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HG Holdings, Inc. - Quarter Report: 2009 September (Form 10-Q)

Form 10-Q
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2009
or
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
For the transition period from                      to                     .
Commission file number: 0-14938
STANLEY FURNITURE COMPANY, INC.
(Exact name of registrant as specified in its charter)
     
Delaware   54-1272589
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
1641 Fairystone Park Highway, Stanleytown, Virginia 24168
(Address of principal executive offices, Zip Code)
(276) 627- 2000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
             
Large accelerated filer o   Accelerated filer þ   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller
reporting company)
   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of October 12, 2009, 10,332,179 shares of common stock of Stanley Furniture Company, Inc., par value $.02 per share were outstanding.
 
 

 

 


TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
ITEM 4. Controls and Procedures
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors
ITEM 6. Exhibits
SIGNATURE
EXHIBIT INDEX
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2


Table of Contents

PART I. FINANCIAL INFORMATION
ITEM 1.  
Consolidated Financial Statements
STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
                 
    September 26,     December 31,  
    2009     2008  
ASSETS
               
Current assets:
               
Cash
  $ 42,430     $ 44,013  
Accounts receivable, less allowances of $1,797 and $1,644
    18,052       21,873  
Inventories:
               
Finished goods
    23,909       36,803  
Work-in-process
    5,589       3,493  
Raw materials
    5,876       7,048  
 
           
Total inventories
    35,374       47,344  
 
               
Prepaid expenses and other current assets
    9,023       3,758  
Deferred income taxes
    3,726       3,906  
 
           
Total current assets
    108,605       120,894  
 
               
Property, plant and equipment, net
    33,255       35,445  
Goodwill
    9,072       9,072  
Other assets
    1,013       460  
 
           
Total assets
  $ 151,945     $ 165,871  
 
           
 
               
LIABILITIES
               
Current liabilities:
               
Current maturities of long-term debt
  $ 1,429     $ 1,429  
Accounts payable
    10,157       11,236  
Accrued salaries, wages and benefits
    7,102       6,280  
Other accrued expenses
    2,837       4,890  
 
           
Total current liabilities
    21,525       23,835  
 
               
Long-term debt, exclusive of current maturities
    26,428       27,857  
Deferred income taxes
    2,406       2,778  
Other long-term liabilities
    8,192       8,293  
 
           
Total liabilities
    58,551       62,763  
 
           
 
               
STOCKHOLDERS’ EQUITY
               
Common stock, $.02 par value, 25,000,000 shares authorized 10,332,179 shares issued and outstanding
    207       207  
Capital in excess of par value
    1,750       1,058  
Retained earnings
    92,131       102,603  
Accumulated other comprehensive loss
    (694 )     (760 )
 
           
Total stockholders’ equity
    93,394       103,108  
 
           
Total liabilities and stockholders’ equity
  $ 151,945     $ 165,871  
 
           
The accompanying notes are an integral part of the consolidated financial statements.

 

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Table of Contents

STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
                                 
    Three Months Ended     Nine Months Ended  
    September 26,     September 27,     September 26,     September 27,  
    2009     2008     2009     2008  
 
                               
Net sales
  $ 38,455     $ 54,483     $ 120,545     $ 176,165  
 
                               
Cost of sales
    39,056       49,493       112,829       150,394  
 
                       
 
                               
Gross profit (loss)
    (601 )     4,990       7,716       25,771  
 
                               
Selling, general and administrative expenses
    6,875       10,606       22,345       28,358  
 
                       
Operating loss
    (7,476 )     (5,616 )     (14,629 )     (2,587 )
 
                               
Other income (expense), net
    45       (22 )     133       215  
Interest income
    3       158       44       516  
Interest expense
    953       957       2,809       2,807  
 
                       
 
                               
Loss before income taxes
    (8,381 )     (6,437 )     (17,261 )     (4,663 )
 
                               
Income tax benefit
    (3,308 )     (2,948 )     (6,789 )     (2,154 )
 
                       
 
                               
Net loss
  $ (5,073 )   $ (3,489 )   $ (10,472 )   $ (2,509 )
 
                       
 
                               
Loss per share:
                               
 
                               
Basic
  $ (0.49 )   $ (0.34 )   $ (1.01 )   $ (0.24 )
 
                       
Diluted
  $ (0.49 )   $ (0.34 )   $ (1.01 )   $ (0.24 )
 
                       
 
                               
Weighted average shares outstanding:
                               
 
                               
Basic
    10,332       10,332       10,332       10,332  
 
                       
Diluted
    10,332       10,332       10,332       10,332  
 
                       
 
                               
Cash dividend declared and paid per common share
  $       $ .10     $       $ .30  
 
                       
The accompanying notes are an integral part of the consolidated financial statements.

