Table
of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31,
2009
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 1-11692
Ethan Allen Interiors Inc.
(Exact name of registrant
as specified in its charter)
Delaware
|
|
06-1275288
|
(State or other
jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
Ethan
Allen Drive, Danbury, Connecticut
|
|
06811
|
(Address of
principal executive offices)
|
|
(Zip Code)
|
(203) 743-8000
(Registrants telephone
number, including area code)
N/A
(Former name, former
address and former fiscal year, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
x
Yes
o
No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or such shorter period that the registrant was required to
submit and post such files).
o
Yes
o
No
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2
of the Exchange Act
Large accelerated filer
o
|
|
Accelerated filer
x
|
|
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
o
Yes
x
No
Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practicable date.
At January 29, 2010,
there were 28,916,929 shares of Class A Common Stock, par value $.01,
outstanding.
Table of Contents
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
|
|
December 31,
2009
|
|
June 30,
2009
|
|
|
|
(unaudited)
|
|
|
|
ASSETS
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
76,138
|
|
$
|
52,960
|
|
Accounts
receivable, less allowance for doubtful accounts of $1,153 at
December 31, 2009 and $1,362 at June 30, 2009
|
|
12,581
|
|
13,086
|
|
Inventories
(note 4)
|
|
141,991
|
|
156,519
|
|
Prepaid
expenses and other current assets
|
|
10,536
|
|
21,060
|
|
Deferred
income taxes
|
|
14,899
|
|
8,077
|
|
Total
current assets
|
|
256,145
|
|
251,702
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
313,528
|
|
333,599
|
|
Goodwill
and other intangible assets (notes 6 and 7)
|
|
45,128
|
|
45,128
|
|
Other
assets
|
|
17,669
|
|
16,056
|
|
Total
assets
|
|
$
|
632,470
|
|
$
|
646,485
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
Current
maturities of long-term debt (note 8)
|
|
$
|
43
|
|
$
|
42
|
|
Customer
deposits
|
|
36,573
|
|
31,691
|
|
Accounts
payable
|
|
23,236
|
|
22,199
|
|
Accrued
compensation and benefits
|
|
30,151
|
|
29,533
|
|
Accrued
expenses and other current liabilities (note 5)
|
|
26,100
|
|
28,998
|
|
Total
current liabilities
|
|
116,103
|
|
112,463
|
|
|
|
|
|
|
|
Long-term
debt (note 8)
|
|
203,165
|
|
203,106
|
|
Other
long-term liabilities
|
|
25,323
|
|
24,993
|
|
Total
liabilities
|
|
344,591
|
|
340,562
|
|
|
|
|
|
|
|
Shareholders
equity:
|
|
|
|
|
|
Class A
common stock, par value $.01, 150,000,000 shares authorized; 48,297,870 shares
issued at December 31, 2009 and 48,334,870 shares issued at
June 30, 2009
|
|
483
|
|
483
|
|
Class B
common stock, par value $.01, 600,000 shares authorized; no shares issued and
outstanding at December 31, 2009 and June 30, 2009
|
|
|
|
|
|
Preferred
stock, par value $.01, 1,055,000 shares authorized; no shares issued and
outstanding at December 31, 2009 and June 30, 2009
|
|
|
|
|
|
Additional
paid-in capital
|
|
357,521
|
|
356,446
|
|
|
|
358,004
|
|
356,929
|
|
Less:
Treasury stock (at cost), 19,380,941 shares at December 31, 2009 and
19,380,941 shares at June 30, 2009
|
|
(583,220
|
)
|
(583,220
|
)
|
Retained
earnings
|
|
511,927
|
|
531,747
|
|
Accumulated
other comprehensive income (note 12)
|
|
1,168
|
|
467
|
|
Total
shareholders equity
|
|
287,879
|
|
305,923
|
|
Total
liabilities and shareholders equity
|
|
$
|
632,470
|
|
$
|
646,485
|
|
See
accompanying notes to consolidated financial statements.
2
Table of Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Consolidated Statements of
Operations (Unaudited)
(In thousands, except per share
data)
|
|
Three months ended
December 31
,
|
|
Six months ended
December 31
,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net
sales
|
|
$
|
143,302
|
|
$
|
189,558
|
|
$
|
279,492
|
|
$
|
395,399
|
|
Cost of sales
|
|
74,278
|
|
87,757
|
|
152,159
|
|
181,657
|
|
Gross profit
|
|
69,024
|
|
101,801
|
|
127,333
|
|
213,742
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
Selling
|
|
33,801
|
|
48,721
|
|
67,406
|
|
104,023
|
|
General and administrative
|
|
39,729
|
|
42,967
|
|
79,709
|
|
89,025
|
|
Restructuring and impairment charge (credit), net
(note 5)
|
|
777
|
|
26
|
|
1,589
|
|
(1,604
|
)
|
Total operating expenses
|
|
74,307
|
|
91,714
|
|
148,704
|
|
191,444
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
(5,283
|
)
|
10,087
|
|
(21,371
|
)
|
22,298
|
|
Interest and other miscellaneous income, net
|
|
1,020
|
|
1,113
|
|
1,817
|
|
2,213
|
|
Interest and other related financing costs (note 8)
|
|
2,978
|
|
2,932
|
|
5,959
|
|
5,833
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
(7,241
|
)
|
8,268
|
|
(25,513
|
)
|
18,678
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) (note 3)
|
|
(3,903
|
)
|
2,780
|
|
(8,596
|
)
|
5,768
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,338
|
)
|
$
|
5,488
|
|
$
|
(16,917
|
)
|
$
|
12,910
|
|
|
|
|
|
|
|
|
|
|
|
Per share data (note 11):
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share:
|
|
|
|
|
|
|
|
|
|
Net income (loss) per basic share
|
|
$
|
(0.12
|
)
|
$
|
0.19
|
|
$
|
(0.58
|
)
|
$
|
0.45
|
|
Basic weighted average common shares
|
|
28,917
|
|
28,739
|
|
28,922
|
|
28,721
|
|
Diluted earnings per common share:
|
|
|
|
|
|
|
|
|
|
Net income (loss) per diluted share
|
|
$
|
(0.12
|
)
|
$
|
0.19
|
|
$
|
(0.58
|
)
|
$
|
0.45
|
|
Diluted weighted average common shares
|
|
28,917
|
|
28,739
|
|
28,922
|
|
28,793
|
|
See accompanying notes to consolidated financial statements.
