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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 July 3, 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
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller 
reporting company)
 Yes o No 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.
 
 
  July 3,
    
    
    December 31,2010
    
    
    2009ASSETSCurrent assets:Cash
    
    $
    18,866
    
    
    $
    41,827Accounts receivable, less allowances of $1,836 and $1,747
    
    
    17,135
    
    
    
    15,297Inventories:Finished goods
    
    
    23,362
    
    
    
    22,376Work-in-process
    
    
    5,527
    
    
    
    8,184Raw materials
    
    
    5,879
    
    
    
    6,665Total inventories
    
    
    34,768
    
    
    
    37,225Prepaid expenses and other current assets
    
    
    3,900
    
    
    
    4,898Income tax receivable
    
    
    2,106
    
    
    
    6,882Deferred income taxes
    
    
    826
    
    
    
    3,433Total current assets
    
    
    77,601
    
    
    
    109,562Property, plant and equipment, net
    
    
    27,703
    
    
    
    31,375Goodwill
    
    
    
    
    
    
    9,072Other assets
    
    
    1,581
    
    
    
    453Total assets
    
    $
    106,885
    
    
    $
    150,462LIABILITIESCurrent liabilities:Current maturities of long-term debt
    
    $
    3,828
    
    
    $
    1,429Accounts payable
    
    
    11,789
    
    
    
    11,633Accrued salaries, wages and benefits
    
    
    6,845
    
    
    
    6,597Other accrued expenses
    
    
    2,925
    
    
    
    2,626Total current liabilities
    
    
    25,387
    
    
    
    22,285Long-term debt, exclusive of current maturities
    
    
    11,172
    
    
    
    26,428Deferred income taxes
    
    
    826
    
    
    
    2,128Other long-term liabilities
    
    
    6,677
    
    
    
    6,774Total liabilities
    
    
    44,062
    
    
    
    57,615STOCKHOLDERS EQUITYCommon stock, $.02 par value, 25,000,000 shares authorized
and 10,344,679 and 10,332,179 shares issued and
outstanding
    
    
    207
    
    
    
    207Capital in excess of par value
    
    
    2,431
    
    
    
    1,897Retained earnings
    
    
    60,320
    
    
    
    90,852Accumulated other comprehensive loss
    
    
    (135
    )
    
    
    (109
    )Total stockholders equity
    
    
    62,823
    
    
    
    92,847Total liabilities and stockholders equity
    
    $
    106,885
    
    
    $
    150,462
   2




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STANLEY FURNITURE COMPANY, INC.
 
 
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009Net sales
    
    $
    37,902
    
    
    $
    42,326
    
    
    $
    74,426
    
    
    $
    82,090Cost of sales
    
    
    43,014
    
    
    
    38,751
    
    
    
    81,909
    
    
    
    73,773Gross profit (loss)
    
    
    (5,112
    )
    
    
    3,575
    
    
    
    (7,483
    )
    
    
    8,317Selling, general and administrative expenses
    
    
    6,278
    
    
    
    7,653
    
    
    
    12,416
    
    
    
    15,470Goodwill impairment charge
    
    
    
    
    
    
    
    
    
    
    9,072Operating loss
    
    
    (11,390
    )
    
    
    (4,078
    )
    
    
    (28,971
    )
    
    
    (7,153
    )Other income, net
    
    
    22
    
    
    
    43
    
    
    
    37
    
    
    
    88Interest income
    
    
    1
    
    
    
    6
    
    
    
    3
    
    
    
    41Interest expense
    
    
    915
    
    
    
    907
    
    
    
    1,973
    
    
    
    1,856Loss before income taxes
    
    
    (12,282
    )
    
    
    (4,936
    )
    
    
    (30,904
    )
    
    
    (8,880
    )Income tax benefit
    
    
    (823
    )
    
    
    (1,913
    )
    
    
    (372
    )
    
    
    (3,481
    )Net loss
    
    $
    (11,459
    )
    
    $
    (3,023
    )
    
    $
    (30,532
    )
    
    $
    (5,399
    )Loss per share:Basic
    
    $
    (1.11
    )
    
