HG Holdings, Inc. - Annual Report: 2010 (Form 10-K)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2010

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, VA 24168
(Address of principal executive offices, Zip Code)

Registrant’s telephone number, including area code: (276) 627-2010

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Common Stock, par value $.02 per share		Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes o No þ

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 Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.504 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 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. 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, (check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		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

Aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant based on the closing price on June 30, 2010: $40 million.

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock as of January 29, 2011:

Common Stock, par value $.02 per share		14,344,679
(Class of Common Stock)		Number of Shares

Documents incorporated by reference: Portions of the Registrant’s Proxy Statement for our Annual Meeting of Stockholders scheduled for April 27, 2011 are incorporated by reference into Part III.

 

 

TABLE OF CONTENTS

		Page
Part I
Item 1 Business			3
Item 1A Risk Factors			7
Item 1B Unresolved Staff Comments			9
Item 2 Properties			9
Item 3 Legal Proceedings			9
Item 4 (Removed and Reserved)			10
Part II
Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			10
Item 6 Selected Financial Data			12
Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operation			13
Item 7A Quantitative and Qualitative Disclosures About Market Risk			18
Item 8 Financial Statements and Supplementary Data			18
Item 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			18
Item 9A Controls and Procedures			19
Item 9B Other Information			19
Part III
Item 10 Directors, Executive Officers and Corporate Governance			19
Item 11 Executive Compensation			20
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			20
Item 13 Certain Relationships and Related Transactions, and Director Independence			20
Item 14 Principal Accounting Fees and Services			20
Part IV
Item 15 Exhibits, Financial Statement Schedules			20
Signatures			23
Index to Consolidated Financial Statements and Schedule			F-1
Exhibit 21
Exhibit 23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

Stanley Furniture Company, Inc.

PART I

Item 1.		Business

General

We are a leading designer, manufacturer and importer of residential wood furniture exclusively targeted at the premium price range. We offer two major product lines diversifying us across all major style and product categories within the premium price range. Our adult furniture product line carries the Stanley Furniture brand and Young America is our infant and youth furniture brand. Our product depth and extensive style selection makes us a complete wood furniture resource for retailers in the premium price range. We have established a broad distribution network that includes independent furniture stores, interior designers, smaller specialty retailers, regional furniture chains, buying clubs and e-tailers. To support this network of customers and to cater to the specific factors which drive consumer demand for our two branded product lines, we have implemented two distinct operating strategies. A domestic manufacturing model supports Young America, while an offshore sourcing model serves the demands of the Stanley Furniture customer.

Products and Styles

Our adult product line, Stanley Furniture, is marketed as luxury home furnishings with selections including dining, bedroom, home office, home entertainment, and accent items. We believe the end consumer for these products is typically a mature, affluent consumer with a larger home. Our infant and youth product line is marketed as Young America with product characteristics designed to provide children a safe, healthy indoor environment and offer parents the ability to customize with color options and make an investment in furniture that grows with the child from crib to college and beyond. The typical consumer purchasing Young America is between the ages of 25 and 40. However, grandparents are often involved in the purchase.

We believe that the diversity of our product lines enables us to anticipate and respond quickly to changing consumer preferences and provides retailers a complete wood furniture resource in the premium price range. We believe that our products represent good value and that the quality and design of our furniture combined with our broad selection and dependable service differentiates our products in the marketplace.

We provide products in a variety of woods and finishes. Our products are designed to appeal to a broad range of consumer tastes in the premium segment and cover all major style categories including traditional, continental, contemporary, transitional and cottage designs.

We continually design and develop new styles to replace those discontinued and, if desired, to expand our product lines. Our product design process begins with marketing personnel identifying customer preferences and marketplace trends and conceptualizing product ideas. A variety of sketches are produced, usually by company designers, from which prototype furniture pieces are built prior to full-scale production. We consult with our marketing and operations personnel, independent sales representatives and selected customers throughout this process and introduce our new product designs primarily at the fall and spring international furniture markets.

Distribution

We have developed a broad domestic and international customer base and sell our furniture through independent sales representatives to independent furniture stores, interior designers, smaller specialty retailers, regional furniture chains, buying clubs and e-tailers. We believe this broad network reduces exposure to fluctuations in regional economic conditions and allows us to capitalize on emerging channels of distribution. We offer tailored marketing programs to address each channel of distribution.

The general marketing practice followed in the furniture industry is to exhibit products at international and regional furniture markets. In the spring and fall of each year, a furniture market is held in High Point, North Carolina, which is attended by the majority of our retail customer base and is regarded by most of the industry as the most important international market. We utilize showroom space at this market to introduce new products, increase retail placements of existing products and test ideas for future products.

We sold product to approximately 2,600 customers during 2010, and approximately 10% of our sales in 2010 were to international customers compared to 8% in 2009. No single customer accounted for more than 10% of our sales in 2010. No material part of the business is dependent upon a single customer, the loss of which would have a material effect on our business. The loss of several major customers could have a material impact on our business.

Manufacturing and Offshore Sourcing

In 2010, we transformed our manufacturing and sourcing strategy for each of our product lines. This transformation, we believe, better aligns the operations and associated cost structures with the driving forces of demand for each line.

Young America

In 2010, we continued our efforts to position the Young America product line as the trusted brand for child safety, broad selection (including color options), quick delivery, environmental commitment, and quality to better differentiate our infant and youth products in the marketplace. To support this initiative we began moving the production of those items previously purchased offshore (primarily beds and cribs) to our domestic facilities in the fourth quarter of 2009. In the last quarter of 2010, we completed the consolidation of all Young America manufacturing into our Robbinsville, North Carolina facility.

Domestic manufacturing supports our product and distribution strategy allowing us to drive continuous improvement in product safety, quality and customer service, while offering maximum choice and customization with minimum inventory. Our domestic manufacturing strategy includes:

•

Smaller, more frequent and cost-effective production runs,

•

Standardized engineering philosophy to improve quality and lower cost,

•

Identification and elimination of manufacturing bottlenecks and waste,

•

Use of cellular manufacturing in the production of components, and

•

Improvement of our relationships with suppliers by establishing primary suppliers.

In addition, a key element of our manufacturing practices is to involve all 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.

Stanley Furniture

We ceased manufacturing at our Stanleytown, Virginia facility in December 2010 completing the transformation of the Stanley Furniture product line to a completely sourced operations model.

We are subject to the usual risk inherent in importing products manufactured abroad, including, but not limited to, supply disruptions and delays, currency exchange rate fluctuations, economic and political developments and instability, as well as the laws, policies and actions of foreign governments and the United States affecting trade, including tariffs.

Our Stanley Furniture product line is being imported from a minimal number of smaller, specialized furniture manufacturers in Southeast Asia, primarily in Indonesia and Vietnam. A sudden disruption in our supply chain from any of our strategic vendors could significantly compromise our ability to fill customers orders. If a disruption were to occur, we believe we would have sufficient inventory to meet demand for approximately three to four months. We believe that we could source any impacted products from other strategic suppliers but could potentially experience service gaps and short-term increases in cost.