3
Table of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of Cash
Flows (Unaudited)
(In thousands)
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Operating activities:
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(16,917
|
)
|
$
|
12,910
|
|
Adjustments to reconcile net income to net cash
provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
18,330
|
|
12,808
|
|
Compensation expense related to share-based awards
|
|
1,075
|
|
984
|
|
Provision (benefit) for deferred income taxes
|
|
(8,967
|
)
|
(3,819
|
)
|
Restructuring and impairment charge (benefit), net
|
|
(161
|
)
|
(3,854
|
)
|
Loss (gain) on disposal of property, plant and
equipment
|
|
(3
|
)
|
59
|
|
Other
|
|
110
|
|
102
|
|
Change in assets and liabilities, net of the
effects of acquired businesses:
|
|
|
|
|
|
Accounts receivable
|
|
505
|
|
3,543
|
|
Inventories
|
|
14,528
|
|
(740
|
)
|
Prepaid and other current assets
|
|
7,969
|
|
10,769
|
|
Other assets
|
|
406
|
|
97
|
|
Customer deposits
|
|
4,882
|
|
(18,172
|
)
|
Accounts payable
|
|
1,037
|
|
13
|
|
Accrued expenses and other current liabilities
|
|
(2,275
|
)
|
81
|
|
Other long-term liabilities
|
|
330
|
|
926
|
|
Net cash provided by operating activities
|
|
20,849
|
|
15,707
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
Proceeds from the disposal of property,
plant & equipment
|
|
10,084
|
|
5,745
|
|
Capital expenditures
|
|
(5,315
|
)
|
(16,146
|
)
|
Acquisitions
|
|
|
|
(647
|
)
|
Other
|
|
19
|
|
(213
|
)
|
Net cash provided by (used in) investing activities
|
|
4,788
|
|
(11,261
|
)
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
Payments on long-term debt
|
|
(21
|
)
|
(20
|
)
|
Proceeds from issuance of common stock
|
|
|
|
2
|
|
Payment of deferred financing costs
|
|
(193
|
)
|
|
|
Payment of cash dividends
|
|
(2,897
|
)
|
(13,525
|
)
|
Net cash used in financing activities
|
|
(3,111
|
)
|
(13,543
|
)
|
Effect of exchange rate changes on cash
|
|
652
|
|
(735
|
)
|
Net increase (decrease) in cash & cash
equivalents
|
|
23,178
|
|
(9,832
|
)
|
Cash & cash equivalents - beginning of
period
|
|
52,960
|
|
74,376
|
|
Cash & cash equivalents - end of period
|
|
$
|
76,138
|
|
$
|
64,544
|
|
See accompanying notes to consolidated financial statements.
4
Table of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of
Shareholders Equity
Six months ended December 31,
2009
(Unaudited)
(In thousands, except share data)
|
|
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
|
|
Accumulated
Other
Comprehensive
Income
|
|
Retained
Earnings
|
|
Total
|
|
Balance at June 30, 2009
|
|
$
|
483
|
|
$
|
356,446
|
|
$
|
(583,220
|
)
|
$
|
467
|
|
$
|
531,747
|
|
$
|
305,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense (note 10)
|
|
|
|
1,075
|
|
|
|
|
|
|
|
1,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared on common stock
|
|
|
|
|
|
|
|
|
|
(2,903
|
)
|
(2,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (note 12):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments
|
|
|
|
|
|
|
|
677
|
|
|
|
677
|
|
Hedge amortization, net of tax and other
|
|
|
|
|
|
|
|
24
|
|
|
|
24
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
(16,917
|
)
|
(16,917
|
)
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
(16,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
483
|
|
$
|
357,521
|
|
$
|
(583,220
|
)
|
$
|
1,168
|
|
$
|
511,927
|
|
$
|
287,879
|
|
See
accompanying notes to consolidated financial statements.
5
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Notes to
Consolidated Financial Statements (Unaudited)
(1)
Basis of Presentation and Recent
Accounting Pronouncements
Basis
of Presentation
Ethan Allen Interiors
Inc. (Interiors) is a Delaware corporation incorporated on May 25, 1989.
The consolidated financial statements include the accounts of Interiors, its
wholly owned subsidiary Ethan Allen Global, Inc. (Global), and Globals
subsidiaries (collectively We, Us, Our, Ethan Allen, or the Company). All intercompany accounts and transactions
have been eliminated in the consolidated financial statements. All of Globals capital stock is owned by
Interiors, which has no assets or operating results other than those associated
with its investment in Global.
We prepare our
consolidated financial statements in conformity with accounting principles
generally accepted in the United States, which requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. In
preparing these financial statements, the Company has evaluated events and
transactions subsequent to December 31, 2009 through February 5,
2010, the date of public issuance of this Quarterly Report on form 10-Q. Due to the inherent uncertainty involved in
making those estimates, actual results could differ from those estimates. Areas in which significant estimates have
been made include, but are not limited to, revenue recognition, the allowance
for doubtful accounts receivable, inventory obsolescence, tax valuation
allowances, useful lives for property, plant and equipment and intangible
assets, goodwill and indefinite-lived intangible asset impairment analyses, the
evaluation of uncertain tax positions and the fair value of assets acquired and
liabilities assumed in business combinations.
Recently
Adopted Accounting Pronouncements
In June 2009, the
Financial Accounting Standards Board (FASB) issued guidance now codified as
FASB Accounting Standards Codification (ASC) Topic 105, Generally Accepted
Accounting Principles, as the single source of authoritative nongovernmental
U.S. GAAP. ASC Topic 105 does not change
current U.S. GAAP, but is intended to simplify user access to all authoritative
U.S. GAAP by providing all authoritative literature related to a particular
topic in one place. All existing accounting standard documents will be
superseded and all other accounting literature not included in the ASC will be
considered non-authoritative. These provisions of ASC Topic 105 became
effective for the Company in the first quarter of fiscal 2010. The adoption of
this pronouncement did not have an impact on the Companys financial condition
or results of operations, but will impact our financial reporting process by
eliminating all references to pre-codification standards. On the effective date
of this Statement, the ASC superseded all then-existing non-SEC accounting and
reporting standards, and all other non-grandfathered non-SEC accounting
literature not included in the ASC became non-authoritative. References to the
pre-codification pronouncements are noted in parenthesis.
