-----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, WRzx9rKkRDq2yZvbqDu0s8yo+OE5D3zWn6aBpDINiofjuynfX8KLqK57pE9A3pa4 lS9vNrEYaMCVUBQWigthuQ== 0000797465-02-000015.txt : 20021015 0000797465-02-000015.hdr.sgml : 20021014 20021015095936 ACCESSION NUMBER: 0000797465-02-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020928 FILED AS OF DATE: 20021015 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14938 FILM NUMBER: 02788367 BUSINESS ADDRESS: STREET 1: 1641 FAIRYSTONE PK HWY CITY: STANLEYTOWN STATE: VA ZIP: 24168 BUSINESS PHONE: 5406272000 MAIL ADDRESS: STREET 1: 1641 FAIRYSTONE PARK HGWY CITY: STANLEYTOWN STATE: VA ZIP: 24168 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY INTERIORS CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: STANLEY FURNITURE CO INC DATE OF NAME CHANGE: 19930908 10-Q 1 sept0210q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the ------- Securities Exchange Act of 1934 For the quarterly period ended September 28, 2002 or ------------------ Transition report pursuant to Section 13 or 15(d) of the ------- Securities Exchange Act of 1934 For the transition period from to . ---------- ---------- Commission file number 0-14938. STANLEY FURNITURE COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 54-1272589 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1641 Fairystone Park Highway, Stanleytown, Virginia 24168 (Address of principal executive offices, Zip Code) (276) 627-2000 ------------------------- --------------- (Registrant's telephone number, including area code) ------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 14, 2002. Class Number Common Stock, par value $.02 per share 6,519,717 Shares PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
STANLEY FURNITURE COMPANY, INC. BALANCE SHEETS (in thousands, except share data) (unaudited) September 28, December 31, 2002 2001 ------------ ------------ ASSETS Current assets: Cash .................................................... $ 8,598 $ 1,955 Accounts receivable, less allowances of $2,701 and $2,024 31,753 23,862 Inventories: Finished goods ........................................ 35,724 31,287 Work-in-process ....................................... 7,055 7,833 Raw materials ......................................... 12,816 10,402 -------- -------- Total inventories ................................. 55,595 49,522 Prepaid expenses and other current assets ............... 1,035 2,354 Deferred income taxes ................................... 3,153 3,153 -------- -------- Total current assets .................................. 100,134 80,846 Property, plant and equipment, net .......................... 60,522 66,708 Goodwill .................................................... 9,072 9,072 Other assets ................................................ 5,540 6,377 -------- -------- Total assets .......................................... $175,268 $163,003 ======== ======== LIABILITIES Current liabilities: Current maturities of long-term debt .................... $ 6,914 $ 6,839 Accounts payable ........................................ 17,818 11,841 Accrued salaries, wages and benefits .................... 11,943 9,060 Other accrued expenses .................................. 4,248 1,835 -------- -------- Total current liabilities ............................. 40,923 29,575 Long-term debt, exclusive of current maturities ............. 24,129 30,214 Deferred income taxes ....................................... 11,251 11,251 Other long-term liabilities ................................. 4,419 4,669 -------- -------- Total liabilities ..................................... 80,722 75,709 -------- -------- STOCKHOLDERS' EQUITY Common stock, $.02 par value, 10,000,000 shares authorized, 6,519,717 and 6,643,388 shares issued and outstanding ..... 131 133 Capital in excess of par value .............................. 13,594 17,537 Retained earnings ........................................... 80,849 72,228 Stock option loans .......................................... (28) (2,604) -------- -------- Total stockholders' equity .............................. 94,546 87,294 -------- -------- Total liabilities and stockholders' equity ............ $175,268 $163,003 ======== ========
The accompanying notes are an integral part of the financial statements.
