UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
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)
1641 Fairystone Park Highway, Stanleytown, VA 24168
(Address of principal executive offices, Zip Code)
Registrant's telephone number, including area code: (276) 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 February 11, 2002: $164 million
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of February 11, 2002:
Common Stock, par value $.02 per share 6,660,383
(Class of Common Stock) Number of Shares
Documents incorporated by reference: Portions of the Registrant's Proxy
Statement for its Annual Meeting of Stockholders scheduled for April 24, 2002
are incorporated by reference into Part III.
TABLE OF CONTENTS
Part I Page
Item 1 Business........................................................ 3
Item 2 Properties...................................................... 6
Item 3 Legal Proceedings............................................... 6
Item 4 Submission of Matters to a Vote of Security Holders............. 6
Part II
Item 5 Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 8
Item 6 Selected Financial Data......................................... 9
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 10
Item 7A Quantitative and Qualitative Disclosures about Market Risks..... 13
Item 8 Financial Statements and Supplementary Data..................... 13
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 13
Part III
Items 10 through 13...................................................... 14
Part IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K.. 14
Signatures ............................................................. 19
Index to Financial Statements and Schedule............................... F-1
Stanley Furniture Company, Inc.
PART I
Item 1. Business
General
The Company is a leading designer and manufacturer of residential wood
furniture exclusively targeted at the upper-medium price range. The Company
offers diversified product lines across all major style and product categories
within this price range. Its product depth and extensive style selections make
the Company a complete wood furniture resource for retailers in its price range
and allow the Company to respond more quickly to shifting consumer preferences.
The Company has established a broad distribution network that includes
independent furniture stores, department stores and regional furniture chains.
To produce its products and support its broad distribution network, the Company
has developed efficient and flexible manufacturing processes that it believes
are unique in the furniture industry. The Company emphasizes continuous
improvement in its manufacturing processes to enable it to continue providing
competitive advantages to its customers, such as quick delivery, reduced
inventory investment, high quality, and value.
In December 2001, the Company announced a plan to expand offshore
sourcing, realign manufacturing capacity and significantly lower operating
costs. Integration of selected imported component parts and finished items in
its product line will lower costs, provide design flexibility, and offer a
better value to customers. This initiative will create excess capacity in the
Company's manufacturing facilities. Accordingly, the Company decided to close
its West End, North Carolina factory and consolidate production from this
facility into other Company facilities. Closing the West End facility is
expected to reduce costs by $4 to $5 million annually and will affect
approximately 13%, or 400, of the Company's employees. Production at the West
End facility will be phased out during the first quarter of 2002 with certain
warehousing and other activities continuing until mid-year 2002. The
restructuring charge associated with this plan is discussed in further details
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 and in Note 2 of Notes to Financial Statements.
Products and Styles
The Company's product lines cover all major design categories, and include
dining room, bedroom, home entertainment and accent tables, youth bedroom (Young
America(R)) and home office furniture. The Company believes that the diversity
of its product lines enables it to anticipate and respond quickly to changing
consumer preferences and provides retailers a complete wood furniture resource
in the upper-medium price range. The Company believes that its products
represent good value and that the quality and style of its furniture compare
favorably with more premium-priced products.
The Company provides products in a variety of woods, veneers, and
finishes. The number of styles by product line currently marketed by the Company
is set forth in the following table:
Number of Styles
----------------
Dining room.................................................. 21
Bedroom...................................................... 18
Youth bedroom (Young America(R))............................. 16
Home entertainment and accent tables......................... 13
Home office.................................................. 11
These product lines cover all major design categories including European
traditional, contemporary/transitional, American traditional, and country/casual
designs.
The Company designs and develops new product styles each year to replace
discontinued items or styles and, if desired, to expand product lines. The
Company's product design process begins with marketing personnel identifying
customer needs and conceptualizing product ideas, which generally consist of a
group of related furniture pieces. A variety of sketches are produced, usually
by Company designers, from which prototype furniture pieces are built. The
Company's engineering department then prepares the prototype for actual
full-scale production. The Company consults with its marketing personnel, sales
representatives, and selected customers throughout this process and introduces
its new product styles primarily at the fall and spring international furniture
markets.
Distribution
The Company has developed a broad domestic and international customer base
and sells its furniture through approximately 60 independent sales
representatives to independent furniture retailers, department stores and
regional furniture chains. Representative customers in alphabetical order
include Breuners Home Furnishings, Furnitureland South, Jordan's, Nebraska
Furniture Mart, Raymour & Flanigan, Robb & Stucky and Rooms To Go. The Company
believes this broad network reduces its exposure to regional recessions, and
allows it to capitalize on emerging channels of distribution. The Company offers
tailored marketing programs to address each channel of distribution.
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 attended by most buyers and is regarded by the industry
as the international market. The Company utilizes approximately 63,000 square
feet of showroom space at the High Point market to introduce new products,
increase sales of its existing products, and test ideas for future products.
The Company has sold to approximately 2,700 customers during 2001, and
approximately 5% of the Company's sales in 2001 were to international customers.
No single customer accounted for more than ten percent of the Company's sales in
2001. HomeLife was the Company's largest customer representing 7% of sales in
2000. HomeLife declared bankruptcy in July 2001 and subsequently closed its
stores. 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 impact on the business of the Company.
Manufacturing
The Company's manufacturing strategy combines offshore sourcing with
domestic manufacturing. The Company's domestic manufacturing operations
complement its product and distribution strategy by emphasizing continuous
improvement in quality and customer responsiveness while reducing costs. These
manufacturing processes produce smaller, more frequent and cost-effective runs.
The Company focuses on identifying and eliminating manufacturing bottlenecks and
waste, employing statistical process control and, in turn, adjusting
manufacturing schedules on a daily basis, using cellular manufacturing in the
production of components, and improving its relationships with suppliers by
establishing primary supplier relationships. In addition, a key element of the
Company's manufacturing processes is to involve all Company personnel, from
hourly associates to management, in the improvement of the manufacturing
processes by encouraging and responding to ideas to improve quality and to
reduce manufacturing lead times. The Company also integrates the sourcing of
selected component parts and finished items with its manufacturing operations to
further enhance its product and distribution strategy.
The Company operates manufacturing facilities in North Carolina and
Virginia consisting of an aggregate of approximately 3.2 million square feet,
excluding approximately 459,000 square feet at the West End, North Carolina
facility identified for closure in the Company's restructuring plan. The Company
considers its present equipment to be generally modern, adequate and
well-maintained.
The Company schedules production of its various styles based upon actual
and anticipated orders. The Company's manufacturing processes enable it to fill
orders primarily through manufacturing rather than inventory. As a result, the
Company shipped customer orders within 12 days on average during 2001 with
average finished goods inventory turns of 4.9. Since the Company ships customer
orders on average in less than two weeks, management believes that the size of
its backlog is not necessarily indicative of its long-term operations. The
Company's backlog of unshipped orders was $11.7 million at December 31, 2001 and
$15.1 million at December 31, 2000.
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 and metals. The Company uses a
variety of species of lumber, including cherry, oak, ash, poplar, pine and
maple. The Company's five largest suppliers accounted for approximately 16% of
its purchases in 2001. The Company believes that its sources of supply for these
materials are adequate and that it is not dependent on any one supplier.
Competition
The Company is the thirteenth largest furniture manufacturer in North
America based on 2000 sales, according to Furniture/Today, a trade publication.
The furniture industry is highly competitive and includes a large number of
foreign and domestic manufacturers, none of which dominates the market. In
addition, competition has significantly increased from foreign manufacturers in
countries such as China with lower production costs. The markets in which the
Company competes include a large number of relatively small manufacturers;
however, certain competitors of the Company have substantially greater sales
volumes and financial resources than the Company. Competitive factors in the
upper-medium price range include style, price, quality, delivery, design,
service, and durability. The Company believes that its manufacturing processes,
its long-standing customer relationships and customer responsiveness, its
consistent support of existing diverse product lines that are high quality and
good value, and its experienced management are competitive advantages.
Associates
At December 31, 2001, the Company employed approximately 3,050 associates.
None of the Company's associates is represented by a labor union. The Company
considers its relations with its associates to be good. Closure of the West End,
North Carolina facility in 2002 is expected to eliminate approximately 400
positions.
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
excellent quality and styling in the furniture industry. The Company owns a
number of trademarks, none of which is considered to be material to the Company.
Governmental Regulations
The Company is subject to federal, state, and local laws and regulations
in the areas of safety, health, and environmental pollution controls. Compliance
with these laws and 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 predicted. Management
believes that the Company is in material compliance with applicable federal,
state, and local safety, health and environmental regulations.