 

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STANLEY FURNITURE COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(in thousands)
                 
    Nine Months Ended  
    September 26,     September 27,  
    2009     2008  
Cash flows from operating activities:
               
Cash received from customers
  $ 124,071     $ 176,259  
Cash paid to suppliers and employees
    (120,262 )     (160,516 )
Interest paid
    (2,725 )     (2,143 )
Income taxes paid
    (2,531 )     (4,046 )
 
           
Net cash provided (used) by operating activities
    (1,447 )     9,554  
 
           
 
               
Cash flows from investing activities:
               
Capital expenditures
    (1,702 )     (1,485 )
Purchase of other assets
    (55 )        
Proceeds from sale of assets
    1,303          
 
           
Net cash provided (used) by investing activities
    (454 )     (1,485 )
 
           
 
               
Cash flows from financing activities:
               
Repayment of senior notes
    (1,429 )     (1,429 )
Proceeds from insurance policy loans
    1,651       1,550  
Dividends paid
            (3,099 )
Other, net
    96          
 
           
Net cash provided (used) by financing activities
    318       (2,978 )
 
           
 
               
Net increase (decrease) in cash
    (1,583 )     5,091  
Cash at beginning of period
    44,013       31,648  
 
           
Cash at end of period
  $ 42,430     $ 36,739  
 
           
 
Reconciliation of net loss to net cash provided (used) by operating activities:
               
Net loss
  $ (10,472 )   $ (2,509 )
 
               
Depreciation and amortization
    4,291       7,517  
Deferred income taxes
    (192 )     (2,021 )
Stock-based compensation
    692       329  
Other, net
            27  
Changes in assets and liabilities:
               
Accounts receivable
    3,821       266  
Inventories
    11,970       10,540  
Prepaid expenses and other current assets
    (8,809 )     (3,164 )
Accounts payable
    (1,079 )     (4,003 )
Accrued salaries, wages and benefits
    997       2,351  
Other accrued expenses
    (2,161 )     698  
Other assets
    (404 )     (334 )
Other long-term liabilities
    (101 )     (143 )
 
           
Net cash provided (used) by operating activities
  $ (1,447 )   $ 9,554  
 
           
The accompanying notes are an integral part of the consolidated financial statements.

 

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STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share data)
1. Preparation of Interim Unaudited Consolidated Financial Statements
The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In our opinion, these statements include all adjustments necessary for a fair presentation of the results of all interim periods reported herein. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures prepared in accordance with generally accepted accounting principles have been either condensed or omitted pursuant to SEC rules and regulations. However, we believe that the disclosures made are adequate for a fair presentation of our results of operations and our financial position. Operating results for the interim periods reported herein may not be indicative of the results expected for the year. We suggest that these consolidated financial statements be read in conjunction with the consolidated financial statements and accompanying notes included in our 2008 Annual Report on Form 10-K. Subsequent events were evaluated through October 15, 2009, the date these financial statements were issued.
2. Property, Plant and Equipment
                 
    September 26,     December 31,  
    2009     2008  
Land and buildings
  $ 38,851     $ 41,615  
Machinery and equipment
    63,468       76,451  
Office furniture and equipment
    1,284       1,384  
Construction in process
    1,656       120  
 
           
Property, plant and equipment, at cost
    105,259       119,570  
Less accumulated depreciation
    72,004       84,125  
 
           
Property, plant and equipment, net
  $ 33,255     $ 35,445  
 
           
3. Debt
Our long-term debt, shown below, is recorded at historical cost, which approximates its fair value, based primarily on estimated current rates available to us for debt of the same remaining duration and adjusted for nonperformance risk and credit risk.
                 