    $
    (0.29
    )
    
    $
    (2.95
    )
    
    $
    (0.52
    )Diluted
    
    $
    (1.11
    )
    
    $
    (0.29
    )
    
    $
    (2.95
    )
    
    $
    (0.52
    )Weighted average shares outstanding:Basic
    
    
    10,345
    
    
    
    10,332
    
    
    
    10,339
    
    
    
    10,332Diluted
    
    
    10,345
    
    
    
    10,332
    
    
    
    10,339
    
    
    
    10,332
   3




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STANLEY FURNITURE COMPANY, INC.
 
 
  Six Months EndedJuly 3,
    
    
    June 27,2010
    
    
    2009Cash flows from operating activities:Cash received from customers
    
    $
    72,387
    
    
    $
    83,912Cash paid to suppliers and employees
    
    
    (88,454
    )
    
    
    (82,979
    )Interest paid
    
    
    (3,031
    )
    
    
    (2,729
    )Income taxes received (paid)
    
    
    6,463
    
    
    
    (2,463
    )Net cash used by operating activities
    
    
    (12,635
    )
    
    
    (4,259
    )Cash flows from investing activities:Capital expenditures
    
    
    (452
    )
    
    
    (637
    )Purchase of other assets
    
    
    (28
    )
    
    
    (23
    )Proceeds from sale of assets
    
    
    1,047
    
    
    
    1,303Net cash provided by investing activities
    
    
    567
    
    
    
    643Cash 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
    
    
    (22,961
    )
    
    
    (3,298
    )Cash at beginning of period
    
    
    41,827
    
    
    
    44,013Cash at end of period
    
    $
    18,866
    
    
    $
    40,715
 Reconciliation of net loss to net cash used by operating activities:
 Net loss
    
    $
    (30,532
    )
    
    $
    (5,399
    )Goodwill impairment charge
    
    
    9,072Depreciation and amortization
    
    
    4,129
    
    
    
    2,194Deferred income taxes
    
    
    1,307
    
    
    
    (295
    )Stock-based compensation
    
    
    415
    
    
    
    493Changes in assets and liabilities:Accounts receivable
    
    
    (1,838
    )
    
    
    2,023Inventories
    
    
    2,457
    
    
    
    6,153Income tax receivable
    
    
    4,776Prepaid expenses and other current assets
    
    
    (2,046
    )
    
    
    (5,560
    )Accounts payable
    
    
    156
    
    
    
    (1,650
    )Accrued salaries, wages and benefits
    
    
    215
    
    
    
    1,676Other accrued expenses
    
    
    306
    
    
    
    (2,932
    )Other assets
    
    
    (953
    )
    
    
    (887
    )Other long-term liabilities
    
    
    (99
    )
    
    
    (75
    )Net cash used by operating activities
    
    $
    (12,635
    )
    
    $
    (4,259
    )
   4




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STANLEY FURNITURE COMPANY, INC.
 
 
  Preparation of Interim Unaudited Consolidated Financial Statements
  Property, Plant and Equipment
 July 3,
    
    
    December 31,2010
    
    
    2009Land and buildings
    
    $
    33,900
    
    
    $
    33,900Machinery and equipment
    
    
    63,403
    
    
    
    63,403Office furniture and equipment
    
    
    1,284
    
    
    
    1,284Construction in process
    
    
    1,123
    
    
    
    670Property, plant and equipment, at cost
    
    
    99,710
    
    
    
    99,257Less accumulated depreciation
    
    
    72,007
    
    
    
    67,882Property, plant and equipment, net
    
    $
    27,703
    
    
    $
    31,375
 Debt
 July 3,
    
    
    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
    
    
    3,828
    
    
    
    1,429Long-term debt, exclusive of current maturities
    
    $
    11,172
    
    
    $
    26,428
     5




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Income taxes
  Goodwill
  Employee Benefit Plans
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009Service cost
    
    
    
    
    
    $
    20
    
    
    
    
    
    
    $
    39Interest cost
    
    $
    47
    
    
    