Forward-Looking Statements
Certain statements made in this Annual Report on Form 10-K are not based
on historical facts, but are forward-looking statements. These statements can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. These statements reflect the Company's reasonable judgment with
respect to future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those in the forward-looking
statements. Such risks and uncertainties include competition in the furniture
industry including competition from lower-cost foreign manufacturers, successful
implementation of expanded offshore sourcing, the cyclical nature of the
furniture industry, fluctuations in the price for lumber which is the most
significant raw material used by the Company, credit exposure to customers in
the current economic climate, capital costs and general economic conditions. Any
forward looking statement speaks only as of the date of this filing, and the
Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new developments or otherwise.
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. All Company plants are equipped with automatic
sprinkler systems and modern fire protection equipment, which management
believes are adequate. All facilities set forth below are active and
operational. The Company has identified its West End, North Carolina facility,
included below, for closure in 2002. Production capacity and extent of
utilization of the Company's facilities are difficult to quantify with certainty
because maximum capacity and utilization varies periodically depending upon the
product being manufactured, the amount of component parts and finished items
outsourced, and the utilization of the labor force at the facility. In this
context, the Company estimates that its facilities, including the West End
factory, operated at approximately 70-75% of capacity, principally on a one
shift basis. Closure of the West End facility in 2002 will improve utilization
of the Company's other facilities. The Company believes the integration of
selected imported component parts and finished items together with available
capacity at the Company's facilities will be adequate to expand production to
meet anticipated product requirements.
Approximate Owned
Facility Size or
Location Primary Use (Square Feet) Leased
-------- ----------- ------------- ------
Stanleytown, VA Manufacturing 1,721,000 Owned
and Corporate
Headquarters
Martinsville, VA Manufacturing 300,000 Owned
West End, NC Manufacturing 459,000 Owned(1)
Lexington, NC Manufacturing 635,000 Owned
Robbinsville, NC Manufacturing 540,000 Owned
High Point, NC Showroom 63,000 Leased
- ------------------------------------
(1) This plant leases its lumber yard and is scheduled to close in March 2002.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The Company's executive officers and their ages as of January 1, 2002 are
as follows:
Name Age Position
Albert L. Prillaman........ 56 Chairman and Chief Executive Officer
Jeffrey R. Scheffer........ 46 President and Chief Operating Officer
Douglas I. Payne ......... 43 Executive Vice President -
Finance and Administration
and Secretary
William A. Sibbick......... 45 Senior Vice President - Sales
Kelly S. Cain ............ 47 Senior Vice President -
Product Manager
Robert J. Smith ......... 50 Senior Vice President - Operations
Albert L. Prillaman has been Chief Executive Officer of the Company since
December 1985 and Chairman of the Board of Directors since September 1988. Mr.
Prillaman also served as President from 1985 until April 2001. Prior to 1985,
Mr. Prillaman served as 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 the Stanley Furniture division of
the predecessors of the Company since 1969. Mr. Prillaman is a director of
American Woodmark Corporation.
Jeffrey R. Scheffer has been President and Chief Operating Officer since
April 2001. Prior to his employment with the Company, Mr. Scheffer served as
President of American Drew, a furniture manufacturer, for five years.
Douglas I. Payne has been Executive Vice President - Finance and
Administration since April 2001. Mr. Payne previously held the position of
Senior Vice President - Finance and Administration since December 1996. He was
Vice President of Finance and Treasurer of the Company from September 1993 to
December 1996. Prior to that time, Mr. Payne held various financial management
positions since his employment by the Company in 1983. Mr. Payne has been
Secretary of the Company since 1988.
William A. Sibbick has been Senior Vice President - Sales since December
1997. He was Vice President -Product Development and Merchandising - Dining Room
and Occasional from December 1996 to December 1997. He was Vice President -
Product Development and Merchandising from April 1995 until December 1996. Prior
to that time, Mr. Sibbick held various management positions related to product
development since his employment by the Company in 1989.
Kelly S. Cain has been Senior Vice President - Product Manager since April
2001. He was Senior Vice President - Product Development and Merchandising from
December 1997 to April 2001. He was Vice President -Product Development and
Merchandising for bedroom product lines from December 1996 to December 1997. He
was Vice President - Sales National Accounts from April 1993 to December 1996.
Prior to that time, Mr. Cain held various management positions in sales and
marketing since his employment by the Company in 1985.
Robert J. Smith has been Senior Vice President - Operations since December
2001. He was Vice President of Supply Management from January 2000 to December
2001. He was Vice President of Quality from January 1996 to January 2000. He was
Vice President of Production from October 1986 to January 1996. Prior to that
time, Mr. Smith held various management positions in manufacturing since his
employment by the Company in 1977.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
The Company's common stock is quoted on The Nasdaq Stock Market ("Nasdaq")
under the symbol STLY. The table below sets forth the high and low sales prices
per share, for the periods indicated, as reported by Nasdaq.
High Low
2001
First Quarter.................... $29.88 $22.63
Second Quarter................... 33.73 25.06
Third Quarter.................... 29.02 21.66
Fourth Quarter................... 28.19 22.30
2000
First Quarter.................... $20.25 $15.13
Second Quarter................... 24.00 18.88
Third Quarter.................... 28.50 21.25
Fourth Quarter................... 25.88 20.19
As of February 11, 2002, there were approximately 2,500 beneficial stockholders.
To date the Company has used all earnings to finance the growth and development
of its business and to repurchase its common stock. To date the Company has not
paid any cash dividends. However, the Company will continue to evaluate its
dividend policy, and any future payments will depend upon the financial
condition, capital requirements and earnings of the Company, as well as other
factors that the Board of Directors may deem relevant. The Company's ability to
pay dividends and repurchase its common stock is restricted under certain loan
covenants. See Note 5 of the Notes to Financial Statements.
Item 6. Selected Financial Data
Years Ended December 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
Income Statement Data:
Net sales.............................. $234,322 $283,092 $264,717 $247,371 $211,905
Cost of sales.......................... 181,356 214,499 196,631 186,931 159,453
Restructuring charge(1)................ 2,290
-------- -------- -------- -------- --------
Gross profit....................... 50,676 68,593 68,086 60,440 52,452
Selling, general and administrative
expenses............................. 30,482 33,656 33,796 32,496 29,949
Unusual charge(2)...................... 2,800
Restructuring charge(1)................ 733
-------- -------- -------- -------- --------
Operating income..................... 16,661 34,937 34,290 27,944 22,503
Other expense (income), net ........... 47 (82) 388 411 276
Interest expense....................... 4,007 4,003 3,478 4,164 3,538
-------- -------- -------- -------- --------
Income before income taxes........... 12,607 31,016 30,424 23,369 18,689
Income taxes........................... 4,286 11,476 11,211 8,886 7,102
-------- -------- -------- -------- --------
Net income(3)........................ $ 8,321 $ 19,540 $ 19,213 $ 14,483 $ 11,587
======== ======== ======== ======== ========
Basic Earnings Per Share:(4)
Net income............................. $ 1.26 $ 2.76 $ 2.70 $ 2.07 $ 1.38
======== =========== ======== ======== ========
Weighted average shares(5)............. 6,610 7,076 7,119 7,008 8,394
======== =========== ======== ======== ========
Diluted Earnings Per Share:(4)
Net income(3).......................... $ 1.21 $ 2.63 $ 2.47 $ 1.82 $ 1.25
======== =========== ======== ======== ========
Weighted average shares(5)............. 6,900 7,429 7,770 7,963 9,278
======== =========== ======== ======== ========
Balance Sheet and Other Data:
Cash................................... $ 1,955 $ 1,825 $ 3,597 $ 6,791 $ 756
Inventories............................ 49,522 54,423 43,580 46,514 45,730
Working capital........................ 51,271 53,759 38,531 44,408 41,440
Total assets........................... 163,003 179,206 170,522 154,374 143,225
Long-term debt including
current maturities .................. 37,053 52,169 38,404 43,539 52,577
Stockholders' equity(5)(6)............. 87,294 79,477 79,573 62,368 48,247
Capital expenditures(7)................ 4,172 6,068 25,566 6,680 4,076
Stock repurchases:
Shares .............................. 86 869 227 315 2,326
Total cost .......................... $ 1,973 $ 19,754 $ 4,708 $ 5,553 $ 25,330
(1) In 2001, the Company recorded $3.0 million in restructuring charges
related to the announced closure of its West End, North Carolina facility.