We enter into standard purchase arrangements with certain overseas suppliers for finished goods inventory to support our Stanley Furniture product line. The terms of these arrangements are customary for our industry and do not contain any long-term purchase obligations. We generally negotiate firm pricing with our foreign suppliers in U.S. Dollars for a term of one year. We accept exposure to exchange rate movement after this period and do not use any derivative instruments to manage currency risk. We generally expect to reflect any substantial price increases from these suppliers in the price we charge for these goods.

Warehousing and Delivery

We warehouse Young America products in our manufacturing facility in North Carolina and lease two warehouse facilities in Virginia to support the Stanley Furniture product line. We consider our facilities to be generally modern, well equipped and well maintained.

Production of our two product lines is scheduled based upon both actual and anticipated orders. To support our service objectives, we plan to maintain a higher inventory of imported products compared to those manufactured domestically. We ship the majority of Young America orders within 30 days from receipt of order and the majority of Stanley Furniture product line orders within 60 days from receipt of order. Therefore, the size of our backlog is not necessarily indicative of our long-term operations. Our backlog of unshipped orders was $11.0 million at December 31, 2010 and $15.6 million at December 31, 2009.

Raw Materials

The principal materials used in our domestic manufacturing include lumber, veneers, plywood, particle board, hardware, glue, finishing materials, glass products, laminates, and metals. We use two main species of lumber: poplar and maple. Domestic lumber availability and prices fluctuate over time based primarily on supply and demand.

Our five largest raw material suppliers accounted for approximately 49% of our purchases in 2010. We believe we keep adequate inventory of lumber and other supplies to maintain production levels. We believe that our sources of supply for these materials are adequate and that we are not dependent on any one supplier.

Competition

The furniture industry is highly competitive and includes a large number of competitors, none of which dominates the market. In addition, competition has significantly increased as the industry’s worldwide manufacturing capacity remains highly underutilized due to a lack of demand driven by the effects of the ongoing economic recession. Significant manufacturing capacity was added during the housing boom our economy experienced pre-recession. This excess capacity has created intense price competition as industry participants attempt to generate sales to better utilize their manufacturing capacity. The vast majority of our competitors own manufacturing facilities or source finished goods from suppliers in China, Vietnam, and Indonesia.

The markets in which we compete include a large number of relatively small manufacturers. However, certain competitors have substantially greater sales volumes and financial resources compared to us. Competitive factors in the premium price range include design, quality, service, selection, price, and for our Young America product line, child safety. We believe the changes to our operational strategy, long-standing customer relationships and customer responsiveness, consistent support of high-quality and diverse product lines, and our mixture of youth and experience in our management team are competitive advantages.

Associates

At December 31, 2010, we employed approximately 650 associates. We consider our relationship with our associates to be good and none of our associates are represented by a labor union.

Trademarks

Our trade names represent many years of continued business, and we believe these names are well recognized and associated with excellent quality and styling in the furniture industry. We own a number of trademarks and design patents, none of which are considered to be material.

Governmental Regulations

We are subject to federal, state and local laws and regulations in the areas of safety, health and environmental protection. Compliance with these laws and regulations has not in the past had any material effect on our earnings, capital expenditures or competitive position. However, the impact of such compliance in the future cannot be predicted. We believe that we are in material compliance with applicable federal, state and local safety, health and environmental regulations.

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 our success in profitably producing Young America products in our domestic manufacturing facility, 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, our success in transitioning our adult product line to offshore vendors, the inability to raise prices in response to inflation and increasing costs, lower sales due to worsening of current economic conditions, the cyclical nature of the furniture industry, failure to anticipate or respond to changes in consumer tastes and fashions in a timely manner, business failures or loss of large customers, competition in the furniture industry including competition from lower-cost foreign manufacturers, the inability to obtain sufficient quantities of quality raw materials in a timely manner, environmental, health, and safety compliance costs, and extended business interruption at our manufacturing facility. 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.

Available Information

Our principal Internet address is www.stanleyfurniture.com. We make available free of charge on this web site our annual, quarterly and current reports, and amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

In addition, you may request a copy of these filings (excluding exhibits) at no cost by writing, telephoning, faxing or e-mailing us at the following address, telephone number, fax number or e-mail address.

Stanley Furniture Company, Inc.
1641 Fairystone Park Highway
Stanleytown, Virginia 24168
Attention: Mr. Micah S. Goldstein
Telephone: 276-627-2565
Fax: 276-629-5114
Or e-mail your request to: Investor@Stanleyfurniture.com

Item 1A.		Risk Factors

Our results of operations and financial condition can be adversely affected by numerous risks. You should carefully consider the risk factors detailed below in conjunction with the other information contained in this document. Should any of these risks actually materialize, our business, financial condition and future prospects could be negatively impacted.

Our strategy to transition Young America Products (infant and youth 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 facility was necessary to regain control of the entire production process so that we can reposition Young America as the trusted children’s furniture brand for safety, broad selection, quick delivery and commitment to environmentally conscious production. This transition has increased operating expenses due to the disruption caused by the transition of approximately one-third of our Young America product line from offshore sourcing to our domestic manufacturing facility. 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.

As a result of our reliance on foreign sourcing:

•

Our ability to service customers could be adversely affected and result in lower sales and earnings.

Our supply of goods could be interrupted for a variety of reasons. A natural disaster or other causes of physical damage to any one of our sourcing factories could interrupt production for an extended period of time. Our sourcing partners may not supply goods that meet our manufacturing, quality or safety specifications, in a timely manner and at an acceptable price. We may reject goods that do not meet our specifications, requiring us to find alternative sourcing arrangements at a higher cost, or may force us to discontinue the product. Also, delivery of goods from our foreign sourcing partners may be delayed for reasons not typically encountered with domestic manufacturing or sourcing, such as shipment delays caused by customs or labor issues.

•

Changes in political, economic and social conditions, as well as laws and regulations, in the countries from which we source products could adversely affect us.

Foreign sourcing is subject to political and social instability in countries where our sourcing partners are located. This could make it more difficult for us to service our customers. Also, significant fluctuations of foreign exchange rates against the value of the U.S. dollar could increase costs and decrease earnings. In addition, an outbreak of the avian flu or similar epidemic in Asia or elsewhere may lower our sales and earnings by disrupting our supply chain in the countries impacted.

•

International trade policies of the United States and countries from which we source products could adversely affect us.

Imposition of trade sanctions relating to imports, taxes, import duties and other charges on imports could increase our costs and decrease our earnings.

We may experience a decrease in revenues, as well as asset impairment or other charges, if our strategy to transition Young America products to our domestic manufacturing is not successful.

If we do not achieve operating efficiencies sufficient to profitably manufacture our Young America product line domestically, or if our marketing strategy for this product line is unsuccessful, we would need to reposition our Young America product line, consider closing our Robbinsville facility and transitioning manufacture of Young America products to other sources. In this event, we could experience a decrease in revenues, as well as asset impairment or other restructuring charges. In addition, if any of these actions are necessary, they could affect our ability to meet product demand which may in turn negatively impact customer relations and result in loss of market share.

We may not be able to maintain or to raise prices in response to inflation and increasing costs.

Future market and competitive pressures may prohibit us from raising prices to offset increased costs from our sourcing partners, raw material costs, freight costs and other inflationary items. This could lower our earnings.

We may not be able to sustain sales, earnings and liquidity levels due to economic downturns.

