##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 2, 2010
 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.
  Delaware
    
    54-1272589(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1641 Fairystone Park Highway, Stanleytown, Virginia 24168
 (276) 627- 2010
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSCONSOLIDATED BALANCE SHEETSCONSOLIDATED STATEMENTS OF INCOMECONSOLIDATED STATEMENTS OF CASH FLOWNOTES TO CONSOLIDATED FINANCIAL STATEMENTSITEM 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsITEM 3. Quantitative and Qualitative Disclosures about Market RiskITEM 4. Controls and ProceduresPart II. OTHER INFORMATIONItem 1A. Risk FactorsItem 6. ExhibitsSIGNATUREExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 ITEM 1.
    
    FINANCIAL STATEMENTS
 STANLEY FURNITURE COMPANY, INC.
 
  
 October 2,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash
    
    $
    16,889
    
    
    $
    41,827Accounts receivable, less allowances of $1,794 and $1,747
    
    
    16,076
    
    
    
    15,297Inventories:Finished goods
    
    
    22,812
    
    
    
    22,376Work-in-process
    
    
    4,571
    
    
    
    8,184Raw materials
    
    
    3,290
    
    
    
    6,665Total inventories
    
    
    30,673
    
    
    
    37,225Prepaid expenses and other current assets
    
    
    3,895
    
    
    
    4,898Income tax receivable
    
    
    4,951
    
    
    
    6,882Deferred income taxes
    
    
    3,763
    
    
    
    3,433Total current assets
    
    
    76,247
    
    
    
    109,562Property, plant and equipment, net
    
    
    25,641
    
    
    
    31,375Goodwill
    
    
    
    
    
    
    9,072Other assets
    
    
    1,027
    
    
    
    453Total assets
    
    $
    102,915
    
    
    $
    150,462LIABILITIESCurrent liabilities:Current maturities of long-term debt
    
    $
    15,000
    
    
    $
    1,429Accounts payable
    
    
    9,387
    
    
    
    11,633Accrued salaries, wages and benefits
    
    
    6,269
    
    
    
    6,597Other accrued expenses
    
    
    3,439
    
    
    
    2,626Total current liabilities
    
    
    34,095
    
    
    
    22,285Long-term debt, exclusive of current maturities
    
    
    
    
    
    
    26,428Deferred income taxes
    
    
    3,868
    
    
    
    2,128Other long-term liabilities
    
    
    6,942
    
    
    
    6,774Total liabilities
    
    
    44,905
    
    
    
    57,615STOCKHOLDERS EQUITYCommon stock, $.02 par value, 25,000,000 shares authorized,
10,344,679 and 10,332,179 shares issued and
outstanding, respectively
    
    
    207
    
    
    
    207Capital in excess of par value
    
    
    2,565
    
    
    
    1,897Retained earnings
    
    
    55,386
    
    
    
    90,852Accumulated other comprehensive loss
    
    
    (148
    )
    
    
    (109
    )Total stockholders equity
    
    
    58,010
    
    
    
    92,847Total liabilities and stockholders equity
    
    $
    102,915
    
    
    $
    150,462
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STANLEY FURNITURE COMPANY, INC.
 
    Three Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 2,
    
    
    September 26,
    
    
    October 2,
    
    
    September 26,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    34,897
    
    
    $
    38,455
    
    
    $
    109,323
    
    
    $
    120,545Cost of sales
    
    
    35,586
    
    
    
    39,056
    
    
    
    117,494
    
    
    
    112,829Gross profit (loss)
    
    
    (689
    )
    
    
    (601
    )
    
    
    (8,171
    )
    
    
    7,716Selling, general and administrative expenses
    
    
    5,756
    
    
    
    6,875
    
    
    
    18,172
    
    
    
    22,345Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    9,072Operating loss
    
    
    (6,445
    )
    
    
    (7,476
    )
    
    
    (35,415
    )
    
    
    (14,629
    )Other income (expense), net
    
    
    (17
    )
    
    
    45
    
    
    
    19
    
    
    
    133Interest income
    
    
    
    
    
    
    3
    
    
    
    3
    
    
    
    44Interest expense
    
    
    857
    
    
    
    953
    
    
    
