-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMkahHk9CiS+w51N6InpXV6/rnyxZu2oeA1LHGJR744mn/rFQs+l/Ui5g8aiOczP FSRtF9QAKMISdhtHTZfalQ== 0000797465-97-000002.txt : 19970211 0000797465-97-000002.hdr.sgml : 19970211 ACCESSION NUMBER: 0000797465-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970207 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: STANLEY FURNITURE CO INC/ CENTRAL INDEX KEY: 0000797465 STANDARD INDUSTRIAL CLASSIFICATION: WOOD HOUSEHOLD FURNITURE, (NO UPHOLSTERED) [2511] IRS NUMBER: 541272589 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14938 FILM NUMBER: 97520546 BUSINESS ADDRESS: STREET 1: ROUTE 57 CITY: STANLEYTOWN STATE: VA ZIP: 24168 BUSINESS PHONE: 7036272000 MAIL ADDRESS: STREET 1: ROUTE 57 CITY: STANLEYTOWN STATE: VA ZIP: 24168 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY INTERIORS CORP DATE OF NAME CHANGE: 19920703 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 0-14938 STANLEY FURNITURE COMPANY, INC. (Exact name of Registrant as specified in its Charter) Delaware 54-1272589 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1641 Fairystone Park Highway, Stanleytown, VA 24168 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (540) 627-2000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.02 per share (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days: Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[ ] Aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price on January 27, 1997: $60,782,714 Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of January 27, 1997: Common Stock, par value $.02 per share 4,579,042 (Class of Common Stock) Number of Shares Documents incorporated by reference: Portions of the Registrant's Proxy Statement for its Annual Meeting of Shareholders scheduled for April 24, 1997 are incorporated by reference into Part III. TABLE OF CONTENTS Part I Page Item 1 Business............................. 3 Item 2 Properties........................... 9 Item 3 Legal Proceedings.................... 9 Item 4 Submission of Matters to a Vote of Security Holders................ 9 Part II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters.... 12 Item 6 Selected Financial Data.............. 13 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 15 Item 8 Financial Statements and Supplementary Data................. 18 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............... 18 Part III Items 10 through 13.............................. 19 Part IV Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K... 19 Signatures....................................... 25 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 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 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 in the United States that includes independent furniture stores, department stores, and national 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. Business Strategy and Competitive Advantages The Company's goal is to offer the best products and value in the upper-medium price range, and its business strategy is designed to provide superior quality, responsive customer service, and quick delivery. The Company believes its business strategy gives it and its customers competitive advantages. The key elements of the Company's business strategy include: Diversified Product Lines. The Company's product lines cover all major design categories, and include bedroom, dining room, youth bedroom (Young AmericaTM), living room tables, entertainment centers, home office (The OfficeTM), and upholstery. 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 furniture resource in the upper-medium price range. The Company has recently expanded its styles in youth and home office furniture to respond to growing consumer demand for these products. The Company intends to continue expanding its product styles with particular emphasis on upholstery, home office, and entertainment centers. 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. To emphasize this comparison the Company uses the marketing theme, "We Just Look Expensive." Broad Distribution Network. The Company has developed a diverse and extensive customer base that provides the Company with access to a variety of markets and flexibility to adapt to market changes. The Company believes this broad distribution network reduces its exposure to regional recessions. The Company sells its furniture domestically through approximately 60 independent sales representatives to independent furniture retailers and national and regional chain stores. Representative customers include Sears, J.C. Penney, Homestead House, Huffman Koos, Robb & Stucky, Nebraska Furniture Mart, Furnitureland South, and Haverty's. In addition, the Company has recently increased its emphasis on international distribution. Approximately 8% of the Company's sales in 1996 were to international customers. The Company has sold to over 3,600 customers during the past twelve months, and no single customer accounted for more than ten percent of sales. The Company intends to continue to pursue all channels of distribution compatible with its products and price range with particular emphasis on national and regional chains and international outlets. Efficient Manufacturing Operations. The Company's operating strategy is to continuously improve customer responsiveness, quality, and operating efficiency. The Company's manufacturing processes, which support its product and distribution strategy, focus on quick delivery while minimizing inventory levels and improving quality by producing smaller, more frequent, and cost- effective production runs. As a result, the Company shipped customer orders within 17.5 days on average during 1996 with average finished goods inventory turns of 6.3. The Company believes its ability to deliver its products within these time frames, while maintaining a high level of inventory turnover, is superior to that of its competitors. In addition, the Company believes its quality performance consistently outperforms the industry when measured by returns and allowances as reported by the American Furniture Manufacturers Association. Consistent with the Company's philosophy of providing its customers with a competitive advantage, the Company's quick delivery reduces its customers' inventory investment and price markdowns, and the high quality of the Company's products minimizes its customers' redelivery costs. Products and Styles The Company's diverse product lines and styles provide retailers a complete furniture resource for the purchase of upper- medium priced furniture and enables the Company to respond quickly to changing consumer preferences. The Company provides wood 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 Bedroom....................................... 30 Dining room................................... 28 Youth bedroom (Young America)................ 19 Occasional: Living room tables......................... 28 Entertainment centers...................... 18 Home office (The Office).................. 8 These product lines cover all major design categories including European traditional, contemporary/transitional, eighteenth century, and country/nostalgia designs. The Company introduced upholstered furniture products in the fall of 1994, allowing the Company to expand its product offerings in the upper-medium price range. The Company's entry into the upholstery business takes advantage of its existing distribution network without requiring a significant capital investment. The Company's upholstered products consist mainly of stationary sofas, sleepers, love seats, and chairs. Since initial introduction, the Company has expanded its upholstered products and currently offers a variety of frames and approximately 450 fabric selections. The Company designs and develops new product styles each year to replace discontinued items or styles and, if desired, 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 strives to introduce its new product styles at the fall and spring international furniture markets. Distribution The Company has developed a varied and extensive customer base that provides it with access to a variety of markets and the flexibility to adapt to market changes. The Company believes this broad network reduces its exposure to regional recessions. The Company sells its furniture domestically through approximately 60 independent sales representatives to independent furniture retailers and national and regional chain stores. In marketing its products to independent retailers, the Company utilizes a promotional incentive sales program, the "Stanley Preferred Retailer." There are more than 500 Stanley Preferred Retailers, which account for approximately half of the Company's sales. This program is designed to encourage independent retailers to commit retail floor space to the Company's products. The Stanley Preferred Retailer program is designed to be flexible and is adapted to the merchandising and marketing plans of retailers by accommodating geographic, style, and promotional preferences. To participate, a retailer must commit a specified amount of floor space to the Company's products and achieve specified sales volumes. In return the participating retailer receives product discounts during promotional periods and merchandising materials, among other incentives. 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, a nine-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 60,000 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. No single customer accounted for more than ten percent of the Company's sales in 1996. 