (loss) from discontinued operations		35			(17,303)			(83)			(20,204)
Net income (loss)	$	1,303		$	(19,500)		$	3,958		$	(24,126)
Basic income (loss) per share:
Income (loss) from continuing operations	$	.09		$	(.16)		$	.29		$	(.28)
Income (loss) from discontinued operations		-			(1.22)			(.01)			(1.42)
Net income (loss)	$	.09		$	(1.38)		$	.28		$	(1.70)
Diluted income (loss) per share:
Income (loss) from continuing operations	$	.09		$	(.16)		$	.28		$	(.28)
Income (loss) from discontinued operations		-			(1.22)			(.01)			(1.42)
Net income (loss)	$	.09		$	(1.38)		$	.27		$	(1.70)
Weighted average shares outstanding:
Basic		14,260			14,167			14,250			14,165
Diluted		14,497			14,167			14,461			14,165

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

(unaudited)

	Three Months						Six Months
	Ended						Ended
	June 27,			June 28,			June 27,			June 28,
	2015			2014			2015			2014
Net income (loss)	$	1,303		$	(19,500)		$	3,958		$	(24,126)
Other comprehensive income (loss):
Amortization of prior service cost		23			39			46			77
Amortization of actuarial loss		(28)			(20)			(58)			(38)
Adjustments to net periodic benefit cost		(5)			19			(12)			39
Comprehensive income (loss)	$	1,308		$	(19,519)		$	3,970		$	(24,165)

The accompanying notes are an integral part of the consolidated financial statements.

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STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	June 27,			June 28,
	2015			2014
Cash flows from operating activities:
Cash received from customers	$	28,042		$	29,197
Cash paid to suppliers and employees		(30,309)			(34,709)
Cash from Continued Dumping and Subsidy Offset Act		4,896			-
Interest paid, net		(670)			(2,882)
Income taxes paid		(90)			-
Net cash provided (used) by operating activities		1,869			(8,394)
Cash flows from investing activities:
Decrease in restricted cash		527			547
Sale of short-term securities		-			10,000
Purchase of other assets		-			(44)
Net cash provided by investing activities		527			10,503
Cash flows from financing activities:
Payments on insurance policy loans		(4,279)			-
Proceeds from insurance policy loans		-			2,701
Net cash (used) provided by financing activities		(4,279)			2,701
Cash flows from discontinued operations:
Cash provided (used) by operating activities		1,129			(83)
Cash used by investing activities		-			(51)
Net cash provided (used) by discontinued operations		1,129			(134)
Net (decrease) increase in cash		(754)			4,676
Cash at beginning of period		5,584			7,218
Cash at end of period	$	4,830		$	11,894
Reconciliation of net loss to net cash provided (used) by operating activities:
Net income (loss)	$	3,958		$	(24,126)
Loss from discontinued operations		83			20,204
Depreciation and amortization		234			323
Stock-based compensation		406			455
Changes in assets and liabilities:
Accounts receivable		(1,481)			(1,726)
Inventories		1,551			19
Prepaid expenses and other assets		(1,153)			(3,803)
Accounts payable		(259)			(640)
Accrued salaries, wages and benefits		(48)			1,093
Other accrued expenses		(964)			327
Other long-term liabilities		(458)			(520)
Net cash provided (used) by operating activities	$	1,869		$	(8,394)

The accompanying notes are an integral part of the consolidated financial statements.

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STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except per share data)

(unaudited)

1.

Preparation of Interim Unaudited Consolidated Financial Statements

The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”).  In our opinion, 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, we believe 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.  We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in our latest Annual Report on Form 10-K.

Results of the discontinued operations are excluded from the accompanying notes to the consolidated financial statements for all periods presented, unless otherwise noted.

2.

Property, Plant and Equipment

 

	June 27, 2015			December 31, 2014
Machinery and equipment	$	3,869		$	3,883
Leasehold improvements		1,833			1,833
Property, plant and equipment, at cost		5,702			5,716
Less accumulated depreciation		3,804			3,726
Property, plant and equipment, net	$	1,898		$	1,990

3.

