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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, 2008
 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, VA 24168
 (276) 627-2010
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $.02 per share
    
    Nasdaq Stock Market
  o þ
 o þ
 Yes þ No 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
   Common Stock, par value $.02 per share
    
    10,332,179(Class of Common Stock)
    
    Number of Shares




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TABLE OF CONTENTS
 PagePart IItem 1 Business
    
    
    3Item 1A Risk Factors
    
    
    6Item 1B Unresolved Staff Comments
    
    
    7Item 2 Properties
    
    
    8Item 3 Legal Proceedings
    
    
    8Item 4 Submission of Matters to a Vote of Security Holders
    
    
    8Part IIItem 5 Market for Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
    
    
    10Item 6 Selected Financial Data
    
    
    11Item 7 Managements Discussion and Analysis of Financial Condition
and Results of Operation
    
    
    12Item 7A Quantitative and Qualitative Disclosures About Market Risk
    
    
    17Item 8 Financial Statements and Supplementary Data
    
    
    17Item 9 Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
    
    
    17Item 9A Controls and Procedures
    
    
    17Item 9B Other Information
    
    
    17Part IIIItem 10 Directors, Executive Officers and Corporate Governance
    
    
    18Item 11 Executive Compensation
    
    
    18Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    18Item 13 Certain Relationships and Related Transactions, and Director
Independence
    
    
    18Item 14 Principal Accounting Fees and Services
    
    
    18Part IVItem 15 Exhibits, Financial Statement Schedules
    
    
    19Signatures
    
    
    22Index to Consolidated Financial Statements and Schedule
    
    
    F1Exhibit 10.21Exhibit 10.22Exhibit 21Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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Stanley Furniture Company, Inc.
 
 PART I
 
 Item 1. Business
 General
  Products and Styles
 ®
   Distribution
     3




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Manufacturing and Offshore Sourcing
  
    
    Smaller, more frequent and cost-effective production runs,
    
    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.
     Raw Materials
  Competition
 th Furniture/Today
  4




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Associates
  Trademarks
  Governmental Regulations
  Forward-Looking Statements
  Available Information
   Investor@Stanleyfurniture.com
  5




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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.
 We may not be able to sustain sales and earnings levels due to economic downturns.
  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.
  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 either manufacture internally or 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 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 China or the other countries from which we source products could adversely affect us.Foreign sourcing is subject to political and social instability in China or the other
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.
  6




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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.
 Manufacturing realignment could result in a decrease in our 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.
  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.
  Extended business interruption at our manufacturing facilities could result in reduced sales.
  
 Item 1B. Unresolved Staff Comments
   7




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Item 2. Properties
  Approximate
    
    
    OwnedFacility Size
    
    
    orLocation
    
    Primary Use
    
    (Square Feet)
    
    
    LeasedStanleytown, VA
    
    Manufacturing /Warehouse and Corporate Headquarters
    
    
    1,721,000
    
    
    OwnedRobbinsville, NC
    
    Manufacturing/Warehouse
    
    
    562,100
    
    
    OwnedLexington, NC
    
    Warehouse
    
    
    367,000
    
    
    OwnedMartinsville, VA
    
    Warehouse
    
    
    300,000
    
    
    OwnedHigh Point, NC
    
    Showroom
    
    
    63,000
    
    
    Leased
 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
   8




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Executive Officers of the Registrant
 Our executive officers and their ages as of January 1, 2009 are as follows:
 Name
    
    Age
    
    
    PositionAlbert L. Prillaman
    
    
    63
    
    
    Chairman and Chief Executive OfficerDouglas I. Payne
    
    
    50
    
    
    Executive Vice President  Finance and Administration and SecretaryR. Glenn Prillaman
    
    
    37
    
    
    Executive Vice President  Marketing and   SalesStephen A. Bullock
    
    
    47
    
    
    Executive Vice President  Operations
 Albert L. Prillaman
 Douglas I. Payne
 R. Glenn Prillaman ®
 Stephen A. Bullock
  9




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PART II
 
 Item 5.

    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 STLY.
 2008
    
    
    2007Dividends
    
    
    
    
    
    
    
    
    
    
    DividendsHigh
    
    
    Low
    
    
    Paid
    
    
    High
    
    
    Low
    
    
    PaidFirst Quarter
    
    $
    14.90
    
    
    $
    9.39
    
    
    $
    .10
    
    
    $
    22.16
    
    
    $
    19.38
    
    
    $
    .10Second Quarter
    
    
    12.93
    
    
    
    9.30
    
    
    
    .10
    
    
    
    23.74
    
    
    
    20.20
    
    
    
    .10Third Quarter
    
    
    11.14
    
    
    
    6.79
    
    
    
    .10
    
    
    
    22.25
    
    
    
    15.89
    
    
    
    .10Fourth Quarter
    
    
    11.15
    
    
    
    5.60
    
    
    
    .10
    
    
    
    17.38
    
    
    
    10.39
    
    
    
    .10
  Performance Graph
  
 (1)
    
    The graph shows the cumulative total return on $100 invested at the market close on December
31, 2003, the last trading day in 2003, in Common Stock or the specified index, including
reinvestments of dividends.(2)
    
    Peer Group Index as prepared by Morningstar Inc. consists of SIC Code 2511 Wood Household
Furniture Index and SIC code 2512 Wood Household Furniture, Upholstered. At January 2, 2009,
Morningstar Inc. reported that these two indexes consisted of Bassett Furniture Industries,
Inc., Chromcraft Revington, Inc., Ethan Allen Interiors, Inc., Flexsteel Industries, Inc.,
Furniture Brands International, Hooker Furniture Corp., La-Z-Boy, Inc., Natuzzi Spa Ads, and
Stanley Furniture Company, Inc.(3)
    
    Nasdaq Non-Financial Stock Index as prepared by Morningstar, Inc. Equity Compensation Plan Information
  Number of shares
    
    
    Weighted-average
    
    
    Number of sharesto be issued upon
    
    
    exercise price
    
    
    remaining availableexercise of
    
    
    of outstanding
    
    
    for future issuanceoutstanding options,
    
    
    options, warrants
    
    
    under equitywarrants and rights
    
    
    and rights
    
    
    compensation plansEquity compensation plans
approved by stockholders
    
    
    1,201,796
    
    
    $
    13.02
    
    
    
    1,494,192
  10




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Item 6. Selected Financial Data
 Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(in thousands, except per share data)Income Statement Data:Net sales
    
    $
    226,522
    
    
    $
    282,847
    
    
    $
    307,547
    
    
    $
    333,646
    
    
    $
    305,815Cost of sales (1)
    