STANLEY FURNITURE COMPANY, INC. STATEMENTS OF INCOME (unaudited) (in thousands, except per share data) Three Months Nine Months Ended Ended -------------------- --------------------- September September September September 28, 2002 29, 2001 28, 2002 29, 2001 --------- --------- --------- --------- Net sales ......................................... $61,338 $60,007 $176,180 $177,972 Cost of sales ..................................... 46,386 46,195 133,287 136,635 Restructuring and related charges (credit) (Note 2) (209) 3,548 ------- ------- -------- -------- Gross profit .................................. 15,161 13,812 39,345 41,337 Selling, general and administrative expenses ...... 7,990 7,856 23,799 22,791 Unusual charge (Note 3) ........................... 2,800 ------- ------- -------- -------- Operating income .............................. 7,171 5,956 15,546 15,746 Other expense (income), net ....................... (13) 6 (167) 24 Interest expense .................................. 767 1,010 2,347 3,095 ------- ------- -------- -------- Income before income taxes .................... 6,417 4,940 13,366 12,627 Income taxes ...................................... 2,278 1,704 4,745 4,490 ------- ------- -------- -------- Net income .................................... $ 4,139 $ 3,236 $ 8,621 $ 8,137 ======= ======= ======== ======== Earnings per share: Basic ......................................... $ .63 $ .49 $ 1.30 $ 1.23 ======= ======= ======== ======== Diluted ....................................... $ .62 $ .47 $ 1.26 $ 1.18 ======= ======= ======== ======== Weighted average shares outstanding: Basic ......................................... 6,554 6,615 6,631 6,611 ======= ======= ======== ======== Diluted ....................................... 6,681 6,884 6,822 6,914 ======= ======= ======== ========
The accompanying notes are an integral part of the financial statements.
STANLEY FURNITURE COMPANY, INC. STATEMENTS OF CASH FLOWS (unaudited) (in thousands) Nine Months Ended --------------------- September September 28, 2002 29, 2001 --------- --------- Cash flows from operating activities: Cash received from customers ............................................. $167,824 $177,346 Cash paid to suppliers and employees ..................................... (150,676) (159,382) Interest paid ............................................................ (2,367) (3,033) Income taxes paid, net ................................................... (1,142) (4,927) -------- -------- Net cash provided by operating activities ............................ 13,639 10,004 -------- -------- Cash flows from investing activities: Capital expenditures ..................................................... (605) (3,883) Other, net ............................................................... 696 -------- -------- Net cash provided (used) by investing activities ..................... 91 (3,883) -------- -------- Cash flows from financing activities: Issuance of senior notes ................................................. 10,000 Repayment of revolving credit facility, net .............................. (600) (10,001) Repayment of senior notes ................................................ (5,410) (5,286) Purchase and retirement of common stock .................................. (3,066) (1,973) Proceeds from exercised stock options .................................... 1,194 543 Proceeds from insurance policy loans ..................................... 795 719 -------- -------- Net cash used by financing activities ................................ (7,087) (5,998) -------- -------- Net increase in cash ..................................................... 6,643 123 Cash at beginning of period .............................................. 1,955 1,825 -------- -------- Cash at end of period ................................................ $ 8,598 $ 1,948 ======== ======== Reconciliation of net income to net cash provided by operating activities: Net income ............................................................... $ 8,621 $ 8,137 Depreciation and amortization ........................................ 4,477 4,815 Unusual charge ....................................................... 2,800 Restructuring and related charges .................................... 1,755 Deferred income taxes ................................................ (209) Loss on sale of assets ............................................... 31 28 Changes in assets and liabilities: Accounts receivable .............................................. (7,891) (750) Inventories ...................................................... (6,073) (827) Prepaid expenses and other current assets ........................ 1,863 (1,050) Accounts payable ................................................. 5,977 (2,921) Accrued salaries, wages and benefits ............................. 2,883 (751) Other accrued expenses ........................................... 2,413 913 Other assets ......................................................... (167) (146) Other long-term liabilities .......................................... (250) (35) -------- -------- Net cash provided by operating activities ................................ $ 13,639 $ 10,004 ======== ========
The accompanying notes are an integral part of the financial statements. STANLEY FURNITURE COMPANY, INC. NOTES TO FINANCIAL STATEMENTS 1. Preparation of Interim Unaudited Financial Statements The financial statements of Stanley Furniture Company, Inc. (referred to as "Stanley" or the "Company") have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of management, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to SEC rules and regulations. However, management believes that the disclosures made are adequate for a fair presentation of results of operations and financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. It is suggested that these financial statements be read in conjunction with the financial statements and accompanying notes included in Stanley's latest Annual Report on Form 10-K. 2. Restructuring and Related Charges The Company approved a plan in the fourth quarter of 2001 to close its former West End, North Carolina facility and consolidate production from this facility into other Company facilities as a result of excess capacity created by expanded offshore sourcing. Manufacturing operations were phased out during the first quarter of 2002 with certain warehousing and other activities completed in the second quarter of 2002, including the sale of real estate. During the third quarter of 2002, the Company determined that $209,000 of restructuring related inventory reserves were no longer required and credited the amount back to income. As a result of the above, the Company recorded net restructuring and related charges of $3.5 million for the nine month period ending September 28, 2002. The restructuring accrual at September 28, 2002, consists of a lease obligation and severance cost.
