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STLY > SEC Filings for STLY > Form 10-Q on 15-Apr-2013All Recent SEC Filings

Show all filings for STANLEY FURNITURE CO INC.



Quarterly Report

ITEM 2.Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

The following table sets forth the percentage relationship to net sales of
certain items included in the Consolidated Statements of Income:

                                                       Three Months Ended
                                                     March 30,      March 31,
                                                       2013           2012
       Net sales                                          100.0 %       100.0 %
       Cost of sales                                       87.0          86.6
       Gross profit                                        13.0          13.4
       Selling, general and administrative expenses        18.6          17.1
       Operating loss                                     (5.6)         (3.7)
       Other income, net                                                   .1
       Interest expense, net                                2.4           2.2
       Loss before income taxes                           (8.0)         (5.8)
       Income tax (benefit)
       Net loss                                           (8.0) %       (5.8) %

Net sales decreased $729,000, or 2.7%, for the three month period ended March 30, 2013, from the comparable 2012 period, which was our strongest quarter in 2012. The decrease was due primarily to lower average selling prices and to a lesser extent lower unit volume. The lower average selling prices are primarily related to promotions and discounting of obsolete inventory on the Young America product line.

Gross profit for the first three months of 2013 decreased to $3.4 million, or 13.0% of net sales, from $3.6 million, or 13.4% of net sales, for the comparable three months of 2012. The slight reduction in gross profit was driven mostly by the increased discounting on our Young America product line and inflation on imported product most of which was offset by continued operating improvements at our Young America manufacturing facility in Robbinsville, NC.

Selling, general and administrative expenses increased to $4.9 million, or 18.6% of net sales, for the three month period of 2013 from $4.6 million, or 17.1% of net sales, for the comparable three month period of 2012.The current year expenses include a $260,000 restructuring charge associated with consolidating our corporate offices and High Point showroom into a single multi-purpose facility in High Point, North Carolina. Excluding these one-time costs, our expenditures were essentially flat with prior year. We expect to incur an additional $300,000 to $350,000 during the second quarter of 2013 to complete our consolidation.

As a result of the above, operating loss, including the restructuring charge, as a percentage of net sales was 5.6% for the three month period of 2013 compared to a loss of 3.7% for the comparable 2012 period.

Net interest expense for the three month period of 2013 increased $35,000 from the comparable 2012 period. Interest expense is primarily composed of interest on insurance policy loans from a legacy deferred compensation plan.

Our effective tax rate is essentially zero since we have established a full valuation allowance for our deferred tax assets in excess of our deferred tax liabilities.

Financial Condition, Liquidity and Capital Resources

Sources of liquidity include cash on hand and cash generated from operations. We expect cash on hand to be adequate for ongoing operational and capital expenditures for the foreseeable future. At March 30, 2013 we had $6.6 million in cash, $1.7 million in restricted cash and $20.0 million of short-term investments.

Working capital, excluding cash, restricted cash and short-term investments, increased to $40.7 million at March 30, 2013 from $34.6 million on December 31, 2012. The increase was primarily the result of a reduction in accounts payable and an increase in accounts receivable.

Cash used by operations was $7.0 million in the current quarter of 2013 compared to $3.2 million in the comparable prior year quarter. The increase in cash used by operations in 2013 was primarily related to a decrease in cash received from customers during the period, driven primarily by lower fourth quarter sales and higher cash paid to suppliers for finished goods that support our import business and raw materials to support our domestic operations.

Net cash provided by investing activities was $3.1 million in the current quarter of 2013 compared to a use of $2.2 million in the comparable prior year quarter. During the first quarter of 2013, we invested $750,000 in capital expenditures for the consolidation of our corporate offices and High Point showroom and $400,000 in final equipment purchases as part of the modernization of our Young America manufacturing operation in Robbinsville, North Carolina that started in early 2011. We spent $760,000 as part of our continued investment in improved information systems. Offsetting these uses of cash was the maturity of a short term investment of $5.0 million. Cash used in the prior year quarter was for the investment of $1.8 million in capital expenditures for the modernization of our Young America manufacturing operation in Robbinsville, North Carolina and $401,000 invested in improved information systems. We expect to spend approximately $1.5 million in capital for the remainder of the year for completion of our corporate office and showroom and in normal capital expenditures, with $900,000 of that coming in the second quarter. We plan to spend $1.3 million on our information systems improvements for the remainder of 2013, with the majority of that amount occurring in the second quarter as well.

Net cash used by financing activities was $386,000 in the first quarter of 2013 compared to $33,000 in the comparable prior year quarter. Approximately $353,000 was used in the first quarter to purchase and retire 78,988 shares of our common stock. The remaining use of $33,000 during the current and prior periods was to fund our capital lease obligation.