    September 26,     December 31,  
    2009     2008  
6.73% senior notes due through May 3, 2017
  $ 25,000     $ 25,000  
6.94% senior notes due through May 3, 2011
    2,857       4,286  
 
           
Total
    27,857       29,286  
Less current maturities
    1,429       1,429  
 
           
Long-term debt, exclusive of current maturities
  $ 26,428     $ 27,857  
 
           

 

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4. Employee Benefit Plans
Components of other postretirement benefit cost:
                                 
    Three Months Ended     Nine Months Ended  
    September 26,     September 27,     September 26,     September 27,  
    2009     2008     2009     2008  
Service cost
  $ 19     $ 22     $ 58     $ 66  
Interest cost
    71       71       213       214  
Amortization of transition obligation
    33       32       98       97  
Amortization of prior service cost
    (2 )     (2 )     (6 )     (6 )
Amortization of accumulated loss
    5       8       14       24  
 
                       
Net periodic postretirement benefit cost
  $ 126     $ 131     $ 377     $ 395  
 
                       
5. Stockholders’ Equity
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:
                                 
    Three Months Ended     Nine Months Ended  
    September 26,     September 27,     September 26,     September 27,  
    2009     2008     2009     2008  
Weighted average shares outstanding for basic calculation
    10,332       10,332       10,332       10,332  
Add: Effect of dilutive stock options (1)
                               
 
                       
Weighted average shares outstanding Adjusted for diluted calculation
    10,332       10,332       10,332       10,332  
 
                       
     
(1)  
The dilutive effect of stock options is not recognized in periods in which a net loss has occurred.
Weighted-average shares issuable upon the exercise of stock options, which were not included in the diluted loss per share calculation because they were anti-dilutive, were 1.9 million and 1.1 million for the three months ending September 26, 2009 and September 27, 2008, respectively; and 1.6 million and 1.1 million for the nine months ended September 26, 2009 and September 27, 2008, respectively.
A reconciliation of the activity in Stockholders’ Equity accounts for the nine months ended September 26, 2009 is as follows:
                                 
                            Accumulated  
            Capital in             Other  
    Common     Excess of     Retained     Comprehensive  
    Stock     Par Value     Earnings     Loss  
Balance, December 31, 2008
  $ 207     $ 1,058     $ 102,603     $ (760 )
Net loss
                    (10,472 )        
Stock-based compensation
            692                  
Adjustment to net periodic benefit cost
                            66  
 
                       
Balance, September 26, 2009
  $ 207     $ 1,750     $ 92,131     $ (694 )
 
                       

 

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The components of other comprehensive loss are as follows:
                                 
    Three Months Ended     Nine Months Ended  
    September 26,     September 27,     September 26,     September 27,  
    2009     2008     2009     2008  
Net loss
  $ (5,073 )   $ (3,489 )   $ (10,472 )   $ (2,509 )
Adjustment to net periodic benefit cost
    22       (5 )     66       71  
 
                       
Comprehensive loss
  $ (5,051 )   $ (3,494 )   $ (10,406 )   $ (2,438 )
 
                       
6. Restructuring and Related Charges
In 2008, we took steps to improve our cost structure by consolidating our North Carolina manufacturing operations from two facilities to one and offered a voluntary early retirement incentive for qualified salaried associates. Restructuring and related charges in the nine months of 2009 was $172,000 and consisted of ongoing cost at our Lexington, North Carolina facility until it was sold in the first quarter of 2009.
During the third quarter of 2009, we began consolidating our Lexington, North Carolina warehouse operation into other owned facilities and recorded accelerated depreciation of $1.0 million and other related charges of $20,000.
Restructuring activity for the nine months ended September 26, 2009 was as follows:
                         
    Severance and other              
    termination costs     Other Cost     Total  
Accrual at January 1, 2009
  $ 1,446             $ 1,446  
Charges to expense
    109     $ 82       191  
Cash payments
    1,385       82       1,467  
 