The furniture industry historically has been cyclical in nature and has fluctuated with economic cycles including the current economic recession. During economic downturns, the furniture industry tends to experience longer periods of recession and greater declines than the general economy. We believe that the industry is significantly influenced by economic conditions generally and particularly by housing activity, consumer confidence, the level of personal discretionary spending, demographics and credit availability. These factors not only affect the ultimate consumer, but also impact furniture retailers, which are our primary customers. As a result, a worsening of current conditions could further lower our sales and earnings and impact our liquidity. In addition, the current economic recession may result in permanent changes in consumer preferences and behavior which could result in a contraction of our market segment resulting in lower sales and earnings levels for the long term which would also adversely impact our liquidity.

Failure to anticipate or respond to changes in consumer tastes and fashions in a timely manner could result in a decrease in our sales and earnings.

Residential furniture is a highly styled product and is subject to rapidly changing consumer trends and tastes. If we are unable to predict or respond to changes in these trends and tastes in a timely manner, we may lose sales and have to sell excess inventory at reduced prices. This could lower our sales and earnings.

Business failures, or the loss, of large customers could result in a decrease in our future sales and earnings.

Although we have no customers that individually represent 10% or more of our total annual sales, the possibility of business failures, or the loss, of large customers could result in a decrease of our future sales and earnings. Lost sales may be difficult to replace and any amounts owed to us may become uncollectible.

We may not be able to sustain current sales and earnings due to the actions and strength of our competitors.

The furniture industry is very competitive and fragmented. We compete with many domestic and foreign manufacturers. Competition from foreign producers has increased dramatically in recent years, with most residential wood furniture sold in the United States now coming from imports. These foreign producers typically have lower selling prices due to their lower operating costs. Some competitors have greater financial resources than we have and often offer extensively advertised, well-recognized, branded products. As a result, we are continually subject to the risk of losing market share, which may lower our sales and earnings.

We may not be able to obtain sufficient quantities of quality raw materials in a timely manner, which could result in a decrease in our sales and earnings.

Because we are dependent on outside suppliers for all of our raw material needs, we must obtain sufficient quantities of quality raw materials from our suppliers at acceptable prices and in a timely manner. We have no long-term supply contracts with our key suppliers. Unfavorable fluctuations in the price, quality and availability of these raw materials could negatively affect our ability to meet demands of our customers and could result in a decrease in our sales and earnings.

Future cost of compliance with environmental, safety and health regulations could reduce our earnings.

We are subject to federal, state and local laws and regulations in the areas of safety, health and environmental protection. The timing and ultimate magnitude of costs for compliance with environmental, health and safety regulations are difficult to predict and could reduce our earnings.

Extended business interruption at our manufacturing facility could result in reduced sales.

Furniture manufacturing creates large amounts of highly flammable wood dust. Additionally, we utilize other highly flammable materials such as varnishes and solvents in our manufacturing processes and are therefore subject to the risk of losses arising from explosions and fires. Our inability to fill customer orders during an extended business interruption could negatively impact existing customer relationships resulting in the loss of market share.

Item 1B.		Unresolved Staff Comments

None.

Item 2.		Properties

Set forth below is certain information with respect to our principal properties. We believe that all these properties are well maintained and in good condition. All of our production and warehousing facilities are equipped with automatic sprinkler systems and modern fire protection equipment, which we believe are adequate. All facilities set forth below are active and operational. Production capacity and extent of utilization of our facilities are difficult to quantify, and in 2010 we operated our facilities at levels significantly below their estimated capacity.

Approximate

Owned

Facility Size

or

Location

Primary Use

(Square Feet)

Leased

Stanleytown, VA

Warehouse and Corporate Headquarters

950,000

Leased

Robbinsville, NC

Manufacturing/Warehouse

562,100

Owned

Martinsville, VA

Warehouse

300,000

Leased

High Point, NC

Showroom

51,000

Leased

Item 3.		Legal Proceedings

In the normal course of business, we are involved in claims and lawsuits none of which currently, in our opinion, will have a material adverse affect on our consolidated financial statements.

Item 4.		(Removed and Reserved)

Executive Officers of the Registrant

Our executive officers and their ages as of February 5, 2011 are as follows:

Name		Age				Position
Glenn Prillaman			39			President and Chief Executive Officer
Micah S. Goldstein			40			Chief Operating and Financial Officer

Glenn Prillaman has been President and Chief Executive Officer since February 2010. Mr. Prillaman was President and Chief Operating Officer from August 2009 until February 2010. He was our Executive Vice President — Marketing and Sales from September 2008 until August 2009. He held the position of Senior Vice President — Marketing and Sales from September 2006 until September 2008 and was our Senior Vice President — Marketing/Sales — Young America^® from August 2003 to September 2006. Mr. Prillaman held various management positions in product development from June 1999 to August 2003. He is the son of Albert L. Prillaman, a director of the company.

Micah S. Goldstein has been Chief Operating Officer since August 2010 and has also served as Chief Financial Officer since December 2010. From January 2006 until August 2010, Mr. Goldstein was President and Chief Executive Officer of Bri-Mar Manufacturing, LLC, a manufacturer of hydraulic equipment trailers.

PART II

Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our common stock is quoted on the Nasdaq Stock Market (“Nasdaq”) under the symbol STLY. The table below sets forth the high and low sales prices per share, for the periods indicated, as reported by Nasdaq.

		2010												2009
										Dividends												Dividends
		High				Low				Paid				High				Low				Paid
First Quarter		$	11.12			$	7.50				—			$	8.59			$	6.50				—
Second Quarter			11.14				4.01				—				11.10				7.08				—
Third Quarter			4.29				3.35				—				13.48				9.69				—
Fourth Quarter			4.00				2.98				—				11.01				7.13				—

As of January 20, 2011, we have approximately 2,300 beneficial stockholders. On January 28, 2009, our Board of Directors voted to suspend quarterly cash dividend payments. Our dividend policy and the decision to suspend dividend payments is subject to review and revision by the Board of Directors and any future payments will depend upon our financial condition, our capital requirements and earnings, as well as other factors the Board of Directors may deem relevant.

Performance Graph

The following graph compares cumulative total stockholder return for our company with a broad performance indicator, the Nasdaq Market index (an industry index) and a Peer group index for the period from December 31, 2005 to December 31, 2010.

Equity Compensation Plan Information

The following table summarizes our equity compensation plans as of December 31, 2010:

Number of shares

Weighted-average

Number of shares

to be issued upon

exercise price

remaining available

exercise of

of outstanding

for future issuance

outstanding options,

options, warrants

under equity

warrants and rights

and rights

compensation plans

Equity compensation plans approved by stockholders

2,093,654

$

8.91

374,334

Item 6.		Selected Financial Data

		Years Ended December 31,
		2010				2009 (3)				2008 (3)				2007 (3)				2006 (3)
		(in thousands, except per share data)
Income Statement Data:
Net sales		$	137,012			$	160,451			$	226,522			$	282,847			$	307,547
Cost of sales (1)			153,115				158,695				197,995				240,932				248,703
Gross profit (loss)			(16,103	)			1,756				28,527				41,915				58,844
Selling, general and administrative expenses (2)			20,625				26,666				32,375				34,578				36,115
Goodwill impairment charge			9,072
Pension plan termination charge															6,605
Operating income (loss)			(45,800	)			(24,910	)			(3,848	)			732				22,729
Income from Continued Dumping and Subsidy Offset Act, net			1,556				9,340				11,485				10,429				4,419
Other income, net			25				160				308				265				297
Interest expense, net			3,534				3,703				3,211				2,679				1,710
Income (loss) before income taxes			(47,753	)			(19,113	)			4,734				8,747				25,735
Income taxes (benefit)			(3,963	)			(7,362	)			998				2,845				8,954
Net income (loss)		$	(43,790	)		$	(11,751	)		$	3,736			$	5,902			$	16,781
Basic Earnings (loss) Per Share:
Net income (loss)		$	(4.11	)		$	(1.14	)		$	.36			$	.56			$	1.44
Weighted average shares			10,650				10,332				10,332				10,478				11,649
Diluted Earnings (loss) Per Share:
Net income (loss)		$	(4.11	)		$	(1.14	)		$	.36			$	.55			$	1.41
Weighted average shares			10,650				10,332				10,332				10,677				11,924
Cash dividends paid per share		$				$				$	.40			$	.40			$	.32
Balance Sheet and Other Data:
Cash		$	25,532			$	41,827			$	44,013			$	31,648			$	6,269
Inventories			25,695				37,225				47,344				58,086				59,364
Working capital			52,769				87,277				97,059				91,852				72,036
Total assets			88,396				150,462				165,871				173,731				162,678
Long-term debt including current maturities							27,857				29,286				30,714				8,571
Stockholders’ equity			61,795				92,847				103,108				102,851				109,647
Capital expenditures		$	857			$	2,621			$	2,261			$	3,951			$	4,196
Stock repurchases:
Shares															639				1,423
Total cost														$	13,557			$	33,576

Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion should be read in conjunction with the Selected Financial Data and the Consolidated Financial Statements and Notes.

Overview

Significant declines in housing activity, consumer confidence and disposable income have led to depressed consumer demand for residential furniture. This slowdown began in late 2005 for the residential furniture industry and intensified in recent years as weakness spread to the broader U.S. economy and beyond. As a result, our revenues fell from $333.6 million in 2005 to $137.0 million in 2010 and we recorded significant losses in 2009 and 2010.

In response to these deteriorating industry conditions, we took several significant steps to lower our cost structure from 2007 through 2009 as follows:

•

In late 2007, we consolidated production from our Martinsville, Virginia facility into our Stanleytown, Virginia facility. In 2008, we converted the Martinsville facility into a warehouse. This improved our asset utilization and production efficiencies at the Stanleytown facility and lowered our costs by eliminating leased warehouse space. The related pre-tax restructuring cost was $3.8 million ($3.6 million in 2007 and $249,000 in 2008).

•

In 2008, we consolidated two manufacturing facilities into one, eliminated certain positions and offered a voluntary early retirement incentive. We incurred pre-tax restructuring charges of $7.3 million ($7.1 million in 2008 and $216,000 in 2009) related to these actions.

•

In 2009, pre-tax restructuring charges of $6.1 million were incurred for three major items. A warehouse consolidation represented about $2 million pre-tax. We ceased operations at our former Lexington, North Carolina warehouse facility and this real estate was sold in early 2010. We eliminated approximately 25% of our salaried positions through a combination of early-retirement incentives and layoffs resulting in about $2 million of pre-tax charges. The remainder of about $2 million pre-tax restructuring expense was due to a write-down of inventories as a result of reducing the number of items offered in our adult product line by discontinuing certain slow moving items.

•

In the second half of 2009, we began implementing a strategy to differentiate our Young America product line that led us to move the production of those items we purchased offshore to our domestic facilities. These items were primarily youth beds and cribs. This transition began in late 2009 and our Young America nursery and youth product line is now exclusively manufactured in our Robbinsville, North Carolina facility, except for certain component SKU’s of nominal value.

•

We suspended cash dividend payments in 2009, providing annual cash savings of approximately $4 million.

We continued to evaluate our manufacturing capacity needs considering offshore sourcing opportunities, current and anticipated demand for our products, overall market conditions, the overhead expenses associated with the Stanleytown manufacturing operation, and other factors we considered relevant in early 2010. We concluded that current demand in our price segment results in a unit volume below that necessary to profitably operate a facility the size of our Stanleytown, Virginia facility. Accordingly, in May 2010 we announced a major restructuring plan that we believe will eventually return our company to profitability. This plan included the following major components:

•

From May through December 2010, we transitioned the majority of the manufacturing of the Stanley Furniture product line from our Stanleytown, Virginia facility to several strategic offshore vendors with whom we already had established working relationships. We ceased manufacturing operations at the Stanleytown facility in December 2010. A portion of this facility is now being used as a warehousing and distribution center for the Stanley Furniture product line, and our corporate office.

•

We have retained a domestic assembly and finish process at our Martinsville, Virginia location to continue offering multiple finish options on certain items in the Stanley Furniture product line. The Martinsville facility is also used for warehousing and distribution.

•

Youth bed and crib production along with certain machinery and equipment was moved from our Stanleytown, Virginia facility to our Robbinsville, North Carolina facility in the fourth quarter of 2010. In addition, to support this move and improve production flow and efficiency we invested in some new equipment and relocated certain machinery and equipment within our Robbinsville facility.

In 2010, we incurred expenses of $10.4 million from accelerated depreciation and restructuring and related charges, and expect less than $1.0 million of residual expense in 2011 from the restructuring plan.

Our transition away from overseas sources for our Young America product line continues to challenge us. We believe we have dedicated the appropriate resources to improve efficiencies in our Robbinsville, North Carolina facility, and we implemented a price increase for our Young America products in June 2010.

During the first quarter of 2010, we performed a goodwill impairment evaluation as a result of our first quarter operating loss and restructuring actions announced in May 2010 and recorded a goodwill impairment charge of $9.1 million representing the entire amount of goodwill associated with the business. In 2010, we recorded a non-cash charge to our valuation allowance of $11.4 million against our December 31, 2010 net deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.

Several special items in 2010 that impacted our liquidity and financial condition are as follows:

•

We received net proceeds of $1.0 million from the sale of our former Lexington, North Carolina warehouse facility.

•

We raised $12.0 million of gross proceeds from a successful rights offering and issued 4 million new shares of common stock, in December 2010.

•

We received $2.2 million of funds under the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA) in connection with the case involving wooden bedroom furniture imported from China.

•

We used $27.9 million to repay in full all outstanding debt under our note agreement with Prudential Insurance Company of America and other lenders. We made a scheduled principal payment of $1.4 million in May 2010; and no penalty pre-payments of $11.5 million and $15.0 million in May 2010 and December 2010, respectively.

•

We received tax refunds of $8.4 million due to the carry back of operating losses to prior years.

•

We received $2.4 million of gross proceeds in December 2010 from the sale of the Stanleytown, Virginia property and leased back a substantial portion of the facility for a five year term with monthly rental payments of $40,000 starting January 1, 2011.

•

We received $2.4 million of gross proceeds in December 2010 from the sale of the Martinsville, Virginia property and leased back the facility on a rent free basis for an initial one-year term, with a renewal option to rent for a second year. The transaction has been accounted for as a financing arrangement.

•

We received $2.3 million in December 2010 from the sale of certain machinery and equipment resulting from the decision to cease manufacturing at our Stanleytown, Virginia facility. We subsequently received an additional $1.4 million in January 2011 from the sale of this machinery and equipment and expect approximately $100,000 in February 2011.