See Note 2 of Notes to Financial Statements.
(2) In 2001, the Company recorded a $2.8 million charge to write-off amounts
due from a major customer. See Note 3 of Notes to Financial Statements.
(3) Net income before restructuring and unusual charges was $12.2 million in
2001, or $1.76 per diluted share. (4) Amounts have been retroactively
adjusted to reflect a two-for-one stock split, distributed in the form of
a stock dividend, on May 15, 1998.
(5) In 1998, the Company issued 103,400 shares to the Stanley Retirement Plan.
(6) No dividends have been paid on the Company's common stock during any of
the years presented.
(7) In 1999, the Company spent $10 million on expansion projects at existing
facilities and $15 million to purchase and equip a new facility.
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.
Results of Operations
In December 2001, the Company announced a plan to expand offshore
sourcing, realign manufacturing capacity and significantly lower operating
costs. Integration of selected imported component parts and finished items in
its product line will lower costs, provide design flexibility, and offer a
better value to customers. This initiative will create excess capacity in the
Company's manufacturing facilities. Accordingly, the Company decided to close
its West End, North Carolina factory and consolidate production from this
facility into other Company facilities. Closing the West End facility is
expected to reduce costs by $4 to $5 million annually and will affect
approximately 13%, or 400, of the Company's employees. Production at the West
End facility will be phased out during the first quarter of 2002 with certain
warehousing and other activities continuing until mid-year 2002.
As a result of the West End facility closing, the Company anticipates
asset write-downs (through higher depreciation charges due to shorter useful
lives, since the facility is not deemed impaired) and other restructuring
charges, including severance and plant operating inefficiencies, totaling $7 to
$9 million pretax. During the fourth quarter 2001, the Company recorded a
restructuring charge, as a component of cost of sales, of $2.0 million for
accelerated depreciation and $300,000 for inventory write-downs and other
restructuring charges of $733,000. The Company expects to record the remaining
pretax charge of $4 to $6 million in 2002, predominantly in the first quarter.
The following table sets forth the percentage relationship to net sales of
certain items included in the Statements of Income:
For the Years Ended
December 31,
-------------------------------
2001 2000 1999
---- ---- ----
Net sales.............................. 100.0% 100.0% 100.0%
Cost of sales.......................... 77.4 75.8 74.3
Restructuring charge................... 1.0
----- ----- -----
Gross profit......................... 21.6 24.2 25.7
Selling, general and administrative
expenses............................. 13.0 11.9 12.7
Unusual charge......................... 1.2
Restructuring charge................... .3
----- ----- -----
Operating income..................... 7.1 12.3 13.0
Other expense (income), net............ (.1) .2
Interest expense....................... 1.7 1.4 1.3
----- ----- -----
Income before income taxes........... 5.4 11.0 11.5
Income taxes........................... 1.8 4.1 4.2
----- ----- -----
Income from operations............... 3.6% 6.9% 7.3%
===== ===== =====
2001 Compared to 2000
Net sales decreased $48.8 million, or 17.2%, for 2001 compared to 2000.
The decrease was due primarily to lower unit volume in bedroom, dining room,
home entertainment and accent tables and to a lesser extent lower unit volume in
the Young America(R) youth bedroom. An unusual charge of $1.8 million ($2.8
million pretax) or $.26 per diluted share was recorded in the second quarter of
2001 to write-off amounts due from HomeLife, which declared bankruptcy and
closed its stores. The elimination of shipments to this customer, which
represented 7% of sales in 2000 and 2% of sales in 2001, reduced the Company's
sales in 2001. During 2001, the Company adjusted production in response to lower
demand levels. As a result, total inventories at December 31, 2001, declined
$4.9 million compared to the prior year. The Company anticipates sales for the
first quarter of 2002 to range from $56 to $58 million. The Company expects the
economy to gradually improve throughout 2002 and projects total year sales to
increase 5 to 8%.
Gross profit margin for 2001 decreased to 22.6% from 24.2% in 2000,
excluding the restructuring charge. The decrease resulted primarily from lower
sales and production in 2001. Start-up costs associated with the new home office
factory, which began production in March 2000, reduced gross profit in the prior
year. Improved performance from this facility partially offset the impact of
lower sales and production levels in 2001. Fourth quarter 2001 results also
benefited from lower raw material costs, primarily lumber. The Company expects
this trend of lower raw material costs to continue at least through the first
half of 2002.
Selling, general and administrative expenses for 2001 as a percentage of
net sales, excluding the unusual and restructuring charges, increased to 13.0%
from 11.9% for 2000. The higher percentage was the result of lower net sales.
Selling, general and administrative expenses declined $3.2 million compared to
2000 primarily as a result of lower selling expenses directly attributable to
the decrease in sales and the elimination of annual management bonuses for 2001
resulting from lower earnings.
As a result, operating income (excluding the unusual and restructuring
charges) decreased to $22.5 million, from $34.9 million in 2000.
Interest expense for 2001 approximated prior year expense as increased
average debt levels during 2001, resulting from stock repurchases in the later
part of 2000, were offset by lower average borrowing rates.
The Company's effective income tax rate declined to 34.0% for 2001 from
37.0% in 2000, due to lower state income taxes.
2000 Compared to 1999
Net sales increased $18.4 million, or 6.9%, for 2000 compared to 1999. The
increase was due to higher unit volume in the Company's Young America(R) youth
bedroom and home office product categories, and to a lesser extent higher
average selling prices. Due to the softening U.S. economy, the Company
experienced a 5.2% decline in net sales for the fourth quarter of 2000 compared
to an exceptionally strong prior year quarter.
Capacity constraints limited shipments during 1999. As a result, the
Company completed expansion projects during 1999 to increase production in
response to the growing demand for its bedroom and Young America(R) youth
bedroom products. During the first quarter of 2000, the Company commenced
operations at its new manufacturing facility in response to the growing demand
for home office furniture. The Company experienced consistent improvement in
operating performance at the new facility as production levels were increased
throughout 2000.
Gross profit margin for 2000 decreased to 24.2% from 25.7% for 1999. The
decrease resulted primarily from start-up expenses at the new factory along with
operating inefficiencies created by a change in product mix at several other
factories as product was moved to the new facility, higher raw material cost and
increased labor cost.
Selling, general and administrative expenses as a percentage of net sales
decreased to 11.9% in 2000 from 12.7% for 1999. The lower percentage in 2000 was
due principally to higher net sales. Expenditures in 2000 were slightly lower
due primarily to reduced selling expenses.
As a result, operating income increased to $34.9 million, from $34.3
million in 1999. However, due to the above factors, operating income as a
percentage of net sales declined to 12.3% from 13.0% in 1999.
Interest expense for 2000 increased due to higher average debt levels
resulting from the Company's purchase of its stock and increased working capital
levels.
The Company's effective income tax rate was 37.0% and 36.9% for 2000 and
1999, respectively.
Financial Condition, Liquidity and Capital Resources
The Company generated cash from operations of $19.8 million in 2001
compared to $11.8 million in 2000 and $27.8 million in 1999. The increase in
2001 compared to 2000 was attributable primarily to lower tax payments resulting
from lower taxable income and lower state taxes. The decrease in 2000 compared
to 1999 was attributable to increased inventory levels and higher tax payments.
The Company used the cash generated from operations in 2001 to reduce
borrowings, fund capital expenditures and repurchase its common stock. The cash
generated from operations in 2000 and 1999 was used to fund capital expenditures
and repurchase its common stock.
Net cash used by investing activities was $4.2 million in 2001 compared to
$8.7 million and $23.0 million in 2000 and 1999, respectively. Net cash used for
capital expenditures in 2000 was $8.8 million, reflecting $2.7 million of prior
year capital expenditures included in accounts payable at December 31, 1999 and
$6.1 million of capital expenditures in 2000. In 1999 capital expenditures were
primarily for capacity expansion projects. Approximately $10 million was used to
expand production capability for the Company's bedroom and Young America(R)
youth bedroom products and approximately $15 million was used to purchase and
equip a facility dedicated to the production of home office furniture. This
dedicated facility began operation in the first quarter of 2000. The
expenditures in 2001, 2000 and the remaining expenditures in 1999 were primarily
for plant and equipment and other assets in the normal course of business. The
announced closure of the Company's West End, North Carolina factory will reduce
future capital expenditures as a significant portion of the machinery and
equipment will be relocated from West End to other Company facilities. Capital
expenditures in 2002 are anticipated to be approximately $2 to $3 million.