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 operations complement its product and distribution strategy by emphasizing continuous improvement in quality and customer responsiveness while reducing costs. The Company's 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 operates manufacturing facilities in North Carolina and Virginia consisting of an aggregate of more than three million square feet. 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 through manufacturing rather than inventory. Since the Company ships customer orders on average in less than three 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 $23.6 million and $21.5 million at December 31, 1996 and 1995, respectively. Raw Materials The principal materials used by the Company in manufacturing its products include lumber, veneers, plywood, particle board, hardware, glue, finishing materials, glass products, laminates, fabrics, metals, frames, filling, and cushioning materials. The Company uses a variety of species of lumber, including cherry, oak, ash, poplar, pine, maple, and mahogany. The Company's five largest suppliers accounted for approximately 24% of its purchases in 1996. 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 fifteenth largest out of more than 600 furniture manufacturers in North America based on 1995 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. The markets in which the Company competes include a large number of relatively small manufacturers; however, certain competitors of the Company have greater sales volumes and greater 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, 1996, the Company employed approximately 2,700 associates. None of the Company's associates is represented by a labor union. The Company considers its relations with its associates to be good. Patents and Trademarks The trade names of the Company represent many years of continued business, and the Company believes such names are well recognized and associated with quality in the furniture industry. The Company owns a number of patents, trademarks, and licenses, none of which is considered to be material to the Company. 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 environmental regulations. Regulations issued in December 1995 under the Clean Air Act Amendments of 1990 may require the Company to reformulate certain furniture finishes or institute process changes to reduce emissions of hazardous volatile organic compounds. The furniture industry and its suppliers are attempting to develop water-based and other forms of complaint finishing materials to replace commonly-used organic-based finishes that are a major source of regulated emissions. The Company cannot at this time estimate the impact of these new standards on the Company's operations and future capital expenditure requirements, or the cost of compliance. 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. See, e.g. "Business Strategy and Competitive Advantages." These statements reflect the Company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include the cyclical nature of the furniture industry, fluctuations in the price for lumber which is the most significant raw material used by the Company, competition in the furniture industry, capital costs and general economic conditions. Item 2. Properties Set forth below is certain information with respect to the Company's principal properties. The Company believes that all these properties are well maintained and in good condition. The Company believes its manufacturing facilities are being efficiently utilized and that it could increase production at its facilities if required by customer demand. Each facility is focused on specific product lines to optimize efficiency. The Company estimates that its facilities are presently operating at approximately 85% of capacity, principally on a one-shift basis. 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. Approximate Owned Facility Size or Location Primary Use (Square Feet) Leased Stanleytown, VA Manufacturing 1,660,000 Owned and Corporate Headquarters 61,000 Owned West End, NC Manufacturing 470,000 Owned West End, NC Lumber Yard Leased(1) Lexington, NC Manufacturing 635,000 Owned Robbinsville, NC Manufacturing 540,000 Owned High Point, NC Showroom 60,000 Leased(2) (1) Lease expires May 31, 2007. (2) Lease expires October 31, 1999. Approximately 8,000 square feet is subleased. 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 December 31, 1996 are as follows: Name Age Position Albert L. Prillaman........ 51 Chairman, President and Chief Executive Officer C. William Cubberley, Jr... 56 Senior Vice President- Sales and Marketing Bobby I. Hodges............ 59 Senior Vice President- Manufacturing Douglas I. Payne........... 38 Senior Vice President- Finance and Administration, Treasurer and Secretary William A. Sibbick......... 40 Vice President-Product Development and Merchandising-Dining Room and Occasional Joe G. Bost................ 49 Vice President-Product Development and Merchandising-Upholstery Kelly S. Cain.............. 42 Vice President-Product Development and Merchandising-Bedroom and Youth Albert L. Prillaman has been President and Chief Executive Officer of the Company since December 1985 and Chairman of the Board of Directors since September 1988. Prior thereto, Mr. Prillaman had served as a Vice President of the Company and President of the Stanley Furniture division of the Company's predecessor since 1983, and in various executive and other capacities with the Stanley Furniture division of the predecessors of the Company since 1969. Mr. Prillaman is a director of Main Street Bank Group Incorporated. C. William Cubberley, Jr. has been Senior Vice President-Sales and Marketing of the Company since April 1995. He has been a Vice President of the Company since December 1990 and Senior Vice President-Sales and Marketing of the Stanley Furniture division since October 1988. Mr. Cubberley was Senior Vice President-Sales of the Stanley Furniture division from January 1986 to October 1988, when he became Senior Vice President - Sales and Marketing of the Stanley Furniture division. Bobby I. Hodges has been Senior Vice President-Manufacturing of the Company since April 1995. He has been a Vice President since June 1993. He was Senior Vice President-Manufacturing of the Stanley Furniture division from January 1986 until June 1993. He was Vice President-Manufacturing of the Stanley Furniture division from December 1983 until January 1986. Prior to that time, Mr. Hodges was employed by the Company in various positions related to manufacturing management. Douglas I. Payne has been Senior Vice President-Finance and Administration since December 1996. He was Vice President of Finance and Treasurer of the Company since September 1993. He was Vice President-Treasurer of the Company from December 1989 to September 1993, was Treasurer of the Company from June 1986 to December 1989 and he was Assistant Treasurer of the Company from August 1985 to June 1986. Mr. Payne has been Secretary of the Company since September 1988. William A. Sibbick has been Vice President-Product Development and Merchandising-Dining Room and Occasional since December 1996. He was Vice President - Product Development and Merchandising from April 1995 until December 1996. He was Vice President - Product Development from June 1993 until April 1995. He was Vice President-Senior Product Manager of the Stanley Furniture division from January 1992 until June 1993. Prior to that time, he had been Vice President-Product Manager since his employment in March 1989. Joe G. Bost has been Vice President-Product Development and Merchandising-Upholstery since December 1996. He was Vice President-Upholstery from April 1995 until December 1996. He was President of the Company's Norman's of Salisbury division since his employment in January 1993 until April 1995. Prior to joining the Company, Mr. Bost was Senior Vice-President of Sales, Marketing, Administration and Manufacturing of Hickorycraft, Inc., a manufacturer of upholstery and occasional tables, a position he held since 1987. Kelly S. Cain was elected Vice President-Product Development and Merchandising for bedroom product lines in December 1996. Since July 1985, he held various management positions in sales and marketing. 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 as reported by Nasdaq. High Low 1996 First Quarter.......................... $10.75 $ 8.00 Second Quarter......................... 12.13 10.00 Third Quarter.......................... 17.50 10.25 Fourth Quarter......................... 20.75 14.00 1995 First Quarter.......................... $ 9.50 $ 7.00 Second Quarter......................... 8.38 7.00 Third Quarter.......................... 8.75 7.00 Fourth Quarter......................... 9.00 7.75 The quotations reflect interdealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions. As of January 27, 1997, there were approximately 1,500 beneficial stockholders. The Company currently retains all earnings to finance the growth and development of its business. 