Income taxes

During the first six months of 2015, we utilized $3,357 of our net operating loss carry-forwards against income from the Continued Dumping and Subsidy Offset Act distributed by U.S. Customs and Border Protection in March and April of this year (see Note 7).  The income tax expense recognized during the current three and six month periods was primarily generated from the federal alternative minimum tax.  The alternative minimum tax limits our ability to offset income generated during the period with net operating loss carry-forwards. During the first six months of 2015, we reduced our valuation allowance against deferred tax assets from $21,724 to $20,565 at June 27, 2015.

We maintain a valuation allowance against deferred tax assets that currently exceed our deferred tax liabilities.  The primary assets covered by this valuation allowance are net operating loss carry-forwards. The valuation allowance was calculated in accordance with the provisions of ASC 740, Income Taxes, which requires an assessment of both positive and negative evidence when measuring the need for a valuation allowance.  Our results over the most recent three-year period were heavily affected by our business restructuring activities. Our cumulative loss in the most recent three-year period, in our view, represented sufficient negative evidence to require a valuation allowance under the provisions of ASC 740, Income Taxes. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. Although realization is not assured, we have concluded that the remaining net deferred tax asset in the amount of $47 will be realized based on the reversal of existing deferred tax liabilities. The amount of the deferred tax assets actually realized, however, could vary if there are differences in the timing or amount of future reversals of existing deferred tax liabilities. Should we determine that we will not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset will be charged to income in the period such determination is made.

6

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STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except per share data)

(unaudited)

3.

Income taxes (continued)

Our effective tax rates for the current three and six month periods were 1.1% and 2.0%, respectively, driven by the impact of the alternative minimum tax outlined above.  The effective tax rate in the prior year three and six month periods was essentially zero since we had established a valuation allowance for our deferred tax assets in excess of our deferred tax liabilities.  The major reconciling items between our effective income tax rate and the federal statutory rate are the change in our valuation allowance and the cash surrender value on life insurance policies.

4.

Employee Benefit Plans

Components of other postretirement benefit cost:

	Three Months						Six Months
	Ended						Ended
	June 27,			June 28,			June 27,			June 28,
	2015			2014			2015			2014
Interest cost	$	70		$	74		$	140		$	149
Amortization of prior service benefit		(23)			(39)			(46)			(77)
Amortization of actuarial loss		28			20			58			38
Net periodic postretirement benefit cost	$	75		$	55		$	152		$	110

5.

Stockholders’ Equity

Basic earnings per common share are based upon the weighted average shares outstanding.  Outstanding stock options and restricted stock are treated as potential common stock for purposes of computing diluted earnings per share.  Basic and diluted earnings per share are calculated using the following share data:

	Three Months				Six Months
	Ended				Ended
	June 27,		June 28,		June 27,		June 28,
	2015		2014		2015		2014
Weighted average shares outstanding for basic calculation	14,260		14,167		14,250		14,165
Add: Effect of dilutive stock awards	237		-		211		-
Weighted average shares outstanding,  adjusted for diluted calculation	14,497		14,167		14,461		14,165

In the three and six month periods ended June 27, 2015, approximately 1,378 and 1,361 stock options respectively, were excluded from the diluted per share calculation as they would be anti-dilutive.  In the 2014 three and six month periods, the dilutive effect of stock options is not recognized since we had a net loss.  Approximately 1,765 shares in the three and six month periods of 2014 were issuable upon the exercise of stock options, which were not included in the diluted per share calculation because they were anti-dilutive.  Also, 707 shares in 2014 of restricted stock were not included because they were anti-dilutive.

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STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except per share data)

(unaudited)

5.

Stockholders’ Equity (continued)

A reconciliation of the activity in Stockholders’ Equity accounts for the first six months ended June 27, 2015 is as follows:

										Accumulated
				Capital in						Other
	Common			Excess of			Retained			Comprehensive
	Stock			Par Value			Earnings			Loss
Balance at December 31, 2014	$	283		$	16,710		$	26,683		$	(2,697)
Net income		-			-			3,958			-
Stock-based compensation		-			406			-			-
Adjustment to net periodic benefit cost		-			-			-			12
Balance at June 27, 2015	$	283		$	17,116		$	30,641		$	(2,685)

6.

Restructuring and Related Charges

During 2014, we completed the exit of our Stanleytown warehouse facility and took a charge for the remaining payments on the lease, which expires in December 2015.