The following summarizes the 2002 restructuring and related charges (in thousands): Reserve Total Reserve Balance Total Non-cash Cash Balance 12/31/01 Charges Charges Payments 9/28/02 -------- ------- ------- -------- ------- Increased depreciation due to shorter lives $1,755 $1,755 Other exit costs .......................... $ 733 1,793 $1,972 $ 554 ------ ------ ------ ------ ------ Total ................................... $ 733 $3,548 $1,755 $1,972 $ 554 ====== ====== ====== ====== ======
3. Unusual Charge An unusual charge of $1.8 million ($2.8 million pretax) or $.26 per diluted share was recorded in 2001 to write-off receivables due to the liquidation of a former customer.
4. Property, Plant and Equipment (in thousands) September December 31, 28, 2002 2001 --------- --------- Land and buildings .......................... $37,830 $42,763 Machinery and equipment ..................... 73,988 79,139 Office fixtures and equipment ............... 1,701 1,829 Construction in progress .................... 200 ------- ------- Property, plant and equipment, at cost .. 113,719 123,731 Less accumulated depreciation ............... 53,197 57,023 ------- ------- $60,522 $66,708 ======= =======
5. Long-Term Debt (in thousands) September December 31, 28, 2002 2001 --------- -------- Installment Notes: 7.28% senior notes due through March 15, 2004 ..... $ 8,572 $12,857 7.57% senior note due through June 30, 2005 ....... 3,900 5,025 7.43% senior notes due through November 18, 2007 .. 8,571 8,571 6.94% senior notes due through May 3, 2011 ........ 10,000 10,000 Revolving credit facility ............................ 600 ------- ------- Total ............................................. 31,043 37,053 Less current maturities .............................. 6,914 6,839 ------- ------- $24,129 $30,214 ======= =======
In August 2002, the revolving credit facility was amended to decrease available borrowings from $35.0 million to $25.0 million. 6. Stock Option Plan The Company maintains a stock option plan under which holders of certain exercisable stock options may obtain interest-bearing loans from the Company to facilitate their exercise of stock options. During the second quarter of 2002, approximately 86,000 shares of the Company's common stock was surrendered by the Chief Executive Officer to the Company in payment of a $2.6 million outstanding loan plus accrued interest. As of September 28, 2002, approximately $28,000 in stock option loans are outstanding. 7. Earnings Per Common Share Basic earnings per common share are based upon the weighted average shares outstanding. Outstanding stock options are treated as potential common stock for purposes of computing diluted earnings per share. Basic and diluted earnings per share are calculated using the following share data (in thousands):
Three Months Nine Months Ended Ended -------------------- -------------------- September September September September 28, 2002 29, 2001 28, 2002 29, 2001 -------- --------- -------- --------- Weighted average shares outstanding for basic calculation .................. 6,554 6,615 6,631 6,611 Add: Effect of stock options .............. 127 269 191 303 ----- ----- ----- ----- Weighted average shares outstanding, adjusted for diluted calculation ... 6,681 6,884 6,822 6,914 ===== ===== ===== =====
8. Goodwill On January 1, 2002 the Company adopted Statement of Financial Accounting Standard No. 142, ("SFAS 142"), "Goodwill and Other Intangible Assets". In accordance with SFAS 142, the Company discontinued goodwill amortization and tested goodwill of $9.1 million for impairment as of January 1, 2002 determining that no transitional impairment loss was necessary. The Company will continue to test goodwill for impairment at least annually. The following table presents net income on a comparable basis, after adjustment for goodwill amortization (in thousands, except per share amounts):
Three Months Nine Months Ended Ended ------------------------- -------------------------- September September September September 28, 2002 29, 2001 28, 2002 29, 2001 ------------ ----------- ------------ ------------ Net income: As reported ...................... $4,139 $3,236 $8,621 $8,137 Goodwill amortization (net of tax) 84 252 ------ ------ ------ ------ Adjusted net income ............ $4,139 $3,320 $8,621 $8,389 ====== ====== ====== ====== Basic earnings per share: As reported ...................... $ .63 $ .49 $ 1.30 $ 1.23 ====== ====== ====== ====== As adjusted ...................... $ .63 $ .50 $ 1.30 $ 1.27 ====== ====== ====== ====== Diluted earnings per share: As reported ...................... $ .62 $ .47 $ 1.26 $ 1.18 ====== ====== ====== ====== As adjusted ...................... $ .62 $ .48 $ 1.26 $ 1.21 ====== ====== ====== ======