Net cash used by financing activities was $15.4 million, $4.9 million and
$7.9 million in 2001, 2000 and 1999, respectively. In 2001, cash from operations
and proceeds from the issuance of $10.0 million in senior notes provided cash
for reduction of borrowings under the revolving credit facility, senior debt
payments, capital expenditures and purchase and retirement of the Company's
common stock. In 2000, cash from operations and borrowings under the revolving
credit facility provided cash for the purchase and retirement of the Company's
common stock, senior debt payments and capital expenditures. In 1999, the
purchase of common stock and the reduction in borrowings were financed from
operations, cash on hand and the proceeds from the exercise of stock options.
The Company used $2.0 million of cash to purchase 86,000 shares of its
stock on the open market at an average price of $22.94 in 2001. For the three
years ending December 31, 2001, the Company has used $26.4 million of cash to
purchase 1.2 million shares of its stock on the open market at an average price
of $22.36. At December 31, 2001, approximately $8.0 million remains authorized
by the Company's Board of Directors to repurchase shares of the Company's common
stock. Consequently, the Company may, from time to time, either directly or
through agents, repurchase its common stock in the open market, through
negotiated purchases or otherwise, at prices and on terms satisfactory to the
Company. Depending on market prices and other conditions relevant to the
Company, such purchases may be discontinued at any time.
In April 2001, the Company issued $10.0 million of 6.94% senior notes due
2011. At December 31, 2001, long-term debt, including current maturities, was
$37.1 million. Approximately $33.3 million of additional borrowing capacity was
available under the revolving credit facility at December 31, 2001. The Company
believes that its financial resources are adequate to support its capital needs
and debt service requirements.
The following table sets forth the Company's contractual cash obligations and
other commercial commitments at December 31, 2001:
Payment due or commitment expiration
---------------------------------------
Less than Over
Total 1 year 2-3 years 4-5 years 5 years
------- ------ ------- ------ ------
Contractual cash obligations:
Long-term debt $37,053 $6,839 $13,929 $7,114 $9,171
Operating leases 1,981 824 1,062 21 74
------- ------ ------- ------ ------
Total contractual cash obligations $39,034 $7,663 $14,991 $7,135 $9,245
======= ====== ======= ====== ======
Other commercial commitments:
Letters of credit $ 2,030 $2,030
======= ======
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142
"Goodwill and Other Intangible Assets", which is required to be adopted by the
Company at the beginning of 2002. SFAS No. 142 requires that goodwill and
intangible assets with indefinite useful lives no longer be amortized, but
instead be tested for impairment at least annually. The Company will adopt this
pronouncement January 1, 2002 and believes the effect of SFAS No. 142 will be to
increase earnings per share by approximately $.03 in 2002.
Also in June 2001, the Financial Accounting Standards Board issued SFAS No.
143, "Accounting for Asset Retirement Obligations". SFAS No. 143 addresses
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
statement is effective for fiscal years beginning after June 15, 2002. The
Company does not anticipate adoption of SFAS No. 143 having a material impact on
the Company's financial statements.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144 "Accounting for the Impairment or Disposal of Long-lived Assets". SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of. The Company is
required to adopt SFAS No. 144 in 2002. The Company does not anticipate adoption
of SFAS No. 144 having a material impact on the Company's financial statements.
Item 7A.Quantitative and Qualitative Disclosures about Market Risks
Because the Company's obligation under its revolving credit facility bears
interest at a variable rate, the Company is sensitive to changes in prevailing
interest rates. A one-percentage point fluctuation in market interest rates
would not have had a material impact on earnings in 2001.
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
None.
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
Stockholders scheduled for April 24, 2002, 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, 2001 and 2000
Statements of Income for each of the three years in the period ended
December 31, 2001
Statements of Changes in Stockholders' Equity for each of the three years
in the period ended December 31, 2001
Statements of Cash Flows for each of the three years in the period ended
December 31, 2001
Notes to Financial Statements
(2) Financial Statement Schedule:
----------------------------
Schedule II - Valuation and Qualifying Accounts for each of the three
years in the period ended December 31, 2001
(b) The following reports on Form 8-K were filed by the Registrant during the
last quarter of the period covered by this report:
A report on Form 8-K was filed on December 13, 2001, to announce the
Company's increased emphasis on import initiatives, realignment of
manufacturing facilities and revised earnings outlook.
(c) Exhibits:
3.1 The Restated Certificate of Incorporation of the Registrant
(incorporated by reference to Exhibit 3.1 to the Registrant's Form
10-K (Commission File No. 0-19938) for the year ended December 31,
1998).
3.2 By-laws 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 June 30, 2001).
4.1 The Certificate of Incorporation and By-laws of the Registrant as
currently in effect (incorporated by reference to Exhibits
3.1 and 3.2 hereto).
4.2 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 (Commission File No. 0-14938)
for the year ended December 31, 1993).
4.3 Letter Amendment, dated October 14, 1996, to Note Agreements, dated
February 15, 1994 and June 29, 1995, between the Registrant and The
Prudential Insurance Company of America (incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-Q (Commission File No. 0-14938)
for the quarter ended September 29, 1996).
4.4 Letter Amendment, dated June 16, 1997, to Note Agreements, dated
February 15, 1994 and June 29, 1995, between the Registrant and The
Prudential Insurance Company of America (incorporated by reference to
Exhibit 4.1 to the Registrant's Statement on Form 8-K (Commission File
No. 0-14938) filed July 9, 1997).
4.5 Note Purchase and Private Shelf Agreement, dated as of June 29, 1995,
among the Company, The Prudential Insurance Company of America and the
affiliates of Prudential who become Purchasers as defined therein
(incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K
(Commission File No. 0-14938) filed December 2, 1997).
4.6 Amendment, dated as of May 10, 1999, to Note Agreements, dated February
15, 1994 and June 29, 1995, between the Registrant and The Prudential
Insurance Company of America (incorporated by reference to Exhibit 4.1
to the Registrant's Form 10-Q (Commission File No. 0-14938) for the
quarter ended June 26, 1999).
4.7 Private Shelf Agreement dated as of September 9, 1999, as amended as of
April 26, 2001, among the Company, The Prudential Insurance Company of
America and the affiliates of Prudential who became purchasers as
defined therein (incorporated by reference to Exhibit 4.1 to the
Registrant's Form 10Q (Commission File No 0-14938) for the quarter
ended June 30, 2001).
Pursuant to Regulation S-K, Item 601(b)(4)(iii), instruments evidencing
long term debt less than 10% of the Registrant's total assets have been omitted
and will be furnished to the Securities and Exchange Commission upon request.
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 (Commission File No. 0-14938) for the
year ended December 31, 1991).(2)
10.2 Lease dated February 23, 1987 between Stanley Interiors 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 (Commission File No. 0-14938) for the
year ended December 31, 1987).
10.3 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 Stanley Interiors Corporation, as lessee (incorporated
by reference to Exhibit 10.14 to the Registrant's Form 10-K (Commission
File No. 0-14938) for the year ended December 31, 1987).
10.4 The Stanley Retirement Plan, as restated effective January 1, 1989,
adopted April 20, 1995 (incorporated by reference to Exhibit 10.4 to
the Registrant's Form 10-K (Commission File No. 0-14938) for the year
ended December 31, 1995).(2)
10.5 Amendment No. 1, The Stanley Retirement Plan, effective December 31,
1995, adopted December 15, 1995 (incorporated by reference to Exhibit
10.5 to the Registrant's Form 10-K (Commission File No. 0-14938) for
the year ended December 31, 1995).(2)
10.6 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 (Commission File
No. 0-14938) for the year ended December 31, 1993).(2)
10.7 First Amendment to Supplemental Retirement Plan of Stanley Furniture
Company, Inc., effective December 31, 1995, adopted December 15, 1995
(incorporated by reference to Exhibit 10.7 to the Registrant's Form
10-K (Commission File No. 0-14938) for the year ended December 31,
1995).(2)
10.8 Stanley Interiors Corporation Deferred Compensation Capital Enhancement
Plan, effective January 1, 1986, as amended and restated effective
August 1, 1987 (incorporated by reference to Exhibit 10.12 to the
Registrant's Registration Statement on Form S-1(Commission File No.
0-14938), No. 33-7300).(2)
10.9 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 (Commission File
No. 0-14938) for the year ended December 31, 1991).(2)
10.10 Second Amended and Restated Revolving Credit Facility and Term Loan
Agreement dated February 15, 1994 (the "Second Amended and Restated
Credit Facility") between the Registrant, National Canada Finance
Corp., and the National Bank of Canada (incorporated by reference to
Exhibit 10.17 to Registrant's Form 10-K (Commission File No. 0-14938)
for the year ended December 31, 1994).
