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Stanley Furniture ja CDSOA-maksut (osa2)

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Kirjoitin aikaisemmassa julkaisussa STLYn uutisesta, jossa se kertoi saaneensa positiivisen päätöksen CDSOA-maksuista. Uutisessa oli muutama kohta, jotka jäivät vaivaamaan, joten kirjoitin jälleen kerran Stanleyn CFO:lle ja pyysin hieman lisätietoja. Tässä tärkeimmät tiedot:

Minä: The 8K-filing raised some questions and I thought maybe you could elaborate few things. I understand that the specific payment date cannot be known but in the filing it said “there is no legally binding deadline for Customs to do so by then or at alland I was a bit surprised about the “or at all” part. Does this mean that the customs may choose not to pay before it’s absolutely clear that there will be no more litigation about the subject or what?

Vastaus: As we understand it, the litigator for Customs told our council they intend to start distribute Inc the money and should be complete by mid April.  That statement is not legal or binding and for some reason that we can not imagine and do not expect, Customs, could in theory not distribute the funds.  This is one of those cases where we just need to disclose all possibilities.

Minä: Is it known when the non-supporting producers must appeal about the verdict (i.e. is there some specific date)?

Vastaus: In terms of timing, we know the Court intends to hear the Furniture Brand appeal and we do not know how long that will take – maybe 9 months.  They have not decided if they will hear the others – we will disclose information as soon as it becomes available.

Minä: If Stanley gets the payment, will it invest it in anyway or will the cash sit idle until it’s certain that it doesn’t need to be returned?

Vastaus: At this point we believe we will keep it safe and liquid until all pending litigation is complete. Maybe fully insured CD’s.

Toivottavasti nämä tiedot selkeyttävät asiaa muille omistajille ja mahdollisille uusille sijoittajille.

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Written by vdell

10/03/2012 at 20:22

Posted in yritysanalyysit

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Stanley Furniture ja CDSOA-maksut

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STLY julkaisi eilen seuraavanlaisen uutisen (osittainen lainaus, lue alkuperäinen 8K-julkaisu tästä):

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…

On March 5, 2012, the Federal Circuit denied the motions for injunction, “without prejudicing the ultimate disposition of these cases.” As a result, we expect to receive a CDSOA distribution of approximately $40 million after March 9, 2012, based on our allocation of the CDSOA funds distributed in each of the past six years. We have been informed that Customs expects to make the distribution by mid-April 2012, but there is no legally binding deadline for Customs to do so by then or at all. Moreover, if the Federal Circuit were to reverse the decisions of the Court of International Trade and to determine that the Non-Supporting Producers are entitled to CDSOA distributions, it is possible that Customs may seek to have us return all or a portion of our company’s share of the Holdback.

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 $9.1 million collected by the government as of October 1, 2011 does not change as a result of the annual administrative review process or otherwise, we could receive approximately $2.7 million in CDSOA funds in addition to any funds received from the Holdback discussed above.

Oikeus on siis päättänyt, että CDSOA-maksut tulee jakaa alkuperäisen suunnitelman mukaan niille valmistajille, joille ne kuuluvatkin. Stanley tulee saamaan noin $40 miljoonaa, joka on valtava summa, sillä sen markkina-arvo on tällä hetkellä $52m, josta jo nyt käteisen osuus on noin $17m. Mikäli asiat menevät parhaalla mahdollisella tavalla, tulee Stanleyn taseessa olemaan lähiaikoina yhteensä $57 miljoonaa käteistä. Tämän lisäksi sillä on mahdollisuus saada “ylimääräisiä” CDSOA-maksuja, joita se on aika ajoin saanut jo aikaisemminkin. Uutinen on luonnollisestikin todella positiivinen mutta on valitettavaa, että rahoja pitää vielä odotella määrittelemätön aika ja että huonoimmassa tapauksessa tulli ei maksakaan rahoja (miten tämä on mahdollista?) tai päätöksestä valitetaan. Parhaassa tapauksessa odotan kuitenkin muhkeaa ylimääräistä osinkoa.

* Continued Dumping and Subsidy Offset Act of 2000: The act changed the disposition of funds raised from duties on imports that the US government has determined to be subsidized or otherwise unfairly priced. Prior to the act, those funds were incorporated into the US budget. The Act specifies that the funds be distributed to the US companies that file pricing complaints. In short, this meant that non-US firms which sell below cost price in the US can be fined, and the money given to the US companies who made the complaint in the first place. The act has since been repealed.” – Wikipedia

Written by vdell

08/03/2012 at 14:31

Stanley Furniture – Johdon Ajatuksia Osakkeiden Takaisinostosta

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Stanley Furnituren entinen toimitusjohtaja, Jeffrey Scheffer, hehkutti vuoden ’06 ja ’07 vuosikertomuksissa sitä, että kuinka yritys oli palauttanut rahaa omistajille osakkeiden takaisinostojen ja osinkojen muodossa. Valitettavasti takaisinostojen ajankohta oli katastrofaalisen huono, koska:

  • Stanleyn vuosikertomuksen mukaan huonekaluteollisuuden alamäki alkoi jo vuonna ’05.
  • STLYn osakkeen hinta oli ’06 ATH $29.25, kirja-arvon ollessa ~$9.9 per osake. P/B oli siis lähellä kolmea = kallis ostos.
  • Vuonna ’07 yritys lainasi rahaa ostaakseen omia osakkeita, vaikka oli melko selvää, että sillä ja USAn taloudella ei tule olemaan kovin ruusuinen tulevaisuus. Osakkeen hinta oli toki laskenut huipustaan mutta se ei paljon auttanut, sillä kirja-arvo on laskenut tämän jälkeen merkittävästi. Tänä päivänä se on noin $3 per osake.

Näiden seikkojen valossa “katastrofaalisen huono ajankohta” on mielestäni melko sopiva kuvaus. Kirjoitin uudemman kerran Micah Goldsteinille ja tiedustelin hänen ajatuksiaan asiaan liittyen. Tässä hieman lyhennetty versio sähköposteista.

Minä:

We talked about shareholder value in the previous emails so I thought I would ask your opinion about the topic. In the year ’06 and ’07 the CEO, Jeffrey Scheffer, wrote the following:

We used this strong cash flow from operations along with cash on hand to purchase 1.4 million shares of our stock for $33.6 million, pay cash dividends of  $3.7 million and repay $2.9 million of debt.” (2006)

“During 2007, strong cash flow from operations and $25 million in proceeds from additional borrowings were used  to  repurchase  639,331  shares  of  the  Company’s  common  stock  for  $13.6  million,  pay  cash  dividends  of
$4.2 million, make scheduled debt payments of $2.9 million, invest $4.0 million in capital improvements and increase cash on hand by $25.4 million.”

I lost my exact notes somewhere but if I recall correctly, in the years 2006-2007 Stanley’s book value was somewhere around ~$9.9 per share (correct me if I’m wrong). The share price was ATH at $29.25 in 2006 and went as low as $12.68 in 2007. So, in the ATH, Stanley’s price/book value – ratio was around 3, which is a very high price to do repurchases. The slowdown of the furniture business was noted to have started in ’05 and in ’07 it was pretty clear that the US-economy was in crisis. Still, the CEO continued to repurchase stock. The situation got worse in 2007 because money was borrowed to repurchase stock. In addition, as we now know, Stanley’s book value ATM is +$3 per share. This makes the share repurchases to look really overpaid. In my opinion, these repurchases were really destroying shareholders’ value, instead of creating it. It would have been better if the company would have paid handsome dividends or retain some cushion for the hard times (for a cyclical company this would have been a really good thing). I think that companies should buy their shares when it’s selling below book value or if the stock is in other ways undervalued. The second reason is of course a bit hard to figure out, unless one is familiar with company analysis (in the investing sense).

What are your opinions about this? When do you think it’s good to repurchase shares and will this be the main way of returning cash to shareholders in the future? Or will it be dividends?

Micah:

There is a long history of debate in the capital markets on the best way to return cash back to shareholders – something I look forward to having to figure out in the near future.  The beginning must be excess cash and no internal best use for it.  Unfortunately we are still consuming cash with capital investments and operating losses.  As those needs lessen and our return to profitability gets further along, we hope to be in a cash generative mode and have to figure out uses for it.

I personally believe that if there is a best use for the cash internally, that will always be best for the shareholder.  Whether it be growth capital, strategic investments, etc., taking care of the core assets and perpetuating the business through time is objective number 1.  

As for my thinking on dividends or share repurchases, they both have a place.  As you know, both Glenn and I are substantial shareholders and we will always try to act in their best interest.  I believe a dividend policy makes sense when a company generates cash flow from operations on a consistent basis.  I also think that a share repurchase program makes sense if management believes the shares are undervalued and enough liquidity exists that the shares can be purchased overt time without driving the price up.  

I do think it is hard to evaluate repurchase decisions well after the fact (with the value of hindsight).  Certainly the share price, state of the economy, debt (or lack there of) all play into managements decisions – we still have so many unknowns that it is hard for us to say how we will return capital to shareholders should we find ourselves in that position.  The decision would be made with the help of many advisors and again, I hope it is one we get to make in the not to distant future.

 

Written by vdell

28/12/2011 at 19:56

Stanley Furniture ja Johdon Palkitseminen

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Kirjoitin eilisen linkkilistan yhteydessä, että STLY oli valinnut johdon palkitsemismittariksi tuloksen ennen veroja ja korkoja (EBIT). En ollut kovin vakuuttunut siitä, että yritys päätti käyttää vain yhtä mittaria kompensaation määritelyssä, joten lähetin Micah Goldsteinille (CFO/hallituksen jäsen) sähköpostitse kysymyksen asiasta. Yllätyin positiivisesti hänen vastauksensa nopeudesta, ottaen huomioon, että kyseessä oli lauantai. Keskustelu sivusi myös sisäpiirin ostoja sekä tulevaisuuden veroetuja. Goldsteinin luvalla julkaisen pätkiä keskustelustamme.