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 with respect to the Common Stock is restricted, under certain covenants in loan agreements, to 50% of the Company's consolidated net earnings, adjusted for any net cash proceeds received by the Company from the sale of its stock and the amount of any payments for redemption, purchase or other acquisition of its capital stock, subsequent to January 1, 1994. As of December 31, 1996, $8.3 million was available for the payment of dividends under these restrictions. Item 6. Selected Financial Data Years Ended December 31, 1996 1995 1994 1993 1992 (in thousands, except per share data) Income Statement Data: Net sales...................... $201,905 $174,179 $184,342 $167,091 $166,501 Cost of sales: From products sold........... 153,332 137,621 148,453 134,972 132,984 Business interruption insurance (1).............. (5,036) Gross profit............. 48,573 36,558 35,889 37,155 33,517 Selling, general and admin- istrative expenses........... 30,403 26,454 26,483 25,976 25,117 Unusual items, net(2).......... (136) Restructuring credit (3)....... (2,078) Operating income........... 18,170 10,240 9,406 11,179 10,478 Other expense, net............. 616 433 444 1,346 686 Gain on insurance settlement (4).......................... (2,379) (2,186) Interest expense............... 3,344 3,534 2,969 3,048 7,058 Income from continuing operations before income taxes...................... 14,210 6,273 8,372 8,971 2,734 Income taxes................... 5,470 2,384 3,256 3,691 1,053 Income from continuing operations................. $ 8,740 $ 3,889 $ 5,116 $ 5,280 $ 1,681 Income from continuing operations per common share.. $ 1.71 $ .82 $ 1.08 $ 1.39 $ .56 Weighted average number of shares, fully diluted(5)..... 5,119 4,727 4,744 3,792 2,996 Supplementary Income From Con- tinuing Operations Per Common Share Data: Before non-recurring gain(6). $ 1.71 $ .82 $ .77 $ .90 $ .68 Non-recurring gain on insurance.................. .31 .29 As reported................ $ 1.71 $ .82 $ 1.08 $ 1.19 $ .68 Weighted average number of shares, fully diluted(7)..... 5,119 4,727 4,744 4,725 4,725 Balance Sheet Data: Cash........................... $ 8,126 $ 298 $ 301 $ 200 $ 649 Inventories.................... 40,239 40,167 39,905 37,684 33,343 Working capital................ 46,225 42,422 42,912 40,833 34,650 Total assets................... 141,510 134,551 124,519 124,859 114,302 Long-term debt including current maturities........... 39,350 41,067 33,395 32,647 48,582 Common stockholders' equity (5) (8)...................... 61,617 54,739 50,830 47,204 29,959
Selected Financial Data (continued) (1) In 1993, the Company recorded $5.0 million of business interruption insurance replacing the gross profit on lost sales due to the fire which occurred in February 1993 at its Stanleytown, Virginia facility. See Note 8 of the Notes to Financial Statements. (2) In 1995, the Company recognized a pretax credit of $1.1 million after it was released from a lease obligation at its previously closed Waynesboro, Virginia manufacturing facility. Also included is a pretax charge for a severance accrual. See Note 4 of the Notes to Financial Statements. (3) In 1991, the Company recorded pretax charges in anticipation of the closing of the Waynesboro, Virginia facility to eliminate excess capacity and the transfer of certain product lines to other manufacturing facilities. Operating income for 1992 includes a restructuring credit of $2.1 million from lower than anticipated costs of closing the Waynesboro facility. (4) In 1994, the Company recorded a pretax gain of $2.4 million as part of the final insurance settlement. Also, in 1993, a $2.2 million pretax gain was recorded since insurance proceeds exceeded the book value of leasehold improvements and equipment destroyed in the fire. See Note 8 of the Notes to Financial Statements. (5) In July 1993, the Company completed a public offering of 1,725,000 shares of common stock at $8.50 per share. The net proceeds of $13.1 million were used to reduce debt. Primary per share information is the same as fully diluted per share information, for all periods presented except for 1996. For this period, primary weighted average common shares were 4,945,000 and primary income from continuing operations per common share before gain on insurance settlement, net of income taxes was $1.77. (6) Income from continuing operations before insurance related gains was $3.7 million in 1994 and $4.3 million in 1993. (7) The 1993 and 1992 periods include the effect of pro forma adjustments for the July 1993 public offering of 1,725,000 shares of Common Stock, assuming the 1993 public offering occurred at the beginning of each year. (8) No dividends have been paid on the Common Stock during any of the years presented. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the Selected Financial Data and the Financial Statements and Notes thereto contained elsewhere herein. Results of Operations 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, 1996 1995 1994 Net sales................................ 100.0% 100.0% 100.0% Cost of sales............................ 75.9 79.0 80.5 Gross profit........................... 24.1 21.0 19.5 Selling, general and administrative expenses............................... 15.1 15.2 14.4 Unusual items, net....................... (.1) Operating income....................... 9.0 5.9 5.1 Other expenses, net...................... .3 .3 .3 Gain on insurance settlement............. (1.3) Interest expense......................... 1.7 2.0 1.6 Income from continuing operations before income taxes.................... 7.0 3.6 4.5 Income taxes............................. 2.7 1.4 1.7 Income from continuing operations...... 4.3% 2.2% 2.8%
1996 Compared to 1995 Net sales increased $27.7 million, or 15.9%, for the year ended December 31, 1996 compared to 1995. The increase was due principally to higher unit volume. Gross profit margin for 1996 increased to 24.1% from 21.0% for the comparable 1995 period. The higher gross profit margin was due primarily to stabilizing raw material costs, improved operating efficiencies, and the leveraging of fixed costs due to increased production levels. Selling, general and administrative expenses as a percentage of net sales were 15.1% and 15.2% for 1996 and 1995, respectively. These expenses increased for the 1996 period due principally to (i) higher selling cost resulting from increased sales and increased merchandising expenses, (ii) increased compensation expense pursuant to the Company's incentive compensation plan for key employees, and (iii) increased provision for bad debts. During the second quarter of 1995, the Company recognized an unusual item consisting of the net effect of (i) an accrual reversal as a result of being released from a lease obligation at its previously closed Waynesboro, Virginia facility and (ii) a charge for severance resulting from the resignation of a former officer. As a result of the above, operating income for 1996 increased to $18.2 million, or 9.0% of net sales, from $10.2 million, or 5.9% of net sales, in 1995. The Company's effective income tax rate was 38.5% and 38.0% for 1996 and 1995, respectively. 1995 Compared to 1994 Net sales decreased $10.2 million, or 5.5%, from 1994 levels due principally to lower unit volume, partially offset by the additional volume from upholstered products and higher average selling prices. Gross profit margin increased to 21.0% in 1995 from 19.5% in 1994. The higher gross profit margin was due principally to increased prices, a moderation in lumber cost increases, a more favorable product mix and the favorable impact from the purchase of the previously leased manufacturing facilities. The increase in gross profit was slightly offset by an increased overhead absorption rate resulting from lower output levels in 1995. Selling, general and administrative expenses were approximately the same for both years. However, as a percentage of net sales, these expenses increased to 15.2% in 1995 from 14.4% in 1994. The higher percentage was due principally to lower net sales and increased selling cost associated with new products. As a result of the above, operating income increased to $10.2 million, or 5.9% of net sales, in 1995 from $9.4 million, or 5.1% of net sales, in 1994. Interest expense for 1995 increased due principally to higher debt levels, resulting from the purchase of two previously leased manufacturing facilities in June 1995 and also due to slightly higher interest rates. The Company's effective tax rate in 1995 decreased to 38.0% from 38.9% in 1994. The lower tax rate in 1995 is principally due to an increase in non-taxable income and increased benefits from export sales. Financial Condition, Liquidity and Capital Resources During August 1995, the Company amended its $25.0 million revolving credit facility, extending its maturity date to August 1998. The interest rate under the facility was reduced to prime (8.25% on December 31, 1996) or, at the Company's option, the reserve adjusted LIBOR plus 1.0% per annum. In June 1995, the Company issued a $10.0 million 7.57% senior note due 2005 in a private placement of debt, and the proceeds were used to purchase two previously leased manufacturing facilities. In February 1994, the Company completed the private placement of $30.0 million of 7.28% senior notes due 2004. The proceeds from the senior notes were used to repay an existing term note and a portion of the revolving credit facility. At December 31, 1996, long-term debt including current maturities was $39.4 million, and approximately $22.8 million of additional borrowing capacity was available under the revolving credit facility. Annual debt service requirements are $725,000 in 1997, $5.1 million in both 1998 and 1999, $5.2 million in 2000 