We will continue to focus on effective balance sheet management and cost control in 2011.

Results of Operations

2010 Compared to 2009

Net sales decreased $23.4 million, or 14.6%, in 2010 compared to 2009. The decrease was due primarily to lower unit volume, resulting from continued weakness in demand for our price segment of residential wood furniture, which we believe is consistent with current economic and industry trends. We also believe some loss of market share resulting from the transition caused by the major restructuring of our business contributed to the decline. Partially offsetting the unit decline was higher average selling prices for our Young America products.

Gross profit in 2010 decreased to a loss of $16.1 million from a profit of $1.8 million in 2009. Included in gross profit in 2010 and 2009 is $10.4 million and $5.2 million, respectively, in restructuring and related charges. See Note 10 of the Notes to the Consolidated Financial Statements for further details on restructuring and related charges. The remaining decline in gross profit for 2010 compared to 2009, resulted primarily from lower sales and production levels, manufacturing inefficiencies and increased cost of transitioning approximately one-third of our Young America product line revenues from overseas vendors into our Robbinsville, North Carolina production facility, and inefficiencies associated with ceasing manufacturing at our Stanleytown, Virginia facility. Partially offsetting these factors were lower expenses resulting from previous restructuring efforts, on-going cost reductions, and increased selling prices in the second half of 2010 on our Young America product line.

Selling, general and administrative expenses for 2010 decreased $6.0 million compared to 2009, due primarily to lower selling expenses resulting from lower sales and cost reduction initiatives. Restructuring and related expenses of $876,000 are included in 2009.

During the first quarter of 2010, we determined that goodwill impairment indicators existed based on our first quarter operating loss and restructuring plans. Upon completing our impairment analysis, a goodwill impairment charge of $9.1 million, the entire amount of goodwill associated with the business, was recognized.

As a result of the above, operating loss was $45.8 million in 2010 compared to an operating loss of $24.9 million in 2009.

We recorded income of $1.6 million in 2010 from the receipt of funds under the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA) involving wooden bedroom furniture imported from China and other related payments, net of legal expenses, compared to $9.3 million in 2009.

Interest expense for 2010 declined from 2009 due to lower average debt levels, partially offset by higher interest rates on outstanding debt.

Our effective tax rate benefit for 2010 was 8.3% which differs from the U.S. federal statutory tax rate of 35% due primarily to the establishment of a deferred tax valuation allowance and to a lesser extent the goodwill impairment charge.

2009 Compared to 2008

Net sales decreased $66.1 million, or 29.2%, in 2009 compared to 2008. 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. Partially offsetting this lower unit volume was an increase in average selling prices of less than 1%.

Gross profit in 2009 decreased to $1.8 million from $28.5 million in 2008. Included in gross profit in 2009 and 2008 is $5.2 million and $5.9 million, respectively, in restructuring and related charges. See Note 10 of the Notes to the Consolidated Financial Statements for further details on restructuring and related charges. The lower gross profit and margins in 2009 are primarily due to the significant decline in sales and production levels. Sales declined at a faster rate in 2009 than we were able to adjust our cost structure. The much lower production levels led to significant unfavorable factory overhead variances and plant inefficiencies. Costs associated with the transition of certain Young America products (primarily cribs and youth beds) from offshore 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 $4 to $5 million in savings during 2009.

Selling, general and administrative expenses for 2009 decreased $5.7 million compared to 2008, due primarily to lower selling expenses resulting from decreased sales and cost reduction initiatives. Restructuring and related expenses of $876,000 and $1.4 million are included in 2009 and 2008, respectively.

As a result of the above, operating loss was $24.9 million in 2009 compared to an operating loss of $3.8 million in 2008.

We recorded income of $9.3 million in 2009 from the receipt of funds under the CDSOA involving wooden bedroom furniture imported from China and other related payments, net of legal expenses, compared to $11.5 million in 2008.

Interest income for 2009 decreased from 2008 due primarily to lower earnings on cash primarily invested in a money market fund containing only short duration U.S. Treasury securities backed by the full faith and credit of the U.S. Government.

The effective tax rate for 2009 was 38.5% compared to 21.1% for 2008. The higher effective tax rate was due to the impact of permanent differences on the loss before income taxes. The primary permanent difference was the increase in cash surrender value of life insurance policies, which are used to fund our deferred compensation plan. We expect this relationship to continue, but the percentage impact on the effective rate will depend on the level of future losses or earnings.

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 and capital expenditures for the foreseeable future. We believe that cash on hand will be adequate during 2011 in the event we do not generate cash from operations. At December 31, 2010 cash on hand was $25.5 million.

Working capital, excluding cash and current maturities of long-term debt, decreased $19.7 million during 2010 to $27.2 million from $46.9 million in 2009. The decrease was primarily due to lower accounts receivable and inventories, reflecting lower sales and production levels.

Cash used by operations was $9.4 million in 2010 compared to cash used of $1.2 million in 2009 and cash generated of $18.3 million in 2008. The increase in cash used by operations in 2010 was primarily due to lower receipts from customers due to lower sales and higher cash paid to suppliers and employees due to manufacturing inefficiencies, the incremental cost of transitioning approximately one-third of our Young America product line revenues from overseas into domestic facilities, and inefficiencies associated with ceasing production at our Stanleytown facility. Partially offsetting this increase was the receipt of tax refunds and increased prices on our Young America product line. The change in 2009 was primarily due to lower cash received from customers due to lower sales, partially offset by lower cash paid to suppliers and employees due to lower production and lower tax payments due to an operating loss in 2009.

Net cash provided by investing activities was $4.8 million in 2010 compared to cash used of $1.3 million in 2009 and $1.9 million in 2008. Sale of assets provided cash of $5.7 million and $1.3 million in 2010 and 2009, respectively. We invested $857,000, $2.6 million, and $2.3 million for normal capital expenditures in 2010, 2009, and 2008, respectively. Capital expenditures in 2011 are anticipated to be in the range of $1.5 million to $2.0 million.

Net cash used by financing activities was $11.7 million in 2010, compared to cash provided of $318,000 in 2009 and cash used of $4.0 million in 2008. In 2010, cash of $27.9 million was used to retire our outstanding debt. Cash proceeds of $11.8 million (net of expenses) were received from the issuance of 4 million shares of our common stock. Proceeds of $2.4 million were received from the sale of our Martinsville, Virginia facility which was accounted for as a financing obligation. The change from 2008 to 2009 was due primarily to the suspension of quarterly cash dividend payments in 2009.

The following table sets forth our contractual cash obligations and other commercial commitments at December 31, 2010 (in thousands):

		Payment due or commitment expiration
						Less Than												Over
		Total				1 year				2-3 years				4-5 years				5 years
Contractual cash obligations:
Postretirement benefits other than pensions(1)		$	3,614			$	394			$	705			$	612			$	1,903
Operating leases			4,507				1,058				1,888				1,561
Total contractual cash obligations		$	8,121			$	1,452			$	2,593			$	2,173			$	1,903
Other commercial commitments:
Letters of credit		$	1,552			$	1,552

Not included in the above table is unrecognized tax benefits of $722,000, due to the uncertainty of the date of occurrence.