In September 2006,
FASB issued guidance now codified as ASC Topic 820, Fair Value Measurements
and Disclosures, (SFAS No. 157) which defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements and does not require any new fair value measurements. In February 2008, the FASB released
additional ASC Topic 820 guidance (FSP No. 157-2), which delayed the
effective date of the application of certain guidance related to non-financial
assets and non-financial liabilities until July 1, 2009 for the Company,
except for items that are recognized or disclosed at fair value in the
financial statements on a recurring basis.
The Company adopted certain provisions of ASC Topic 820 effective July 1,
2008, except as it relates to those non-financial assets and non-financial
liabilities excluded as noted above. The
Company adopted the provisions of ASC Topic 820 with respect to our
non-financial assets and non-financial liabilities effective July 1, 2009.
The implementation of this pronouncement did not have a material impact on our
consolidated financial position, results of operations or cash flows.
6
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
In December 2007, the FASB issued guidance now
codified as ASC Topic 805,
Business Combinations
(SFAS No. 141(R), which replaced SFAS No. 141). ASC Topic 805 establishes principles and
requirements for how an acquirer in a business combination recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, and any controlling interest; recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain
purchase; and determines what information to disclose to enable users of the
financial statements to evaluate the nature and financial effects of the
business combination. ASC Topic 805 is to be applied prospectively to business
combinations for which the acquisition date is on or after an entitys fiscal
year that begins after December 15, 2008 (July 1, 2009 for the
Company). The impact of this Statement on the Companys financial position,
results of operations and cash flows will be dependent on the terms, conditions
and details of such acquisitions.
In June 2008, the
FASB issued guidance now codified as ASC Topic 260, Earnings Per Share (EITF
03-6). Under ASC Topic 260, unvested share-based payment awards that contain
rights to receive non-forfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing earnings per share. The implementation of this pronouncement did not
have a material impact on our consolidated financial position, results of
operations or cash flows.
(2)
Interim Financial Presentation
In our opinion, all
adjustments, consisting only of normal recurring adjustments necessary for fair
presentation, have been included in the consolidated financial statements. The
results of operations for the three and six months ended December 31, 2009
are not necessarily indicative of results that may be expected for the entire
fiscal year. The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and accompanying notes
included in our Annual Report on Form 10-K/A for the year ended June 30,
2009.
(3)
Income Taxes
The Company reviews its
expected annual effective income tax rates and makes changes on a quarterly
basis as necessary based on certain factors such as changes in forecasted
annual operating income; changes to actual or forecasted permanent book to tax
differences; impacts from future tax audits with state, federal or foreign tax
authorities; or impacts from tax law changes.
The Company identifies items which are not normal and are nonrecurring
in nature and treats these as discrete events. The tax effect of discrete items
is recorded in the quarter in which the discrete events occur. Due to the
volatility of these factors, the Companys consolidated effective income tax
rate can change significantly on a quarterly basis.
We recognize the tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities, based
on the technical merits of the position.
All of the unrecognized tax benefits, if recognized, would be recorded
as a benefit to income tax expense. Our continuing practice is to recognize
interest and penalties related to income tax matters as a component of income
tax expense.
The Companys
consolidated effective tax rate was 33.7% and 30.9% for the six months ended December 31,
2009 and 2008, respectively. In the current quarter, the effective tax rate is
primarily related to the tax benefit on the current quarter loss. The tax
benefit is partially offset by the foreign valuation allowance on the Canadian
net operating losses, by state valuation allowance on certain state net
operating losses and by state income tax expense in states where the Companys
subsidiaries file on a separate company basis. The prior period effective tax
rate benefited from a one time adjustment of $0.7 million made in the first
quarter of fiscal 2009.
The Company conducts
business globally and, as a result, the Company or one or more of its
subsidiaries files income tax returns in the U.S., various state, and foreign
jurisdictions. In the normal course of business, the
7
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
Company is subject to
examination by the taxing authorities in such major jurisdictions as Canada,
Mexico and the U.S. As of December 31, 2009, certain subsidiaries of the
Company are currently under audit from 2001 through 2007 in the U.S. It is
reasonably possible that some of these audits may be completed during the next
twelve months. While the amount of uncertain tax benefits with respect to the
entities and years under audit may change within the next twelve months, it is
not anticipated that any of the changes will be significant.
A valuation allowance
must be established for deferred tax assets when it is more likely than not
that they will not be realized. In prior periods, the Company established a
valuation allowance for the state deferred tax assets and Canadian net
operating losses in its Retail segment. As of December 31, 2009, after considering
both positive and negative evidence, managements assessment is that a
valuation allowance is not needed for the Companys other deferred tax
assets. Due to the economic times and
recent losses, management will continue to assess the realizability of the tax
assets based on actual and forecasted operating results on a quarterly basis,
as required under ASC topic 740. It is
possible during the current fiscal year, that the realization of tax assets is
not reasonably assured due to a of lack of available objective evidence. Management would then record a valuation
allowance against the tax assets which would result in a non-cash charge to
earnings.
(4)
Inventories
Inventories
at December 31, 2009 and June 30, 2009 are summarized as follows (in
thousands):
|
|
December 31,
2009
|
|
June 30,
2009
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
114,025
|
|
$
|
130,180
|
|
Work in process
|
|
7,290
|
|
7,476
|
|
Raw materials
|
|
20,676
|
|
18,863
|
|
|
|
$
|
141,991
|
|
$
|
156,519
|
|
Inventories are presented
net of a related valuation allowance of $2.2 million at both December 31,
2009 and June 30, 2009.
(5)
Restructuring and Impairment
Charges
In recent years, we have
announced and executed plans to consolidate our operations as part of an
overall strategy to maximize efficiencies and maintain our competitive
advantage.
In fiscal 2009, the
Company consolidated several operations. Upholstery plants in Eldred,
Pennsylvania and Chino, California were consolidated into the Maiden, North
Carolina operations. Sawmill and dimension mill production in Andover, Maine
was transferred to the Beecher Falls, Vermont site. All remaining case goods plants are being
converted to produce custom case goods products. Wholesale distribution
locations, and several retail service centers were consolidated. For these
actions, the Company estimates pre-tax restructuring, impairment, accelerated
depreciation and other related charges will ultimately approximate $31 million
($24 million wholesale, $7 million retail), consisting of an $18 million impact
from long-lived assets, $8 million in employee severance and other payroll and
benefit costs, and $5 million in other associated costs. In the
current fiscal year, total costs were $0.2 million of restructuring credits and
$6.6 million in accelerated depreciation charges for Wholesale, and $1.3 million
of restructuring charges for the Retail segment. Cumulative charges to date for
these actions totaling $20.7 million have been classified in the Statement of
Operations as restructuring and impairment charges, and $6.6 million of
accelerated depreciation was recorded in cost of sales. Adjustments to the restructuring reserve in
the current period consist primarily of gains on the sale of equipment sold and
adjustments on non-cancellable leases.