During 2013, we recorded restructuring charges in selling, general and administrative expenses for severance and relocation costs associated with the consolidation of our corporate office and High Point showroom into a single multi-purpose facility.  All of these expenses were paid out in 2014.

Restructuring accrual activity for the six months ended June 27, 2015 was as follows:

	Lease Obligations
Accrual at January 1, 2015	$	480
Charges to expense		-
Cash payments		(240)
Accrual at June 27, 2015	$	240

Restructuring accrual activity for the six months ended June 28, 2014 was as follows:

	Lease Obligations			Severance and other termination costs			Total
Accrual at January 1, 2014	$	488		$	169		$	657
Charges to expense		354			(39)			315
Cash payments		(122)			(116)			(238)
Accrual at June 28, 2014	$	720		$	14		$	734

 

The restructuring accrual is classified as “Other accrued expenses”.

 

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STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except per share data)

(unaudited)

7.

Income from Continued Dumping and Subsidy Offset Act (CDSOA)

We recorded income of $1,076 and $4,896 in the three and six month periods ended June 27, 2015, respectively, from CDSOA distributions previously withheld by Customs pending resolution of non-supporting producers’ claims seeking to share in these distributions.  No funds were received in the prior year six month period.  

8.

Discontinued Operations

 

During the second quarter of 2014, we concluded that revenue on our Young America product line remained below the level needed to reach profitability and that the time frame needed to assure sustainable profitability was longer than we felt was economically justified.  Therefore, we made the decision to cease manufacturing operations at our Robbinsville, North Carolina facility and sell the related assets of this facility.  Manufacturing operations were ceased in the third quarter of 2014 and as a result this product line was reflected as a discontinued operation pursuant to the provisions of Accounting Standards Update No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08) for all periods presented.   

Loss from discontinued operations, net of taxes, comprised the following:

	Three Months						Six Months
	Ended						Ended
	June 27,			June 28,			June 27,			June 28,
	2015			2014			2015			2014
Net sales	$	331		$	8,005		$	538		$	15,254
Cost of sales		326			23,196			719			32,206
Selling, general and administrative expenses, net		(30)			2,112			(98)			3,252
Income (loss) from discontinued operations before income taxes		35			(17,303)			(83)			(20,204)
Income taxes		-			-			-			-
Income (loss) from discontinued operations, net of income taxes	$	35		$	(17,303)		$	(83)		$	(20,204)

Loss from discontinued operations includes accelerated depreciation and amortization, write-down of inventories and other assets, severance and other termination costs and operating losses related to final manufacturing production.

Net assets for discontinued operations are as follows:

	June 27,			December 31,
	2015			2014
Accounts receivable, net	$	100		$	695
Inventory, net		-			678
Total assets		100			1,373
Accounts payable and other liabilities		32			93
Net assets	$	68		$	1,280

 

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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth the percentage relationship to net sales of certain items included in the Consolidated Statements of Operations:

 

	Three Months Ended				Six Months Ended
	June 27,		June 28,		June 27,		June 28,
	2015		2014		2015		2014
Net sales	100.0%		100.0%		100.0%		100.0%
Cost of sales	74.6		83.0		77.1		81.5
Gross profit	25.4		17.0		22.9		18.5
Selling, general and administrative expenses	22.8		26.1		23.8		27.6
Operating income (loss)	2.6		(9.1)		(.9)		(9.1)
CDSOA income	7.1		-		16.4		-
Other income (expense), net	.2		(.1)		.1		1.0
Interest expense, net	1.4		4.6		1.8		4.8
Income (loss) from continuing operations before income taxes	8.5		(13.8)		13.8		(12.9)
Income tax expense (benefit)	.1		(.1)		.2		(.1)
Net income (loss) from continuing operations	8.4		(13.7)		13.6		(12.8)
Net income (loss) from discontinued operations	.2		(107.9)		(.3)		(65.9)
Net income (loss)	8.6%		(121.6)%		13.3%		(78.7)%

Net sales of $15.1 million for the three month period ended June 27, 2015, decreased $900,000, or 5.6%, compared to the comparable 2014 period.   For the six month period ended June 27, 2015, net sales decreased $870,000, or 2.8%, from the comparable 2014 period.  The decrease in both periods was driven by lower unit volume, partially offset by higher average selling prices resulting from a favorable product mix.  