Continued Dumping and Subsidy Offset Act (CDSOA)

We recorded income of $1.6 million, $9.3 million, and $11.5 million in 2010, 2009, and 2008, respectively, from CDSOA payments and other related payments, net of legal expenses. These payments came from the case involving Wooden Bedroom Furniture imported from China. The CDSOA provides for distribution of monies collected by U.S. Customs and Border Protection (CBP) for imports covered by antidumping duty orders entering the United States through September 30, 2007 to qualified affected domestic producers. Antidumping duties for merchandise entering the U.S. after September 30, 2007 remain with the U.S. Treasury.

Approximately $152 million of CDSOA funds that otherwise would have been available for distribution to qualifying affected domestic producers of wooden bedroom furniture were set aside by the government over the past five years as a result of holdings in two court cases involving challenges to the CDSOA on constitutional grounds. In 2009, the U.S. Court of Appeals for the Federal Circuit determined in one of those cases that the CDSOA does not violate the Constitution’s free speech and equal protection guarantees. In May 2010, the U.S. Supreme Court denied a petition for certiorari that sought review of the Federal Circuit’s decision. In 2010, the Federal Circuit also summarily dismissed the constitutional claims in the second of the two court cases. Eighteen other CDSOA-related cases before the U.S. Court of International Trade have been stayed in light of this litigation. The U.S. Court of International Trade has issued orders for the plaintiffs to show cause why these cases should not be dismissed. The resolution of these cases will have a significant impact on the amount of CDSOA funds that may be distributed to qualifying affected domestic producers of wooden bedroom furniture. Based on our allocation of the CDSOA funds distributed in each of the past five years, however, we could receive approximately $41 million of the funds set aside by the government, although the extent to which such distributions ultimately may be received is uncertain.

According to CBP, as of October 1, 2010, approximately $13 million in duties had been secured by cash deposits and bonds on unliquidated entries of wooden bedroom furniture that are subject to the CDSOA, 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. The amount ultimately distributed will be impacted by the annual administrative review process, which can retroactively increase or decrease the actual duties owed on entries secured by cash deposits and bonds, and by appeals concerning the results of the annual administrative reviews. Assuming our percentage allocation in future years is the same as it was for the 2010 distribution (approximately 30% of the funds distributed) and the $13 million collected by the government as of October 1, 2010 does not change as a result of the annual administrative review process or otherwise, we could receive approximately $1 million to $4 million in CDSOA funds in addition to the funds held back and set aside pending the final resolution of the court cases discussed above.

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

Critical Accounting Policies

We have chosen accounting policies that are necessary to accurately and fairly report our operational and financial position. Below are the critical accounting policies that involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Allowance for doubtful accounts — We maintain an allowance for doubtful accounts for estimated losses resulting from the failure of our customers to make required payments. We perform ongoing credit evaluations of our customers and monitor their payment patterns. Should the financial condition of our customers deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required which would reduce our earnings.

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 our market value based on current trends. Those items having a market value less than cost are written down to their market value. If we fail to forecast demand accurately, we could be required to write off additional non-saleable inventory, which would also reduce our earnings.

Deferred Taxes — We recognize deferred tax assets and liabilities based on the estimated future tax effects of differences between the financial statements and the tax basis of assets and liabilities given the enacted tax laws. We evaluate the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that the company will realize its deferred tax assets in the future. The assessment of whether or not a valuation allowance is required often requires significant judgment, including the forecast of future taxable income. Adjustments to the deferred tax valuation allowance are made to earnings in the period when such assessment is made.

In preparation of the company’s financial statements, management exercises judgments in estimating the potential exposure to unresolved tax matters and applies a more likely than not criteria approach for recording tax benefits related to uncertain tax positions. While actual results could vary, in management’s judgment, the company has adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters.

Long-lived assets — Property, plant and equipment is 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 that would lower our earnings. Depreciation policy reflects judgments on the estimated useful lives of assets. If the estimated remaining useful lives of our assets decrease, we would be required to depreciate our assets more quickly, which would also lower our earnings.

Off-Balance Sheet Arrangements

We do not have transactions or relationships with “special purpose” entities, and we do not have any off-balance sheet financing other than normal operating leases primarily for warehousing, showroom and office space, and certain technology equipment.

Item 7A.		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 products obtained from offshore sourcing and reduce our earnings, unless we are able to increase our prices for these items to reflect any such increased cost.

Item 8.		Financial Statements and Supplementary Data

The consolidated financial statements and schedule listed in items 15(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.

Item 9A.		Controls and Procedures

Conclusion Regarding the Effectiveness 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 annual report.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control — Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2010. The effectiveness of our internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, our independent public accounting firm, as stated in their report, which is included on page F-2 of this Annual Report on Form 10-K.

Changes in Internal Controls over Financial Reporting

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

Item 9B.		Other Information

None.

PART III

Item 10.		Directors, Executive Officers and Corporate Governance

Information related to our directors is set forth under the caption “Election of Directors” of our proxy statement (the “2011 Proxy Statement”) for our annual meeting of shareholders scheduled for April 27, 2011. Such information is incorporated herein by reference.

Information relating to compliance with section 16(a) of the Exchange Act is set forth under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of our 2011 Proxy Statement and is incorporated herein by reference.

Information relating to the Audit Committee and Board of Directors’ determinations concerning whether a member of the Audit Committee of the Board is a “financial expert” as that term is defined under Item 407(d) (5) of Regulation S-K is set forth under the caption “Board and Board Committee Information” of our 2011 Proxy Statement and is incorporated herein by reference.

Information concerning our executive officers is included in Part I of this report under the caption “Executive Officers of the Registrant.”

We have adopted a code of ethics that applies to our associates, including the principal executive officer, principal financial officer, principal accounting officer or controller, or person performing similar functions. Our code of ethics is posted on our website at www.stanleyfurniture.com. Amendments to and waivers from our code of ethics will be posted to our website when permitted by applicable SEC and NASDAQ rules and regulations.

Item 11.		Executive Compensation

Information relating to our executive compensation is set forth under the captions “Compensation of Executive Officers,” “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” of our 2011 Proxy Statement. Such information is incorporated herein by reference.

Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Our information relating to this item is set forth under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of our 2011 Proxy Statement. Such information is incorporated herein by reference.

Information concerning our equity compensation plan is included in Part II of this report under the caption “Equity Compensation Plan Information.”

Item 13.		Certain Relationships and Related Transactions, and Director Independence

Our information relating to this item is set forth under the caption “Compensation of Executive Officers — Employment Agreements and Related Transactions” and “Board and Board Committee Information” of our 2011 Proxy Statement. Such information is incorporated herein by reference.

Item 14.		Principal Accounting Fees and Services

Our information relating to this item is set forth under the caption “Independent Registered Public Accountants” of our 2011 Proxy Statement. Such information is incorporated herein by reference.

PART IV

Item 15.		Exhibits, Financial Statement Schedules

(a)

Documents filed as a part of this Report:

	(1)		The following consolidated financial statements are included in this report on Form 10-K:
			Report of Independent Registered Public Accounting Firm
			Consolidated Balance Sheets as of December 31, 2010 and 2009
			Consolidated Statements of Income for each of the three years in the period ended December 31, 2010
			Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended December 31, 2010.
			Consolidated Statements of Cash Flow for each of the three years in the period ended December 31, 2010
			Notes to Consolidated Financial Statements
	(2)		Financial Statement Schedule:
			Schedule II — Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 2010.