                 
Accrual at September 26, 2009
  $ 170     $       $ 170  
 
                 
The restructuring accrual for severance and other employee termination cost is classified as “Other accrued expenses”.
ITEM 2.  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Net sales decreased $16.0 million, or 29.4%, for the three month period ended September 26, 2009, from the comparable 2008 period. For the nine month period, net sales decreased $55.6 million, or 31.6% from the comparable 2008 nine month period. The decrease was due primarily to lower unit volume, resulting from continued weakness in demand, which we believe is due primarily to the current economic recession and is consistent with industry trends. Higher average unit prices of less than 1% partially offset this lower unit volume.
Gross profit in 2009 decreased to a loss of $601,000 for the three month period and a gross profit of $7.7 million for the nine month period. This compares to a gross profit of $5.0 million and $25.8 million, respectively, for the comparable three and nine month periods of 2008. Accelerated depreciation of $1.0 million related to the closing of our warehouse facility in Lexington, North Carolina is included in the three and nine month periods of 2009. Cost of sales for the three and nine month periods of 2008 include restructuring and related charges of $3.8 million and $4.1 million, respectively.
The lower gross profit and margins are primarily due to the significant decline in sales and production levels. Sales have declined at a faster rate in 2009 than we have been able to adjust our cost structure. The much lower production levels have led to significant unfavorable factory overhead variances and plant inefficiencies. Cost associated with the transition of approximately one-third of our Young America product line (infant-to-teen furniture) from off-shore sourcing to our domestic manufacturing facilities and higher selling discounts also contributed to lower gross profit in 2009. These factors were partially offset by cost savings from restructuring steps taken in 2008 which resulted in an estimated $3 million to $4 million in savings during the first nine months of 2009.

 

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Selling, general and administrative expenses for the three and nine month periods decreased $3.7 million and $6.0 million, respectively, compared to the 2008 periods, due primarily to lower selling expenses resulting from decreased sales and cost reduction initiatives. Restructuring and related charges of $1.4 million are included in the three and nine month periods of 2008.
As a result of the above, operating loss was $7.5 million and $14.6 million for the three and nine month periods of 2009 compared to operating loss of $5.6 million and $2.6 million, for the comparable 2008 periods.
Interest income for the three and nine month periods of 2009 decreased over the comparable prior year periods due primarily to lower earnings on invested cash.
The effective tax rate for 2009 is expected to be 39.3%, compared to 21.1% for total year 2008. The higher effective tax rate is due to the impact of permanent differences on loss before income taxes. The primary permanent difference is the increase in the cash surrender value of life insurance policies used to fund our deferred compensation plan. We expect this relationship to continue, but the percentage impact on the effective tax rate will depend on the level of future losses or earnings.
The consolidation of our Lexington, North Carolina warehouse operation into other owned warehouse space is progressing slightly ahead of schedule and should be completed in the fourth quarter of 2009. As noted above, we recorded $1.0 million of accelerated depreciation for the three month period ended September 26, 2009 and we expect to record approximately $700,000 of additional accelerated depreciation in the final quarter of 2009. The warehouse consolidation is expected to lower our annual operating expenses by approximately $1.3 million beginning in 2010.
We will continue to evaluate our total cost structure, including our manufacturing capacity, considering current and anticipated demand for our products, overall market conditions, offshore sourcing opportunities and other factors we consider relevant. The outcome of this evaluation could result in additional restructuring charges in the fourth quarter of 2009 or in future periods.
Financial Condition, Liquidity and Capital Resources
Sources of liquidity include cash on hand and cash generated from operations. We expect these sources of liquidity to be adequate for ongoing expenditures, debt payments and capital expenditures for the foreseeable future. We believe that cash on hand will be adequate during 2009 in the event we do not generate cash from operations. Working capital, excluding cash and current maturities of long-term debt, decreased $8.4 million during the first nine months of 2009 to $46.1 million from $54.5 million at December 31, 2008. The decrease was primarily due to lower inventories and accounts receivable, in response to lower sales.
Cash used by operations was $1.4 million in the first nine months of 2009 compared to cash generated of $9.6 million in the comparable 2008 period. The decrease was primarily due to lower receipts from customers due to lower sales.
Net cash used for investing activities was $454,000 in the 2009 period compared to $1.5 million in 2008. Sale of assets provided cash from investing activities during the first nine months of 2009. These assets were included in prepaid expenses and other current assets at December 31, 2008.
Net cash provided by financing activities was $318,000 in the 2009 period compared to cash used of $3.0 million in the 2008 period. The change is due primarily to the suspension of quarterly cash dividend payments during 2009.