    
    193,929
    
    
    
    235,937
    
    
    
    242,679
    
    
    
    251,937
    
    
    
    230,174Gross profit
    
    
    32,593
    
    
    
    46,910
    
    
    
    64,868
    
    
    
    81,709
    
    
    
    75,641Selling, general and administrative
expenses (2)
    
    
    36,441
    
    
    
    39,573
    
    
    
    42,139
    
    
    
    44,267
    
    
    
    40,953Pension plan termination charge (3)
    
    
    
    
    
    
    (6,605
    )Operating income (loss)
    
    
    (3,848
    )
    
    
    732
    
    
    
    22,729
    
    
    
    37,442
    
    
    
    34,688Income from Continued Dumping and Subsidy
Offset Act, net
    
    
    11,485
    
    
    
    10,429
    
    
    
    4,419Other income, net
    
    
    308
    
    
    
    265
    
    
    
    297
    
    
    
    288
    
    
    
    188Interest expense, net
    
    
    3,211
    
    
    
    2,679
    
    
    
    1,710
    
    
    
    1,825
    
    
    
    2,343Income before income taxes
    
    
    4,734
    
    
    
    8,747
    
    
    
    25,735
    
    
    
    35,905
    
    
    
    32,533Income taxes
    
    
    998
    
    
    
    2,845
    
    
    
    8,954
    
    
    
    12,674
    
    
    
    11,744Net income
    
    $
    3,736
    
    
    $
    5,902
    
    
    $
    16,781
    
    
    $
    23,231
    
    
    $
    20,789Basic Earnings Per Share: (4)Net income
    
    $
    .36
    
    
    $
    .56
    
    
    $
    1.44
    
    
    $
    1.82
    
    
    $
    1.65Weighted average shares
    
    
    10,332
    
    
    
    10,478
    
    
    
    11,649
    
    
    
    12,766
    
    
    
    12,574Diluted Earnings Per Share: (4)Net income
    
    $
    .36
    
    
    $
    .55
    
    
    $
    1.41
    
    
    $
    1.77
    
    
    $
    1.59Weighted average shares
    
    
    10,332
    
    
    
    10,677
    
    
    
    11,924
    
    
    
    13,154
    
    
    
    13,099Cash dividends paid per share
    
    $
    .40
    
    
    $
    .40
    
    
    $
    .32
    
    
    $
    .24
    
    
    $
    .20Balance Sheet and Other Data:Cash
    
    $
    44,013
    
    
    $
    31,648
    
    
    $
    6,269
    
    
    $
    12,556
    
    
    $
    7,632Inventories
    
    
    47,344
    
    
    
    58,086
    
    
    
    59,364
    
    
    
    69,961
    
    
    
    73,658Working capital
    
    
    97,059
    
    
    
    91,852
    
    
    
    72,036
    
    
    
    91,200
    
    
    
    88,567Total assets
    
    
    165,871
    
    
    
    173,731
    
    
    
    162,678
    
    
    
    190,488
    
    
    
    188,888Long-term debt including
current maturities
    
    
    29,286
    
    
    
    30,714
    
    
    
    8,571
    
    
    
    11,428
    
    
    
    15,685Stockholders equity
    
    
    103,108
    
    
    
    102,851
    
    
    
    109,647
    
    
    
    132,749
    
    
    
    127,265Capital expenditures
    
    $
    2,261
    
    
    $
    3,951
    
    
    $
    4,196
    
    
    $
    4,986
    
    
    $
    1,718Stock repurchases:Shares (4)
    
    
    
    
    
    
    639
    
    
    
    1,423
    
    
    
    1,057Total cost
    
    
    
    
    
    $
    13,557
    
    
    $
    33,576
    
    
    $
    22,993
 (1)
    
    Included in cost of sales in 2008 is $5.9 million pretax ($4.6 million after tax), or
$.45 per diluted share, for the consolidation of two facilities into one and other
restructuring cost. Included in cost of sales in 2007 is $3.6 million pretax ($2.4 million
after tax), or $.23 per diluted share, for the conversion of a manufacturing facility to a
warehouse operation.(2)
    
    Included in selling, general and administrative expenses in 2008 is $1.4 million pretax
($1.1 million after tax), or $.11 per diluted share, of restructuring charges.(3)
    
    We terminated our defined benefit pension plan in 2007, resulting in a charge to
earnings of $6.6 million pretax ($4.5 million after tax), or $.42 per diluted share.(4)
    
    Amounts have been retroactively adjusted to reflect the two-for-one stock split,
distributed in the form of a stock dividend, on June 6, 2005.  11




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operation
  Overview
       Results of Operations
  For the Years EndedDecember 31,2008
    
    
    2007
    
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    85.6
    
    
    
    83.4
    
    
    
    78.9Gross profit
    
    
    14.4
    
    
    
    16.6
    
    
    
    21.1Selling, general and administrative expenses
    
    
    16.1
    
    
    
    14.0
    
    
    
    13.7Pension plan termination charge
    
    
    
    
    
    
    2.3Operating income
    
    
    (1.7
    )
    
    
    .3
    
    
    
    7.4Income from Continued Dumping and Subsidy
Offset Act, net
    
    
    5.1
    
    
    
    3.7
    
    
    
    1.4Other income, net
    
    
    .1
    
    
    
    .1
    
    
    
    .1Interest expense, net
    
    
    1.4
    
    
    
    1.0
    
    
    
    .5Income before income taxes
    
    
    2.1
    
    
    
    3.1
    
    
    
    8.4Income taxes
    
    
    0.5
    
    
    
    1.0
    
    
    
    2.9Net income
    
    
    1.6
    %
    
    
    2.1
    %
    
    
    5.5
    %
  12




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2008 Compared to 2007
        2007 Compared to 2006
          13




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Financial Condition, Liquidity and Capital Resources
          14




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Payment due or commitment expirationLess Than
    
    
    
    
    
    
    
    
    
    
    OverTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsContractual cash obligations:Long-term debt
    
    $
    29,286
    
    
    $
    1,429
    
    
    $
    6,429
    
    
    $
    7,142
    
    
    $
    14,286Postretirement benefits other than pensions(1)
    
    
    4,280
    
    
    
    447
    
    
    
    900
    
    
    
    879
    
    
    
    2,054Fixed interest payment on long-term debt
    
    
    9,700
    
    
    
    1,930
    
    
    
    3,443
    
    
    
    2,404
    
    
    
    1,923Operating leases
    
    
    3,386
    
    
    
    717
    
    
    
    1,076
    
    
    
    944
    
    
    