and $5.3 million in 2001. The Company believes that its financial resources are adequate to support its capital needs and debt service requirements. Operating Cash Flows The Company generated cash from operations of $15.3 million in 1996 principally as a result of higher sales and improved margins. The Company used $7.5 million of the cash generated in 1996 primarily to fund capital expenditures, reduce borrowings and repurchase common stock. During 1995, cash generated from operations of $6.6 million was used to reduce borrowings under the revolving credit facility and to fund capital expenditures in the normal course of business. The increase in cash generated from operations was due principally to lower tax payments of $1.0 million in 1995 compared to $4.5 million in 1994. Tax payments were higher in 1994 principally due to the timing of installment payments for 1993, resulting from the utilization of net operating losses carried forward from 1992. Also, refunds attributed to 1994 reduced tax payments for 1995. Cash generated from operations in 1995 also increased as a result of less cash paid to suppliers and employees due to reduced production levels. During 1994, cash provided by operations of $4.1 million and net borrowings of $1.2 million were used to fund capital expenditures. Operating cash flows in 1994 include proceeds of $4.6 million received from insurance in connection with the fire that occurred in February 1993 at the Company's Stanleytown, Virginia facility. Cash paid to suppliers in 1994 included costs of $2.7 million incurred in connection with the fire. Excluding the effect of the fire, cash was required in the 1994 period to support higher accounts receivable requirements reflecting higher sales levels, higher payments to suppliers and employees as a result of higher production levels and higher tax payments as discussed above. These higher payments in the 1994 period were partially offset by lower interest payments due principally to lower debt levels. Investing Activities Net cash used by investing activities was $4.0 million in 1996 compared to $14.7 million and $5.2 million in 1995 and 1994, respectively. In the 1995 period, proceeds from the issuance of senior notes and additional borrowings from the revolving credit facility were used to purchase two previously leased plant facilities for $10.5 million. The 1996 and 1994 expenditures, and the remaining expenditures for 1995, were primarily for plant and equipment and other assets in the normal course of business. Financing Activities Net cash used by financing activities was $3.5 million in 1996 compared to cash provided by financing activities of $8.1 million and $1.2 million in 1995 and 1994, respectively. In 1996, the purchase of common stock and the reduction in borrowings was financed by cash generated from operations. The 1995 borrowings provided cash for the purchase of the two previously leased plant facilities and other capital expenditures. Cash provided by financing activities in the 1994 period was used to fund capital expenditures. Discontinued Operations Beginning in 1991, the Company's Norman's of Salisbury fabric division ("Norman's") was reflected as a discontinued operation. In 1994, the Company ceased operations at Norman's and liquidated the division resulting in a $2.8 million ($4.5 million pretax) additional loss provision. In 1996, the Company was released from a lease obligation resulting from the purchase and concurrent resale of certain facilities at its former Norman's division. This obligation was accrued as part of the 1994 charge to discontinued operations. Accordingly, in 1996, the Company recorded an after tax gain of $246,000, or $.05 per share, as a partial reversal of this accrual. 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, 1997, 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, 1996 and 1995 Statements of Income - for each of the three years in the period ended December 31, 1996 Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1996 Statements of Cash Flows - for each of the three years in the period ended December 31, 1996 Notes to Financial Statements (2) Financial Statement Schedule: Schedule II - Valuation of Qualifying Accounts - for each of the three years in the period ended December 31, 1996 (b) The following reports on Form 8-K were filed by the Registrant during the last quarter of the period covered by this report: None. (c) Exhibits: 2.1 Agreement and Plan of Merger dated as of July 24, 1992 by and among the Registrant, Stanley Holding Corporation, Stanley Acquisition Corporation, the ML-Lee Acquisition Fund (Retirement Accounts) II, L.P., and the persons listed on Schedules I and II thereto (incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form S-4 No. 33-50050). 3.1 The Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-1, No. 33-7300). 3.2 The By-laws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, No. 33-7300). 3.3 Amendment adopted March 21, 1988 to the By-laws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Form 10-K (Commission File No. 0-14938) for the year ended December 31, 1987). 3.4 Amendments adopted February 8, 1993 to the By-laws of the Registrant (incorporated by reference to Exhibit 3.4 to the Registrant's Registration Statement on Form S-1 No. 33-57432). 3.5 Certificate of Stock Designation dated May 1, 1991 of the Registrant as modified by an Amendment to Certificate of Designation dated May 31, 1991 (incorporated by reference to Exhibit 3.6 to the Registrant's Form 10-K for the year ended December 31, 1991). 3.6 Certificate of Merger dated as of November 9, 1992 (incorporated by reference to Exhibit 3.6 to the Registrant's Statement on Form S-1 No. 33-57432). 3.7 Certificate of Amendment dated June 30, 1993. (incorporated by reference to Exhibit 3.7 to the Registrant's Form 10-K for the year ended December 31, 1994). 4.1 The Certificate of Incorporation and By-laws of the Registrant as currently in effect (incorporated by reference to Exhibits 3.1 through 3.7 hereto). 4.2 Registration Rights Agreement dated as of November 9, 1992 by and among the Registrant, ML-Lee Acquisition Fund, L.P., ML - Lee Acquisition Fund II, L.P., ML-Lee Acquisition Fund (Retirement Accounts) II, L.P., Lee Stockholders (as defined therein) and Management Stockholders (as defined therein) (incorporated by reference to Exhibit 4.3 to the Registrant's Statement on Form S-1 No. 33-57432). 4.3 Note Agreement dated February 15, 1994 between the Registrant and the Prudential Insurance Company of America. (incorporated by reference to Exhibit 4.6 to the Registrant's Form 10-K for the year ended December 31, 1993). 4.4 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 for the quarter ended September 29, 1996). 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 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 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 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 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 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 for the year ended December 31, 1993).(2) (2) Management contract or compensatory plan 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 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, No. 33-7300).(2) 10.9 Stanley 401(k) Retirement Savings Plan, as amended and restated effective January 1, 1996 (incorporated by reference to Exhibit 10.9 to the Registrant's Form 10-K for the year ended December 31, 1995).(2) 10.10 Management Agreement with Thomas H. Lee Company entered into September 29, 1988 by and among the Registrant, as successor to Interiors Acquisition Corporation, Stanley Holding Corporation, Stanley Acquisition Corporation and Thomas H. Lee Company (incorporated by reference to Exhibit (c)(9) to the Registrant's Rule 13e-3 Transaction Statement filed October 14, 1988). 10.11 Employment Agreement made as of January 1, 1991 between William Cubberley, Jr. and the Registrant (incorporated by reference to Exhibit 10.42 to the Registrant's Form 10-K for the year ended December 31, 1991).(2) 10.12 Split Dollar Insurance Agreement dated as of March 21, 1991 between Albert L. Prillaman and the Registrant (incorporated by reference to Exhibit 10.43 to the Registrant's Form 10-K for the year ended December 31, 1991).(2) 10.13 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 Registrant's Form 10-K for the year ended December 31 1994). 10.14 First Amendment to Second Amended and Restated Credit Facility dated as of August 21, 1995 (incorporated by reference to Registrant's Form 10-K for the year ended December 31, 1995). (2) Management contract or compensatory plan 10.15 1992 Stock Option Plan (incorporated by reference to Registrant's Registration Statement on Form S-8, No. 33- 58396).(2) 10.16 1994 Stock Option Plan. (incorporated by reference to Exhibit 10.18 to the Registrant's Form 10-K for the year ended December 31, 1994).(2) 10.17 1994 Executive Loan Plan. (incorporated by reference to Exhibit 10.19 to the Registrant's Form 10-K for the year ended December 31, 1994).(2) 10.18 Loan and Stock Purchase Agreement dated as of December 2, 1994 by Albert L. Prillaman. (incorporated by reference to Exhibit 10.20 to the Registrant's Form 10-K for the year ended December 31, 1994).(2) 10.19 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 for the quarter ended June 30, 1996).