Gross profit for the current three month period increased to $3.8 million, or 25.4% of net sales, from $2.7 million, or 17.0% of net sales, for the comparable three months of 2014.  Gross profit for the current six month period increased to $6.8 million, or 22.9% of net sales, from $5.7 million, or 18.5% of net sales, for the comparable six months of 2014.  The increase in gross profit in both the three and six month periods was driven by lower sales discounts and lower operation support costs.  Partially offsetting these improvements in the second quarter was lower sales and partially offsetting these improvements for the six month period was higher ocean freight costs resulting from West Coast port issues.  The prior year three and six month periods reflect a restructuring charge of $354,000 for future lease commitments on a warehouse facility that is no longer utilized.

Selling, general and administrative expenses for the three and six month periods of 2015 were $3.5 million and $7.1 million, or 22.8% and 23.8% of net sales, respectively, compared to $4.2 million and $8.5 million, or 26.1% and 27.6% of net sales, in the comparable 2014 periods.  The lower percentages were the result of lower expenditures resulting from the lowering of our overall organizational costs by right-sizing our structure to align with the lower volume levels and operations model.  Partially offsetting these savings are higher showroom expenditures to support the launch of our new nursery and youth line Stone and Leigh.  The right-sizing began after the decision to discontinue the Young America product line in the second quarter of 2014 and a majority of the savings were not realized until the second half of 2014.

As a result, operating income as a percentage of net sales was 2.6% for the current three month period and an operating loss of 0.9% for the current six month period compared to losses of 9.1% in both of the comparable 2014 periods.

During the current year three and six month periods we recorded income of $1.1 million and $4.9 million, respectively, from the receipt of funds under the Continued Dumping and Subsidy Offset Act (CDSOA).

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Other income in the prior year six month period was for the reversal of tariff accruals on imported bedroom furniture that U.S. Customs liquidated in the prior year first quarter without assessing any additional liability.

Interest expense for the three and six month periods of 2015 decreased $521,000 and $917,000, respectively, from the comparable 2014 periods.  Interest expense is composed of interest on loans against cash surrender value of insurance policies from a legacy deferred compensation plan.  The increase in cash surrender value is recorded in operating income to offset our overall benefit cost.  In November 2014, we used excess cash to pay down $13.7 million in outstanding loans.  In 2015, we paid down an additional $1.4 million in outstanding loans in March and $2.9 million in April, lowering our interest expense going forward.  At current outstanding loan levels, interest expense would be approximately $900,000 annually.

Our effective tax rates for the current three and six month periods were 1.1% and 2.0%, due to alternative minimum tax limiting our ability to offset all of our income generated during the period with net operating loss carry-forwards. The effective tax rate in the prior year quarter was essentially zero since we had established a valuation allowance for our deferred tax assets in excess of our deferred tax liabilities.  The major reconciling items between our effective income tax rate and the federal statutory rate are changes in our valuation allowance and the cash surrender value on life insurance policies.  The benefit in the prior year period was primarily from the release of reserves due to lapse of statute of limitations.

During 2014, we ceased production of our Young America product line and closed our manufacturing operation in Robbinsville, North Carolina.  Income of $35,000 and a loss of $83,000 were recognized from discontinued operations in the three and six month periods ended June 27, 2015, as we sold off all remaining inventory and continue to collect outstanding receivables.  The loss from discontinued operations for 2014 was $22.0 million and consisted mostly of asset impairment charges, costs of finalizing operations and severance and other termination costs.  Approximately $17.3 million and $20.2 million of the loss occurred in the comparable three and six month periods of 2014, respectively. No future expenses related to the discontinued operations should occur since all inventory has been sold.  

Financial Condition, Liquidity and Capital Resources

Sources of liquidity include cash on hand, cash generated from operations and cash surrender value of life insurance policies. While we believe that our business strategy will be successful, we cannot predict with certainty the ultimate impact on our revenues, operating costs and cash flow from operations.  We expect cash on hand to be adequate for ongoing operational and capital expenditures for the foreseeable future.  At June 27, 2015 we had $4.8 million in cash, $663,000 in restricted cash and $20.5 million available in cash surrender value on life insurance policies.