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations --------------------------------------------------------------- Results of Operations The following table sets forth the percentage relationship to net sales of certain items included in the Statements of Income:
Three Months Nine Months Ended Ended ------------------ -------------------- September September September September 28, 2002 29, 2001 28, 2002 29, 2001 -------- --------- --------- --------- Net sales ................................ 100.0% 100.0% 100.0% 100.0% Cost of sales ............................ 75.6 77.0 75.7 76.8 Restructuring and related charges (credit) (.3) 2.0 ----- ----- ----- ----- Gross profit ........................... 24.7 23.0 22.3 23.2 Selling, general and administrative expenses ............................... 13.0 13.1 13.5 12.8 Unusual charge ........................... 1.6 ----- ----- ----- ----- Operating income .................... 11.7 9.9 8.8 8.8 Other income ............................. .1 Interest expense ......................... 1.3 1.7 1.3 1.7 ----- ----- ----- ----- Income before income taxes ............. 10.4 8.2 7.6 7.1 Income taxes ............................. 3.7 2.8 2.7 2.5 ----- ----- ----- ----- Net income ............................... 6.7% 5.4% 4.9% 4.6% ===== ===== ===== =====
Net sales increased $1.3 million, or 2.2%, for the three month period ended September 28, 2002 from the comparable 2001 period. For the nine month period, net sales decreased $1.8 million, or 1.0%, from the comparable 2001 period. The increase for the three month period was due primarily to higher unit volume. The nine month period decrease resulted from lower unit volume and lower average selling prices. The Company expects fourth quarter 2002 sales to approximate third quarter 2002 sales, resulting in an increase in the high single digits on a percentage basis over fourth quarter 2001. Gross profit margin, excluding restructuring and related charges, for the three and nine month periods of 2002 increased to 24.4% and 24.3%, respectively, from 23.0% and 23.2% for the comparable 2001 periods. The increase was due to cost savings resulting from closing the Company's former West End, North Carolina facility discussed below, lower raw material cost and offshore sourcing initiatives. Selling, general and administrative expenses for the three and nine month periods of 2002 as a percentage of net sales was 13.0% and 13.5%, respectively, compared to 13.1% and 12.8% for the comparable 2001 periods. Selling, general and administrative expenditures increased in the nine month period of 2002 primarily as a result of higher selling expenses related to new product introductions. As a result of the above, operating income before restructuring and unusual charges, as a percentage of net sales was 11.4% and 10.8%, respectively, for the three and nine month periods of 2002, compared to 9.9% and 10.4%, respectively, for each of the comparable 2001 periods. Interest expense for the three and nine month periods of 2002 decreased due primarily to lower average debt levels. The Company's effective income tax rate was 35.5% for the 2002 nine month period and 34.0% for total year 2001. The increase in the effective tax rate was due primarily to higher state income taxes. In December 2001, the Company announced a plan to expand offshore sourcing, realign manufacturing capacity and significantly lower operating costs. Integration of selected imported component parts and finished items in its product line will lower costs, provide design flexibility and offer a better value to its customers. This initiative created excess capacity in the Company's manufacturing facilities. Accordingly, the Company closed its West End, North Carolina factory and consolidated production from this facility into other Company facilities. Closing the West End facility is expected to reduce costs by $4 to $5 million annually and has eliminated approximately 13%, or 400, of the Company's employees. Manufacturing operations at the West End facility were completely phased out during the first quarter of 2002. In the second quarter of 2002, the Company completed all closing related activities including the sale of real estate. As a result of the West End facility closing, the Company recorded total restructuring and related charges of $6.6 million, compared to a previously anticipated range of $7 to $9 million. During the third quarter of 2002, the Company determined that $209,000 of restructuring related inventory reserves were no longer required and credited the amount back to income. For the nine month period of 2002, net restructuring and related charges