    2,830
    
    
    
    2,809Loss before income taxes
    
    
    (7,319
    )
    
    
    (8,381
    )
    
    
    (38,223
    )
    
    
    (17,261
    )Income tax benefit
    
    
    (2,385
    )
    
    
    (3,308
    )
    
    
    (2,757
    )
    
    
    (6,789
    )Net loss
    
    $
    (4,934
    )
    
    $
    (5,073
    )
    
    $
    (35,466
    )
    
    $
    (10,472
    )Loss per share:Basic
    
    $
    (.48
    )
    
    $
    (0.49
    )
    
    $
    (3.43
    )
    
    $
    (1.01
    )Diluted
    
    $
    (.48
    )
    
    $
    (0.49
    )
    
    $
    (3.43
    )
    
    $
    (1.01
    )Weighted average shares outstanding:Basic
    
    
    10,345
    
    
    
    10,332
    
    
    
    10,341
    
    
    
    10,332Diluted
    
    
    10,345
    
    
    
    10,332
    
    
    
    10,341
    
    
    
    10,332
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STANLEY FURNITURE COMPANY, INC.
 
    Nine Months EndedOctober 2,
    
    
    September 26,2010
    
    
    2009Cash flows from operating activities:Cash received from customers
    
    $
    108,151
    
    
    $
    124,071Cash paid to suppliers and employees
    
    
    (125,495
    )
    
    
    (120,262
    )Interest paid
    
    
    (3,046
    )
    
    
    (2,725
    )Income taxes received (paid)
    
    
    6,429
    
    
    
    (2,531
    )Net cash used by operating activities
    
    
    (13,961
    )
    
    
    (1,447
    )Cash flows from investing activities:Capital expenditures
    
    
    (1,203
    )
    
    
    (1,702
    )Purchase of other assets
    
    
    (28
    )
    
    
    (55
    )Proceeds from sale of assets
    
    
    1,147
    
    
    
    1,303Net cash used by investing activities
    
    
    (84
    )
    
    
    (454
    )Cash flows from financing activities:Repayment of senior notes
    
    
    (12,857
    )
    
    
    (1,429
    )Proceeds from insurance policy loans
    
    
    1,845
    
    
    
    1,651Proceeds from exercise of stock options
    
    
    119Other
    
    
    
    
    
    
    96Net cash (used) provided by financing activities
    
    
    (10,893
    )
    
    
    318Net decrease in cash
    
    
    (24,938
    )
    
    
    (1,583
    )Cash at beginning of period
    
    
    41,827
    
    
    
    44,013Cash at end of period
    
    $
    16,889
    
    
    $
    42,430Reconciliation of net loss to net cash used by operating activities:Net loss
    
    $
    (35,466
    )
    
    $
    (10,472
    )Goodwill impairment charge
    
    
    9,072Depreciation and amortization
    
    
    6,815
    
    
    
    4,291Deferred income taxes
    
    
    1,410
    
    
    
    (192
    )Stock-based compensation
    
    
    549
    
    
    
    692Other
    
    
    30Changes in assets and liabilities:Accounts receivable
    
    
    (779
    )
    
    
    3,821Inventories
    
    
    6,552
    
    
    
    11,970Income tax receivable
    
    
    1,931Prepaid expenses and other current assets
    
    
    (2,019
    )
    
    
    (8,809
    )Accounts payable
    
    
    (2,246
    )
    
    
    (1,079
    )Accrued salaries, wages and benefits
    
    
    (697
    )
    
    
    997Other accrued expenses
    
    
    1,143
    
    
    
    (2,161
    )Other assets
    
    
    (424
    )
    
    
    (404
    )Other long-term liabilities
    
    
    168
    
    
    
    (101
    )Net cash used by operating activities
    
    $
    (13,961
    )
    
    $
    (1,447
    )
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STANLEY FURNITURE COMPANY, INC.
 