    71
    
    
    $
    94
    
    
    
    142Amortization of transition obligation
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    65Amortization of prior service cost
    
    
    (38
    )
    
    
    (2
    )
    
    
    (76
    )
    
    
    (4
    )Amortization of accumulated loss
    
    
    18
    
    
    
    4
    
    
    
    36
    
    
    
    9Net periodic postretirement benefit cost
    
    $
    27
    
    
    $
    125
    
    
    $
    54
    
    
    $
    251
 Stockholders Equity
  Three Months
    
    
    Six MonthsEnded
    
    
    EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009Weighted average shares outstanding
for basic calculation
    
    
    10,345
    
    
    
    10,332
    
    
    
    10,339
    
    
    
    10,332Add: Effect of dilutive stock optionsWeighted average shares outstanding
Adjusted for diluted calculation
    
    
    10,345
    
    
    
    10,332
    
    
    
    10,339
    
    
    
    10,332
  6




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AccumulatedCapital in
    
    
    
    
    
    
    OtherCommon
    
    
    Excess of
    
    
    Retained
    
    
    ComprehensiveStock
    
    
    Par Value
    
    
    Earnings
    
    
    LossBalance, December 31, 2009
    
    $
    207
    
    
    $
    1,897
    
    
    $
    90,852
    
    
    $
    (109
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (30,532
    )Exercise of stock options
    
    
    
    
    
    
    119Stock-based compensation
    
    
    
    
    
    
    415Adjustment to net periodic benefit cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26
    )Balance, July 3, 2010
    
    $
    207
    
    
    $
    2,431
    
    
    $
    60,320
    
    
    $
    (135
    )
  Three Months Ended
    
    
    Six Months EndedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (11,459
    )
    
    $
    (3,023
    )
    
    $
    (30,532
    )
    
    $
    (5,399
    )Adjustment to net periodic benefit cost
    
    
    (13
    )
    
    
    22
    
    
    
    (26
    )
    
    
    44Comprehensive loss
    
    $
    (11,472
    )
    
    $
    (3,001
    )
    
    $
    (30,558
    )
    
    $
    (5,355
    )
 Restructuring and Related Charges
     Severance and othertermination costs
    
    
    Other Cost
    
    
    TotalAccrual at January 1, 2010
    
    $
    1,070
    
    
    
    
    
    
    $
    1,070Charges to expense
    
    
    336
    
    
    $
    378
    
    
    
    714Cash payments
    
    
    (677
    )
    
    
    (43
    )
    
    
    (720
    )Accrual at July 3, 2010
    
    $
    729
    
    
    $
    335
    
    
    $
    1,064
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Severance and othertermination costs
    
    
    Other Cost
    
    
    TotalAccrual at January 1, 2009
    
    $
    1,446
    
    
    
    
    
    
    $
    1,446Charges to expense
    
    
    79
    
    
    $
    82
    
    
    
    161Cash payments
    
    
    (1,386
    )
    
    
    (82
    )
    
    
    (1,468
    )Accrual at June 27, 2009
    
    $
    139
    
    
    $
    
    
    
    $
    139
  
 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 in our Stanleytown rather than at our Martinsville
facility as announced in May 2010 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 support 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.
    Results of Operations
   8




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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
  
 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 second quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
  11




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Risk Factors
  Our restructuring plan announced in May 2010 may not be successful, and will increase our reliance
on foreign sourcing.
  
 Exhibits
 3.1
    
    
    Restated Certificate of Incorporation of the Registrant as amended
(incorporated by reference to Exhibit 3.1 to the Registrants Form
10-Q (Commission File No. 0-14938) for the quarter ended July 2,
2005).3.2
    
    
    By-laws of the Registrant as amended (incorporated by reference to
Exhibit 3 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).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)32.1
    
    
    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  12




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SIGNATURE
  Date: August 11, 2010
    STANLEY FURNITURE COMPANY, INC.By:
    /s/ Douglas I. PayneDouglas I. PayneExecutive V.P.  Finance & Administration
and Secretary
(Principal Financial and Accounting Officer)  13