 

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At September 26, 2009, long-term debt including current maturities was $27.9 million. Debt service requirements are $1.4 million in 2010, $5.0 million in 2011, and $3.6 million in 2012, 2013 and 2014. In January 2009, we entered into an amendment to our note agreement providing that two financial covenants relating to operating income and earnings not apply during 2009. Instead, this amendment requires that we maintain unrestricted cash of at least $20 million and maintain earnings before interest and taxes (as defined in our note agreement) of not less than a loss of $10 million for each twelve month period ending each quarter in 2009. At September 26, 2009, our cash on hand was $42.4 million and our earnings before interest and taxes (as defined in our note agreement) for the twelve months ended September 26, 2009 was a loss of $2.4 million. It is likely that we will not meet the covenant requirement on earnings before interest and taxes (as defined in our note agreement) for the twelve months ending December 31, 2009 and will need to seek a waiver or additional amendment of this requirement. In addition, in the event of noncompliance with the two financial covenants relating to operating income and earnings that will apply after 2009, we would also have to seek waivers or additional amendments. If we are not able to obtain such waivers or amendments from our lenders, then we would need to seek other funding or use our cash on hand to repay the lenders.
We are including earnings before interest and taxes (as defined in our note agreement) for the twelve months ended September 26, 2009, which is a financial measure not derived in accordance with generally accepted accounting principles in the United States of America, to quantify our compliance with a financial covenant in our note agreement, and not as a measure of operating results. The following table sets forth a reconciliation of loss before income taxes to earnings before interest and taxes (as defined in our note agreement) for the twelve months ended September 26, 2009 (dollars are shown in thousands):
         
    Twelve Months Ending  
    September 26, 2009  
Loss before income taxes
  $ (7,861 )
Interest expense, net
    3,685  
Restructuring charge
    1,777  
 
     
Earnings (loss) before interest and taxes (as defined in our note agreement)
  $ (2,399 )
 
     
Continued Dumping and Subsidy Offset Act (CDSOA)
According to U.S. Customs and Border Protection (CBP), as of October 1, 2008, approximately $100 million in duties had been secured by cash deposits and bonds on unliquidated entries, and this amount is potentially available for distribution under the CDSOA to eligible domestic manufacturers in connection with the case involving wooden bedroom furniture imported from China. In addition, approximately $99 million of funds available for distribution were set aside by the government over the past three years principally for domestic producers that have requested CDSOA funds and are not eligible to receive funds based on the CDSOA and the government’s historical administration of the CDSOA. The government set aside these CDSOA funds in connection with two lower court cases involving the CDSOA that were decided against the government on constitutional grounds and that have been appealed. The resolution of these legal appeals will have a significant impact on the amount of additional CDSOA funds we receive with respect to the antidumping order on wooden bedroom furniture from China.
There are a number of factors that can affect how much additional CDSOA funds we receive. These factors include:
   
the annual administrative review process which can retroactively increase or decrease the actual duties owed on entries secured by cash deposits and bonds,
   
the ultimate resolution of the legal appeals discussed above, and
   
other administrative and legal challenges that may be instituted.
Assuming our percentage allocation in future years is the same as it was for the 2008 payment (approximately 27% of the funds distributed), that the amount of $100 million collected by the government as of October 1, 2008 does not change as a result of the annual administrative review process or otherwise, and that the government loses the pending appeals based on constitutional issues (reducing our percentage allocation by approximately 62% based on the amount of funds held back for this pending litigation in 2008), we could potentially receive approximately $10 million in additional CDSOA funds. If the government ultimately prevails on the pending constitutional legal challenges and the other assumptions remain the same, we could potentially receive approximately $54 million in additional CDSOA funds.

 