(b)

Exhibits:

	3.1			The Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 10-Q (Commission File No. 0-14938) for the quarter ended July 2, 2005).
	3.2			By-laws of the Registrant as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed February 3, 2010).
	4.1			The Certificate of Incorporation and By-laws of the Registrant as currently in effect (incorporated by reference to Exhibits 3.1 and 3.2 hereto).

	10.1			Supplemental Retirement Plan of Stanley Furniture Company, Inc., as restated effective January 1, 1993 (incorporated by reference to Exhibit 10.8 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 1993).(1)
	10.2			First Amendment to Supplemental Retirement Plan of Stanley Furniture Company, Inc., effective December 31, 1995, adopted December 15, 1995 (incorporated by reference to Exhibit 10.7 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 1995).(1)
	10.3			Stanley Interiors Corporation Deferred Compensation Capital Enhancement Plan, effective January 1, 1986, as amended and restated effective August 1, 1987 (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement on Form S-1 (Commission File No. 0-14938), No. 33-7300).(1)
	10.4			Employment Agreement dated as of December 31, 2008, between Douglas I. Payne and the Registrant (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed on December 10, 2008).(1)
	10.5			2000 Incentive Compensation Plan (incorporated by reference to Exhibit A to the Registrant’s Proxy Statement (Commission File No. 0-14938) for the special meeting of stockholders held on August 24, 2000).(1)
	10.6			Second Amendment to Supplemental Retirement Plan of Stanley Furniture Company, Inc. effective January 1, 2002 (incorporated by reference to Exhibit 10.33 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2002).(1)
	10.7			2005 Incentive Compensation Award, dated as of December 15, 2004, from the Registrant to Douglas I. Payne (incorporated by reference to Exhibit 10.22 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2004).(1)
	10.8			Form of Stock Option Award under 2000 Incentive Plan (ISO) (incorporated by reference to Exhibit 10.23 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2004).(1)
	10.9			Form of Stock Option Award under 2000 Incentive Plan (ISO/NSO) (incorporated by reference to Exhibit 10.24 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2004).(1)
	10.10			Form of Stock Option Award under 2000 Incentive Plan (Directors) (incorporated by reference to Exhibit 10.25 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2004).(1)
	10.11			Form of Indemnification Agreement between the Registrant and each of its Directors (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed on September 25, 2008).
	10.12			Change in Control Protection Agreement, dated December 11, 2009, by and between Stanley Furniture Company, Inc. and Glenn Prillaman (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (commission File No. 0-14938) filed on December 14, 2009).(1)
	10.13			2008 Incentive Compensation Plan (incorporated by reference to Exhibit A to the Registrant’s Proxy Statement (Commission File No. 0-14938) for the annual meeting of stockholders held on April 15, 2008).(1)
	10.14			Form of Stock Option Award under 2008 Incentive Plan (Officers) (incorporated by reference to Exhibit 10.21 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2008).(1)

	10.15			Form of Stock Option Award under 2008 Incentive Plan (Directors) (incorporated by reference to Exhibit 10.22 to the Registrant’s Form 10-K (Commission File No. 0-14938) for the year ended December 31, 2008).(1)
	10.16			Form of Separation Agreement and General Release between Stephen A. Bullock and the Registrant (incorporated by reference to the Registrant’s Form 8-K (Commission File No. 0-14938) filed on December 14, 2009).(1)
	10.17			Change in Control Protection Agreement, dated August 11, 2010, by and between the Registrant and Micah Goldstein (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K (Commission File No. 0-14938) filed August 16, 2010).(1)
	10.18			Amendment to the Change in Control Protection Agreement dated September 10, 2010, by and between the Registrant and Glenn Prillaman (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K (Commission File No. 0-14938) filed September 16, 2010).(1)
	10.19			Amendment to Employment Agreement dated September 10, 2010, by and between the Registrant and Douglas I. Payne (incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K (Commission File No. 0-14938) filed September 16, 2010).(1)
	21			List of Subsidiaries. (2)
	23			Consent of PricewaterhouseCoopers LLP. (2)
	31.1			Certification by Glenn Prillaman, our Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (2)
	31.2			Certification by Micah S. Goldstein, our Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (2)
	32.1			Certification by Glenn Prillaman, our Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.(2)
	32.2			Certification by Micah S. Goldstein, 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.(2)

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 our behalf by the undersigned, thereunto duly authorized.

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/ Michael P. Haley   (Michael P. Haley)		Chairman and Director		February 3, 2011
/s/ Glenn Prillaman   (Glenn Prillaman)		President and Chief Executive Officer (Principal Executive Officer) and Director		February 3, 2011
/s/ Micah S. Goldstein   (Micah S. Goldstein)		Chief Operating and Financial Officer and Secretary (Principal Financial and Accounting Officer)		February 3, 2011
/s/ Robert G. Culp, III   (Robert G. Culp, III)		Director		February 3, 2011
/s/ Dominic P. Dascoli   (Dominic P. Dascoli)		Director		February 3, 2011
/s/ Thomas L. Millner   (Thomas L. Millner)		Director		February 3, 2011
/s/ T. Scott McIlhenny, Jr.   (T. Scott McIlhenny, Jr.)		Director		February 3, 2011
/s/ Albert L. Prillaman   (Albert L. Prillaman)		Director		February 3, 2011

STANLEY FURNITURE COMPANY, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2010

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets as of December 31, 2010 and 2009			F-3
Consolidated Statements of Income for each of the three years in the period ended December 31, 2010			F-4
Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended December 31, 2010			F-5
Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2010			F-6
Notes to Consolidated 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, 2010			S-1

Report of Independent Registered Public Accounting Firm

To the Board of the Directors and Stockholders of Stanley Furniture Company, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Stanley Furniture Company, Inc. and its subsidiaries at December 31, 2010 and December 31, 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PricewaterhouseCoopers LLP
Richmond, Virginia
February 2, 2011

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

		December 31,
		2010				2009
ASSETS
Current assets:
Cash		$	25,532			$	41,827
Accounts receivable, less allowances of $1,240 and $1,747			9,888				15,297
Inventories:
Finished goods			20,855				22,376
Work-in-process			1,709				8,184
Raw materials			3,131				6,665
Total inventories			25,695				37,225
Prepaid expenses and other current assets			5,883				4,898
Income tax receivable			3,952				6,882
Deferred income taxes			1,021				3,433
Total current assets			71,971				109,562
Property, plant and equipment, net			15,980				31,375
Goodwill							9,072
Other assets			445				453
Total assets		$	88,396			$	150,462
LIABILITIES
Current liabilities:
Current maturities of long-term debt						$	1,429
Accounts payable		$	9,116				11,633
Accrued salaries, wages and benefits			4,805				6,597
Other accrued expenses			2,921				2,626
Lease related obligation			2,360
Total current liabilities			19,202				22,285
Long-term debt, exclusive of current maturities							26,428
Deferred income taxes			1,021				2,128
Other long-term liabilities			6,378				6,774
Total liabilities			26,601				57,615
Commitments and Contingencies
STOCKHOLDERS’ EQUITY
Common stock, $0.02 par value, 25,000,000 shares authorized, 14,344,679 and 10,332,179 shares issued and outstanding, respectively			287				207
Capital in excess of par value			14,433				1,897
Retained earnings			47,062				90,852
Accumulated other comprehensive loss			13				(109	)
Total stockholders’ equity			61,795				92,847
Total liabilities and stockholders’ equity		$	88,396			$	150,462