10.11 First Amendment to Second Amended and Restated Credit Facility dated as
of August 21, 1995 (incorporated by reference to Exhibit 10.14 to
Registrant's Form 10-K (Commission File No. 0-14938) for the year ended
December 31, 1995).
10.12 1992 Stock Option Plan (incorporated by reference to Registrant's
Registration Statement on Form S-8 No. 33-58396).(2)
10.13 1994 Stock Option Plan. (incorporated by reference to Exhibit 10.18 to
the Registrant's Form 10-K (Commission File No. 0-14938) for the year
ended December 31, 1994).(2)
10.14 1994 Executive Loan Plan. (incorporated by reference to Exhibit 10.19
to the Registrant's Form 10-K (Commission File No. 0-14938) for the
year ended December 31, 1994).(2)
10.15 Employment Agreement dated as of June 1, 1996, between Douglas I. Payne
and the Registrant (incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-Q (Commission File No. 0-14938) for the quarter
ended June 30, 1996).(2)
10.16 Amendment No. 1, dated as of October 1, 1996, to the Employment
Agreement, dated as of January 1, 1991, between the Registrant and
Albert L. Prillaman (incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-Q (Commission File No. 0-14938) for the quarter
ended September 29, 1996).(2)
10.17 Assignment and Transfer Agreement, dated as of October 8, 1996, between
National Canada Finance Corp. and National Bank of Canada relating to
the Second Amended and Restated Revolving Credit Facility (incorporated
by reference to Exhibit 10.1 to the Registrant's Form 10-Q (Commission
File No. 0-14938) for the quarter ended September 29, 1996).
10.18 Second Amendment, dated as of October 14, 1996, to the Second Amended
and Restated Revolving Credit Facility (incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-Q (Commission File No.
0-14938) for the quarter ended September 29, 1996).
10.19 Third Amendment, dated as of June 24, 1997, to the 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 (incorporated by reference to
Exhibit 99.4 to the Registrant's Form 8-K (Commission File No. 0-14938)
filed July 9, 1997).
10.20 Fourth Amendment, dated February 24, 1998, to the 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 (incorporated by reference to
Exhibit 10.1 to the Registrant's Form 10-Q (Commission File No.
0-14938) for the quarter ended March 28, 1998).
10.21 Fifth Amendment, dated as of March 10, 1999, to the Second Amended and
Restated Revolving Credit Facility and Term Loan Agreement dated
February 15, 1994 among the Registrant, National Canada Finance Corp.,
and the National Bank of Canada (incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-Q (Commission File No. 0-14938) for
the quarter ended March 27, 1999).
10.22 Employment Agreement dated as of April 1, 1999 between William A.
Sibbick, Jr. and the Registrant (incorporated by reference to Exhibit
10.3 to the Registrant's Form 10-Q (Commission File No. 0-14938) for
the quarter ended March 27, 1999).(2)
10.23 Employment Agreement dated as of April 1, 1999 between Kelly S. Cain
and the Registrant (incorporated by reference to Exhibit 10.4 to the
Registrant's Form 10-Q (Commission File No. 0-14938) for the quarter
ended March 27, 1999).(2)
10.24 Sixth Amendment, dated March 30, 2000, to the Second Amended and
Restated Revolving Credit Facility and Term Loan Agreement dated
February 15, 1994, among the Registrant, National Bank of Canada
(incorporated by reference to Exhibit 10.1 to the Registrant's Form
10-Q (Commission File No. 0-14938) for the quarter ended April 1,
2001).
10.25 Seventh Amendment, dated as of March 31, 2000, to the Second Amended
and Restated Revolving Credit Facility and Term Loan Agreement dated
February 15, 1994, among the Registrant, National Bank of Canada
(incorporated by reference to Exhibit 10.2 to the Registrant's Form
10-Q (Commission File No. 0-14938) for the quarter ended April 1,
2000).
10.26 2000 Incentive Compensation Plan (incorporate by reference to Exhibit A
to the Registrant's Proxy Statement (Commission File No. 0-14938) for
the special meeting of stockholders held on August 24, 2000).(2)
10.27 Amendment No. 2 to The Stanley Furniture Company, Inc. 1992 Stock
Option Plan dated as of July 1, 2000 (incorporated by reference to
Exhibit 10.2 to the Registrant's Form 10-Q (Commission File
No. 0-14938) for the quarter ended September 1, 2000).(2)
10.28 Amendment No. 1 to The Stanley Furniture Company, Inc. 1994 Stock
Option Plan dated as of July 1, 2000 (incorporated by reference to
Exhibit 10.3 to the Registrant's Form 10-Q (Commission File
No. 0-14938) for the quarter ended September 1, 2000).(2)
10.29 Employment Agreement made as of April 9, 2001 between Jeffrey R.
Scheffer and the Registrant (incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-Q (Commission File No. 0-14938) for
the quarter ended June 30, 2001). (2)
10.30 Option Agreement, dated April 30, 2001, between the Registrant and
Jeffery R. Scheffer (incorporated by reference to Exhibit 10.1 to the
Registrant's Form 10-Q (Commission File No. 0-14938) for the quarter
ended September 29, 2001. (2)
10.31 Eighth Amendment, dated as of December 18, 2001, to the Second Amended
and Restated Revolving Credit Facility and Term Loan Agreement dated
February 15, 1994, among the Registrant and the National Bank of
Canada.(1)
21 Listing of Subsidiaries:
Charter Stanley Foreign Sales Corporation, a United States Virgin
Islands Corporation.
23 Consent of PricewaterhouseCoopers LLP(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 19, 2002 By:/s/Albert L. Prillaman
--------------------------------------
Albert L. Prillaman
Chairman, and
Chief Executive Officer
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 Chairman, and Chief Executive February 19, 2002
- ------------------------- Officer, and Director
(Albert L. Prillaman) (Principal Executive Officer)
/s/Douglas I. Payne Executive Vice President - February 19, 2002
- ------------------------- Finance and Administration and
(Douglas I. Payne) Secretary (Principal Financial
and Accounting Officer)
/s/Robert G. Culp, III Director February 19, 2002
- -------------------------
(Robert G. Culp, III)
/s/David V. Harkins Director February 19, 2002
- -------------------------
(David V. Harkins)
/s/Edward J. Mack Director February 19, 2002
- -------------------------
(Edward J. Mack)
/s/Thomas L. Millner Director February 19, 2002
- -------------------------
(Thomas L. Millner)
/s/T. Scott McIlhenny, Jr. Director February 19, 2002
- -------------------------
(T. Scott McIlhenny, Jr.)
STANLEY FURNITURE COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2001
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Financial Statements Page
Report of Independent Accountants................................ F-2
Balance Sheets as of December 31, 2001 and 2000.................. F-3
Statements of Income for each of the three years in the period
ended December 31, 2001........................................ F-4
Statements of Changes in Stockholders' Equity for each of the
three years in the period ended December 31, 2001.............. F-5
Statements of Cash Flows for each of the three years in the period
ended December 31, 2001........................................ F-6
Notes to Financial Statements.................................... F-7
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for each of the
three years in the period ended December 31, 2001.............. S-1
Report of Independent Accountants
To the Board of Directors and Stockholders of
Stanley Furniture Company, Inc.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Stanley
Furniture Company, Inc. at December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Richmond, Virginia
January 18, 2002
STANLEY FURNITURE COMPANY, INC.