The activity in the restructuring reserve related to these plans is
presented in the following table (in thousands) and is classified with accrued
expenses and other current liabilities in the Consolidated Balance Sheets.
8
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
Fiscal
2009 plans:
|
|
Three months ended
December 31, 2009
|
|
|
|
Balance at
September
30,
2009
|
|
New
charges
(credits)
|
|
Utilized
|
|
Adjustments
|
|
Balance at
December 31,
2009
|
|
Employee severance and
other
payroll and benefit costs
|
|
$
|
2,556
|
|
$
|
7
|
|
$
|
(1,968
|
)
|
$
|
43
|
|
$
|
638
|
|
Other associated costs
|
|
543
|
|
965
|
|
(196
|
)
|
(48
|
)
|
1,264
|
|
Write down of
long-lived assets
|
|
|
|
|
|
427
|
|
(427
|
)
|
|
|
|
|
$
|
3,099
|
|
$
|
972
|
|
$
|
(1,737
|
)
|
$
|
(432
|
)
|
$
|
1,902
|
|
Fiscal
2009 plans:
|
|
Six months ended
December 31, 2009
|
|
|
|
Balance at
June 30,
2009
|
|
New
charges
(credits)
|
|
Utilized
|
|
Adjustments
|
|
Balance at
December 31,
2009
|
|
Employee severance and
other
payroll and benefit costs
|
|
$
|
3,864
|
|
$
|
103
|
|
$
|
(3,372
|
)
|
$
|
43
|
|
$
|
638
|
|
Other associated costs
|
|
654
|
|
1,377
|
|
(719
|
)
|
(48
|
)
|
1,264
|
|
Write down of
long-lived assets
|
|
|
|
54
|
|
373
|
|
(427
|
)
|
|
|
|
|
$
|
4,518
|
|
$
|
1,534
|
|
$
|
(3,718
|
)
|
$
|
(432
|
)
|
$
|
1,902
|
|
In fiscal 2008, we announced
a plan to consolidate the operations of certain Ethan Allen-operated retail
design centers and retail service centers. In connection with this initiative,
we permanently ceased operations at ten design centers and six retail service
centers which, for the most part, were consolidated into other existing
operations. Costs for these actions in
the current fiscal year totaled $0.5 million, all for the Retail segment, due
to non-cancellable lease adjustments and net losses on the sale of real estate.
Cumulative charges to date for these actions total $6.0 million, all of which
have been classified in the Statement of Operations as restructuring and
impairment charges of the Retail segment.
Activity in the Companys
restructuring reserves related to these plans is summarized in the table below
(in thousands) and is classified with accrued expenses and other current
liabilities in the Consolidated Balance Sheets:
Fiscal
2008 plans:
|
|
Three months ended
December 31, 2009
|
|
|
|
Balance at
September
30,
2009
|
|
New
charges
(credits)
|
|
Utilized
|
|
Adjustments
|
|
Balance at
December 31,
2009
|
|
Employee severance and
other
payroll and benefit costs
|
|
$
|
359
|
|
$
|
|
|
$
|
(10
|
)
|
$
|
|
|
$
|
349
|
|
Other associated costs
|
|
2,577
|
|
68
|
|
(353
|
)
|
170
|
|
2,462
|
|
|
|
$
|
2,936
|
|
$
|
68
|
|
$
|
(363
|
)
|
$
|
170
|
|
$
|
2,811
|
|
9
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
Fiscal
2008 plans:
|
|
Six months ended
December 31, 2009
|
|
|
|
Balance at
June 30,
2009
|
|
New
charges
(credits)
|
|
Utilized
|
|
Adjustments
|
|
Balance at
December 31,
2009
|
|
Employee severance and
other
payroll and benefit costs
|
|
$
|
369
|
|
$
|
|
|
$
|
(20
|
)
|
$
|
|
|
$
|
349
|
|
Other associated costs
|
|
2,892
|
|
68
|
|
(706
|
)
|
208
|
|
2,462
|
|
Write down of
long-lived assets
|
|
|
|
|
|
(212
|
)
|
212
|
|
|
|
|
|
$
|
3,261
|
|
$
|
68
|
|
$
|
(938
|
)
|
$
|
420
|
|
$
|
2,811
|
|
(6)
Business Acquisitions
There were no
acquisitions completed during the six months ended December 31, 2009.
In October 2008, we
acquired, in a single transaction, one Ethan Allen retail design center from an
independent retailer for consideration of approximately $0.3 million of cash
and forgiveness of receivables. As a
result of this acquisition, we recorded additional inventory of $0.2 million
and goodwill of $0.1 million. In August 2008,
we acquired in two transactions, two Ethan Allen retail design centers from
independent retailers for consideration of approximately $0.6 million of cash
and forgiveness of receivables, assumed customer deposits of $0.7 million and
other liabilities of $0.2 million. As a
result of this acquisition, we recorded additional inventory of $0.7 million
and goodwill of $0.7 million.
All acquisitions are
subject to a contractual holdback or reconciliation period, during which the
parties to the transaction may agree to certain normal and customary purchase
accounting adjustments.
Goodwill associated with
our acquisitions represents the premium paid to the seller related to the
acquired business (i.e. market presence) and other fair value adjustments to
the assets acquired and liabilities assumed.
Further discussion of our goodwill and other intangible assets can be
found in Note 7.