    Preparation of Interim Unaudited Consolidated Financial Statements
  Property, Plant and Equipment
 October 2,
    
    
    December 31,2010
    
    
    2009Land and buildings
    
    $
    33,665
    
    
    $
    33,900Machinery and equipment
    
    
    63,403
    
    
    
    63,403Office furniture and equipment
    
    
    1,284
    
    
    
    1,284Construction in process
    
    
    1,873
    
    
    
    670Property, plant and equipment, at cost
    
    
    100,225
    
    
    
    99,257Less accumulated depreciation
    
    
    74,584
    
    
    
    67,882Property, plant and equipment, net
    
    $
    25,641
    
    
    $
    31,375
 Debt
 October 2,
    
    
    December 31,2010
    
    
    20098.23% senior notes due through May 3, 2015
    
    $
    15,000
    
    
    $
    25,0008.44% senior notes due through May 3, 2011
    
    
    
    
    
    
    2,857Total
    
    
    15,000
    
    
    
    27,857Less current maturities
    
    
    15,000
    
    
    
    1,429Long-term debt, exclusive of current maturities
    
    $
    
    
    
    $
    26,428
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Income taxes
  Goodwill
  Employee Benefit Plans
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 2,
    
    
    September 26,
    
    
    October 2,
    
    
    September 26,2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    
    
    
    
    $
    19
    
    
    
    
    
    
    $
    58Interest cost
    
    $
    47
    
    
    
    71
    
    
    $
    140
    
    
    
    213Amortization of transition obligation
    
    
    
    
    
    
    33
    
    
    
    
    
    
    
    98Amortization of prior service cost
    
    
    (39
    )
    
    
    (2
    )
    
    
    (115
    )
    
    
    (6
    )Amortization of accumulated loss
    
    
    18
    
    
    
    5
    
    
    
    54
    
    
    
    14Net periodic postretirement benefit cost
    
    $
    26
    
    
    $
    126
    
    
    $
    79
    
    
    $
    377
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Stockholders Equity
  Three Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 2,
    
    
    September 26,
    
    
    October 2,
    
    
    September 26,2010
    
    
    2009
    
    
    2010
    
    
    2009Weighted average shares outstanding
for basic calculation
    
    
    10,345
    
    
    
    10,332
    
    
    
    10,341
    
    
    
    10,332Add: Effect of dilutive stock optionsWeighted average shares outstanding
Adjusted for diluted calculation
    
    
    10,345
    
    
    
    10,332
    
    
    
    10,341
    
    
    
    10,332
   AccumulatedCapital in
    
    
    
    
    
    
    OtherCommon
    
    
    Excess of
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Par Value
    
    
    Earnings
    
    
    LossBalance, December 31, 2009
    
    $
    207
    
    
    $
    1,897
    
    
    $
    90,852
    
    
    $
    (109
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (35,466
    )Exercise of stock options
    
    
    
    
    
    
    119Stock-based compensation
    
    
    
    
    
    
    549Adjustment to net periodic benefit cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39
    )Balance, October 2, 2010
    
    $
    207
    
    
    $
    2,565
    
    
    $
    55,386
    
    
    $
    (148
    )
  Three Months Ended
    
    
    Nine Months EndedOctober 2,
    
    
    September 26,
    
    
    October 2,
    
    
    September 26,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (4,934
    )
    
    $
    (5,073
    )
    
    $
    (35,466
    )
    
    $
    (10,472
    )Adjustment to net periodic benefit cost
    
    
    (13
    )
    
    
    22
    
    
    
    (39
    )
    
    
    66Comprehensive loss
    
    $
    (4,947
    )
    
    $
    (5,051
    )
    
    $
    (35,505
    )
    
    $
    (10,406
    )
 Restructuring and Related Charges
     7




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Severance and othertermination costs
    
    
    Other Cost
    
    
    TotalAccrual at January 1, 2010
    
    $
    1,070
    
    
    
    
    
    
    $
    1,070Charges to expense
    
    
    776
    
    
    $
    404
    
    
    
    1,180Cash payments
    
    
    (875
    )
    
    
    (109
    )
    
    
    (984
    )Accrual at October 2, 2010
    
    $
    971
    
    
    $
    295
    
    
    $
    1,266
  Severance and othertermination costs
    
    
    Other Cost
    
    
    TotalAccrual at January 1, 2009
    
    $
    1,446
    
    
    
    
    
    
    $
    1,446Charges to expense
    
    
    109
    
    
    $
    82
    
    
    