Working capital, excluding cash, restricted cash and net assets of discontinued operations, increased to $22.6 million at June 27, 2015 from $21.4 million on December 31, 2014. The increase was primarily the result of higher accounts receivable balances as shipping volumes were more heavily weighted near the end of the current quarter and decreases in accounts payable driven by lower in-transit inventory from our vendors and a decline in accrued expenses resulting predominantly from reductions in deferred revenue and restructuring accruals.  Partially offsetting these increases was a decrease in inventory resulting from our efforts to properly align our inventory levels with demand.

Cash provided by operations was $1.9 million in the current six months of 2015 compared to cash used of $8.4 million in the comparable prior year period. The cash generation in 2015 was the result of receiving $4.9 million on CDSOA proceeds during the period.  Excluding the CDSOA receipts, the improvement in cash flow from operating activities was driven by lower cash payments to suppliers and employees as the benefits of aligning our organizational structure with our new operations model were not realized until the second half of last year. In addition, lower interest payments as the result of our paying down of loans against cash surrender value of insurance policies from a legacy deferred compensation plan of $13.7 million in 2014 and $4.3 million in the current year, improved our cash flow from operations.  Partially offsetting these improvements was lower cash receipts due to lower sales volume.  

Cash provided by investing activities was $527,000 in the current six months with the release of restricted cash. During the six month period of 2014, the net cash provided of $10.5 million was the result of the maturity of a short-term investment of $10.0 million and the release of $547,000 in restricted cash.  In both the current and prior year periods, the release of restricted cash was the result of reductions in outstanding letters of credit required by our insurance company for potential workers compensation claims.

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Net cash used by financing activities in the first six months of 2015 was $4.3 million for the pay-down of life insurance policy loans under our legacy deferred compensation plan.  Net cash provided of $2.7 million in the six month period of 2014 was from loans against the cash surrender value of insurance policies.  These proceeds were used to pay interest due on outstanding policy loans which is shown as a use of cash in operating activities.   

Continued Dumping and Subsidy Offset Act (“CDSOA”)

The CDSOA provides for distribution of monies collected by U.S. Customs and Border Protection (“Customs”) for imports covered by antidumping duty orders entering the United States through September 30, 2007 to eligible domestic producers that supported a successful antidumping petition (“Supporting Producers”) for wooden bedroom furniture imported from China. Antidumping duties for merchandise entering the U.S. after September 30, 2007 have remained with the U.S. Treasury.

Certain manufacturers who did not support the antidumping petition (“Non-Supporting Producers”) filed actions in the United States Court of International Trade, challenging the CDSOA’s “support requirement” and seeking to share in the distributions.  As a result, Customs held back a portion of those distributions (the “Holdback”) pending resolution of the Non-Supporting Producers’ claims.  The Court of International Trade dismissed all of the actions of the Non-Supporting Producers, who appealed to the United States Court of Appeals for the Federal Circuit.  Customs advised that it expected to distribute the Holdback to the Supporting Producers after March 9, 2012.  The Non-Supporting Producers sought injunctions first from the Court of International Trade and, when those efforts were unsuccessful, from the Federal Circuit directing Customs to retain the Holdback until the Non-Supporting Producers’ appeals were resolved.

On March 5, 2012, the Federal Circuit denied the motions for injunction, “without prejudicing the ultimate disposition of these cases.”  As a result, we received a CDSOA distribution of $39.9 million in April 2012. On August 19, 2013, the Federal Circuit issued a decision affirming the dismissal of the claims of two of the four Non-Supporting Producers. On January 3, 2014, the Federal Circuit denied those Non-Supporting Producers’ petitions for rehearing en banc.  On May 2, 2014, these Non-Supporting Producers filed a petition for writ of certiorari, seeking review by the United States Supreme Court.   On October 6, 2014, the Supreme Court denied two of three of the Non-Supporting Producers’ petitions for certiorari review, and on December 15, 2014, the Supreme Court denied the third petition for review.  Accordingly, Customs should not seek or be entitled to obtain a return of our CDSOA distribution received in April 2012.

In November 2012, December 2013, and November 2014 Customs disclosed that it withheld $3.0 million, $6.4 million, and $5.7 million respectively in each of those years, in funds related to the antidumping duty order on wooden bedroom furniture from China that was otherwise available for distribution until the amounts at issue in the pending litigation had been resolved.  In March 2015, following the conclusion of all appeals, Customs began distributing the withheld funds to the Supporting Producers.  Our allocated share of the distributed 2012, 2013, and 2014 withheld funds totaled $4.8 million, which we received during late March and early April 2015.  