A summary of our
allocation of purchase price accounting for acquisitions during the three and
six months ended December 31, 2008 is provided below (in thousands).
|
|
Three
months ended
December 31, 2008
|
|
Six
months ended
December 31, 2008
|
|
Business segment
|
|
Retail
|
|
Retail
|
|
Total consideration
|
|
$
|
344
|
|
$
|
911
|
|
Fair value of assets acquired and liabilities
assumed:
|
|
|
|
|
|
Inventory
|
|
157
|
|
826
|
|
PP&E and other assets
|
|
11
|
|
60
|
|
Customer deposits
|
|
94
|
|
(561
|
)
|
A/P and other liabilities
|
|
14
|
|
(186
|
)
|
Goodwill
|
|
$
|
68
|
|
$
|
772
|
|
(7)
Goodwill, Other Intangible Assets and Goodwill Impairment
At both December 31, 2009 and June 30,
2009, we had goodwill and other indefinite-lived intangible assets of $25.4
million and $19.7 million, respectively, all of which is included in the
Wholesale segment. The indefinite-lived
intangible assets represent Ethan Allen trade names. The Company previously had goodwill in the
Retail segment, all of which was considered impaired and written off during the
third quarter of fiscal 2009.
10
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
In accordance with ASC Topic 350,
Intangibles-Goodwill and Other
(SFAS No. 142), we do
not amortize goodwill or other indefinite-lived intangible assets but, rather,
we conduct an annual impairment analysis of goodwill and other indefinite-lived
intangible assets the first of April each fiscal year, unless events occur
or circumstances change that would more likely than not reduce the fair value
of the goodwill or other indefinite-lived intangible assets below their
carrying value. In determining whether an interim test is appropriate,
management considers several factors including changes in the Companys stock
price, financial performance, third party ratings on its long-term debt, and
expected financial outlook of the business. Methods employed to value the
enterprise and the Companys retail and wholesale segments include the market
approach and the income approach, which are reconciled with the total market
capitalization of the Company. These valuation methods use historical revenues
and cash flows, as well as Company and external analysts financial projections
and apply discount rates, weighted average cost of capital rates, total
invested capital multiples, and premium control multiples. Fair value of our
trade name is valued using the relief-from-royalty method. Significant factors
used in trade name valuation are royalty rates, future growth and discount
rates, and expense rates.
The Company performed impairment
evaluations during the second and third quarters of fiscal 2009 as a result of
sudden and dramatic changes in the business climate and the Companys
performance, and determined as of March 31, 2009 that the $48.4 million of
goodwill in the Retail segment was considered impaired and fully written off at
that time. In the fiscal quarter ended June 30,
2009, the Company performed its annual impairment test and concluded there was
no additional impairment.
In fiscal 2010, the Company concluded for
the first and second quarters that no interim impairment test was
required. During the six months ended December 31,
2009, although business performance was slightly below managements
expectations, our sales, gross profit, operating income, net income and other
indicators improved from the previous quarter, and our long-term outlook has
not changed. The Companys average
quarterly stock price increased 12% (from $12.11 for the quarter ended June 30,
2009, to $13.53 for the quarter ended December 31, 2009), and cash
balances increased to $76.1 million at December 31, 2009 from $53.0
million at June 30, 2009.
There can be no assurance that the
outcome of future reviews will not result in substantial impairment
charges. Impairment assessment
inherently involves judgments as to assumptions about expected future cash
flows and the impact of market conditions on those assumptions. Future events and changing market conditions
may impact our assumptions as to prices, costs or other factors that may result
in changes in our estimates of future cash flows. Although we believe the assumptions we use in
testing for impairment are reasonable, significant changes in any of our
assumptions could produce a significantly different result.
(8)
Borrowings
Total debt obligations at December 31, 2009 and June 30, 2009
consist of the following (in thousands):
|
|
December 31,
|
|
June 30,
|
|
|
|
2009
|
|
2009
|
|
5.375% Senior Notes due
2015
|
|
$
|
199,078
|
|
$
|
198,997
|
|
Industrial revenue bonds
|
|
3,855
|
|
3,855
|
|
Other debt
|
|
275
|
|
296
|
|
Total debt
|
|
203,208
|
|
203,148
|
|
Less current maturities
|
|
43
|
|
42
|
|
Total long-term debt
|
|
$
|
203,165
|
|
$
|
203,106
|
|
11
Table of
Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
In September 2005,
we completed a private offering of $200.0 million in ten-year senior unsecured
notes due 2015 (the Senior Notes).
The
Senior Notes were offered by Global and have an annual coupon rate of 5.375%
with interest payable semi-annually in arrears on April 1 and October 1
of each year.
We
have used the net proceeds of $198.4 million to expand our retail network,
invest in our manufacturing and logistics operations, and for other general
corporate purposes.
On October 23, 2009, the Company expanded
to $60 million the three-year senior secured asset-based revolving credit
facility (the Facility) established on May 29, 2009. The Facility provides revolving credit
financing of up to $60 million, subject to borrowing base availability. At the Companys option, revolving loans
under the Agreement bear interest at an annual rate of either:
(a) London Interbank Offered rate (LIBOR)
plus 3.25% to 4.25%, based on the average availability, or
(b) the higher of (i) a prime
rate, (ii) the federal funds effective rate plus 0.50%, or (iii) a
LIBOR rate plus 1.00% plus, in each case, an additional 2.25% to 3.25%, based
on average availability.
The Facility is secured by all property
owned, leased or operated by the Company in the United States excluding any
real property owned by the Company and also excludes any intellectual property
owned by the Company unless availability is less than or equal to $17.5
million, and contains customary covenants which may limit the Companys ability
to incur debt; engage in mergers and consolidations; make restricted payments
(including dividends); sell certain assets; and make investments.
At December 31, 2009, we had no
revolving loans, and $12.5 million in trade and standby letters of credit
outstanding under the Facility. Remaining availability under the revolver
totaled $47.5 million subject to limitations set forth in the agreement noted
above. We are in compliance with the terms and conditions of the agreement and
as a result, the coverage charge ratio, or other restricted payment limitations
did not apply. As of December 31,
2009, we are in compliance with all covenants of our credit facility.
(9)
Litigation
Environmental Matters
We and our subsidiaries are subject to
various environmental laws and regulations. Under these laws, we and/or our
subsidiaries are, or may be, required to remove or mitigate the effects on the
environment of the disposal or release of certain hazardous materials.
During the fiscal year ending June 30,
2009, our liability with respect to three active sites currently listed, or
proposed for inclusion, on the National Priorities List (NPL) under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (CERCLA), where we and/or our subsidiaries had been named as a
Potentially Responsive Party (PRP) located in Southington, Connecticut; High
Point, North Carolina; and Atlanta, Georgia has been resolved.