    191Cash payments
    
    
    (1,385
    )
    
    
    (82
    )
    
    
    (1,467
    )Accrual at September 26, 2009
    
    $
    170
    
    
    $
    
    
    
    $
    170
  
 ITEM 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Overview
  
    
    We will transition the majority of the manufacturing of the Stanley Furniture adult
product line from our Stanleytown, VA facility to several strategic off-shore vendors with
whom we have existing working relationships. A substantial portion of the Stanleytown
facility will become a warehousing and distribution center. In addition, we will retain a
domestic assembly and finish process at our Martinsville facility to continue offering
multiple finish options on certain items across various product lines. These actions will
take place over the balance of 2010 and reflect our belief 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, VA facility.
 
    
    Our Young America nursery and youth product line will continue to be exclusively
manufactured in our Robbinsville, NC facility, except for certain component SKUs of nominal
revenue.
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Results of Operations
      Financial Condition, Liquidity and Capital Resources
     9




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Continued Dumping and Subsidy Offset Act (CDSOA)
   10




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Critical Accounting Policies
  Forward-Looking Statements
   11




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ITEM 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
  
 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.
 
  
 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 restructuring plan announced in May 2010 may not be successful, and will increase our reliance
on foreign sourcing.
  We may not be able to sustain sales and earnings levels due to economic downturns.
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Business failures, or the loss, of large customers could result in a decrease in our future sales
and earnings.
  We may not be able to sustain current sales and earnings due to the actions and strength of our
competitors.
  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.
  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 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 and may need to find alternative sourcing arrangements at a
higher cost, or may be forced to discontinue the product. Also, delivery of goods from our
foreign sourcing partners may be delayed due to manufacturing interruptions at their
facilities, as well as 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.
  13




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
    
    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.
  We may not be able to renegotiate financial covenants that become effective under our debt in the
third quarter of 2011. In this event, we would need to use cash on hand or obtain other financing
to repay this debt and pay yield maintenance amounts required in connection with pre-payment.
  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.
  We may not be able to maintain or 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
could result in a decrease in our sales and earnings.
  Future cost of compliance with environmental, safety and health regulations could reduce our
earnings.
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Extended business interruption at our manufacturing facilities could result in reduced sales.
  
 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 October 2,
2005).3.2
    
    
    By-laws of the Registrant as amended (incorporated by reference to
Exhibit 3 to the Registrants Form 8-K (Commission File No. 0-14938)
filed December 7, 2007).4.1
    
    
    Second Amended and Restated Note Purchase and Private Shelf Agreement
dated as of May 11, 2010, among the Registrant, The Prudential
Insurance Company of America, the other purchasers named therein and
the affiliated of Prudential who became purchasers as defined
therein. (incorporated by reference to Exhibit 4.1 to the
Registrants Form 10-Q (Commission File No. 0-14938) for the quarter
ended April 3, 2010).4.2
    
    
    Security Agreement dated as of May 11, 2010, by the Registrant,
certain subsidiaries of the Registrant, and Additional Grantors as
defined therein, in favor of The Bank of New York Mellon Trust
Company, N.A., as collateral agent for the benefit of The Prudential
Insurance Company of America and each holder of Notes. (incorporated
by reference to Exhibit 4.2 to the Registrants Form 10-Q (Commission
File No. 0-14938) for the quarter ended April 3, 2010).4.3
    
    
    First Amendment to Second Amended and Restated Note Purchase and
Private Shelf Agreement dated as of August 2, 2010, among the
Registrant, The Prudential Insurance Company of America and other
holders of Notes names therein, (incorporated by reference to Exhibit
4.01 to the Registrants Form 8-K (Commission File No. 0-14938) filed
August 6, 2010).10.1
    
    
    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, 2009).10.2
    
    
    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).10.3
    
    
    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).31.1
    
    
    Certification by Glenn Prillaman, our 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 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. (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  15




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SIGNATURE
  Date: November 4, 2010
    STANLEY FURNITURE COMPANY, INC.By:
    /s/ Douglas I. PayneDouglas I. PayneExecutive V.P.  Finance & Administration

and Secretary

(Principal Financial and Accounting Officer)  16