BALANCE SHEETS
(in thousands, except share data)
December 31,
-------------------------
2001 2000
-------- --------
ASSETS
Current assets:
Cash .......................................................... $ 1,955 $ 1,825
Accounts receivable, less allowances of $2,024 and $2,230...... 23,862 33,224
Inventories:
Finished goods............................................... 31,287 30,521
Work-in-process.............................................. 7,833 9,507
Raw materials................................................ 10,402 14,395
-------- --------
Total inventories.......................................... 49,522 54,423
Prepaid expenses and other current assets...................... 2,354 568
Deferred income taxes.......................................... 3,153 2,514
-------- --------
Total current assets......................................... 80,846 92,554
Property, plant and equipment, net............................... 66,708 70,455
Goodwill, less accumulated amortization of $4,368 and $4,032..... 9,072 9,408
Other assets..................................................... 6,377 6,789
-------- --------
Total assets................................................. $163,003 $179,206
======== ========
LIABILITIES
Current liabilities:
Current maturities of long-term debt........................... $ 6,839 $ 6,714
Accounts payable............................................... 11,841 19,507
Accrued salaries, wages and benefits........................... 9,060 10,779
Other accrued expenses......................................... 1,835 1,795
-------- --------
Total current liabilities.................................... 29,575 38,795
Long-term debt, exclusive of current maturities.................. 30,214 45,455
Deferred income taxes............................................ 11,251 10,860
Other long-term liabilities...................................... 4,669 4,619
-------- --------
Total liabilities.............................................. 75,709 99,729
-------- --------
STOCKHOLDERS' EQUITY
Common stock, $.02 par value, 10,000,000 shares authorized,
6,643,388 and 6,596,436 shares issued and outstanding........... 133 132
Capital in excess of par value................................... 17,537 18,160
Retained earnings................................................ 72,228 63,907
Stock option loans............................................... (2,604) (2,722)
-------- --------
Total stockholders' equity..................................... 87,294 79,477
-------- --------
Total liabilities and stockholders' equity.................. $163,003 $179,206
======== ========
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF INCOME
(in thousands, except per share data)
For the Years Ended
December 31,
-------------------------------------------
2001 2000 1999
---- ---- ----
Net sales...................................... $234,322 $283,092 $264,717
Cost of sales.................................. 181,356 214,499 196,631
Restructuring charge (Note 2).................. 2,290
-------- -------- --------
Gross profit................................. 50,676 68,593 68,086
Selling, general and administrative expenses... 30,482 33,656 33,796
Unusual charge (Note 3)........................ 2,800
Restructuring charge (Note 2).................. 733
-------- -------- --------
Operating income............................. 16,661 34,937 34,290
Other expense (income), net.................... 47 (82) 388
Interest expense............................... 4,007 4,003 3,478
-------- -------- --------
Income before income taxes................... 12,607 31,016 30,424
Income taxes................................... 4,286 11,476 11,211
-------- -------- --------
Net income................................... $ 8,321 $ 19,540 $ 19,213
======== ======== ========
Earnings per share:
Basic........................................ $ 1.26 $ 2.76 $ 2.70
======== ======== ========
Diluted...................................... $ 1.21 $ 2.63 $ 2.47
======== ======== ========
Weighted average shares outstanding:
Basic........................................ 6,610 7,076 7,119
======== ======== ========
Diluted...................................... 6,900 7,429 7,770
======== ======== ========
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For each of the three years in the period ended
December 31, 2001
(in thousands)
Common Stock Capital in Stock
------------------- Excess of Retained Option
Shares Amount Par Value Earnings Loans
------ ------ --------- -------- -----
Balance at January 1, 1999........... 7,070 $141 $37,073 $25,154
Purchase and retirement of stock..... (227) (4) (4,704)
Exercise of stock options............ 271 5 2,695
Net income........................... 19,213
----- ---- ------- ------- -------
Balance at December 31, 1999....... 7,114 142 35,064 44,367
Purchase and retirement of stock..... (870) (17) (19,739)
Exercise of stock options............ 352 7 2,835 $(3,078)
Stock option loan payments........... 356
Net income........................... 19,540
----- ---- ------- ------- -------
Balance at December 31, 2000....... 6,596 132 18,160 63,907 $(2,722)
Purchase and retirement of stock..... (86) (2) (1,971)
Exercise of stock options............ 133 3 1,348 (16)
Stock option loan payments........... 134
Net income........................... 8,321
----- ---- ------- ------- -------
Balance at December 31, 2001....... 6,643 $133 $17,537 $72,228 $(2,604)
===== ==== ======= ======= ========
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended
December 31,
--------------------------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Cash received from customers.................. $ 241,273 $ 281,949 $ 261,566
Cash paid to suppliers and employees.......... (212,169) (255,058) (220,642)
Interest paid................................. (4,011) (4,013) (3,527)
Income taxes paid, net........................ (5,290) (11,033) (9,620)
--------- --------- ---------
Net cash provided by operating activities... 19,803 11,845 27,777
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures.......................... (4,172) (8,768) (22,866)
Other, net.................................... (71) 42 (157)
--------- --------- ---------
Net cash used by investing activities....... (4,243) (8,726) (23,023)
--------- --------- ---------
Cash flows from financing activities:
Purchase and retirement of common stock....... (1,973) (19,754) (4,708)
Issuance of senior notes..................... 10,000
Repayment of senior notes..................... (6,715) (5,236) (5,135)
Proceeds from (repayment of) revolving
credit facility, net........................ (18,401) 19,001
Proceeds from exercise of stock options....... 940 459 1,299
Other, net.................................... 719 639 596
--------- --------- ---------
Net cash used by financing activities....... (15,430) (4,891) (7,948)
--------- --------- ---------
Net increase (decrease) in cash................. 130 (1,772) (3,194)
Cash at beginning of year....................... 1,825 3,597 6,791
--------- --------- ---------
Cash at end of year........................... $ 1,955 $ 1,825 $ 3,597
========= ========= =========
The accompanying notes are an integral part
of the financial statements.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Organization and Basis of Presentation
Stanley Furniture Company, Inc. (the "Company") is a leading designer
and manufacturer of wood furniture exclusively targeted at the upper-medium
price range of the residential market.
The Company operates in one business segment. Substantially all revenues
result from the sale of residential furniture products. Substantially all of the
Company's trade accounts receivable are due from retailers in this market, which
consists of a large number of entities with a broad geographical dispersion.
Revenue Recognition
Revenue is recognized upon shipment of product at which time risks and
rewards of ownership transfer to the buyer.
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. 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.
Capitalized Software Cost
The Company amortizes certain purchased computer software costs using the
straight-line method over the economic lives of the related products not to
exceed five years. Unamortized cost at December 31, 2001 and 2000 was $439,000
and $579,000, respectively.
Goodwill and Long-lived Assets
Goodwill is amortized on a straight-line basis over 40 years through
December 31, 2001. During 2001, the Financial Accounting Standards Board issued
SFAS No. 142 "Goodwill and Other Intangible Assets" which is required to be
adopted by the Company at the beginning of 2002. SFAS No. 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment at least annually. The Company
has reassessed the useful life of its goodwill and deemed it to have an
indefinite useful life; therefore, amortization will cease on January 1, 2002.
The Company has tested goodwill for impairment upon adoption of this new
standard and does not expect that an impairment will exist. The adoption of this
standard is expected to increase earnings per share by approximately $.03 in
2002.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. Summary of Significant Accounting Policies (continued)
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
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 maturities. At
December 31, 2001, the fair value approximated the carrying amount. The fair
value of trade receivables, trade payables and letters of credit approximate the
carrying amount because of the short maturity of these instruments.
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
Basic earnings per share is computed based on the average number of common
shares outstanding. Diluted earnings per share reflects the increase in average
common shares outstanding that would result from the assumed exercise of
outstanding stock options, calculated using the treasury stock method.
Stock Options
The Company applies Accounting Principles Board Opinion No. 25 in
accounting for stock options and discloses the fair value of options granted
as permitted by Statement of Financial Accounting Standards No. 123.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Changes in such estimates may affect amounts reported in
future periods.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. Restructuring Charge
In the fourth quarter of 2001, the Company approved a plan to close a
factory and consolidate production from this facility into other Company
facilities as a result of excess capacity created by expanded offshore sourcing.
Accordingly, the Company recorded a total restructuring charge of $3.0 million
pretax, or $.29 per diluted share, that included $2.0 million for fixed asset
write-downs (through higher depreciation charges due to shorter useful lives,
since the facility is not deemed impaired), $300,000 for inventory write-downs
and $733,000 for other exit costs. Approximately $2.3 million relating to asset
write-downs was recorded in cost of sales.
The following summarizes the 2001 restructuring charge (in thousands):
2001
Total Non-cash Reserve
Charges Charges Balance
Increased depreciation due to shorter lives... $1,990 $1,990
Inventory write-down.......................... 300 300
Other exit costs.............................. 733 $733
------ ------ ----
Total....................................... $3,023 $2,290 $733
====== ====== ====
3. Unusual Charge
An unusual charge of $1.8 million ($2.8 million pretax) or $.26 per
diluted share was recorded in the second quarter of 2001 to write-off amounts
due from a major customer, which declared bankruptcy and closed its stores.