In each case we were not a major
contributor based on the very small volume of waste generated by us in relation
to total volume at those sites and were able to take part in de minimus
settlement arrangements. Specifically,
with respect to the Southington site, our volumetric share is less than 1% of
over 51 million gallons disposed of at the site and there are more than 1,000
PRPs. With respect to the High Point
site, our volumetric share is less than 1% of over 18 million gallons disposed
of at the site and there are more than 2,000 PRPs, including more than 1,000 de
minimis parties (of which we are one). With respect to the Atlanta site, a
former solvent recycling/reclamation facility, our volumetric share is less
than 1% of over 20 million gallons disposed of at the site by more than 1,700
PRPs.
12
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND
SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
In addition to the now settled actions
discussed above, in July 2000, we were notified by the State of New York
(the State) that we may be named a PRP in a separate, unrelated matter with
respect to a site located in Carroll, New York. In May, 2009, we were notified by the State
that it had conducted an initial environmental study and that we have been
named as a PRP. We believe that we are
not a major contributor; however, a review of the initial environmental study
is ongoing.
Liability under CERCLA may be joint and
several. As such, to the extent certain named PRPs are unable, or unwilling, to
accept responsibility and pay their apportioned costs, we could be required to
pay in excess of our pro rata share of incurred remediation costs. Our
understanding of the financial strength of other PRPs has been considered,
where appropriate, in the determination of our estimated liability.
As of December 31, 2009, we believe
that established reserves related to these environmental contingencies are
adequate to cover probable and reasonably estimable costs associated with the
remediation and restoration of these sites.
We believe our currently anticipated capital expenditures for
environmental control facility matters are not material.
We are subject to other federal, state
and local environmental protection laws and regulations and are involved, from
time to time, in investigations and proceedings regarding environmental
matters. Such investigations and
proceedings typically concern air emissions, water discharges, and/or
management of solid and hazardous wastes. We believe that our facilities are in
material compliance with all such applicable laws and regulations.
Regulations issued under the Clean Air
Act Amendments of 1990 required the industry to reformulate certain furniture
finishes or institute process changes to reduce emissions of volatile organic
compounds. Compliance with many of these requirements has been facilitated
through the introduction of high solids coating technology and alternative
formulations. In addition, we have instituted a variety of technical and
procedural controls, including reformulation of finishing materials to reduce
toxicity, implementation of high velocity low pressure spray systems,
development of storm water protection plans and controls, and further
development of related inspection/audit teams, all of which have served to
reduce emissions per unit of production. We remain committed to implementing new
waste minimization programs and/or enhancing existing programs with the
objective of (i) reducing the total volume of waste, (ii) limiting the
liability associated with waste disposal, and (iii) continuously improving
environmental and job safety programs on the factory floor which serve to
minimize emissions and safety risks for employees. We will continue to evaluate
the most appropriate, cost effective, control technologies for finishing
operations and design production methods to reduce the use of hazardous
materials in the manufacturing process.
(10)
Share-Based Compensation
On October 10, 2007,
the Companys Board of Directors and M. Farooq Kathwari, our Chairman,
President and Chief Executive Officer, agreed to the terms of a new employment
agreement expiring on June 30, 2012 (the Agreement). Pursuant to the terms of the Agreement, Mr. Kathwari
was awarded options to purchase 150,000 shares of our common stock on October 10,
2007, options to purchase an additional 90,000 shares on July 1, 2008, and
options to purchase an additional 60,000 shares on July 1, 2009, in each
case at the closing stock price on the grant date. The 2007 grant was issued at an exercise
price of $34.03, and vests in three equal installments on each June 30 of
2008, 2009 and 2010. The 2008 grant was
issued at an exercise price of $24.62, and vests in two equal installments on
each of June 30, 2009 and 2010. The
2009 grant was issued at an exercise price of $10.68 and vests on June 30,
2010. All options awarded under the Agreement have a contractual term of 10
years.
In connection with the
Agreement, Mr. Kathwari received an award of 20,000 restricted shares with
vesting based on continuing service and the performance of the Companys stock
price during the 32 month period subsequent to the award date as compared to
the Standard and Poors 500 index. On July 1,
2008, an additional award of 20,000 restricted shares with the same vesting
conditions (over a 36 month period) was granted. Mr. Kathwari received, as
13
Table of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements (Unaudited)
per the Agreement, an
additional grant of 20,000 restricted shares on July 1, 2009 with the same
36 month vesting, continuing service and performance conditions.
Also in connection with
the Agreement, Mr. Kathwari received on November 13, 2007 an award of
15,000 restricted shares. These shares
are service-based with 3,000 shares vesting on June 30 for each of the
years 2008 through 2012.
On November 12,
2009, the Company awarded options to purchase 83,500 shares of our common stock
to a large group of associates at the closing stock price on the grant date of
$11.74. These grants vest in four equal
annual installments on the anniversary date of the grant.
(11)
Earnings Per Share
Basic and diluted earnings per share are calculated using the following
weighted average share data (in thousands):
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Weighted average
common shares outstanding for basic calculation
|
|
28,917
|
|
28,739
|
|
28,922
|
|
28,721
|
|
Effect of
dilutive stock options and other share-based awards
|
|
|
|
|
|
|
|
72
|
|
Weighted average
common shares outstanding adjusted for dilution calculation
|
|
28,917
|
|
28,739
|
|
28,922
|
|
28,793
|
|
As of December 31,
2009 and 2008, stock options to purchase 2,251,389 and 2,287,725 common shares,
respectively, were excluded from the respective diluted earnings per share
calculation because their impact was anti-dilutive.
(12)
Comprehensive Income
Total comprehensive income represents the sum of net income and items
of other comprehensive income or loss that are reported directly in equity. Such items, which are generally presented on
a net of tax basis, may include foreign currency translation adjustments,
minimum pension liability adjustments (i.e. gains and losses) on certain
derivative instruments, and unrealized gains and losses on certain investments
in debt and equity securities. We have
reported our total comprehensive income in the Consolidated Statements of
Shareholders Equity.
Accumulated other
comprehensive income, comprised of losses on certain derivative instruments and
accumulated foreign currency translation adjustments, totaled $1.2 million at December 31,
2009 and $0.5 million at June 30, 2009.