    649Total contractual cash obligations
    
    $
    46,652
    
    
    $
    4,523
    
    
    $
    11,848
    
    
    $
    11,369
    
    
    $
    18,912Other commercial commitments:Letters of credit
    
    $
    1,666
    
    
    $
    1,666
 (1)
    
    The 1983 Group Annuity Mortality tables were used in estimating future benefit
payments, and the health care cost trend rate for determining payments is 7.0% for 2008 and
gradually declines to 5.5% in 2010 where it is assumed to remain constant for the remaining
years.  Continued Dumping and Subsidy Offset Act (CDSOA)
    
    
    the annual administrative review process which can retroactively increase or
decrease the actual duties owed on entries secured by cash deposits and bonds,
    
    the ultimate resolution of the legal appeals discussed above, and
    
    other administrative and legal challenges that may be instituted.
   15




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Critical Accounting Policies
  Allowance for doubtful accounts
 Inventory valuation
 Long-lived assets
 Goodwill
    Off-Balance Sheet Arrangements
   16




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New Accounting Standards
 Fair Value Measurements The
Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115 Effective Date of FASB Statement
No. 157
 
 Item 7A. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 8. Financial Statements and Supplementary Data
  
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
  
 Item 9A. Controls and Procedures
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
 Internal Control-Integrated Framework Internal Control  Integrated Framework
 Changes in Internal Controls over Financial Reporting
  
 Item 9B. Other Information
   17




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
      
 Item 11. Executive Compensation
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
   
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  
 Item 14. Principal Accounting Fees and Services
   18




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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 FirmConsolidated Balance Sheets as of December 31, 2008 and 2007Consolidated Statements of Income for each of the three years in the period ended December 31, 2008Consolidated Statements of Changes in Stockholders Equity for each of the three years in the period
ended December 31, 2008Consolidated Statements of Cash Flow for each of the three years in the period ended December 31, 2008Notes 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, 2008(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 September 25, 2008).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).4.2
    
    
    Amended and Restated Note Purchase and Private Shelf Agreement dated as of January 26, 2007, among
the Registrant, The Prudential Insurance Company of America, the other purchasers named therein and
the affiliates of Prudential who became purchasers as defined therein (incorporated by reference to
Exhibit 4.1 to the Registrants Form 8-K (Commission File No 0-14938) filed February 1, 2007).4.3
    
    
    Amendment to Amended and Restated Note Purchase and Private Shelf Agreements dated as of October 12,
2007, among the Registrant, The Prudential Insurance Company of America (Prudential), Hartford Life
Insurance Company, Medica Health Plans, Pruco Life Insurance Company of New Jersey, Prudential
Retirement Insurance and Annuity Company, Mutual of Omaha Insurance Company. (incorporated by
Reference to Exhibit 4.1 to the Registrants Form 10-Q (Commission File No 0-17938) for the quarter
ended September 29, 2007).4.4
    
    
    Second Amendment to Note Purchase and Private Shelf Agreement dated as of December 30, 2008, among
the Registrant, The Prudential Life Insurance Company of America, Pruco Life Insurance Company of New
Jersey, Prudential Retirement Insurance and Annuity Company, Hartford Life Insurance Company, Mutual
of Omaha Insurance Company and Medica Health Plans.4.5
    
    
    Third Amendment to Note Purchase and Private Shelf Agreement dated as of January 23, 2009, among the
Registrant, The Prudential Insurance Company of America, Pruco Life Insurance Company of New Jersey,
Prudential Retirement Insurance and Annuity Company, Hartford Life Insurance Company, Mutual of Omaha
Insurance Company and Medica Health Plans (incorporated by Reference to Exhibit 4.01 to the
Registrants Form 8-K (Commission File No. 0-14938) filed January 29, 2009).
 
 (2)
    
    Management contract or compensatory plan  19




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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). (2)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). (2)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). (2)10.4
    
    
    Employment Agreement dated as of June 1, 1996, between Douglas I. Payne and the
Registrant (incorporated by reference to Exhibit 10.1 to the Registrants Form
10-Q (Commission File No. 0-14938) for the quarter ended June 30, 1996). (2)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). (2)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). (2)10.7
    
    
    Credit Agreement, dated August 29, 2003, between the Registrant and SouthTrust
Bank (incorporated by reference to Exhibit 10.1 to the Registrants Form 10-Q
(Commission File No. 0-14938) for the quarter ended September 27, 2003).10.8
    
    
    First Amendment, dated April 23, 2004, to the revolving credit facility dated
August 29, 2003, between the registrant and SouthTrust Bank (incorporated by
reference to Exhibit 10.1 to the Registrants Form 10-Q (Commission File No.
0-14938) for the quarter ended June 26, 2004).10.9
    
    
    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). (2)10.10
    
    
    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). (2)10.11
    
    
    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). (2)10.12
    
    
    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). (2)10.13
    
    
    Second Amendment dated June 15, 2005, to the revolving credit facility dated
August 29, 2003, between the Registrant and Wachovia Bank (incorporated by
reference to Exhibit 10.1 to the Registrants Form 8-K (Commission File No.
0-14938) filed on June 16, 2005).10.14
    
    
    Third Amendment, dated July 14, 2006, to the revolving credit facility dated
August 29, 2003, between the Registrant and Wachovia Bank (incorporated by
reference to Exhibit 10.1 to the Registrants Form 8-K (Commission File No
0-14938) filed July 18, 2006).
 
 (2)
    
    Management contract or compensatory plan  20




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##### Table of Contents



10.15
    
    
    Fourth Amendment dated July 13, 2007, to the Revolving Credit Facility dated
August 29, 2003, between the Registrant and Wachovia Bank (incorporated by
reference to Exhibit 10.1 to the Registrants
Form 10-Q (Commission File No
0-14938) for the quarter ended June 30, 2007.10.16
    
    
    Fifth Amendment dated October 12, 2007, to the Revolving Credit Facility dated
August 29, 2003, between the Registrant and Wachovia Bank (incorporated by
reference to exhibit 10.2 to the Registrants Form 10-Q (Commission File No.
0-14938) for the quarter ended September 29, 2007).10.17
    
    
    Sixth Amendment dated August 15, 2008 to the revolving credit facility dated
August 29, 2003, between the Registrant and Wachovia Bank (incorporated by
reference to Exhibit 10.1 to the Registrants Form 8-K (Commission File No.
0-14938) filed on August 20, 2008).10.18
    
    
    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).10.19
    
    
    Voluntary Separation Agreement and General Release by and between Jeffrey R.
Scheffer and Stanley Furniture Company, Inc. dated September 23, 2008
(incorporated by reference to Exhibit 10.2 to the Registrants Form 8-K
(Commission File No. 0-14938) filed on September 25, 2008).10.20
    