Minä:

Is EBIT really the only metric that is used to measure the performance of the key employees? If this is correct then would it be possible to get further explanation on why this single metric was chosen? In my opinion, it doesn’t tell enough about the company’s performance. What about cash generated from operations/free cash flow, top-line growth, debt/asset-ratio, book value growth or return on equity? All of those are important in determining the financial performance and health of the company.

Goldstein:

As you are well aware, there are many metrics to chose from that indicate the health of a business.  We fundamentally believe that earnings and in particular, operating income, should be the primary focus of our management team.  Since repaying all our debt at the end of 2010 and the fact that our remaining interest expense is really non-cash, operating income is a great proxy and a way to keep management focused on creating value for the shareholder.

We have been transparent in our communication about what level of revenue would be required for us to reach we break-even at the operating level so by default, our current metric does incorporate other measures. In other words, the EBIT levels required for us to reach target or max bonus are only possible with revenue growth.

We are heavily investing in our business and these investments must create earnings for our shareholders.  Both Glenn and I continue to purchase open market shares and increase our individual ownership.  We fundamentally believe in aligning our incentives with what is best for our shareholders and have put a lot of thought into both the metrics and the plan that will support us achieving those levels.

As a side, we did review our 2012 comp plan with an executive compensation consultant who said “best practice” was to limit metrics to no more than two.  As we return to profitability we will stay open-minded and make sure we are using metric(s) that align the incentives of all stakeholders.

Minä:

My main concern with earnings (as the compensation metric) is that they are very much accounting numbers, whereas cash flow is tangible and not possible to alter with accounting methods (at least in the same magnitude as earnings). So if, for example, net cash from operating activities would be used as another metric, then I think that it would reassure fellow investors that the management is focused on the the most important thing: cash generation. It’s of course true that insider ownership and open-market purchases are also an encouraging sign and that your communication has been good and transparent.

Goldstein:

I understand your concern and your interest in us being rewarded for generating cash from operations.  Many companies have been criticized for rewarding management for generating cash at the expense of earnings – for instance, companies who promote and discount products to deplete inventories.  Selling product at a loss could generate cash but detract from earnings.

We believe that operating income, which does not include any proceeds from CDSOA is the purest measure for our team.  Operating income plus depreciation is a good proxy for cash generated or lost from operations.  I hope I do not appear defensive but believe that we are really interested in the same outcome and that our attaining bonus next year would be mutually beneficial.

Minä

You make a good point about discounting products and inventory depletion, but just to make sure that I’ve elaborated myself clearly: I think that the *combination* of earnings and cash flow (plus maybe some other metric) would be a better measurement than just the earnings alone. This would make sure that the earnings would be tangible instead of just numbers on the paper (i.e. skewed by accounting). I have no reasons to believe that Stanley’s management team would do such things, so I’m really just speaking generally about the topic and not because I want to criticize your team. And actually, now that you’ve explained your point, EBIT seems like a pretty decent measurement.

Regarding EBIT: I know that Stanley is virtually debt free, but what about taxes, does Stanley have loss-carryforwards and if so, for how long?

Goldstein:

I understand your point and appreciate the feedback. We are pretty rigid in our accounting policies and oversight and as a shareholder, will assure you that this practice will continue.
As far as taxes are concerned, we have a large loss carry-forward to consume before we will pay taxes again.  In terms of how long, it depends on our ability to return the company to profitability as well as timing and amounts of future CDSOA distributions.  Last quarters Q has the exact dollars of our loss carry forward and I think I mentioned on the last call the amount of earnings we could protect from taxes.

Written by vdell

11/12/2011 at 10:03

Linkkilista (vko49) + STLY

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Viikoittain ei tunnu löytyvän tarpeeksi laadukkaita linkkejä, joten linkkilista julkaistaan tästä lähtien aina silloin, kun tarpeeksi hyviä linkkejä on kasassa. Viikon 49 linkit:

Sitten vielä hieman uutisia liittyen Stanley Furnitureen:

  1. Hallituksen jäsenet Albert L. Prillaman ja Robert G. Culp jäävät eläkkeelle.
  2. Micah S. Goldstein liittyy hallituksen jäseneksi. Hän on toiminut aikaisemmin toisissa tehtävissä (COO & CFO) yrityksen sisällä.
  3. Vuoden 2012 johdon palkitseminen perustuu yrityksen tulokseen ennen korkoja ja veroja (EBIT). Ei mielestäni mikään paras mittari yrityksen tehokkuuden mittaamiseen.
  4. Yritys sai Marraskuun aikana $3.5 miljoonaa CDSOA-maksuja, joista noin $600,000 menee kuluihin. Nettovaikutus siis noin $2.9 miljoonaa.

Tässä vielä linkki alkuperäiseen 8K-lomakkeeseen.

Written by vdell

10/12/2011 at 12:27