(2) 10.20 Amendment No. 1 to Employment Agreement between C. William Cubberley, Jr. and the Registrant, dated as of June 1, 1996 (incorporated by reference to Exhibit 10.2 to the Registrant's Form 10-Q for the quarter ended June 30, 1996).(2) 10.21 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 for the quarter ended September 29, 1996). 10.22 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 for the quarter ended September 29, 1996). 10.23 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 for the quarter ended September 29, 1996). (2) Management contract or compensatory plan 10.24 Amendment No. 1, dated as of November 1, 1996, between the Registrant and the Thomas H. Lee Company to the Management Agreement, dated September 29, 1988, among the Registrant's predecessors and the Thomas H. Lee Company (incorporated by reference to Exhibit 10.3 to the Registrant's Form 10-Q for the quarter ended September 29, 1996). 10.25 Amendment No. 2, dated as of November 13, 1996, between the Registrant and the Thomas H. Lee Company to the Management Agreement, dated September 29, 1988, among the Registrant's predecessors and the Thomas H. Lee Company (incorporated by reference to Exhibit 99.2 to the Registrant's Registration Statement on Form S-3 No. 333-14063). 10.26 Stock Purchase Agreement, dated as of November 13, 1996, between the Registrant and the Selling Stockholders listed on Schedule 1 thereto (incorporated by reference to Exhibit 99.1 to the Registrant's Registration Statement on Form S-3 No. 333-14063). 10.27 First Amendment to Loan and Stock Pledge Agreement, dated December 31, 1996, by Albert L. Prillaman.(1) 11 Schedule of Computation of Earnings Per Share.(1) 21 Listing of Subsidiaries: Charter Stanley Foreign Sales Corporation, a United States Virgin Islands Corporation. 23 Consent of Coopers & Lybrand L.L.P.(1) 27 Financial Data Schedule.(1) (1) Filed herewith (2) Management contract or compensatory plan SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. STANLEY FURNITURE COMPANY, INC. February 7, 1997 By: /s/Albert L. Prillaman Albert L. Prillaman President, Chief Executive Officer, and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/Albert L. Prillaman President, Chief February 7, 1997 (Albert L. Prillaman) Executive Officer, Chairman of the Board, and Director (Principal Executive Officer) /s/Douglas I. Payne Senior Vice President February 7, 1997 (Douglas I. Payne) -Finance and Administration, Treasurer and Secretary (Principal Financial and Accounting Officer) /s/David V. Harkins Director February 7, 1997 (David V. Harkins) /s/C. Hunter Boll Director February 7, 1997 (C. Hunter Boll) /s/Edward J. Mack Director February 7, 1997 (Edward J. Mack) STANLEY FURNITURE COMPANY, INC. ANNUAL REPORT ON FORM 10-K INDEX TO FINANCIAL STATEMENTS AND SCHEDULE FOR THE YEAR ENDED DECEMBER 31, 1996 Financial Statements Page Report of Independent Accountants......................... F- 2 Balance Sheets as of December 31, 1996 and 1995........... F- 3 Statements of Income for each of the three years in the period ended December 31, 1996................... F- 4 Statements of Changes in Stockholders' Equity for each of the three years in the period ended December 31, 1996...................................... F- 5 Statements of Cash Flows for each of the three years in the period ended December 31, 1996................... 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, 1996....................................... S- 1 F-1 To The Board of Directors and Stockholders Of Stanley Furniture Company, Inc. We have audited the financial statements and financial statement schedule of Stanley Furniture Company, Inc. listed in the index on page F-1. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stanley Furniture Company, Inc. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. Coopers & Lybrand L.L.P. Richmond, Virginia January 24, 1997 F-2 STANLEY FURNITURE COMPANY, INC. BALANCE SHEETS (in thousands, except share data) December 31, 1996 1995 ASSETS Current assets: Cash............................................. $ 8,126 $ 298 Accounts receivable, less allowances of $1,945 and $1,157.............................. 23,096 22,732 Inventories: Finished goods................................. 20,953 22,391 Work-in-process................................ 6,142 5,368 Raw materials.................................. 13,144 12,408 40,239 40,167 Prepaid expenses and other current assets................................. 486 435 Deferred income taxes............................ 1,886 2,420 Total current assets........................... 73,833 66,052 Property, plant and equipment, at cost............. 80,737 78,399 Less accumulated depreciation.................... 28,024 24,168 52,713 54,231 Goodwill, less accumulated amortization of $2,688 and $2,352............................. 10,752 11,088 Other assets....................................... 4,212 3,180 $141,510 $134,551 LIABILITIES Current liabilities: Current maturities of long-term debt............. $ 725 $ 650 Accounts payable................................. 14,630 13,637 Accrued salaries, wages and benefits............. 9,584 6,619 Other accrued expenses........................... 2,669 2,724 Total current liabilities...................... 27,608 23,630 Long-term debt, exclusive of current maturities.... 38,625 40,417 Deferred income taxes.............................. 11,673 12,180 Other long-term liabilities........................ 1,987 3,585 Total liabilities................................ 79,893 79,812 STOCKHOLDERS' EQUITY Common stock, $.02 par value, 10,000,000 shares authorized, 4,579,042 and 4,726,578 shares issued and outstanding.......... 91 94 Capital in excess of par value..................... 62,442 64,547 Deficit............................................ (916) (9,902) Total stockholders' equity....................... 61,617 54,739 $141,510 $134,551
The accompanying notes are an integral part of the financial statements. F-3 STANLEY FURNITURE COMPANY, INC. STATEMENTS OF INCOME (in thousands, except per share data) For the Years Ended December 31, 1996 1995 1994 Net sales......................... $201,905 $174,179 $184,342 Cost of sales..................... 153,332 137,621 148,453 Gross profit.................... 48,573 36,558 35,889 Selling, general and administrative expenses........................ 30,403 26,454 26,483 Unusual items, net................. (136) Operating income ................ 18,170 10,240 9,406 Gain on insurance settlement....... (2,379) Other expense, net................. 616 433 444 Interest expense................... 3,344 3,534 2,969 Income from continuing operations before income taxes............ 14,210 6,273 8,372 Income taxes....................... 5,470 2,384 3,256 Income from continuing operations.. 8,740 3,889 5,116 Discontinued operations, including provision for operating losses of $1,721 in 1994, net of income taxes............................ 246 (2,758) Net income .................... $ 8,986 $ 3,889 $ 2,358 Primary earnings per share: Continuing operations............ $ 1.77 $ .82 $ 1.08 Discontinued operations.......... .05 (.58) Net income..................... $ 1.82 $ .82 $ .50 Weighted average number of shares.. 4,945 4,727 4,744 Fully diluted earnings per share: Continuing operations............ $ 1.71 $ .82 $ 1.08 Discontinued operations.......... .05 (.58) Net income..................... $ 1.76 $ .82 $ .50 Weighted average number of shares.. 5,119 4,727 4,744
The accompanying notes are an integral part of the financial statements. F-4 STANLEY FURNITURE COMPANY, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For each of the three years in the period ended December 31, 1996 (in thousands) Adjust- Capital ment for in Minimum Common Stock Excess of Pension Shares Amount Par Value Liability Deficit Balance at January 1, 1994................. 4,722 $94 $64,381 $(1,122) $(16,149) Exercise of stock options.............. 5 66 Adjustment for minimum pension liability.... 1,122 ` Compensation expense related to executive loan plan............ 80 Net income............. 2,358 Balance at December 31, 1994............... 4,727 94 64,527 -0- (13,791) Compensation expense related to executive loan plan, net....... 20 Net income............. 3,889 Balance at December 31, 1995............... 4,727 94 64,547 -0- (9,902) Purchase and retirement of common stock...... (150) (3) (2,265) Compensation expense related to executive loan plan............ 133 Other.................. 2 27 Net income............. 8,986 Balance at December 31, 1996............... 4,579 $91 $62,442 $ -0- $ (916)
The accompanying notes are an integral part of the financial statements. F-5 STANLEY FURNITURE COMPANY, INC. STATEMENTS OF CASH FLOWS (in thousands) For the Years Ended December 31, 1996 1995 1994 Cash flows from operating activities: Cash received from customers............. $200,793 $175,189 $183,458 Cash paid to suppliers and employees..... (176,739) (164,022) (176,194) Interest paid............................ (3,483) (3,535) (2,464) Income taxes paid, net................... (5,259) (1,033) (4,463) Proceeds received on insurance coverage.. 4,625 Operating activities of discontinued operations............................. (867) Net cash provided by operating activities........................... 15,312 6,599 4,095 Cash flows from investing activities: Capital expenditures..................... (3,599) (14,225) (4,968) Purchase of other assets................. (370) (467) (650) Proceeds from sale of assets............. 13 25 108 Investing activities of discontinued operations............................. 357 Net cash used by investing activities.. (3,956) (14,667) (5,153) Cash flows from financing activities: Purchase and retirement of common stock.. (2,268) Issuance of senior notes................. 10,000 30,000 Repayment of senior note................. (650) Repayment of term note................... (16,569) Repayment of revolving credit facility, net.......................... (914) (2,320) (12,685) Other, net............................... 304 385 413 Net cash (used) provided by financing activities........................... (3,528) 8,065 1,159 Net increase (decrease) in cash............ 7,828 (3) 101 Cash at beginning of year.................. 298 301 200 Cash at end of year...................... $ 8,126 $ 298 $ 301