    
    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). (2)10.21
    
    
    Form of Stock Option Award under 2008 Incentive Plan (Officers) (1) (2)10.22
    
    
    Form of Stock Option Award under 2008 Incentive Plan (Directors) (1) (2)21
    
    
    List of Subsidiaries (1)23
    
    
    Consent of
PricewaterhouseCoopers LLP (1)31.1
    
    
    Certification by Albert L. Prillaman, our Chief Executive Officer, pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (1)31.2
    
    
    Certification by Douglas I. Payne, our Chief Financial Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (1)32.1
    
    
    Certification by Albert L. 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 by 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(2)
    
    Management contract or compensatory plan  21




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##### Table of Contents



SIGNATURES
  STANLEY FURNITURE COMPANY, INC.February 2, 2009
    By:
    /s/ Albert L. PrillamanAlbert L. PrillamanChairman and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Albert L. Prillaman

(Albert L. Prillaman)
    
    Chairman and Chief Executive
Officer

 (Principal Executive
Officer)
 and Director
    
    February 2, 2009/s/ Douglas I. Payne

(Douglas I. Payne)
    
    Executive Vice President  Finance
and Administration and Secretary
(Principal Financial and
Accounting Officer)
    
    February 2, 2009/s/ Robert
G. Culp, III

(Robert G. Culp, III)
    
    Director
    
    February 2, 2009/s/ Michael P. Haley

(Michael P. Haley)
    
    Director
    
    February 2, 2009/s/ Thomas L. Millner

(Thomas L. Millner)
    
    Director
    
    February 2, 2009/s/ T. Scott McIlhenny, Jr.

(T. Scott McIlhenny, Jr.)
    
    Director
    
    February 2, 2009
  22




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##### Table of Contents



PageConsolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    F2Consolidated Balance Sheets as of December 31, 2008 and 2007
    
    
    F3Consolidated Statements of Income for each of the three years in the period
ended December 31, 2008
    
    
    F4Consolidated Statements of Changes in Stockholders Equity for each of the
three years in the period ended December 31, 2008
    
    
    F5Consolidated Statements of Cash Flows for each of the three years in the
period ended December 31, 2008
    
    
    F6Notes to Consolidated Financial Statements
    
    
    F7Financial Statement ScheduleSchedule II  Valuation and Qualifying Accounts for each of the three
years in the period ended December 31, 2008
    
    
    S1
  F 1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
   
  F 2




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 
   December 31,2008
    
    
    2007ASSETSCurrent assets:Cash
    
    $
    44,013
    
    
    $
    31,648Accounts receivable, less allowances of $1,644 and $1,482
    
    
    21,873
    
    
    
    25,393Inventories:Finished goods
    
    
    36,803
    
    
    
    46,250Work-in-process
    
    
    3,493
    
    
    
    4,432Raw materials
    
    
    7,048
    
    
    
    7,404Total inventories
    
    
    47,344
    
    
    
    58,086Prepaid expenses and other current assets
    
    
    3,758
    
    
    
    1,767Deferred income taxes
    
    
    3,906
    
    
    
    3,381Total current assets
    
    
    120,894
    
    
    
    120,275Property, plant and equipment, net
    
    
    35,445
    
    
    
    43,898Goodwill
    
    
    9,072
    
    
    
    9,072Other assets
    
    
    460
    
    
    
    486Total assets
    
    $
    165,871
    
    
    $
    173,731LIABILITIESCurrent liabilities:Current maturities of long-term debt
    
    $
    1,429
    
    
    $
    1,428Accounts payable
    
    
    11,236
    
    
    
    16,106Accrued salaries, wages and benefits
    
    
    6,280
    
    
    
    7,108Other accrued expenses
    
    
    4,890
    
    
    
    3,781Total current liabilities
    
    
    23,835
    
    
    
    28,423Long-term debt, exclusive of current maturities
    
    
    27,857
    
    
    
    29,286Deferred income taxes
    
    
    2,778
    
    
    
    4,824Other long-term liabilities
    
    
    8,293
    
    
    
    8,347Total liabilities
    
    
    62,763
    
    
    
    70,880Commitments and ContingenciesSTOCKHOLDERS EQUITYCommon stock, $0.02 par value, 25,000,000 shares authorized,
10,332,179 shares issued and outstanding
    
    
    207
    
    
    
    207Capital in excess of par value
    
    
    1,058
    
    
    
    591Retained earnings
    
    
    102,603
    
    
    
    102,999Accumulated other comprehensive loss
    
    
    (760
    )
    
    
    (946
    )Total stockholders equity
    
    
    103,108
    
    
    
    102,851Total liabilities and stockholders equity
    
    $
    165,871
    
    
    $
    173,731
 
  F 3




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 
   For the Years EndedDecember 31,2008
    
    
    2007
    
    
    2006Net sales
    
    $
    226,522
    
    
    $
    282,847
    
    
    $
    307,547Cost of sales
    
    
    193,929
    
    
    
    235,937
    
    
    
    242,679Gross profit
    
    
    32,593
    
    
    
    46,910
    
    
    
    64,868Selling, general and administrative expenses
    
    
    36,441
    
    
    
    39,573
    
    
    
    42,139Pension plan termination charge
    
    
    
    
    
    
    (6,605
    )Operating income (loss)
    
    
    (3,848
    )
    
    
    732
    
    
    
    22,729Income from Continued Dumping and Subsidy
Offset Act, net
    
    
    11,485
    
    
    
    10,429
    
    
    
    4,419Other income, net
    
    
    308
    
    
    
    265
    
    
    
    297Interest income
    
    
    591
    
    
    
    556
    
    
    
    383Interest expense
    
    
    3,802
    
    
    
    3,235
    
    
    
    2,093Income before income taxes
    
    
    4,734
    
    
    
    8,747
    
    
    
    25,735Income taxes
    
    
    998
    
    
    
    2,845
    
    
    
    8,954Net income
    
    $
    3,736
    
    
    $
    5,902
    
    
    $
    16,781Earnings per share:Basic
    
    $
    .36
    
    
    $
    .56
    
    
    $
    1.44Diluted
    
    $
    .36
    
    
    $
    .55
    
    
    $
    1.41Weighted average shares outstanding:Basic
    
    
    10,332
    
    
    
    10,478
    
    
    
    11,649Diluted
    
    
    10,332
    
    
    
    10,677
    
    
    
