Stanley Furniture Company is a designer and manufacturer of residential wood furniture exclusively targeted at the upper-medium price range. They offer diversified product lines across all major style and product categories within this price range. Their product depth and extensive style selections make them a complete wood furniture resource for retailers in its price range and allow them to respond more quickly to shifting consumer preferences. Stanley Furniture Company Inc. has a market cap of $99.6 million; its shares were traded at around $10.44 with and P/S ratio of 0.44.
Highlight of Business Operations:Gross profit in 2009 decreased to a loss of $601,000 for the three month period and a gross profit of $7.7 million for the nine month period. This compares to a gross profit of $5.0 million and $25.8 million, respectively, for the comparable three and nine month periods of 2008. Accelerated depreciation of $1.0 million related to the closing of our warehouse facility in Lexington, North Carolina is included in the three and nine month periods of 2009. Cost of sales for the three and nine month periods of 2008 include restructuring and related charges of $3.8 million and $4.1 million, respectively.
Selling, general and administrative expenses for the three and nine month periods decreased $3.7 million and $6.0 million, respectively, compared to the 2008 periods, due primarily to lower selling expenses resulting from decreased sales and cost reduction initiatives. Restructuring and related charges of $1.4 million are included in the three and nine month periods of 2008.
As a result of the above, operating loss was $7.5 million and $14.6 million for the three and nine month periods of 2009 compared to operating loss of $5.6 million and $2.6 million, for the comparable 2008 periods.
At September 26, 2009, long-term debt including current maturities was $27.9 million. Debt service requirements are $1.4 million in 2010, $5.0 million in 2011, and $3.6 million in 2012, 2013 and 2014. In January 2009, we entered into an amendment to our note agreement providing that two financial covenants relating to operating income and earnings not apply during 2009. Instead, this amendment requires that we maintain unrestricted cash of at least $20 million and maintain earnings before interest and taxes (as defined in our note agreement) of not less than a loss of $10 million for each twelve month period ending each quarter in 2009. At September 26, 2009, our cash on hand was $42.4 million and our earnings before interest and taxes (as defined in our note agreement) for the twelve months ended September 26, 2009 was a loss of $2.4 million. It is likely that we will not meet the covenant requirement on earnings before interest and taxes (as defined in our note agreement) for the twelve months ending December 31, 2009 and will need to seek a waiver or additional amendment of this requirement. In addition, in the event of noncompliance with the two financial covenants relating to operating income and earnings that will apply after 2009, we would also have to seek waivers or additional amendments. If we are not able to obtain such waivers or amendments from our lenders, then we would need to seek other funding or use our cash on hand to repay the lenders.
Assuming our percentage allocation in future years is the same as it was for the 2008 payment (approximately 27% of the funds distributed), that the amount of $100 million collected by the government as of October 1, 2008 does not change as a result of the annual administrative review process or otherwise, and that the government loses the pending appeals based on constitutional issues (reducing our percentage allocation by approximately 62% based on the amount of funds held back for this pending litigation in 2008), we could potentially receive approximately $10 million in additional CDSOA funds. If the government ultimately prevails on the pending constitutional legal challenges and the other assumptions remain the same, we could potentially receive approximately $54 million in additional CDSOA funds.
Of the approximately $100 million in duties collected by the government as of October 1, 2008, the CBP recently disclosed that $57 million was liquidated as of April 30, 2009 and is available for disbursement in 2009 to eligible domestic manufacturers. However, the CBP did not update the amount of duties collected by the government. The CBP noted in its notice that the final amounts available for distribution may be higher or lower than the preliminary amounts due to additional duties collected on entries that are liquidated before September 30, 2009 or some funds may be removed from the account because of reliquidations or administrative errors. Based on this preliminary amount we expect to receive $6 million to $7 million in the fourth quarter of 2009.
Read the The complete ReportSTLY is in the portfolios of Ronald Muhlenkamp of Muhlenkamp Fund, Third Avenue Management.