The accompanying notes are an integral part of the financial statements. F-6 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 furniture exclusively targeted at the upper-medium price range of the residential market. The Company operates predominantly in one business segment. Substantially all revenues result from the sale of home furnishings, primarily residential furniture products. Substantially all of the Company's trade accounts receivable are due from retailers in this market, which consist of a large number of entities with a broad geographical dispersion. Inventories Inventories are valued at the lower of cost or market. Cost for all inventories is determined using the first-in, first-out (FIFO) method. Property, Plant and Equipment Depreciation of property, plant and equipment is computed using the straight-line method based upon the estimated useful lives. 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, 1996 and 1995 was $720,000 and $473,000, respectively. Goodwill and Long-lived Assets Goodwill is being amortized on a straight-line basis over 40 years. The Company continually evaluates the existence of impairment of long-lived assets, including goodwill, on the basis of whether it is fully recoverable from projected, undiscounted net cash flows. Income Taxes Deferred income taxes are determined based on the difference between the financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense represents the change in the deferred tax asset/liability balance. Income tax credits are reported as a reduction of federal income tax expense in the year in which the credits are generated. F-7 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 1. Summary of Significant Accounting Policies (continued) 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, and at December 31, 1996, 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 Earnings per common share are based upon the weighted average number of shares outstanding. Outstanding stock options are treated as common stock equivalents for purposes of computing primary and fully diluted earnings per share. 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. Actual results could differ from those estimates. 2. Property, Plant and Equipment at December 31 Depreciable lives (in thousands) (in years) 1996 1995 Land and buildings............. 20 to 50 $33,694 $33,594 Machinery and equipment........ 5 to 12 45,120 43,127 Office furniture and equipment. 3 to 10 1,794 1,540 Construction in progress....... 129 138 $80,737 $78,399 F-8 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 3. Long-Term Debt at December 31 (in thousands) 1996 1995 7.28% Senior notes due March 15, 2004......... $30,000 $30,000 7.57% Senior note due June 30, 2005........... 9,350 10,000 Revolving credit facility..................... 914 Other......................................... 153 Total..................................... 39,350 41,067 Less current maturities....................... 725 650 $38,625 $40,417
During August 1995, the Company amended its $25.0 million revolving credit facility, extending its maturity date to August 1998. The interest rate under the facility was reduced to prime (8.25% on December 31, 1996) or, at the Company's option, the reserve adjusted LIBOR plus 1.0% per annum. As of December 31, 1996, approximately $22.8 million of additional borrowings were available under the revolving credit facility. The above loan agreements require the Company to maintain certain financial covenants and limit funds available ($8.3 million at December 31, 1996) to pay dividends and repurchase its common stock. Annual debt service requirements are $725,000 in 1997, $5.1 million in both 1998 and 1999, $5.2 million in 2000 and $5.3 million in 2001. The Company utilizes letters of credit to collateralize certain insurance policies and inventory purchases. Outstanding letters of credit at December 31, 1996 were $2.2 million. 4. Unusual Items During 1995, the Company was released from a lease obligation at its previously closed Waynesboro, Virginia manufacturing facility. Accordingly, the Company recognized a pretax credit of $1.1 million related to the reversal of an accrual set up in 1991 for the closing of the facility. Unusual items also included a pretax charge for severance resulting from the resignation of a former officer of the Company. F-9 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 5. Income Taxes The provision for income taxes on income from continuing operations consists of (in thousands): 1996 1995 1994 Current: Federal......................... $5,217 $1,750 $2,314 State........................... 952 412 669 Total current................. 6,169 2,162 2,983 Deferred: Federal......................... (567) 156 214 State........................... (132) 66 59 Total deferred.............. (699) 222 273 Income taxes................ $5,470 $2,384 $3,256
A reconciliation of the difference between the federal statutory income tax rate and the effective income tax rate on income from continuing operations at December 31 follows: 1996 1995 1994 Federal statutory rate.......... 35.0% 35.0% 35.0% State taxes, net of federal benefit....................... 3.8 5.0 5.0 Goodwill........................ 0.8 1.9 1.4 Life insurance.................. (0.7) (1.5) (0.9) Tax savings from foreign sales corporation................... (1.4) (0.8) (0.4) Tax credits..................... (0.2) (0.8) Other, net...................... 1.0 (1.4) (0.4) Effective income tax rate..... 38.5% 38.0% 38.9%
The income tax effects of temporary differences that comprise deferred tax assets and liabilities at December 31 follow (in thousands): 1996 1995 Current deferred tax assets (liabilities): Accounts receivable...................... $ 618 $ 379 Inventory................................ (521) (432) Employee benefits........................ 1,692 1,834 Other accrued expenses................... 97 639 Net current deferred tax asset......... $1,886 $2,420 Noncurrent deferred tax (assets) liabilities: Inventory................................ $ 500 Property, plant and equipment............ $11,229 11,552 Employee benefits........................ 444 215 Restructuring costs...................... (95) Other.................................... 8 Net noncurrent deferred tax liability.. $11,673 $12,180
F-10 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. Stockholders' Equity, Stock Options, and Related Matters The Company's stock option plans provide for the granting of stock options up to an aggregate of 700,000 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 vest 20% annually. At December 31, 1996 and 1995, options to purchase 385,443 and 263,023 shares, were exercisable with a weighted-average exercise price of $9.66 and $9.59, respectively. At December 31, 1996, 12,151 shares were available for grant. Activity for the three years ended December 31, 1996 follows: Number Weighted-Average of shares Exercise Price Outstanding at January 1, 1994....... 668,317 $12.46 Exercised.......................... (5,112) 12.46 Cancelled.......................... (602,834) 12.86 Granted............................ 609,629 10.00 Outstanding at December 31, 1994..... 670,000 9.86 Cancelled or lapsed................ (162,047) 9.84 Granted............................ 170,000 8.75 Outstanding at December 31, 1995..... 677,953 9.59 Lapsed............................. (15,216) 9.80 Exercised.......................... (2,500) 9.75 Granted............................ 20,000 14.78 Outstanding at December 31, 1996..... 680,237 $ 9.74
The exercise price of options outstanding at December 31, 1996, ranged from $8.50 to $16.38 with a weighted-average remaining contractual life of 8.2 years. The estimated per share weighted-average fair value of stock options granted during 1996 and 1995 was $8.00 and $6.00, respectively, on the date of grant. A risk-free interest rate of 6.8% and 6.2% for 1996 and 1995, respectively, and a 50% volatility rate with an expected life of 10 years for both 1996 and 1995, was assumed in estimating the fair value. F-11 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 6. Stockholders' Equity, Stock Options, and Related Matters (continued) 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): 1996 1995 As Reported Pro Forma As Reported Pro Forma Net Income.................. $8,986 $8,754 $3,889 $3,685 Primary earnings per share.. $ 1.82 $ 1.79 $ .82 $ .78 Fully diluted earnings per share..................... $ 1.76 $ 1.72 $ .82 $ .78
