Stanley Sales Decline 7.8% From 2005 Record Levels

Furniture World Magazine

Stanley Furniture Company, Inc. reported sales and earnings for 2006. Sales and earnings were within management's previous guidance range provided in mid-October 2006. Sales and earnings for 2006 were below the record levels achieved in 2005. Net sales of $307.5 million declined 7.8% and earnings per share decreased 20.3% to $1.41 compared to $1.77 in 2005. Fourth quarter sales of $70.6 million decreased 13.3% from the fourth quarter of 2005. Earnings per share declined 13.0% to $.40 from $.46 in the fourth quarter of 2005. The Company recorded income of $4.4 million, net of legal expenses and tariff adjustments, in the fourth quarter of 2006 from the receipt of funds under the Continued Dumping and Subsidy Offset Act of 2000 (CDSOA) in connection with the case involving wooden bedroom furniture imported from China. The CDSOA provides for the distribution of monies collected by U.S. Customs and Border Protection from antidumping cases to qualified domestic producers, in cases where domestic producers continue to invest in their technology, equipment, and people. Subsidies recorded in 2005 were insignificant. Excluding income from CDSOA (net of income taxes), earnings per share decreased 33.9% to $1.17 in 2006 compared to $1.77 in 2005, and 69.6% to $.14 per share in the fourth quarter of 2006 compared to $.46 in the year ago quarter. See attached tables for a reconciliation of reported to adjusted net income and earnings per share for the fourth quarter and total year 2006 compared to 2005. Operating income for 2006 was $22.7 million, or 7.4% of net sales, compared to $37.4 million, or 11.2% of net sales, for the prior year. Lower margins resulted from lower sales, decreased production levels and higher raw material, compensation, bad debt and energy costs. These factors were partially offset by lower performance based compensation expense due to lower earnings. As a result of improving processes and reducing lead times, production levels decreased more sharply than the sales decline and accentuated the margin decline due to the under absorption of factory overhead costs. Cash flow from operations was near a record level in 2006, despite the lower sales and earnings. This strong cash flow from operations along with cash on hand was used to repurchase 1.4 million shares of the Company's common stock for $33.6 million, pay cash dividends of $3.7 million and repay $2.9 million of debt. Working capital, excluding cash and current maturities of long-term debt, decreased $12.9 million in 2006 primarily due to the significant reduction in inventories ($10.6 million). Approximately $32.6 million is currently authorized by the Company's Board of Directors to repurchase shares of the Company's common stock. The Company also announced today that it has entered into a definitive agreement to borrow $25 million in a private note placement. Funding is expected to occur on or before April 17, 2007. The note will bear interest at 6.73% per annum and be payable in seven equal annual principle payments starting in May 2011 with the final payment due in May 2017. Proceeds from the loan will be used for general corporate purposes including the Company's stock repurchase program. Business Outlook "The industry-wide slowdown that began in late 2005 worsened during 2006 and does not appear to be over," commented Jeffrey R. Scheffer, President and Chief Executive Officer. "While we are disappointed with lower sales and earnings, I am confident we are a stronger, more efficient company today than we were a year ago." "Near term we will continue to focus on controlling costs and inventories, and improving our product offerings. Longer term we remain focused on reducing costs, eliminating waste, and improving productivity, quality, and service through our continuous improvement efforts applying lean business principles," concluded Scheffer. Management offers the following guidance. This guidance excludes any potential receipt of funds under the CDSOA involving tariffs collected by the U.S. government on wooden bedroom furniture imported from China. Management now expects the earnings charge for the previously announced termination of the Company's defined benefit pension plan to be towards the lower end of the range provided in July 2006 ($6 million to $8 million, pre-tax). The Company anticipates recording the earnings charge upon final termination of the pension plan in the second quarter of 2007. Total year 2007 guidance: * Net sales are expected to be in the range of $300 million to $315 million, compared to $307.6 million in 2006. * Operating income is expected to be in the range of $18.5 million to $21.0 million (excluding a pre-tax charge to earnings of $6.0 million to $6.5 million for the pension plan termination). * The Company's effective tax rate is expected to be in the range of 33.5% to 34.0% in 2007. * Earnings per share are expected to be in the range of $1.00 to $1.15 (excluding a charge to earnings of $.35 to $.38 for the pension plan termination) compared to $1.17 for 2006. First quarter ending March 31, 2007 guidance: * Net sales are expected to be in the range of $70 million to $74 million, compared to record sales of $83.5 million in the first quarter of 2006. * Operating income is expected to be in the range of $2.6 million to $3.2 million. * Earnings per share are expected to be in the range of $.12 to $.16 compared to $.43 in the year-ago quarter. Other Information All earnings per share amounts are on a diluted basis. Established in 1924, Stanley Furniture Company, Inc. is a leading manufacturer of wood furniture targeted at the upper-medium price range of the residential market. Manufacturing facilities are located in Stanleytown and Martinsville, Va. and Robbinsville and Lexington, N.C. Its common stock is traded on the Nasdaq stock market under the symbol STLY.