Losses on derivative instruments are the result of cash flow hedging
contracts entered into in connection with the issuance of the Senior Notes (see
Note 8). Foreign currency translation
adjustments are the result of changes in foreign currency exchange rates
related to our operation of five Ethan Allen owned retail design centers
located in Canada and our cut and sew plant located in Mexico. Foreign currency translation adjustments
exclude income tax expense (benefit) given that the earnings of non-U.S.
subsidiaries are deemed to be reinvested for an indefinite period of time.
(13)
Financial Instruments
ACS Topic 820,
Fair value measurements
and disclosures
(SFAS No. 157) defines fair value as the price
that would be received upon sale of an asset or paid upon transfer of a
liability in an orderly transaction between market participants at the
measurement date and in the principal or most advantageous market for that
asset or liability. The fair value should be calculated based on assumptions
that market participants would use in pricing the asset or
14
Table
of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
liability, not on
assumptions specific to the entity. In addition, the fair value of liabilities
should include consideration of non-performance risk including our own credit
risk.
In addition to
defining fair value, ASC Topic 820 expands the disclosure requirements around
fair value and establishes a fair value hierarchy for valuation inputs. The
hierarchy prioritizes the inputs into three levels based on the extent to which
inputs used in measuring fair value are observable in the market. Each
fair value measurement is reported in one of the three levels which is
determined by the lowest level input that is significant to the fair value
measurement in its entirety. These levels are:
·
Level 1 inputs are based upon
unadjusted quoted prices for identical instruments traded in active markets.
·
Level 2 inputs are based upon quoted
prices for similar instruments in active markets, quoted prices for identical
or similar instruments in markets that are not active, and model-based
valuation techniques for which all significant assumptions are observable in
the market or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
·
Level 3 inputs are generally
unobservable and typically reflect managements estimates of assumptions that
market participants would use in pricing the asset or liability. The fair
values are therefore determined using model-based techniques that include
option pricing models, discounted cash flow models, and similar techniques.
The following
section describes the valuation methodologies we use to measure different
financial assets and liabilities at fair value.
The Company
partially adopted ASC Topic 820 on July 1, 2008 due to the fact that a
portion of ASC Topic 820 was previously deferred for one year for all
nonfinancial assets and nonfinancial liabilities that were not recognized or
disclosed at fair value in the financial statements on a recurring basis (at least
annually). On July 1, 2009, the
Company adopted the deferred portion of ACS Topic 820. There was no impact to the Companys
financial position or results of operations resulting from the adoption of the
deferred portion of ACS Topic 820. The
Company has now fully adopted ASC Topic 820.
Cash
Equivalents
Cash equivalents
consist of money market accounts and mutual funds in U.S. government and agency
securities. We use quoted prices in
active markets for identical assets or liabilities to determine fair
value. This pricing methodology applies
to our Level 1 cash equivalents. We do
not hold any Level 2 or Level 3 investments in our cash equivalents.
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
At December 31,
2009, the Companys assets and liabilities measured at fair value on a
recurring basis consist of $70.0 million in cash equivalents, which were valued
using Level 1 inputs.
Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
We measure certain
assets, including our cost and equity method investments, at fair value on a
nonrecurring basis. These assets are recognized at fair value when they are
deemed to be other-than-temporarily impaired. During the six months ended December 31,
2009, we did not record any other-than-temporary impairments on those assets
required to be measured at fair value on a nonrecurring basis.
15
Table
of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
(14)
Segment Information
Our operations are
classified into two operating segments: wholesale and retail. These operating segments represent strategic
business areas which, although they operate separately and provide their own
distinctive services, enable us to more effectively offer our complete line of
home furnishings and accessories.
The wholesale segment is
principally involved in the development of the Ethan Allen brand, which
encompasses the design, manufacture, domestic and offshore sourcing, sale and
distribution of a full range of home furnishings and accessories to a network
of independently owned and Ethan Allen owned design centers as well as related
marketing and brand awareness efforts.
Wholesale revenue is generated upon the wholesale sale and shipment of
our product to all retail design centers, including those owned by Ethan Allen. Wholesale profitability includes (i) the
wholesale gross margin, which represents the difference between the wholesale
sales price and the cost associated with manufacturing and/or sourcing the
related product, and (ii) other operating costs associated with wholesale
segment activities.
The retail segment sells
home furnishings and accessories to consumers through a network of Company
owned design centers. Retail revenue is
generated upon the retail sale and delivery of our product to our customers. Retail profitability includes (i) the
retail gross margin, which represents the difference between the retail sales
price and the cost of goods purchased from the wholesale segment, and (ii) other
operating costs associated with retail segment activities.
Inter-segment
eliminations result, primarily, from the wholesale sale of inventory to the
retail segment, including the related profit margin.
We evaluate performance
of the respective segments based upon revenues and operating income. While the
manner in which our home furnishings and accessories are marketed and sold is
consistent, the nature of the underlying recorded sales (i.e. wholesale versus
retail) and the specific services that each operating segment provides (i.e.
wholesale manufacturing, sourcing, and distribution versus retail selling) are
different. Within the wholesale segment,
we maintain revenue information according to each respective product line (i.e.
case goods, upholstery, or home accessories and other).
A breakdown of wholesale
sales by these product lines for the three and six months ended December 31,
2009 and 2008 is provided as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Case Goods
|
|
42
|
%
|
42
|
%
|
41
|
%
|
42
|
%
|
Upholstered Products
|
|
44
|
|
40
|
|
44
|
|
41
|
|
Home Accessories and Other
|
|
14
|
|
18
|
|
15
|
|
17
|
|
|
|
100
|
%
|
100
|
%
|
100
|
%
|
100
|
%
|
Revenue information by
product line is not as easily determined within the retail segment. However,
because wholesale production and sales are matched, for the most part, to
incoming orders, we believe that the allocation of retail sales by product line
would be similar to that of the wholesale segment.