    11,924Cash dividends declared and paid
per common share
    
    $
    .40
    
    
    $
    .40
    
    
    $
    .32
 
  F 4




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 
    AccumulatedCapital in
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Excess of
    
    
    Retained
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Par Value
    
    
    Earnings
    
    
    Loss
    
    
    TotalBalance at December 31, 2005
    
    
    12,252
    
    
    $
    245
    
    
    
    
    
    
    $
    132,682
    
    
    $
    (178
    )
    
    $
    132,749Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,781
    
    
    
    
    
    
    
    16,781Minimum pension liability, net of
deferred income tax benefit of $2,361
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,812
    )
    
    
    (3,812
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,969Adjustment to initially apply SFAS
No.158, net of deferred income tax
benefit of $514
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (830
    )
    
    
    (830
    )Exercise of stock options
    
    
    90
    
    
    
    2
    
    
    
    1,109
    
    
    
    
    
    
    
    
    
    
    
    1,111Stock awards
    
    
    10
    
    
    
    
    
    
    
    247
    
    
    
    
    
    
    
    
    
    
    
    247Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    357
    
    
    
    (30
    )
    
    
    
    
    
    
    327Tax benefit on exercise of stock options
    
    
    
    
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    
    
    
    
    386Purchase and retirement of stock
    
    
    (1,423
    )
    
    
    (28
    )
    
    
    (2,040
    )
    
    
    (31,508
    )
    
    
    
    
    
    
    (33,576
    )Dividends paid, $0.32 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,736
    )
    
    
    
    
    
    
    (3,736
    )Balance at December 31, 2006
    
    
    10,929
    
    
    
    219
    
    
    
    59
    
    
    
    114,189
    
    
    
    (4,820
    )
    
    
    109,647Cumulative effect of adoption of
FIN48
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    21Adjusted balance, January 1,
2007
    
    
    10,929
    
    
    
    219
    
    
    
    59
    
    
    
    114,210
    
    
    
    (4,820
    )
    
    
    109,668Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,902
    
    
    
    
    
    
    
    5,902Prior service cost, net of deferred
income tax benefit of $1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (2
    )Actuarial loss, net of deferred income
tax benefit of $136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (141
    )
    
    
    (141
    )Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,759Termination of defined benefit pension
plan, net of deferred income tax
benefit of $2,488
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,017
    
    
    
    4,017Exercise of stock options
    
    
    43
    
    
    
    1
    
    
    
    531
    
    
    
    
    
    
    
    
    
    
    
    532Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    534Tax benefit on exercise of stock options
    
    
    
    
    
    
    
    
    
    
    92
    
    
    
    
    
    
    
    
    
    
    
    92Purchase and retirement of stock
    
    
    (640
    )
    
    
    (13
    )
    
    
    (625
    )
    
    
    (12,919
    )
    
    
    
    
    
    
    (13,557
    )Dividends paid, $0.40 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,194
    )
    
    
    
    
    
    
    (4,194
    )Balance at December 31, 2007
    
    
    10,332
    
    
    
    207
    
    
    
    591
    
    
    
    102,999
    
    
    
    (946
    )
    
    
    102,851Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,736
    
    
    
    
    
    
    
    3,736Prior service cost, net of deferred
income tax benefit of $3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (5
    )Actuarial gain, net of deferred income
tax expense of $118
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    191
    
    
    
    191Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,922Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    467
    
    
    
    
    
    
    
    
    
    
    
    467Dividends paid, $0.40 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,132
    )
    
    
    
    
    
    
    (4,132
    )Balance at December 31, 2008
    
    
    10,332
    
    
    $
    207
    
    
    $
    1,058
    
    
    $
    102,603
    
    
    $
    (760
    )
    
    $
    103,108
 
  F 5




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC
 
 
 For the Years EndedDecember 31,2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Cash received from customers
    
    $
    230,255
    
    
    $
    289,951
    
    
    $
    311,726Cash paid to suppliers and employees
    
    
    (215,527
    )
    
    
    (269,795
    )
    
    
    (268,787
    )Cash from Continued Dumping and Subsidy Offset
Act, net
    
    
    10,828
    
    
    
    9,986
    
    
    
    4,419Interest paid, net
    
    
    (3,111
    )
    
    
    (2,359
    )
    
    
    (1,651
    )Income taxes paid
    
    
    (4,168
    )
    
    
    (4,775
    )
    
    
    (10,383
    )Net cash provided by operating activities
    
    
    18,277
    
    
    
    23,008
    
    
    
    35,324Cash flows from investing activities:Capital expenditures
    
    
    (2,261
    )
    
    
    (3,951
    )
    
    
    (4,196
    )Other, net
    
    
    360
    
    
    
    (20
    )Net cash used by investing activities
    
    
    (1,901
    )
    
    
    (3,971
    )
    
    
    (4,196
    )Cash flows from financing activities:Proceeds from senior notes
    
    
    
    
    
    
    25,000Purchase and retirement of common stock
    
    
    
    
    
    
    (13,557
    )
    
    
    (33,576
    )Repayment of senior notes
    
    
    (1,429
    )
    
    
    (2,857
    )
    
    
    (2,857
    )Dividends paid
    
    
    (4,132
    )
    
    
    (4,194
    )
    
    
    (3,736
    )Proceeds from exercise of stock options
    
    
    
    
    
    
    532
    
    
    
    1,111Tax benefit from exercise of stock options
    
    
    
    
    
    
    32
    
    
    
    402Proceeds from insurance policy loans
    
    
    1,550
    
    
    
    1,386
    
    
    
    1,241Net cash provided (used) by financing activities
    
    
    (4,011
    )
    
    
    6,342
    
    
    
    (37,415
    )Net increase (decrease) in cash
    
    
    12,365
    
    
    
    25,379
    
    
    
    (6,287
    )Cash at beginning of year
    
    
    31,648
    
    
    
    6,269
    
    
    
    12,556Cash at end of year
    
    $
    44,013
    
    
    $
    31,648
    
    
    $
    6,269
  Net income
    
    $
    3,736
    
    
    $
    5,902
    
    
    $
    16,781Adjustments to reconcile net income to net cash
provided by operating activities:Pension plan termination charge
    
    
    
    
    
    
    6,605Depreciation
    
    
    8,805
    
    
    
    8,982
    
    
    
    5,759Amortization
    
    
    48
    
    
    
    72
    
    
    
    78Deferred income taxes
    
    
    (2,571
    )
    
    
    (4,083
    )
    
    
    (1,331
    )Stock-based compensation
    
    
    467
    
    
    
    534
    
    
    
    327Tax benefit from exercise of stock options
    
    
    
    
    
    
    (32
    )
    