During 1994, the Company entered into a contractual agreement to issue 50,000 shares of common stock to the chief executive officer at $10 per share (the market price on the date of the agreement) in exchange for a non-recourse 7.6% note receivable. One tenth of the prinicpal amount plus accrued interest is due each December 31 until 1998 and the remaining principal is due January 2, 1999. The Company agreed to forgive the accrued interest plus one tenth of the initial principal amount each December 31, if the executive remains employed by the Company. During 1996, the Company agreed to forgive the outstanding loan balance over the remaining three years, subject to the executive's continued employment. Compensation expense was $308,000, $98,000 and $160,000 for 1996, 1995 and 1994, respectively. 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, 1996. 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. During 1996, a secondary offering of 1,000,000 shares of the Company's common stock owned by the ML-Lee Acquisition Fund, L.P. and certain affiliates of the Thomas H. Lee Company was completed. In connection with the offering, the Company incurred approximately $325,000 of expenses. The Company also purchased 150,000 shares of its common stock, which were subject to the over-allotment option from the secondary offering, for an aggregate consideration of $2.3 million. F-12 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. Employee Benefit Plans Defined Contribution Plan The Company maintains a defined contribution plan covering substantially all of its employees. Discretionary matching and profit sharing contributions for 1996 totaled $856,000. Prior to 1996, the Company made no contributions. Pension Plans Benefits were accrued under the Company's pension plans through 1995. The Stanley Retirement Plan covers substantially all employees hired prior to 1995. The Supplemental Plan is unfunded and covers certain key employees hired prior to 1989. Stanley Retirement Plan assets are invested in fixed income and equity securities. Benefits under both plans are based on average compensation and service through 1995. The financial status of the plans at December 31 follows (in thousands): 1996 1995 Stanley Supple- Stanley Supple- Retirement mental Retirement mental Plan Plan Plan Plan Accumulated benefit obligation: Vested...................... $(14,334) $ (990) $(14,641) $ (897) Nonvested................... (1,636) (1,127) (97) Accumulated benefit obligation $(15,970) $ (990) $(15,768) $ (994) Projected benefit obligation.. $(15,970) $ (990) $(15,768) $ (994) Plan assets at fair value..... 16,116 15,842 Plan assets more than (less than) projected benefit obligation.................. 146 (990) 74 (994) Unrecognized (gain) loss...... 3,994 (62) 3,206 Prepaid (accrued) pension costs..................... $ 4,140 $(1,052) $ 3,280 $ (994)
F-13 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. Employee Benefit Plans (continued) Components of net periodic pension cost follow (in thousands): 1996 1995 1994 Service cost.................... $ 774 $ 904 Interest cost................... $1,295 1,256 1,315 Actual return on assets......... (618) (1,320) (109) Net amortization and deferral... (55) 965 (589) Loss on curtailment............. 31 $ 622 $1,706 $1,521
The assumptions used as of December 31 to determine the plans' financial status and pension cost were: 1996 1995 1994 Discount rate for funded status..... 7.75% 7.67% 9.00% Discount rate for pension cost...... 7.67% 9.00% 7.75% Salary progression.................. N/A 5.00% 5.00% Return on assets.................... 7.50% 7.75% 8.00%
A reduction in the discount rate of 0.25% would create an additional minimum pension liability of $4.5 million and would result in a charge to stockholders' equity of $2.7 million, net of deferred taxes. 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. Substantially all of the Company's employees are eligible for these benefits after satisfying service and age provisions. Employees who elect benefits at retirement contribute to the cost of coverage. The plan is unfunded. F-14 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 7. Employee Benefit Plans (continued) The plan's financial status at December 31 follows (in thousands): 1996 1995 Retirees.................................... $(3,049) $(4,875) Fully eligible active plan participants..... (254) (232) Other active plan participants.............. (300) (714) Total accumulated postretirement benefit obligation...................... (3,603) (5,821) Unrecognized net loss....................... 741 2,752 Unrecognized transition obligation.......... 2,084 2,272 Net accrued postretirement benefit cost... $ (778) $ (797)
Components of net periodic postretirement benefit cost were (in thousands): 1996 1995 1994 Service cost.............................. $ 35 $ 93 $ 74 Interest cost............................. 274 510 242 Amortization of transition obligation..... 130 134 359 Amortization and deferral................. 33 182 21 $ 472 $ 919 $696
The weighted-average discount rates used in determining the actuarial present value of the projected benefit obligation were 7.75%, 7.67% and 9.0% for 1996, 1995 and 1994, respectively. The rate of increase in future health care benefit cost used in determining the obligation for 1996 was 10% gradually decreasing to 5.5% beginning in 2003; for 1995 was 12% gradually decreasing to 6% beginning in 2002; and, for 1994 was 15% gradually decreasing to 7% beginning in 2005. Increasing the assumed health care cost trend rate by one percentage point in each future year would increase the accumulated postretirement benefit obligation at December 31, 1996 by $94,000 and the annual postretirement benefit cost by $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 $1.4 million at December 31, 1996 and 1995, 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. F-15 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 8. Insurance Claim Accounting In February 1993, a fire at the Stanleytown, Virginia facility damaged approximately 12% of the Company's total manufacturing facilities. The Company's insurance coverage provided for the complete replacement of the damaged building (which was leased), equipment and inventory, and reimbursement for business interruption losses. In 1994, the Company reached a final insurance settlement and recorded a gain of $2.4 million. 9. Discontinued Operations Beginning in 1991, the Company's Norman's of Salisbury fabric division ("Norman's") was reflected as a discontinued operation. In 1994, the Company ceased operations at Norman's and liquidated the division resulting in a $2.8 million ($4.5 million pretax) additional loss provision. In 1996, the Company was released from a lease obligation resulting from the purchase and concurrent resale of certain facilities at its former Norman's division. This obligation was accrued as part of the 1994 charge to discontinued operations. Accordingly, in 1996, the Company recorded an after tax gain of $246,000, or $.05 per share, as a partial reversal of this accrual. 10. Leases The Company leased a substantial portion of its facilities under operating leases through June 1995, at which time the Company purchased these facilities. Rental expenses charged to operations were $970,000, $1.4 million and $1.9 million in 1996, 1995 and 1994, respectively. The Company continues to lease showroom space and certain other equipment. Future minimum lease payments, net of subleases, are approximately as follows: 1997 - $762,000; 1998 - $545,000; 1999 -$409,000; and thereafter - $12,000. 11. Related Party Transactions At December 31, 1996, approximately 35% of the Company's common stock is owned by the ML-Lee Acquisition Fund, L.P. (the "Majority Stockholder") and certain affiliates of the Thomas H. Lee Company. The Company has entered into a management agreement with an affiliate of its Majority Stockholder. Fees paid pursuant to this agreement amounted to $241,000 in 1996, and $250,000 in both 1995 and 1994. F-16 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 12. Supplemental Cash Flow Information (in thousands) 1996 1995 1994 Net income......................... $ 8,986 $ 3,889 $ 2,358 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation................... 4,774 4,503 3,996 Amortization................... 426 416 425 Other, net..................... 463 118 249 Loss on disposal of fabric division..................... (246) 2,758 Changes in assets and liabilities: Accounts receivable.......... (364) 1,028 (1,011) Inventories.................. (72) (262) (2,221) Prepaid expenses and other current assets............. (1,347) (1,030) (892) Insurance claim receivable... 2,029 Operating assets of discontinued operations.... (867) Accounts payable............. 993 (1,022) (922) Accrued salaries, wages and benefits................... 2,965 (500) 585 Other accrued expenses....... (479) 137 (632) Deferred income taxes........ (134) 222 189 Other assets................... 29 25 22 Other long-term liabilities.... (682) (925) (1,971) Net cash provided by operating activities....... $15,312 $ 6,599 $ 4,095
F-17 STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) 13. Quarterly Results of Operations (Unaudited) The Company's unaudited quarterly results of operations were as follows (in thousands, except per share data): First Second Third Fourth Fiscal 1996 Quarters: Net sales................... $48,190 $47,282 $52,550 $53,882 Gross profit................ 10,769 11,087 12,778 13,939 Net income from continuing operations................ 1,583 1,704 2,615 2,839 Net income from continuing operations per share, fully diluted............. .33 .36 .52 .56 Fiscal 1995 Quarters: Net sales................... $44,989 $38,163 $44,706 $46,321 Gross profit................ 9,101 8,050 9,095 10,312 Net income.................. 794 719 998 1,378 Net income per share, fully diluted............. .17 .15 .21 .29