of $3.5 million were recorded. These charges consisted of asset write-downs (through increased depreciation), relocation of equipment and inventory, operating inefficiencies and severance cost. The restructuring accrual at September 28, 2002 of $554,000 consists of a lease obligation for real estate and severance cost. Financial Condition, Liquidity and Capital Resources Cash generated from operations was $13.6 million in the first nine months of 2002 compared to $10.0 million in the 2001 period. Working capital increased $3.0 million in the 2002 nine month period compared to an increase of $2.5 million in the comparable 2001 period. Inventories increased $6.0 million from year end levels due primarily to normal seasonal trends. Lower tax and interest payments also contributed to the increase in cash generated from operations. The Company anticipates making a $2.0 million to $3.0 million contribution to its defined benefit plan in the fourth quarter of 2002. Net cash provided by investing activities was $91,000 in the 2002 period compared to cash used by investing activities of $3.9 million in the 2001 period. The Company received net proceeds of $696,000 from the sale of real estate at its former West End, North Carolina facility. The decline in capital requirements for 2002 is due to the relocation of a significant portion of the machinery and equipment from the West End facility to other Company facilities. As a result, capital expenditures in 2002 are anticipated to be approximately $1.5 million, down from $4.2 million in 2001. Net cash used by financing activities was $7.1 million in the 2002 period compared to $6.0 million in the 2001 period. In the 2002 period, cash from operations and proceeds from the exercise of stock options provided cash for senior debt payments, repayment of the revolving credit facility and purchase and retirement of the Company's common stock. During the third quarter, the Company purchased 158,500 shares of its stock in the open market at an average price of $19.34. At September 28, 2002, approximately $4.9 million remains authorized by the Company's Board of Directors to repurchase shares of the Company's common stock. In the second quarter of 2002, 85,914 shares of the Company's common stock were surrendered by the Chief Executive Officer to the Company in payment of a $2.6 million outstanding loan and accrued interest, relating to stock option exercise in 2000. In the 2001 period, cash from operations and the issuance of $10 million in senior notes provided cash for reduction of borrowings under the revolving credit facility, senior debt payments, the purchase and retirement of the Company's common stock and capital expenditures. At September 28, 2002, long-term debt including current maturities was $31.0 million. Debt service requirements are $1.4 million remaining in 2002, $6.9 million in 2003, $7.0 million in 2004, $4.3 million in 2005, and $2.9 million in 2006. In August 2002, the revolving credit facility was amended to decrease available borrowings from $35.0 million to $25.0 million. As of September 28, 2002, approximately $24.2 million of additional borrowings were available under the Company's revolving credit facility. The Company believes that its financial resources are adequate to support its capital needs and debt service requirements. Critical Accounting Policies The SEC recently issued release FR-60 related to "Disclosure of Critical Accounting Policies". Management has chosen accounting policies that are necessary to accurately and fairly report the Company's operational and financial position. Below are the critical accounting policies that involve the most significant judgments and estimates used in the preparation of the Company's financial statements. Allowance for doubtful accounts - The Company maintains an allowance for doubtful receivables for estimated losses resulting from the inability of our trade customers to make required payments. We provide an allowance for specific customer accounts where collection is doubtful and also provide a general allowance for other accounts based on historical collection and write-off experience. Judgment is critical because some customers have experienced financial difficulties. If their financial condition were to worsen, additional allowances might be required. Inventory valuation - Inventory is valued at the lower of cost or market. Cost for all inventories is determined using the first-in, first-out (FIFO) method. We evaluate our inventory to determine excess or slow moving items based on current order activity and projections of future demand. For those items identified, we estimate their market value or net sales value based on current trends. An