    
    (402
    )Other, net
    
    
    
    
    
    
    220
    
    
    
    23Changes in assets and liabilities:Accounts receivable
    
    
    3,520
    
    
    
    6,867
    
    
    
    4,697Inventories
    
    
    10,742
    
    
    
    1,278
    
    
    
    10,597Prepaid expenses and other current assets
    
    
    (2,041
    )
    
    
    (1,142
    )
    
    
    (600
    )Accounts payable
    
    
    (4,870
    )
    
    
    (1,783
    )
    
    
    1,384Accrued salaries, wages and benefits
    
    
    (525
    )
    
    
    (3,028
    )
    
    
    (1,075
    )Other accrued expenses
    
    
    904
    
    
    
    2,528
    
    
    
    22Other assets
    
    
    103
    
    
    
    88
    
    
    
    379Other long-term liabilities
    
    
    (41
    )
    
    
    
    
    
    
    (1,315
    )Net cash provided by operating activities
    
    $
    18,277
    
    
    $
    23,008
    
    
    $
    35,324
 
  F 6




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 
  Summary of Significant Accounting Policies
 Organization and Basis of Presentation
   Cash Equivalents
  Revenue Recognition
  Inventories
 first-out
 Property, Plant and Equipment
  Capitalized Software Cost
  Income Taxes
  Fair Value of Financial Instruments
   F 7




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Summary of Significant Accounting Policies (continued)
 Earnings per Common Share
  Stock-Based Compensation
  Goodwill
    Tariffs imposed on wooden bedroom furniture imported from China
  Use of Estimates
   F 8




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Property, Plant and Equipment
 Depreciablelives
    
    
    (in thousands)(in years)
    
    
    2008
    
    
    2007Land and buildings
    
    
    20 to 50
    
    
    $
    41,615
    
    
    $
    41,874Machinery and equipment
    
    
    5 to 12
    
    
    
    76,451
    
    
    
    80,589Office furniture and equipment
    
    
    3 to 10
    
    
    
    1,384
    
    
    
    1,377Construction in progress
    
    
    
    
    
    
    120
    
    
    
    61Property, plant and equipment, at cost
    
    
    
    
    
    
    119,570
    
    
    
    123,901Less accumulated depreciation
    
    
    
    
    
    
    84,125
    
    
    
    80,003Property, plant and equipment, net
    
    
    
    
    
    $
    35,445
    
    
    $
    43,898
 Debt
 (in thousands)2008
    
    
    20076.73% Senior notes due through May 3, 2017
    
    $
    25,000
    
    
    $
    25,0006.94% Senior notes due through May 3, 2011
    
    
    4,286
    
    
    
    5,714Total
    
    
    29,286
    
    
    
    30,714Less current maturities
    
    
    1,429
    
    
    
    1,428Long-term debt, exclusive of current maturities
    
    $
    27,857
    
    
    $
    29,286
      Income Taxes
  2008
    
    
    2007
    
    
    2006Current:Federal
    
    $
    3,163
    
    
    $
    5,730
    
    
    $
    9,440State
    
    
    633
    
    
    
    1,072
    
    
    
    845Total current
    
    
    3,796
    
    
    
    6,802
    
    
    
    10,285Deferred:Federal
    
    
    (2,432
    )
    
    
    (3,439
    )
    
    
    (1,158
    )State
    
    
    (366
    )
    
    
    (517
    )
    
    
    (174
    )Total deferred
    
    
    (2,798
    )
    
    
    (3,957
    )
    
    
    (1,332
    )Income taxes
    
    $
    998
    
    
    $
    2,845
    
    
    $
    8,954
  F 9




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Income Taxes (continued)
  2008
    
    
    2007
    
    
    2006Federal statutory rate
    
    
    34.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State tax, net of federal benefit
    
    
    3.6
    
    
    
    4.9
    
    
    
    3.0State tax credits and adjustments
    
    
    (2.8
    )
    
    
    
    
    
    
    (.8
    )Increase in cash surrender value
of life insurance policies
    
    
    (9.6
    )
    
    
    (4.7
    )
    
    
    (1.4
    )Deduction for qualified domestic
production activities
    
    
    (1.2
    )
    
    
    (.8
    )
    
    
    (.4
    )Tax-exempt interest income
    
    
    (3.7
    )
    
    
    (1.4
    )
    
    
    (.5
    )Other, net
    
    
    .8
    
    
    
    (.5
    )
    
    
    (.1
    )Effective income tax rate
    
    
    21.1
    %
    
    
    32.5
    %
    
    
    34.8
    %
  2008
    
    
    2007Current deferred tax assets (liabilities):Accounts receivable
    
    $
    629
    
    
    $
    421Employee benefits
    
    
    2,785
    
    
    
    2,872Other accrued expenses
    
    
    460
    
    
    
    88Net current deferred tax asset
    
    $
    3,874
    
    
    $
    3,381Noncurrent deferred tax liabilities (assets):Property, plant and equipment
    
    $
    5,124
    
    
    $
    7,225Employee benefits
    
    
    (1,913
    )
    
    
    (1,913
    )Other accrued expenses
    
    
    
    
    
    
    (488
    )Net noncurrent deferred tax liability
    
    $
    3,211
    
    
    $
    4,824
 2008
    
    
    2007Unrecognized tax benefits balance at January 1
    
    $
    991
    
    
    $
    1,027Gross increases for tax positions of prior years
    
    
    39
    
    
    
    7Gross decreases for tax positions of prior yearsSettlementsLapse of statute of limitations
    
    
    (90
    )
    
    
    (43
    )Unrecognized tax benefits balance at December 31
    
    $
    940
    
    
    $
    991
    F 10




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Stockholders Equity
    2008
    
    
    2007
    
    
    2006Weighted average shares outstanding
for basic calculation
    
    
    10,332
    
    
    
    10,478
    
    
    
    11,649Dilutive effect of stock options
    
    
    
    
    
    
    199
    
    
    
    275Weighted average shares outstanding
for diluted calculation
    
    
    10,332
    
    
    
    10,677
    
    
    
    11,924
  Stock Based Compensation
   Expected price volatility
    
    
    36.12
    %Risk-free interest rate
    
    
    3.07
    %Weighted average expected life in years
    
    
    5.6Dividend yield
    
    
    4.28
    %Forfeiture rate
    
    
    12.01
    %
  F 11




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Stock Based Compensation (continued)
   Weighted-AverageWeighted-
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicNumber
    
    
    Exercise
    
    
    Term
    
    
    Valueof shares
    
    
    Price
    
    
    (in years)
    
    