F-18 STANLEY FURNITURE COMPANY, INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For each of the Three Years in the Period Ended December 31, 1996 (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 1996 Doubtful receivables... $ 600 $ 860 $128(a) $1,332 Discounts, returns, and allowances....... 557 56(b) 613 $1,157 $ 916 $128 $1,945 1995 Doubtful receivables... $ 528 $ 302 $230(a) $ 600 Discounts, returns, and allowances....... 405 152(b) 557 $ 933 $ 454 $230 $1,157 1994 Doubtful receivables... $ 472 $ 195 $139(a) $ 528 Discounts, returns, and allowances....... 355 50 (b) 405 $ 827 $ 245 $139 $ 933
(a) Uncollectible receivables written off, net of recoveries. (b) Represents net increase in required reserve. S-1 EX-11 2 Exhibit 11 STANLEY FURNITURE COMPANY, INC. SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE (In thousands, except per share data) 1996 1995 Net income used in calculating primary and fully diluted earnings per common share: Continuing operations..................... $8,740 $3,889 Discontinued operations................... 246 Net income.............................. $8,986 $3,889 Primary earnings per common share: Weighted average shares outstanding....... 4,722 4,727 Add shares issuable assuming exercise of stock options........................ 223 Weighted average number of shares used in calculating primary earnings per common share........... 4,945 4,727 Primary earnings per common share: Continuing operations..................... $ 1.77 $ .82 Discontinued operations................... .05 Primary earnings per common share....... $ 1.82 $ .82 Fully diluted earnings per common share: Weighted average shares outstanding....... 4,722 4,727 Add shares issuable assuming excercise of stock options........................ 397 Weighted average number of shares used in calculating fully diluted earnings per common share........... 5,119 4,727 Fully diluted earnings per common share: Continuing operations..................... $ 1.71 $ .82 Discontinued operations................... .05 Fully diluted earnings per common share. $ 1.76 $ .82
EX-23 3 EXHIBIT 23 Consent of Independent Accountants We consent to the incorporation by reference in the registration statements of Stanley Furniture Company, Inc. on Form S-8 (File Nos. 33-58396, 33-67218, 33-58797 and 33-56721) of our report dated January 24, 1997, on our audits of the financial statements and financial statement schedule of Stanley Furniture Company, Inc. as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K. Coopers & Lybrand L.L.P. Richmond, Virginia February 6, 1997 EX-27 4
5 STANLEY FURNITURE COMPANY, INC. ARTICLE 5 FINANCIAL DATA SCHEDULE FOR PERIOD ENDING DECEMBER 31, 1996 12-MOS DEC-31-1996 DEC-31-1996 8126 0 23096 1945 40239 73833 52713 4774 141510 27608 0 0 0 91 61526 141510 201905 201905 153332 183735 616 860 3344 14210 5470 8740 (246) 0 0 8986 1.82 1.76
EX-10 5 FIRST AMENDMENT TO LOAN AND STOCK PLEDGE AGREEMENT THIS FIRST AMENDMENT TO LOAN AND STOCK PLEDGE AGREEMENT (as amended, supplemented or modified from time to time, this "First Amendment") is dated as of December 31, 1996 and is between ALBERT L. PRILLAMAN, (the "Borrower"), and STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Company"). WHEREAS, the Borrower and the Company entered into a Loan and Stock Agreement dated December 2, 1994 (the "Loan Agreement") pursuant to which the Borrower borrowed $500,000.00 from the Company with a Promissory Note (the "Original Note"), and WHEREAS, the Borrower and the Company wish to revise the repayment terms of the Original Note to accelerate the repayment of principal, THEREFORE, IT IS AGREED: 1. The Borrower shall execute the Amended Promissory Note substantially in the form of Exhibit A hereto (the "Amended Note"). All amounts previously paid or forgiven on the Original Note shall be credited toward the Amended Note. Effective upon the execution of the Amended Note, the Original Note shall be null and void. 2. The Loan Agreement is amended by adding the following new Section 2.7 Section 2.7. Deferral of Forgiveness. (a) For any taxable year, if the Company determines that the forgiveness of any amounts under Sections 2.1, 2.2 or 2.4 or the payment of tax under Section 2.6 would result in the Borrower receiving applicable employee remuneration for which no deduction would be allowed to the Company under Code Section 162(m), the Company will compute the maximum amount that may be forgiven, with the associated tax payment provided under Section 2.6, without the Borrower receiving "applicable employee remuneration" for which no deduction would be allowed to the Company (the "Maximum Deductible Amount"). Notwithstanding any other provision of this Agreement, the Company shall forgive only an amount of borrowing which, with the associated tax payment provided under Section 2.6, equals the Maximum Deductible Amount. Any amount of borrowing that would have been forgiven absent this Section 2.7(a) shall be forgiven on the first day of the next taxable year. (b) For any taxable year after the application of Section 2.7(a), if the Company determines that the forgiveness of any amounts under Sections 2.1, 2.2 or 2.4 or the payment of tax under Section 2.6 would be result in the imposition of the excise tax imposed under Code Section 4999 on "excess parachute payments", the Company will compute the amount that would be forgiven or be payable to the Borrower if the total amounts that are forgiven or are payable to the Borrower by the Company under this Agreement are considered "parachute payments" for purposes of Code Section 280G were limited to the maximum amount that may be forgiven or paid to the Borrower under Code Sections 280G and 4999 without imposition of the excise tax (the "Capped Amount"). Notwithstanding any other provision of this Agreement, the Company shall forgive only an amount of borrowing which, with the associated tax payment provided under Section 2.6, equals the Capped Amount. Any amount of borrowing that would have been forgiven absent this Section 2.7(b) shall be forgiven on the first day of the next taxable year. 3. In all other respects, the Loan Agreement shall continue in full force and effect. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the day and year first above written. ALBERT L. PRILLAMAN s/Albert L. Prillaman STANLEY FURNITURE COMPANY, INC. By s/Douglas I. Payne Title: Senior Vice President- Finance and Administration 1701\STANLEY\LOANPLAN\LOANAGM3.AMD Exhibit A ___________________________________ AMENDED PROMISSORY NOTE ************** Stanleytown, Virginia $500,000.00 Date: December 31, 1996 FOR VALUE RECEIVED, the maker, Albert L. Prillaman, promises to pay to the order of Stanley Furniture Company, Inc. (the "Company"), the principal sum of $500,000.00, together with interest from the date of this note at the rate of 7.60% per annum, compounded semi-annually, pursuant to the Loan And Stock Pledge Agreement dated as of December 2, 1994 between the Borrower and the Company (as the same may be amended from time to time, the "Loan Agreement"), in installments as hereinafter provided. This Amended Promissory Note replaces the Promissory Note dated December 2, 1994 from the maker to the Company pursuant to the terms of the First Amendment to the Loan Agreement. The interest due under this Amended Promissory Note shall be paid in annual installments beginning December 31, 1994 and continuing until this note is fully paid. The principal shall be paid in annual installments as follows: Principal Date $ 50,000.00 December 31, 1994 $ 50,000.00 December 31, 1995 $133,333.00 December 31, 1996 $133,333.00 December 31, 1997 $133,334.00 December 31, 1998 If not sooner paid, the entire indebtedness shall be due and payable on the earlier of December 31, 1998 or 90 days after the death of the Borrower. This Note is payable at the corporate office of the Company or at such other place as the Company may designate in writing from time to time. The right of prepayment is reserved, in whole or in part, at any time without penalty. If any payment due hereunder is not made within ten calendar days following the date on which such payment was due, or if the maker is declared or adjudicated to be bankrupt by a United States Bankruptcy Court, the maker shall be in default hereunder. Presentment, demand, protest, and notices of dishonor and of protest are hereby waived by the maker. The maker agrees that he will pay, to the extent permitted by law, all expenses incurred in collecting this obligation, including reasonable attorney's fees, should this obligation or any part thereof not be paid as and when due. This Note and the obligations evidenced hereby are without recourse to the Borrower and the Borrower shall have no personal liability with respect hereto and no holder hereof shall have any right to assets of the Borrower except as provided in the Loan Agreement. This Note is the Note referred to in the Loan Agreement. Terms defined in the Loan Agreement are used herein with the same meanings. Reference is made to the Loan Agreement for provisions for the waiver of certain payments, and the acceleration of the maturity hereof. This note shall be governed by, and construed in accordance with, the substantive laws of the Commonwealth of Virginia. Albert L. Prillaman -----END PRIVACY-ENHANCED MESSAGE-----