4. Property, Plant and Equipment
Depreciable
lives (in thousands)
(in years) 2001 2000
---------- ---- ----
Land and buildings......................... 20 to 50 $ 42,763 $ 41,445
Machinery and equipment.................... 5 to 12 79,139 75,869
Office furniture and equipment............. 3 to 10 1,829 1,829
Construction in progress................... 610
-------- --------
Property, plant and equipment, at cost... 123,731 119,753
Less accumulated depreciation.............. 57,023 49,298
-------- --------
Property, plant and equipment, net....... $ 66,708 $ 70,455
======== ========
Land and buildings include the West End facility which is scheduled for
closure in March 2002. Accumulated depreciation includes $2.0 million of
increased depreciation resulting from the plant closing. See Note 2.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Long-Term Debt
(in thousands)
2001 2000
---- ----
7.28% Senior notes due March 15, 2004............... $12,857 $17,143
7.57% Senior note due June 30, 2005................. 5,025 6,025
7.43% Senior notes due November 18, 2007............ 8,571 10,000
6.94% Senior notes due May, 2011.................... 10,000
Revolving credit facility........................... 600 19,001
------- -------
Total............................................. 37,053 52,169
Less current maturities............................. 6,839 6,714
------- -------
Long-term debt, exclusive of current maturities... $30,214 $45,455
======= =======
In April 2001, the Company issued $10.0 million of 6.94% senior notes due
2011, in a private placement of debt.
The revolving credit facility provides for borrowings of up to $35 million
through August 2003, automatically renewable thereafter for one year periods
unless terminated by either party. Interest under the facility is payable
monthly at prime (4.75% on December 31, 2001) or, at the Company's option, the
reserve adjusted LIBOR plus .75% per annum (2.62% on December 31, 2001). The
Company utilizes letters of credit to collateralize certain insurance policies
and inventory purchases. Outstanding letters of credit at December 31, 2001,
were $2.0 million. At December 31, 2001, $33.3 million of additional borrowings
were available under the revolving credit facility.
The above loan agreements require the Company to maintain certain
financial covenants. The Company's ability to pay dividends with respect to its
common stock and to repurchase its common stock is restricted to $25.0 million
plus 50% of the Company's consolidated net earnings, adjusted for net cash
proceeds received by the Company from the sale of its stock and the amount of
payments for redemption, purchase or other acquisition of its capital stock,
subsequent to January 1, 1999. At December 31, 2001, these covenants limit funds
available to pay dividends and repurchase the Company's common stock to $25.0
million.
Annual debt service requirements are $6.8 million in 2002, $6.9 million in
2003, $7.0 million in 2004, $4.3 million in 2005 and $2.9 million in 2006.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. Income Taxes
The provision for income taxes consists of (in thousands):
2001 2000 1999
---- ---- ----
Current:
Federal................................... $3,980 $10,623 $10,435
State..................................... 554 1,116 881
------ ------- -------
Total current........................... 4,534 11,739 11,316
------ ------- -------
Deferred:
Federal................................... (228) (233) (93)
State..................................... (20) (30) (12)
------ ------- -------
Total deferred.......................... (248) (263) (105)
------ ------- -------
Income taxes.......................... $4,286 $11,476 $11,211
====== ======= =======
A reconciliation of the difference between the federal statutory income
tax rate and the effective income tax rate follows:
2001 2000 1999
---- ---- ----
Federal statutory rate...................... 35.0% 35.0% 35.0%
State tax, net of federal benefit........... 2.1 3.0 3.3
State tax credits and adjustments........... (2.7) (.7) (.9)
Goodwill.................................... .9 .4 .4
Life insurance.............................. (1.5) (.6) (.5)
Tax savings from foreign sales
corporation............................... (.4) (.3) (.3)
Other, net.................................. .6 .2 (.1)
---- ---- ----
Effective income tax rate................. 34.0% 37.0% 36.9%
==== ==== ====
The income tax effects of temporary differences that comprise deferred tax
assets and liabilities at December 31 follow (in thousands):
2001 2000
---- ----
Current deferred tax assets (liabilities):
Accounts receivable....................... $ 774 $ 568
Inventory................................. 110 (23)
Employee benefits......................... 2,247 1,944
Other accrued expenses.................... 22 25
------- -------
Net current deferred tax asset.......... $ 3,153 $ 2,514
======= =======
Noncurrent deferred tax liabilities:
Property, plant and equipment............. $10,241 $ 9,570
Employee benefits......................... 1,010 1,290
------- -------
Net noncurrent deferred tax liability... $11,251 $10,860
======= =======
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. Stockholders' Equity
The Company used $2.0 million of cash to purchase 86,000 shares of its
stock on the open market at an average price of $22.94 in 2001. For the three
years ending December 31, 2001, the Company has used $26.4 million of cash to
purchase 1.2 million shares of its common stock on the open market at an average
price of $22.36. At December 31, 2001, approximately $8.0 million remains of the
Board of Directors authorization to repurchase shares of the Company's common
stock.
In addition to its common stock, the Company's authorized capital includes
1,000,000 shares of "blank check" preferred stock. None was outstanding during
the three years ended December 31, 2001. The Board of Directors is authorized to
issue such stock in series and to fix the designation, powers, preferences,
rights, limitations and restrictions with respect to any series of such shares.
Such "blank check" preferred stock may rank prior to common stock as to dividend
rights, liquidation preferences or both, may have full or limited voting rights
and may be convertible into shares of common stock.
Basic and diluted earnings per share are calculated using the following
share data (in thousands):
2001 2000 1999
---- ---- ----
Weighted average shares outstanding
for basic calculation................. 6,610 7,076 7,119
Effect of stock options................... 290 353 651
----- ----- -----
Weighted average shares outstanding
for diluted calculation.......... 6,900 7,429 7,770
===== ===== =====
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Employee Stock Plans
The Company's stock option plans provide for the granting of stock options
up to an aggregate of 2,500,000 shares of common stock to key employees. The
exercise price may not be less than the fair market value of the Company's
common stock on the grant date. Granted options generally vest 20% annually. At
December 31, 2001, 168,002 shares were available for grant.
Activity for the three years ended December 31, 2001 follows:
Number Weighted-Average
of shares Exercise Price
--------- ----------------
Outstanding at January 1, 1999.......... 1,033,878 $ 5.47
Lapsed................................ (5,000) 5.73
Exercised............................. (270,762) 4.80
Granted............................... 5,700 19.13
---------
Outstanding at December 31, 1999........ 763,816 5.82
Lapsed................................ (5,000) 18.75
Exercised............................. (352,352) 4.98
Granted............................... 400,000 24.88
---------
Outstanding at December 31, 2000........ 806,464 15.56
Lapsed................................ (13,000) 26.03
Exercised............................. (132,952) 6.19
Granted............................... 550,000 27.88
---------
Outstanding at December 31, 2001........ 1,210,512 $22.07
=========
Summarized information regarding stock options outstanding and exercisable
at December 31, 2001 follows:
Outstanding Exercisable
---------------------------------- --------------------
Range of Average Average Average
Exercise Price Shares Life Price Shares Price
-------------- --------- ------ ------- ------- ------
Up to $10 241,812 3.7 $ 4.96 241,812 $ 4.96
$10 to $20 33,700 7.0 18.48 26,420 18.37
$20 to $30 935,000 9.6 26.63 278,000 26.13
--------- --- ------ ------- ------
1,210,512 8.3 $22.07 546,232 $16.38
========= === ====== ======= ======
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Employee Stock Plans (continued)
The estimated per share weighted-average fair value of stock options
granted during 2001, 2000 and 1999 was $14.70, $15.86 and $12.73, respectively,
on the date of grant. A risk-free interest rate of 5.1%, 5.0% and 6.5% for 2001,
2000 and 1999, respectively, and a 50% volatility rate with an expected life of
10 years was assumed in estimating the fair value for all three years.
The following table summarizes the pro forma effects assuming compensation
cost for such awards had been recorded based upon the estimated fair value (in
thousands, except per share data):
2001 2000 1999
------------------ -------------------- -------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
Net income................... $8,321 $6,381 $19,540 $18,661 $19,213 $18,902
Basic earnings per share..... 1.26 .97 2.76 2.64 2.70 2.65
Diluted earnings per share... 1.21 .93 2.63 2.52 2.47 2.44
During 2000, the Company loaned, in a non-cash transaction, an
officer/director $2.6 million to purchase 330,420 shares of the Company's
common stock. This recourse note is collateralized by the common stock
purchased and is payable on April 19, 2005, including accrued interest at 6.71%
per annum.