(in thousands)Outstanding at December 31, 2005
    
    
    855,128
    
    
    $
    14.71
    
    
    
    5.7Lapsed
    
    
    (25,000
    )
    
    
    18.05Exercised
    
    
    (90,000
    )
    
    
    12.35Granted
    
    
    185,275
    
    
    
    23.65Outstanding at December 31, 2006
    
    
    925,403
    
    
    
    16.64
    
    
    
    5.8Lapsed
    
    
    (30,000
    )
    
    
    24.04Exercised
    
    
    (42,900
    )
    
    
    12.41Granted
    
    
    187,985
    
    
    
    11.79Outstanding at December 31, 2007
    
    
    1,040,488
    
    
    
    15.73
    
    
    
    4.4Lapsed
    
    
    (374,500
    )
    
    
    15.77Granted
    
    
    535,808
    
    
    
    9.70Outstanding at December 31, 2008
    
    
    1,201,796
    
    
    $
    13.02
    
    
    
    8.9
    
    
    $
    15Exercisable at December 31, 2008
    
    
    620,704
    
    
    $
    15.02
    
    
    
    4.4
   2008
    
    
    2007
    
    
    2006Average fair market value of options granted
(per share)
    
    $
    2.32
    
    
    $
    3.25
    
    
    $
    9.89Proceeds from stock options exercised
    
    
    
    
    
    
    532
    
    
    
    1,111Tax benefits related to stock options exercised
    
    
    
    
    
    
    92
    
    
    
    386Intrinsic value of stock options exercised
    
    
    
    
    
    
    246
    
    
    
    1,046
 Employee Benefits Plans
 Defined Contribution Plan
   F 12




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Employee Benefits Plans (continued)
 Pension Plans
   2008
    
    
    2007Stanley
    
    
    
    
    
    StanleyRetirement
    
    
    Supplemental
    
    
    Retirement
    
    
    SupplementalPlan
    
    
    Plan
    
    
    Plan
    
    
    PlanChange in benefit obligation:Beginning benefit obligation
    
    
    
    
    
    $
    1,921
    
    
    $
    15,065
    
    
    $
    1,979Interest cost
    
    
    
    
    
    
    116
    
    
    
    157
    
    
    
    115Actuarial loss (gain)
    
    
    
    
    
    
    3
    
    
    
    408
    
    
    
    (14
    )Benefits paid
    
    
    
    
    
    
    (161
    )
    
    
    (96
    )
    
    
    (159
    )Plan termination payments
    
    
    
    
    
    
    
    
    
    
    (15,534
    )Ending benefit obligation
    
    
    
    
    
    
    1,879
    
    
    
    
    
    
    
    1,921Change in plan assets:Beginning fair value of plan assets
    
    
    
    
    
    
    
    
    
    
    13,914Actual return on plan assets
    
    
    
    
    
    
    
    
    
    
    113Employer contributions
    
    
    
    
    
    
    161
    
    
    
    1,603
    
    
    
    159Benefits paid
    
    
    
    
    
    
    (161
    )
    
    
    (15,630
    )
    
    
    (159
    )Ending fair value of plan assetsFunded status
    
    $
    
    
    
    $
    (1,879
    )
    
    $
    
    
    
    $
    (1,921
    )Amount recognized in the
consolidated balance sheet:Current liabilities
    
    
    
    
    
    $
    (163
    )
    
    
    
    
    
    $
    (159
    )Non current liabilities
    
    
    
    
    
    
    (1,716
    )
    
    
    
    
    
    
    (1,762
    )Total
    
    $
    
    
    
    $
    (1,879
    )
    
    $
    
    
    
    $
    (1,921
    )
  2008
    
    
    2007
    
    
    2006Interest cost
    
    $
    116
    
    
    $
    272
    
    
    $
    928Expected return on plan assets
    
    
    
    
    
    
    (188
    )
    
    
    (982
    )Net amortization and deferral
    
    
    3
    
    
    
    219
    
    
    
    500Net cost
    
    
    119
    
    
    
    303
    
    
    
    446Settlement expense
    
    
    
    
    
    
    6,606
    
    
    
    904Total expense
    
    $
    119
    
    
    $
    6,909
    
    
    $
    1,350
  F 13




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Employee Benefits Plans (continued)
  2008
    
    
    2007
    
    
    2006Discount rate for funded status
    
    
    6.25
    %(a)
    
    
    6.20
    %(a)
    
    
    5.75%/5.00
    (b)Discount rate for pension cost
    
    
    6.20
    %
    
    
    5.75%/5.00
    %(b)
    
    
    5.50
    %Return on assets
    
    
    
    
    
    
    
    
    
    
    6.50
    %
 (a)
    
    Rate relates to the Supplemental Plan.(b)
    
    The 5.75% relates to the Supplemental Plan. The Stanley Retirement Plan used
a discount rate of 5.00%, which is the rate that was used at distribution.  Postretirement Benefits Other Than Pensions
  2008
    
    
    2007Change in benefit obligation:Beginning benefit obligation
    
    $
    2,954
    
    
    $
    2,876Service cost
    
    
    73
    
    
    
    79Interest cost
    
    
    172
    
    
    
    172Actuarial (gain) loss
    
    
    (146
    )
    
    
    141Plan participants contributions
    
    
    199
    
    
    
    193Benefits paid
    
    
    (344
    )
    
    
    (507
    )Ending benefit obligation
    
    
    2,908
    
    
    
    2,954Change in plan assets:Beginning fair value of plan assetsEmployer contributions
    
    
    144
    
    
    
    314Plan participants contributions
    
    
    199
    
    
    
    193Benefits paid
    
    
    (343
    )
    
    
    (507
    )Ending fair value of plan assetsFunded status
    
    $
    (2,908
    )
    
    $
    (2,954
    )Amount recognized in the
consolidated balance sheet:Current liabilities
    
    $
    284
    
    
    $
    295Non current liabilities
    
    
    2,624
    
    
    
    2,659Total
    
    $
    2,908
    
    
    $
    2,954
  F 14




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Employee Benefits Plans (continued)
  2008
    
    
    2007
    
    
    2006Service cost
    
    $
    73
    
    
    $
    79
    
    
    $
    71Interest cost
    
    
    172
    
    
    
    172
    
    
    
    155Amortization of transition obligation
    
    
    122
    
    
    
    122
    
    
    
    122Amortization of net actuarial loss
    
    
    33
    
    
    
    39
    
    
    