Continued Dumping and Subsidy Offset Act ("CDSOA")

The CDSOA provides for distribution of monies collected by U.S. Customs and Border Protection ("Customs") for imports covered by antidumping duty orders entering the United States through September 30, 2007 to eligible domestic producers that supported a successful antidumping petition ("Supporting Producers") concerning wooden bedroom furniture imported from China. Antidumping duties for merchandise entering the U.S. after September 30, 2007 have remained with the U.S. Treasury.

Certain manufacturers who did not support the antidumping petition ("Non-Supporting Producers") filed actions in the United States Court of International Trade, challenging the CDSOA's "support requirement" and seeking to share in the distributions. As a result, Customs held back a portion of those distributions (the "Holdback") pending resolution of the Non-Supporting Producers' claims. The Court of International Trade dismissed all of the actions of the Non-Supporting Producers, who appealed to the United States Court of Appeals for the Federal Circuit. Customs advised that it expected to distribute the Holdback to the Supporting Producers after March 9, 2012. The Non-Supporting Producers sought injunctions first from the Court of International Trade and, when those efforts were unsuccessful, from the Federal Circuit directing Customs to retain the Holdback until the Non-Supporting Producers' appeals were resolved.

On March 5, 2012, the Federal Circuit denied the motions for injunction, "without prejudicing the ultimate disposition of these cases." As a result, we received a CDSOA distribution in the amount of $39.9 million in April 2012.If the Federal Circuit were to reverse the decisions of the Court of International Trade and determine that the Non-Supporting Producers were entitled to CDSOA distributions, it is possible that Customs may seek to have us return all or a portion of our share of that distribution.The Federal Circuit held oral arguments on March 8, 2013 concerning the appeals of the Non-Supporting Producers. Based on what we know today, we believe that the chance Customs will seek and be entitled to obtain a return is remote. We therefore recorded income, net of expenses, of $39.4 million in April 2012 as a result of the receipt of these funds.

In addition, according to Customs, as of October 1, 2012, approximately $8.9 million in duties had been secured by cash deposits and bonds on unliquidated entries of wooden bedroom furniture that are subject to the CDSOA, and this amount is potentially available for distribution under the CDSOA to eligible domestic producers in connection with the case involving wooden bedroom furniture imported from China. The amount ultimately distributed will be impacted by appeals concerning the results of the annual administrative review process, which can retroactively increase or decrease the actual duties owed on entries secured by cash deposits and bonds, by collection efforts concerning duties that may be owed, and by any applicable legislation and Customs' interpretation of that legislation. Assuming that such funds are distributed and that our percentage allocation in future years is the same as it was for the 2011 distribution (approximately 30% of the funds distributed) and the $8.9 million in estimated antidumping duties secured by antidumping duty cash deposits and bonds does not change as a result of appeals from the annual administrative review process or otherwise, we could receive approximately $2.7 million more in CDSOA funds.

In November 2012, Customs disclosed that it has again withheld funds from any available distribution associated with any cases involved in ongoing litigation until the amounts at issue in the pending litigation have been resolved. Customs withheld a total of $3.0 million in funds related to the antidumping duty order on wooden bedroom furniture from China, which is in addition to the amounts secured by cash deposits and bonds discussed in the previous paragraph. It is expected that Customs will continue withholding such funds until a final decision is reached in the pending litigation. Therefore, no distributions were made in December 2012 for the case involving wooden bedroom furniture imported from China.

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

Critical Accounting Policies

There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations", included in our 2012 Annual Report on Form 10-K.

Forward-Looking Statements

Certain statements made in this report are not based on historical facts, but are forward-looking statements. These statements can be identified by the use of forward-looking terminology such as "believes," "estimates," "expects," "may," "will," "should," "could", or "anticipates," or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy.These statements reflect our reasonable judgment with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Such risks and uncertainties include our success in profitably producing Young America products in our domestic manufacturing facility, a failure or interruption of our information technology infrastructure, disruptions in foreign sourcing including those arising from supply or distribution disruptions or those arising from changes in political, economic and social conditions, as well as laws and regulations, in countries from which we source products, international trade policies of the United States and countries from which we source products, lower sales due to worsening of current economic conditions, the cyclical nature of the furniture industry, business failures or loss of large customers, the inability to raise prices in response to inflation and increasing costs, failure to anticipate or respond to changes in consumer tastes and fashions in a timely manner, competition in the furniture industry including competition from lower-cost foreign manufacturers, the inability to obtain sufficient quantities of quality raw materials in a timely manner, environmental, health, and safety compliance costs, limited use of operating loss carry forwards due to ownership change, extended business interruption at our manufacturing facility, and the possibility that U.S. Customs and Border Protection may seek to reclaim all or a portion of the $39.9 million of Continued Dumping and Subsidy Offset Act (CDSOA) proceeds received in the second quarter of 2012. In addition, we have made certain forward looking statements with respect to payments we expect to receive under the CDSOA, which are subject to the risks and uncertainties described in our discussion of those payments that may cause the actual payments to be subject to claims for recovery or to differ materially from those in the forward looking statements. Any forward-looking statement speaks only as of the date of this filing, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

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