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Of the approximately $100 million in duties collected by the government as of October 1, 2008, the CBP recently disclosed that $57 million was liquidated as of April 30, 2009 and is available for disbursement in 2009 to eligible domestic manufacturers. However, the CBP did not update the amount of duties collected by the government. The CBP noted in its notice that the final amounts available for distribution may be higher or lower than the preliminary amounts due to additional duties collected on entries that are liquidated before September 30, 2009 or some funds may be removed from the account because of reliquidations or administrative errors. Based on this preliminary amount we expect to receive $6 million to $7 million in the fourth quarter of 2009.
Due to the uncertainty of the various legal and administrative processes, we cannot provide assurances as to the amount of CDSOA funds that ultimately will be received, if any. Furthermore, we cannot predict when we may receive any CDSOA funds after 2009.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our 2008 annual report on form 10-K.
Forward-Looking Statements
Certain statements made in this report are not based on historical facts, but are forward-looking statements. These statements can be identified by the use of forward-looking terminology such as “believes,” “estimates,” “expects,” “may,” “will,” “should,” or “anticipates,” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy. These statements reflect our reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include the cyclical nature of the furniture industry, business failures or loss of large customers, competition in the furniture industry including competition from lower-cost foreign manufacturers, our success in transitioning Young America products to our domestic manufacturing facilities, disruptions in offshore sourcing including those arising from supply or distribution disruptions or those arising from changes in political, economic and social conditions, as well as laws and regulations, in countries from which we source products, international trade policies of the United States and countries from which we source products, manufacturing realignment, the inability to obtain sufficient quantities of quality raw materials in a timely manner, the inability to raise prices in response to inflation and increasing costs, failure to anticipate or respond to changes in consumer tastes and fashions in a timely manner, environmental, health and safety compliance costs, and extended business interruption at manufacturing facilities. In addition, we have made certain forward looking statements with respect to payments we expect to receive under the Continued Dumping and Subsidy Offset Act, which are subject to the risks and uncertainties described in our discussion of those payments that may cause the actual payments to differ materially from those in the forward looking statements. Any forward-looking statement speaks only as of the date of this filing, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.
ITEM 3.  
Quantitative and Qualitative Disclosures about Market Risk
None of our foreign sales or purchases are denominated in foreign currency and we do not have any foreign currency hedging transactions. While our foreign purchases are denominated in U.S. dollars, a relative decline in the value of the U.S. dollar could result in an increase in the cost of our products obtained from offshore sourcing and reduce our earnings or increase our losses, unless we are able to increase our prices for these items to reflect any such increased cost.

 

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ITEM 4.  
Controls and Procedures
(a)  
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
(b)  
Changes in internal controls over financial reporting. There were no changes in our internal control over financial reporting that occurred during the third quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION
ITEM 1A.  
Risk Factors
Our results of operations and financial condition can be adversely affected by numerous risks including those described in Item 1A of our 2008 Annual Report on 10-K. There have been no material changes from those risk factors except as set forth below.
Our strategy to transition Young America Products (infant-to-teen furniture) to our domestic manufacturing facilities has, and will in the near term, increase operating expenses. If we are not successful in the implementation of this strategy, we may continue to experience significant disruptions to our operations that may result in a decline in revenues in addition to a continued increase in operating expenses.
We believe our decision to bring all Young America production back to our domestic manufacturing facilities was necessary to regain control of the entire production process so that we can reposition Young America as the trusted childrens’ furniture brand for safety, broad selection, quick delivery and environmental commitment. This transition has, and will in the near term, increase operating expenses due to the disruption caused by the transition of approximately one-third of our Young America product line from off-shore sourcing to our domestic manufacturing facilities. We expect the long-term benefit to be beneficial as we distinguish our Young America product line from the competition in the marketplace. If we are unsuccessful in implementing this strategy, we may continue to experience significant disruptions in our operations that may result in a decline in revenues in addition to a continued increase in operating expenses.
ITEM 6.  
Exhibits
         
  3.1    
Restated Certificate of Incorporation of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q (Commission File No. 0-14938) for the quarter ended July 2, 2005).
       
 
  3.2    
By-laws of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K (Commission File No. 0-14938 filed on August 26, 2009).
       
 
  31.1    
Certification by Albert L. Prillaman, our Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
       
 
  31.2    
Certification by Douglas I. Payne, our Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
       
 
  32.1    
Certification of Albert L. Prillaman, our Chairman and Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
       
 
  32.2    
Certification of Douglas I. Payne, our Chief Financial Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
 
     
(1)  
Filed herewith

 

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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
Date: October 15, 2009   STANLEY FURNITURE COMPANY, INC.
 
 
  By:   /s/ Douglas I. Payne    
    Douglas I. Payne   
    Executive V.P. — Finance & Administration And Secretary
(Principal Financial and Accounting Officer) 
 

 

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EXHIBIT INDEX
         
Exhibit    
No.   Description
       
 
  31.1    
Certification by Albert L. Prillaman, our Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.(1)
       
 
  31.2    
Certification by Douglas I. Payne, our Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)
       
 
  32.1    
Certification of Albert L. Prillaman, our Chairman and Chief Executive Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
       
 
  32.2    
Certification of Douglas I. Payne, our Chief Financial Officer, pursuant to 18 U. S. C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (1)
 
     
(1)  
Filed herewith

 

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