In November 2014, Customs also had announced that 2014 and 2015 CDSOA distributions were subject to sequestration under the Budget Control Act at the rate of 7.2 percent and 7.3 percent, respectively.  On March 17, 2015, however, the government concluded that the amounts sequestered during Fiscal Year 2014 and Fiscal Year 2015 would become available in the subsequent fiscal year.  Our share of the 2014 sequestered funds, totaling $147,000, was received in April 2015.  

Recently, Customs disclosed that as of April 30, 2015, $626,342 in collected duties was potentially available for distribution in 2015 to eligible manufactures of wooden bedroom furniture.  Customs noted that the final amounts available for distribution in 2015 could be higher or lower than the preliminary amounts due to liquidations, re-liquidations, protests, or other events affecting entries.  This amount, at least in part, may have come from the secured duties on unliquidated entries in Customs’ clearing account as of October 1, 2014, but Customs has not updated the amount of duties that remain secured by cash deposits and bonds on un-liquidated entries of wooden bedroom furniture.  Assuming our percentage allocation in 2015 is the same as it was for the 2014 distributions, the 2014 preliminary CDSOA amount does not change and adjusted for the sequestered amounts noted above, we expect to receive approximately $200,000 in the fourth quarter of 2015.

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Due to the uncertainty of the various legal and administrative processes, we cannot provide assurances as to the amount of additional CDSOA funds that ultimately will be received, if any, and we cannot predict when we may receive any additional CDSOA funds.  

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2014 Annual Report on Form 10-K.

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,” “estimates,” “expects,” “may,” “will,” “should,” “could”, or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy.  These statements reflect our 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 disruptions in foreign sourcing including those arising from supply or distribution disruptions or those arising from changes in political, economic and social conditions, as well as laws and regulations, in countries from which we source products, international trade policies of the United States and countries from which we source products,   the inability to raise prices in response to inflation and increasing costs, lower sales due to worsening of current economic conditions, the cyclical nature of the furniture industry,  business failures or loss of large customers, failure to anticipate or respond to changes in consumer tastes, fashions and perceived values in a timely manner, competition in the furniture industry,  environmental, health, and safety  compliance costs, and failure or interruption of our information technology infrastructure.  Any forward-looking statement speaks only as of the date of this filing and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

ITEM 3.  Quantitative and Qualitative Disclosures about Market Risk

None of our foreign sales or purchases are denominated in foreign currency and we do not have any foreign currency hedging transactions.  While our foreign purchases are denominated in U.S. dollars, a relative decline in the value of the U.S. dollar could result in an increase in the cost of our products obtained from offshore sourcing and reduce our earnings or increase our losses, unless we are able to increase our prices for these items to reflect any such increased cost.

ITEM 4.  Controls and Procedures

Evaluation of disclosure controls and procedures  

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act).  Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of June 27, 2015, the end of the period covered by this quarterly report.

Changes in internal controls over financial reporting  

Changes in internal controls over financial reporting.  There were no changes in our internal control over financial reporting that occurred during the second quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  

 

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Item 6. Exhibits

3.1	Restated Certificate of Incorporation of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q (Commission File No. 0-14938) for the quarter ended July 2, 2005).
3.2	By-laws of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed February 3, 2010).
31.1	Certification by Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
31.2	Certification by Anita W. Wimmer, our Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
32.1	Certification of Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
32.2	Certification of Anita W. Wimmer, our Principal Financial Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
101	The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended June 27, 2015, formatted in Extensible Business Reporting Language (“XBRL”): (i) consolidated balance sheets, (ii) consolidated statements of operations, (iii) condensed consolidated statements of comprehensive income (loss), (iv) condensed consolidated statements of cash flows, (v) the notes to the consolidated financial statements, and (vi) document and entity information.(1)
(1)	Filed herewith

 

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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.

 

Date: July 28, 2015		STANLEY FURNITURE COMPANY, INC.
		By:	/s/ Anita W. Wimmer
			Anita W. Wimmer
			Vice President of Finance
			(Principal Financial and Accounting Officer)

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