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

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

		For the Years Ended
		December 31,
		2010				2009				2008
Net sales		$	137,012			$	160,451			$	226,522
Cost of sales			153,115				158,695				197,995
Gross profit (loss)			(16,103	)			1,756				28,527
Selling, general and administrative expenses			20,625				26,666				32,375
Goodwill impairment charge			9,072
Operating income (loss)			(45,800	)			(24,910	)			(3,848	)
Income from Continued Dumping and Subsidy Offset Act, net			1,556				9,340				11,485
Other income, net			25				160				308
Interest income			3				45				591
Interest expense			3,537				3,748				3,802
Income (loss) before income taxes			(47,753	)			(19,113	)			4,734
Income tax (benefit) expense			(3,963	)			(7,362	)			998
Net income (loss)		$	(43,790	)		$	(11,751	)		$	3,736
Earnings (loss) per share:
Basic		$	(4.11	)		$	(1.14	)		$	.36
Diluted		$	(4.11	)		$	(1.14	)		$	.36
Weighted average shares outstanding:
Basic			10,650				10,332				10,332
Diluted			10,650				10,332				10,332
Cash dividends declared and paid per common share		$				$				$	.40

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

STANLEY FURNITURE COMPANY, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For each of the three years in the period ended December 31, 2010

(in thousands, except per share data)

																		Accumulated
										Capital in								Other
		Common Stock								Excess of				Retained				Comprehensive
		Shares				Amount				Par Value				Earnings				Loss				Total
Balance at December 31, 2007			10,332				207				591				102,999				(946	)			102,851
Net income															3,736								3,736
Prior service cost, net of deferred income tax benefit of $3																			(5	)			(5	)
Actuarial gain, net of deferred income tax expense of $118																			191				191
Comprehensive Income																							3,922
Stock-based compensation											467												467
Dividends paid, $0.40 per share															(4,132	)							(4,132	)
Balance at December 31, 2008			10,332				207				1,058				102,603				(760	)			103,108
Net loss															(11,751	)							(11,751	)
Negative plan amendment, net of deferred income tax benefit of $130																			209				209
Prior service cost, net of deferred income tax benefit of $326																			526				526
Actuarial loss, net of deferred income tax expense of $138																			(84	)			(84	)
Comprehensive loss																							(11,100	)
Stock-based compensation											839												839
Balance at December 31, 2009			10,332			$	207			$	1,897			$	90,852			$	(109	)		$	92,847
Net loss															(43,790	)							(43,790	)
Prior service cost																			(57	)			(57	)
Actuarial gain																			179				179
Comprehensive loss																							(43,668	)
Exercise of stock options			13								116												116
Issuance of common stock			4,000				80				11,717												11,797
Stock-based compensation											703												703
Balance at December 31, 2010			14,345			$	287			$	14,433			$	47,062			$	13			$	61,795

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

STANLEY FURNITURE COMPANY, INC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

		For the Years Ended
		December 31,
		2010				2009				2008
Cash flows from operating activities:
Cash received from customers		$	142,481			$	168,504			$	230,255
Cash paid to suppliers and employees			(158,560	)			(171,349	)			(215,527	)
Cash from Continued Dumping and Subsidy Offset Act, net			2,232				7,443				10,828
Interest paid			(3,750	)			(3,664	)			(3,111	)
Income tax refunds (payments)			8,195				(2,120	)			(4,168	)
Net cash (used) provided by operating activities			(9,402	)			(1,186	)			18,277
Cash flows from investing activities:
Capital expenditures			(857	)			(2,621	)			(2,261	)
Proceeds from sale of assets			5,731				1,303
Other, net			(28	)							360
Net cash provided (used) by investing activities			4,846				(1,318	)			(1,901	)
Cash flows from financing activities:
Repayment of senior notes			(27,857	)			(1,429	)			(1,429	)
Dividends paid											(4,132	)
Proceeds from lease related obligation			2,360
Proceeds from exercise of stock options			116
Proceeds from issuance of common stock			11,797
Proceeds from insurance policy loans			1,845				1,747				1,550
Net cash (used) provided by financing activities			(11,739	)			318				(4,011	)
Net (decrease) increase in cash			(16,295	)			(2,186	)			12,365
Cash at beginning of year			41,827				44,013				31,648
Cash at end of year		$	25,532			$	41,827			$	44,013
Reconciliation of net (loss) income to net cash (used) provided by operating activities:
Net (loss) income		$	(43,790	)		$	(11,751	)		$	3,736
Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities:
Goodwill impairment charge			9,072
Depreciation			9,357				5,908				8,805
Amortization			48				86				48
Inventory write-down							2,077
Deferred income taxes			1,305				(177	)			(2,571	)
Stock-based compensation			703				839				467
Other, net			657
Changes in assets and liabilities:
Accounts receivable			5,409				6,576				3,520
Inventories			11,530				8,042				10,742
Prepaid expenses and other current assets			508				(10,435	)			(2,041	)
Accounts payable			(2,517	)			397				(4,870	)
Accrued salaries, wages and benefits			(1,667	)			1,580				(525	)
Other accrued expenses			292				(2,875	)			904
Other assets			87				66				103
Other long-term liabilities			(396	)			(1,519	)			(41	)
Net cash (used) provided by operating activities		$	(9,402	)		$	(1,186	)		$	18,277

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

STANLEY FURNITURE COMPANY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Organization and Basis of Presentation

The consolidated financial statements include Stanley Furniture Company, Inc. and our wholly owned subsidiaries. All significant inter-company accounts and transactions have been eliminated. We are a leading designer, manufacturer and importer of wood furniture exclusively targeted at the premium price range of the residential market.

We operate in one business segment. Substantially all revenues result from the sale of residential furniture products in the United States. Substantially all trade accounts receivable are due from retailers in this market, which consists of a large number of entities with a broad geographical dispersion.

Subsequent events were evaluated through the date these financial statements were issued.

Cash Equivalents

Cash and short-term, highly-liquid investments with original maturities of three months or less are considered cash and cash equivalents.

Revenue Recognition

Sales are recognized when products are shipped to customers. Revenue includes amounts billed to customers for shipping.

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. 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 property, plant and equipment, which could result in impairment charges in future periods. Depreciation policy reflects judgments on the estimated useful lives of assets.

Income Taxes

Deferred income taxes are determined based on the difference between the consolidated financial statement and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense represents the change in the deferred tax asset/liability balance. Income tax credits are reported as a reduction of income tax expense in the year in which the credits are generated. A valuation allowance is recorded when it is more likely than not that a deferred tax asset will not be realized. Interest and penalties on uncertain tax positions are recorded as income tax expense.

Fair Value of Financial Instruments

Accounting for fair value measurements requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3). The fair value of trade receivables, trade payables and letters of credit approximate the carrying amount because of the short maturity of these instruments.

STANLEY FURNITURE COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. Summary of Significant Accounting Policies (continued)