9. Employee Benefit Plans
Defined Contribution Plan
The Company maintains a defined contribution plan covering substantially
all of its employees and makes discretionary matching and profit sharing
contributions. The total plan cost, including employer contributions, was $1.5
million in 2001, $1.6 million in 2000 and $1.5 million in 1999.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Employee Benefit Plans (continued)
Pension Plans
Benefits do not accrue under the Company's pension plans after 1995. The
financial status of the plans at December 31 follows (in thousands):
2001 2000
----------------------- ------------------------
Stanley Supple- Stanley Supple-
Retirement mental Retirement mental
Plan Plan Plan Plan
------- ------- ------- -------
Change in benefit obligation:
Beginning benefit obligation.......... $14,407 $ 1,541 $14,539 $ 1,396
Interest cost......................... 1,091 104 1,131 101
Actuarial loss (gain)................. 675 (104) 588 86
Benefits paid......................... (1,853) (42) (2,358) (42)
Settlement cost....................... 402 507
------- ------- ------- -------
Ending benefit obligation......... 14,722 1,499 14,407 1,541
------- ------- ------- -------
Change in plan assets:
Beginning fair value of plan assets... 16,558 18,065
Actual return on plan assets.......... 718 851
Employer contributions................ 42 42
Benefits paid......................... (1,853) (42) (2,358) (42)
------- ------- ------- -------
Ending fair value of plan assets.. 15,423 16,558
------- ------- ------- -------
Funded status............................ 701 (1,499) 2,151 (1,541)
Unrecognized loss (gain)................. 4,444 3,480 (25)
------- ------- ------- -------
Prepaid (accrued) pension costs...... $ 5,145 $(1,499) $ 5,631 $(1,566)
======= ======= ======= =======
At December 31, 2001, and 2000, the Stanley Retirement Plan assets
included Company stock with a fair value of $580,000 and $1.7 million,
respectively.
Components of pension cost follow (in thousands):
2001 2000 1999
---- ---- ----
Interest cost.................... $ 1,195 $ 1,231 $ 1,274
Expected return on plan assets... (1,247) (1,334) (1,411)
Net amortization and deferral.... 45 57 333
------- ------- -------
Net (credit) cost............. (7) (46) 196
Settlement expense............... 468 492 409
------- ------- -------
Total expense................. $ 461 $ 446 $ 605
======= ======= =======
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Employee Benefit Plans (continued)
The assumptions used as of December 31 to determine the plans' financial
status and pension cost were:
2001 2000 1999
---- ---- ----
Discount rate for funded status... 7.25% 7.60% 8.00%
Discount rate for pension cost.... 7.60% 8.00% 6.65%
Return on assets.................. 7.50% 7.50% 7.50%
Postretirement Benefits Other Than Pensions
The Company provides health care benefits to eligible retired employees
between the ages of 55 and 65 and provides life insurance benefits to eligible
retired employees from age 55 until death. The plan's financial status at
December 31 follows (in thousands):
2001 2000
---- ----
Change in benefit obligation:
Beginning benefit obligation............... $ 3,152 $ 2,911
Service cost............................... 40 51
Interest cost.............................. 222 234
Actuarial loss............................. 436
Plan participants' contributions........... 149 156
Benefits paid.............................. (537) (636)
------- -------
Ending benefit obligation.............. 3,026 3,152
------- -------
Change in plan assets:
Beginning fair value of plan assets........
Employer contributions..................... 388 480
Plan participants' contributions........... 149 156
Benefits paid.............................. (537) (636)
------- -------
Ending fair value of plan assets.......
------- -------
Funded status................................ (3,026) (3,152)
Unrecognized net loss........................ 858 898
Unrecognized transition obligation........... 1,434 1,564
------- -------
Accrued benefit cost....................... $ (734) $ (690)
======= =======
Components of net periodic postretirement benefit cost were (in
thousands):
2001 2000 1999
---- ---- ----
Service cost.................................... $ 40 $ 51 $ 45
Interest cost................................... 222 234 212
Amortization of transition obligation........... 130 130 130
Amortization and deferral....................... 40 25 32
---- ---- ----
Net periodic postretirement benefit cost.. $432 $440 $419
==== ==== ====
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Employee Benefit Plans (continued)
The weighted-average discount rates used in determining the actuarial
present value of the projected benefit obligation were 7.60% in both 2001 and
2000 and 8.0% in 1999. The rate of increase in future health care benefit cost
used in determining the obligation for 2001 was 11.0% gradually decreasing to
5.0% beginning in 2011, for 2000 was 7.5% gradually decreasing to 5.5% beginning
in 2004 and for 1999 was 8% gradually decreasing to 5.5% beginning in 2004.
An increase or decrease in the assumed health care cost trend rate of one
percentage point in each future year would affect the accumulated postretirement
benefit obligation at December 31, 2001, by approximately $70,000 and the annual
postretirement benefit cost by approximately $12,000.
Deferred Compensation
The Company has a deferred compensation plan, funded with life insurance
policies, which permits certain management employees to defer portions of their
compensation and earn a fixed rate of return. The accrued liabilities relating
to this plan of $1.5 million at both December 31, 2001 and 2000, respectively,
are 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.
10. Leases
The Company leases showroom space and certain other equipment. Rental
expenses charged to operations were $1.4 million, $1.6 million and $1.5 million
in 2001, 2000 and 1999, respectively. Future minimum lease payments are
approximately as follows: 2002 - $824,000; 2003 - $579,000; 2004 - $483,000;
2005 - $11,000; and 2006 - $10,000.
STANLEY FURNITURE COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. Supplemental Cash Flow Information
(in thousands)
2001 2000 1999
---- ---- ----
Net income........................................ $ 8,321 $19,540 $19,213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 5,900 7,546 5,801
Amortization................................... 565 595 546
Unusual charge................................. 2,800
Restructuring charge........................... 3,023
Deferred income taxes.......................... (248) (263) (105)
Other, net..................................... 29 86 140
Changes in assets and liabilities:
Accounts receivable.......................... 6,563 (1,091) (2,992)
Inventories.................................. 4,600 (10,842) 2,933
Prepaid expenses and other current assets.... (2,300) (1,852) (201)
Accounts payable............................. (7,666) (3,629) 1,299
Accrued salaries, wages and benefits......... (1,719) (999) (1,075)
Other accrued expenses....................... 280 564 1,710
Other assets................................. 49 27 40
Other long-term liabilities.................. (394) 2,163 468
------- ------- -------
Net cash provided by operating activities.. $19,803 $11,845 $27,777
======= ======= =======
12. Quarterly Results of Operations (Unaudited)
(in thousands, except per share data)
-------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
2001 Quarters:
Net sales............... $65,109 $52,856 $60,007 $56,350
Gross profit............ 15,273 12,252 13,812 9,339(2)
Net income.............. 4,066 835(1) 3,236 184(2)
Net income per share:
Basic................ $ .62 $ .13(1) $ .49 $ .03(2)
Diluted.............. .59 .12(1) .47 .03(2)
2000 Quarters:
Net sales............... $70,973 $72,118 $71,440 $68,561
Gross profit............ 17,350 17,808 17,492 15,943
Net income.............. 5,049 5,111 5,065 4,313
Net income per share:
Basic................ $ .71 $ .70 $ .71 $ .64
Diluted.............. .66 .67 .68 .61
(1) Includes an unusual charge of $2.8 million pretax ($1.8 million net of
taxes or $.26 per diluted share) to write-off amounts due from a major
customer. See Note 3.
(2) Includes a restructuring charge of $3.0 million pretax ($2.0 million net
of taxes or $.29 per diluted share) for closure of a manufacturing
facility. See Note 2.
-----------------------------------
STANLEY FURNITURE COMPANY, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For each of the Three Years in the Period Ended December 31, 2001
(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
- --------------------------------------------------------------------------------
2001
Doubtful receivables... $1,277 $3,150 $2,971(a) $1,456
Discounts, returns,
and allowances....... 953 (385)(b) 568
------ ------ ------ ------
$2,230 $2,765 $2,971 $2,024
====== ====== ====== ======
2000
Doubtful receivables... $1,177 $ 549 $ 449(a) $1,277
Discounts, returns,
and allowances....... 873 80(b) 953
------ ------ ------ ------
$2,050 $ 629 $ 449 $2,230
====== ====== ====== ======
1999
Doubtful receivables... $1,163 $ 270 $ 256(a) $1,177
Discounts, returns,
and allowances....... 743 130(b) 873
------ ------- ------ ------
$1,906 $ 400 $ 256 $2,050
====== ======= ====== ======
- ------------------------------------
(a) Uncollectible receivables written-off, net of recoveries.
(b) Represents net increase (decrease) in the reserve.
S-1