allowance is created for those items having a net sales value less than cost. This process recognizes projected inventory losses when they become evident rather than at the time they are sold. Long-lived assets - Property and intangible assets are reviewed for possible impairment when events indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods. Our depreciation and amortization policies reflect judgments on the estimated useful lives of assets. Restructuring and related charges - The Company has provided restructuring and related charges for closure of the West End, North Carolina facility. These charges require judgment about the net realizable value of assets and other exit costs to be incurred. If actual amounts differ from the estimates adjustments will be required in future statements of income. For example, in the second quarter of 2002 the charge for increased depreciation was reduced by approximately $195,000 because actual proceeds from the disposal of West End's assets exceeded the anticipated amount and in the third quarter of 2002 the Company determined that $209,000 of restructuring related inventory reserves were no longer required and credited the amount back to income. The Company does not have transactions or relationships with "special purpose" entities, and the Company does not have any off balance sheet financing other than normal operating leases primarily for showroom and computer equipment. Forward-Looking Statements Certain statements made in this report are not based on historical facts, but are forward-looking statements. These statements can be identified by the use of forward-looking terminology such as "believes," "estimates," "expects," "may," "will," "should," or "anticipates" or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect the Company's reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include competition in the furniture industry including competition from lower-cost foreign manufacturers, successful implementation of expanded offshore sourcing, the cyclical nature of the furniture industry, fluctuations in the price for lumber which is the most significant raw material used by the Company, credit exposure to customers in the current economic climate, capital costs and general economic conditions. Any forward-looking statement speaks only as of the date of this filing, and the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise. ITEM 3. Quantitative and Qualitative Disclosures about Market Risk Because the Company's obligation under its Revolving Credit Facility bears interest at a variable rate, the Company is sensitive to changes in prevailing interest rates. A one-percentage point fluctuation in market interest rates would not have a significant impact on earnings during the first nine months of 2002. ITEM 4. Controls and Procedures a. Evaluation of disclosure controls and procedures. The Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c)), based on their evaluation of such controls and procedures conducted within 90 days prior to the date hereof, are effective to ensure that information required to be disclosed by the Company in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. b. Changes in internal controls. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 10.1 Ninth amendment, dated August 16, 2002, to the second amended and restated revolving credit facility dated February 15, 1994, between the Registrant and PNC Bank, National Association. (1) Exhibit 99.1 Certification of Albert L. Prillaman, Chief Executive Officer of the Company, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (1) Exhibit 99.2 Certification of Douglas I. Payne, Chief Financial Officer of the Company, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (1) (b) Reports on Form 8-K None - --------------------------- (1) Filed herewith. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STANLEY FURNITURE COMPANY, INC. Date: October 15, 2002 By: /s/ Douglas I. Payne ------------------------ Douglas I. Payne Executive V.P. - Finance & Administration and Secretary (Principal Financial and Accounting Officer) CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Albert L. Prillaman, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Stanley Furniture Company, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date October 15, 2002 /s/ Albert L. Prillaman ----------------------- Albert L. Prillaman Chief Executive Officer CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Douglas I. Payne, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Stanley Furniture Company, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: October 15, 2002 /s/ Douglas I. Payne -------------------- Douglas