    27Net periodic postretirement benefit cost
    
    $
    400
    
    
    $
    412
    
    
    $
    375
  2008
    
    
    2007
    
    
    2006Discount rate for funded status
    
    
    6.25
    %
    
    
    6.05
    %
    
    
    5.75
    %Discount rate for postretirement benefit cost
    
    
    6.05
    %
    
    
    5.75
    %
    
    
    5.50
    %Health care cost assumed trend rate for next year
    
    
    6.00
    %
    
    
    8.00
    %
    
    
    9.00
    %Rate that the cost trend rate gradually declines to
    
    
    5.50
    %
    
    
    5.50
    %
    
    
    5.50
    %Year that the rate reaches the rate it is assumed to
remain at
    
    
    2010
    
    
    
    2010
    
    
    
    2010
     OtherSupplemental
    
    
    PostretirementPlan
    
    
    BenefitsNet loss
    
    $
    208
    
    
    $
    562Net transition obligation
    
    
    
    
    
    
    460Total
    
    $
    208
    
    
    $
    1,022
  OtherSupplemental
    
    
    PostretirementPlan
    
    
    BenefitsNet loss
    
    
    
    
    
    $
    19Net transition obligation
    
    
    
    
    
    
    122Total
    
    
    
    
    
    $
    141
  F 15




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC.
 Employee Benefits Plans (continued)
 Deferred Compensation
  Restructuring and Related Charges
  Restructuring
    
    
    Cash
    
    
    Restructuring AccrualCharges
    
    
    Payments
    
    
    December 31, 2008Severance and other
employee termination cost
    
    $
    2,143
    
    
    $
    697
    
    
    $
    1,446
   Income for Continued Dumping and Subsidy Offset Act (CDSOA)
  Commitments and Contingencies
    F 16




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##### Table of Contents



STANLEY FURNITURE COMPANY, INC
 New Accounting Standards
 Fair Value Measurements The
Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115 Effective Date of FASB Statement
No. 157 non-financial
 Quarterly Results of Operations (Unaudited)
 (in thousands, except per share data)First
    
    
    Second
    
    
    Third
    
    
    Fourth2008 Quarters:Net Sales
    
    $
    62,534
    
    
    $
    59,148
    
    
    $
    54,483
    
    
    $
    50,357Gross profit
    
    
    10,820
    
    
    
    9,961
    
    
    
    4,991
    
    
    
    6,821Net income
    
    
    1,049
    
    
    
    (68
    )
    
    
    (3,489
    )(1)
    
    
    6,246
    (2)(3)Net income per share:Basic
    
    $
    .10
    
    
    $
    (.01
    )
    
    $
    (.33
    )(1)
    
    
    .60
    (2)(3)Diluted
    
    
    .10
    
    
    
    (.01
    )
    
    
    (.33
    )(1)
    
    
    .60
    (2)(3)Dividend paid per share
    
    
    .10
    
    
    
    .10
    
    
    
    .10
    
    
    
    .102007 Quarters:Net Sales
    
    $
    75,108
    
    
    $
    67,722
    
    
    $
    73,181
    
    
    $
    66,836Gross profit
    
    
    13,494
    
    
    
    13,640
    
    
    
    12,749
    
    
    
    7,027Net income
    
    
    1,676
    
    
    
    (2,376
    )(4)
    
    
    1,635
    
    
    
    4,967
    (3)(5)Net income per share:Basic
    
    $
    .16
    
    
    $
    .23
    
    
    $
    .16
    
    
    
    .48
    (3)(5)Diluted
    
    
    .15
    
    
    
    .23
    
    
    
    .16
    
    
    
    .48
    (3)(5)Dividend paid per share
    
    
    .10
    
    
    
    .10
    
    
    
    .10
    
    
    
    .10
 (1)
    
    Includes after tax restructuring charge of $2.8 million, or $.27 per share, for the
consolidation of manufacturing operations and other restructuring related charges.(2)
    
    Includes after tax restructuring charge of $2.8 million, or $.27 per share, for the
consolidation of manufacturing operations and other restructuring related charges.(3)
    
    Continued Dumping and Subsidy Offset Act receipts totaled $9.1 million after tax, or
$.88 per share, and $7.0 million after tax, or $.66 per share, for 2008 and 2007
respectively.(4)
    
    Includes pension plan termination charge of $4.5 million after tax, or $.42 per share.(5)
    
    Includes after tax restructuring charge of $2.4 million or $.23 per share, for the
conversion of one of our manufacturing facilities to a warehouse operation.  F 17




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##### Table of Contents



STANLEY
FURNITURE COMPANY, INC.
 
    Column A
    
    Column B
    
    
    Column C
    
    
    Column D
    
    
    Column EChargedBalance at
    
    
    (Credited)
    
    
    
    
    
    
    BalanceBeginning
    
    
    to Costs &
    
    
    
    
    
    
    at End ofDescriptions
    
    of Period
    
    
    Expenses
    
    
    Deductions
    
    
    Period2008Doubtful receivables
    
    $
    825
    
    
    $
    756
    
    
    $
    581
    (a)
    
    $
    1,000Discounts, returns,
and allowances
    
    
    657
    
    
    
    (13
    )(b)
    
    
    
    
    
    
    644$
    1,482
    
    
    $
    743
    
    
    $
    581
    
    
    $
    1,6442007Doubtful receivables
    
    $
    715
    
    
    $
    480
    
    
    $
    370
    (a)
    
    $
    825Discounts, returns,
and allowances
    
    
    839
    
    
    
    (182
    )(b)
    
    
    
    
    
    
    657$
    1,554
    
    
    $
    298
    
    
    $
    370
    
    
    $
    1,4822006Doubtful receivables
    
    $
    650
    
    
    $
    975
    
    
    $
    910
    (a)
    
    $
    715Discounts, returns,
and allowances
    
    
    916
    
    
    
    (77
    )(b)
    
    
    
    
    
    
    839$
    1,566
    
    
    $
    898
    
    
    $
    910
    
    
    $
    1,554
 
 (a)
    
    Uncollectible receivables written-off, net of recoveries.(b)
    
    Represents net decrease in the reserve.  S-1




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##### Table of Contents



EXHIBIT INDEX
 10.21
    
    
    Form of Stock Option Award under 2008 Incentive Plan (Officers)10.22
    
    
    Form of Form of Stock Option Award under 2008 Incentive Plan (Directors)21
    
    

List of Subsidiaries23
    
    

Consent of PricewaterhouseCoopers LLP31.1
    
    
    Certification by Albert L. Prillaman, our Chief Executive Officer, pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended31.2
    
    
    Certification by Douglas I. Payne, our Chief Financial Officer, pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended32.1
    
    
    Certification by Albert L. 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 2002.32.2
    
    
    Certification by 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.