Stanley Furniture Company Inc. has a market cap of $91.2 million; its shares were traded at around $8.83 with and P/S ratio of 0.6. STLY is in the portfolios of Ronald Muhlenkamp of Muhlenkamp Fund, Third Avenue Management, Chuck Royce of Royce& Associates, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:During the first quarter of 2010, we performed a goodwill impairment evaluation as a result of our first quarter operating loss and recently announced restructuring actions and recorded a goodwill impairment charge of $9.1 million representing the entire amount of goodwill associated with the business. In addition, we recorded a non-cash charge to establish a valuation allowance of $1.3 million against our gross deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal.
Cash used by operations was $8.2 million in the first three months of 2010 compared to cash used of $3.7 million in the 2009 period. The increase in cash used by operations was primarily due to lower receipts from customers due to lower sales and higher cash paid to suppliers and employees due to manufacturing inefficiencies and the incremental cost of transitioning approximately one-third of our Young America product line revenues from overseas into domestic facilities.
On May 3, 2010 we made a scheduled principal payment of $1.4 million. We renegotiated the terms of our long term debt to include a no penalty pre-payment of $11.5 million on May 11, 2010. This leaves an outstanding balance of $15 million of debt as of May 12, 2010. Remaining debt service requirements are $3.8 million in 2011; $3.6 million in 2012, 2013 and 2014; and $458,000 in 2015. While the interest rate on the debt will remain the same for the term of the debt, the lender is now secured by most of the Companys assets.
The debt agreement was amended to eliminate the earnings based financial covenants for the first and second quarters of 2010 and to relax the financial covenants through the first quarter of 2011. The amended agreement requires that our loss before interest, tax expense, depreciation and amortization not exceed $5 million for the third quarter of 2010; not exceed $10 million for the cumulative two quarter period ending with the fourth quarter of 2010; and not exceed $10 million for the cumulative three quarter period ending with the first quarter of 2011. We are also required to maintain unrestricted cash on hand of $5 million at all times through the first quarter of 2011. In addition, we must maintain asset coverage of at least $15 million based on the sum of 70% of accounts receivable and 35% of finished goods inventory. We are in compliance with these covenants, as amended, as of April 3, 2010.
On May 11, 2010, the Company entered into a Second Amended and Restated Note Purchase and Private Shelf Agreement among the Company, The Prudential Insurance Company of America and other holders of Notes named therein (the Amended Note Agreement). Under the terms of the Amended Note Agreement, on May 11, 2010 the Company made a no penalty pre-payment of $11.5 million to the Note holders. The Amended Note Agreement requires that the Company maintain unrestricted cash on hand of $5 million at all times through the first quarter of 2011. In addition, the Company must maintain asset coverage of at least $15 million based on the sum of 70% of accounts receivable and 35% of finished goods inventory. The Amended Note Agreement temporarily eliminates certain earnings-based financial covenants through the first quarter of 2011 and revises other covenants. Pursuant to the Amended Note Agreement, the current interest rates on the Companys outstanding Series AA Senior Notes due 2017 and the Senior Notes due 2011 of 8.23% and 8.44% will be maintained for the remaining term of the Notes.
In connection with the restructuring plan the Company expects to record accelerated depreciation of $8 million to $10 million. Future cash costs of $4 million to $5 million includes approximately $1.0 million for retention bonuses and $3 million to $4 million in facility conversion expense and other related expenses. The Company expects it will be substantially completed with the restructuring by the end of the fourth quarter of 2010.
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