I. Payne Chief Financial Officer EX-10 3 amend3rdqtr.txt NINTH AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT FACILITY THIS NINTH AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT FACILITY dated as of August 16, 2002 (the "Ninth Amendment") is by and between STANLEY FURNITURE COMPANY, INC., a Delaware corporation (the "Borrower"); and PNC BANK, NATIONAL ASSOCIATION, a national banking association, successor in interest to National Bank of Canada, a Canadian chartered bank (the "Lender"). RECITALS A. The Lender has made a certain credit facility available to the Borrower pursuant to the terms and conditions contained in that certain Second Amended and Restated Revolving Credit Facility dated as of February 15, 1994 among the Borrower, National Canada Finance Corp. and National Bank of Canada, as amended by a First Amendment to Second Amended and Restated Credit Agreement dated as of August 21, 1995, a Second Amendment to Second Amended and Restated Credit Agreement dated as of October 14, 1996, a Third Amendment to Second Amended and Restated Credit Agreement dated as of June 24, 1997, a Fourth Amendment to Second Amended and Restated Revolving Credit Agreement dated as of February 24, 1998, a Fifth Amendment to Second Amended and Restated Revolving Credit Agreement dated as of March 10, 1999, a Sixth Amendment to Second Amended and Restated Revolving Credit Agreement dated as of March 30, 2000, a Seventh Amendment to Second Amended and Restated Revolving Credit Agreement dated as of March 31, 2000 and an Eighth Amendment to Second Amended and Restated Revolving Credit Agreement dated as of December 18, 2001 (as amended, the "Loan Agreement"). B. The Loan Agreement and the other documents executed in connection therewith were assigned from National Canada Finance Corp. to National Bank of Canada and then from National Bank of Canada to Lender pursuant to an Asset Purchase Agreement dated as of November 15, 2001. C. The Borrower has requested that the Lender make certain changes to the Loan Agreement. D. The Lender has agreed to make these changes to the Loan Agreement as set forth herein. NOW, THEREFORE, the Borrower and the Lender hereby agree as follows: A. The Loan Agreement is amended as follows: 1. The Committed Amount is decreased from $35,000,000 to $25,000,000. Therefore the references to $35,000,000 in Sections 2.01(a), 2.01(b) and 2.03 of the Loan Agreement are hereby changed to $25,000,000. In addition, the Borrower agrees to execute a new Revolving Credit Note in the form attached hereto as Exhibit A-1 in replacement and substitution of the existing Revolving Credit Note. 2. The second sentence in Section 2.01(a) of the Loan Agreement is deleted in its entirety and replaced with the following: "The Borrower may borrow, repay and reborrow hereunder on or after the Closing Date (subject to the terms of Section 2.01(d) hereof) until August 21, 2003 (the "Initial Period") and for successive one-year periods thereafter on each August 21 until terminated as hereafter provided (each, an "Extension Period"); provided, that if the Lender or the Borrower gives notice of termination to the other (in accordance with the terms of Section 10.01 hereof) not less than 120 days prior to the date of such Initial Period or Extension Period is to occur, then the Commitment will terminate and all Revolving Credit Loans and any other amounts owing with respect thereto will become immediately due and payable in full; provided, however, the obligations of the Lender to make each Revolving Credit Loan is subject to the terms, provisions and limitations set forth herein, and, provided further, upon termination of the Commitment all rights and remedies of the Lender hereunder and under the other Loan Documents shall survive such termination until all amounts owing to the Lender under the Note, this Loan Agreement and the other Loan Documents have been paid in full." B. The Borrower represents and warrants that, as of the date hereof, it is not in default of the terms of the Loan Agreement, as amended hereby, or any of the other documents executed between the Borrower and the Lender in connection therewith. C. This Ninth Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original. D. This Ninth Amendment and the Loan Agreement, as amended hereby, shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have executed or caused this instrument to be executed under seal as of the day and year first above written. STANLEY FURNITURE COMPANY, INC. ATTEST By /s/ Anita W. Wimmer By /s/ Douglas I. Payne -------------------- ----------------------------- Title: Treasurer Title: Executive V.P. - Finance & Administration and Secretary -------------------- ----------------------------- (Corporate Seal) PNC BANK, NATIONAL ASSOCIATION By /s/ Alex M. Council ---------------------------- Title: Vice President ---------------------------- EXHIBIT A-1 EIGHTH AMENDED, RESTATED AND SUBSTITUTED REVOLVING CREDIT PROMISSORY NOTE $25,000,000 August 16, 2002 Charlotte, North Carolina FOR VALUE RECEIVED, STANLEY FURNITURE COMPANY, INC. (formerly known as Stanley Interiors Corporation), a Delaware corporation (the "Borrower") hereby promises to pay to the order of PNC BANK, NATIONAL ASSOCIATION, a national banking association, successor in interest to National Bank of Canada, a Canadian chartered bank (the "Lender") at its offices in Charlotte, North Carolina (or at such other place or places as the Lender may designate) the principal sum of up to TWENTY-FIVE MILLION DOLLARS ($25,000,000.00) under the terms and conditions of a certain Second Amended and Restated Revolving Credit Facility dated as of February 15, 1994, by and between the Borrower and the Lender, as such Loan Agreement has been or may be restated and/or modified from time to time thereafter and hereafter (as amended, the "Loan Agreement"). The defined terms in the Loan Agreement are used herein with the same meaning. All of the terms, conditions and covenants of the Loan Agreement are expressly made a part of this promissory note (the "Revolving Credit Note") by referenced in the same manner and with the same effect as if set forth herein at length and any holder of this Revolving Credit Note is entitled to the benefits of and remedies provided in the Loan Agreement and any other agreements by and between the Borrower and the Lender. The Borrower may borrow and reborrow under this Revolving Credit Note in accordance with the terms of Article II of the Loan Agreement. The outstanding balance hereof shall be due and payable in full on the termination of the Commitment as provided in Article II of the Loan Agreement, or upon such earlier date as may be required by the terms of the Loan Agreement. The Revolving Credit Note shall bear interest on the outstanding balance from time to time at the rates as provided in Article II of the Loan Agreement. The outstanding balance hereof shall be due and payable in full on the termination of the Commitment as provided in Article II of the Loan Agreement, or upon such earlier date as may be required by the terms of the Loan Agreement. If payment of all sums due hereunder is accelerated under the terms of the Loan Agreement or under the terms of the other Loan Documents between the Lender and the Borrower, the then remaining principal amount and accrued but unpaid interest shall bear interest at the rate provided for in Section 4.01 of the Loan Agreement until such principal and interest have been paid in full. Further, in the event of such acceleration, this Revolving Credit Note, and all other indebtedness of the Borrower to the Lender, shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Revolving Credit Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees. This Revolving Credit Note is an amendment to, and is in substitution and replacement of, that certain seventh amended, restated and substituted revolving credit promissory note dated as of March 30, 2000 in the original principal amount of $35,000,000 executed by the Borrower in favor of the Lender (the "Replaced Note"). IN WITNESS WHEREOF, the Borrower has executed this Revolving Credit Note under seal as of the day and year first above written. STANLEY FURNITURE COMPANY, INC. ATTEST: By:/s/ Anita W. Wimmer By:/s/ Douglas I. Payne Title: Treasurer Title: Executive V.P. - Finance & Administration and Secretary (Corporate Seal) EX-99 4 ap3rdqtr.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Stanley Furniture Company, Inc. (the "Company") Quarterly Report on Form 10-Q for the period ended September 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Albert L. Prillaman, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1). The Report fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 15, 2002 By: /s/ Albert L. Prillaman ----------------------- Albert L. Prillaman Chief Executive Officer EX-99 5 dp3rdqtr.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Stanley Furniture Company, Inc. (the "Company") Quarterly Report on Form 10-Q for the period ended September 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Douglas I. Payne, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge: (1). The Report fully complies with the requirements of Section 13 (a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: October 15, 2002 By: /s/ Douglas I. Payne ----------------------- Douglas I. Payne Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----