16
Table
of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
Segment
information for the three and six months ended December 31, 2009 and 2008
is set forth as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
84,499
|
|
$
|
108,848
|
|
$
|
165,780
|
|
$
|
230,143
|
|
Retail segment
|
|
107,123
|
|
147,183
|
|
210,273
|
|
303,053
|
|
Elimination of
inter-company sales
|
|
(48,320
|
)
|
(66,473
|
)
|
(96,561
|
)
|
(137,797
|
)
|
Consolidated Total
|
|
$
|
143,302
|
|
$
|
189,558
|
|
$
|
279,492
|
|
$
|
395,399
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
Wholesale segment (1)(2)
|
|
$
|
1,022
|
|
$
|
8,580
|
|
$
|
(3,638
|
)
|
$
|
20,465
|
|
Retail segment (3)(4)
|
|
(9,792
|
)
|
(3,185
|
)
|
(21,141
|
)
|
(6,237
|
)
|
Adjustment of inter-company
profit (5)
|
|
3,487
|
|
4,692
|
|
3,408
|
|
8,070
|
|
Consolidated Total
|
|
$
|
(5,283
|
)
|
$
|
10,087
|
|
$
|
(21,371
|
)
|
$
|
22,298
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
835
|
|
$
|
682
|
|
$
|
1,636
|
|
$
|
2,314
|
|
Retail segment
|
|
1,992
|
|
4,371
|
|
3,679
|
|
13,832
|
|
Acquisitions (6)(7)
|
|
|
|
272
|
|
|
|
647
|
|
Consolidated Total
|
|
$
|
2,827
|
|
$
|
5,325
|
|
$
|
5,315
|
|
$
|
16,793
|
|
|
|
December 31,
|
|
June 30,
|
|
|
|
|
|
2009
|
|
2009
|
|
|
|
Total assets
|
|
|
|
|
|
|
|
Wholesale segment
|
|
$
|
273,045
|
|
$
|
276,250
|
|
|
|
Retail segment
|
|
383,676
|
|
397,877
|
|
|
|
Inventory profit elimination (8)
|
|
(24,251
|
)
|
(27,642
|
)
|
|
|
Consolidated Total
|
|
$
|
632,470
|
|
$
|
646,485
|
|
|
|
(1)
Operating income (loss) for the wholesale segment for
the three months ended December 31, 2009 includes a pre-tax restructuring
and impairment net recovery of $0.4 million.
(2)
Operating income (loss) for the wholesale segment for
the six months ended December 31, 2009 and 2008 include a pre-tax
restructuring and impairment net recovery of $0.2 million and charges of $0.4
million, respectively.
(3)
Operating income (loss) for the retail segment for the
three months ended December 31, 2009 includes pre-tax restructuring and
impairment charges of $1.2 million.
(4)
Operating income (loss) for the retail segment for the
six months ended December 31, 2009 and 2008 include pre-tax restructuring
and impairment charges of $1.8 million and a net recovery of $2.0 million,
respectively.
(5)
Represents the change in the inventory profit
elimination necessary to adjust for the embedded wholesale profit contained in
Ethan Allen-owned design center inventory existing at the end of the period.
(6)
Acquisitions for the three months ended December 31,
2008 include the purchase of one retail design center.
(7)
Acquisitions for the six months ended December 31,
2008 include the purchase of three retail design centers.
(8)
Represents the wholesale profit contained in Ethan
Allen-owned design center inventory that has not yet been realized. These
profits are realized when the related inventory is sold.
There were 50 independent
retail design centers located outside the United States at December 31,
2009. Less than five percent of our net sales were derived from sales to those
retail design centers.
(15)
Subsequent Events
Ethan
Allen declares quarterly cash dividend
Ethan Allens Board of
Directors has declared a quarterly cash dividend of $0.05 per share, which will
be payable to shareholders of record as of April 9, 2010 and paid on April 26,
2010.
17
Table
of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Unaudited)
16)
Recent Accounting Pronouncements
In June 2009, the
FASB released additional guidance on ASC Topic 810, Consolidation (SFAS No. 167)
which will revise previous guidance applicable to variable interest entities (VIEs).
The new guidance will require ongoing assessments of whether an enterprise is
the primary beneficiary of a VIE, as opposed to reconsideration only when
specific events occurred, as under present rules. The new guidance will also
replace the quantitative approach previously required for determining the
primary beneficiary of a VIE with a qualitative approach, and changes some
disclosure requirements. This revised guidance is effective for fiscal
years beginning after November 15, 2009 (July 1, 1010 for the
Company). The Company is currently
evaluating the impact, if any, on our financial statements and results of
operations.
(17)
Financial Information About the
Parent, the Issuer and the Guarantors
On September 27,
2005, Global (the Issuer) issued $200 million aggregate principal amount of
Senior Notes which have been guaranteed on a senior basis by Interiors (the Parent),
and other wholly owned domestic subsidiaries of the Issuer and the Parent,
including Ethan Allen Retail, Inc., Ethan Allen Operations, Inc.,
Ethan Allen Realty, LLC, Lake Avenue Associates, Inc. and Manor House, Inc.
The subsidiary guarantors (other than the Parent) are collectively called the Guarantors. The guarantees of the Guarantors are
unsecured. All of the guarantees are
full, unconditional and joint and several and the Issuer and each of the
Guarantors are 100% owned by the Parent. Ethan Allen (UK) Ltd. (which was
legally dissolved in October 2009), and our other subsidiaries which are
not guarantors are called the Non-Guarantors. During the quarter ended December 31,
2008, we determined that our international subsidiaries in Canada and Mexico
are non-guarantors. The Company has reclassified, for all prior periods
presented, the financial results of these international subsidiaries to reflect
their non-guarantor status.
The following tables set
forth the condensed consolidating balance sheets as of December 31, 2009
and June 30, 2009, the condensed consolidating statements of operations
for the three and six months ended December 31, 2009 and 2008, and the
condensed consolidating statements of cash flows for the six months ended December 31,
2009 and 2008 of the Parent, the Issuer, the Guarantors and the Non-Guarantors.
18
Table
of Contents
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements (Unaudited)
CONDENSED
CONSOLIDATING BALANCE SHEET
(In thousands)
December 31,
2009
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
$
|
72,802
|
|
$
|
2,125
|
|
$
|
1,211
|
|
$
|
|
|
$
|
76,138
|
|
Accounts receivable, net
|
|
|
|
12,002
|
|
324
|
|
255
|
|
|
|
12,581
|
|
Inventories
|
|
|
|
|
|
161,489
|
|
4,753
|
|
(24,251
|
)
|
141,991
|
|
Prepaid expenses and other current assets
|
|
|
|
19,580
|
|
5,220
|
|
635
|
|
|
|
25,435
|
|
Intercompany
|
|
|
|
781,359
|
|
228,088
|
|
(3,663
|
)
|
(1,005,784
|
)
|
|
|
Total current assets
|
|
|
|
885,743
|
|
397,246
|
|
3,191
|
|
(1,030,035
|
)
|
256,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
6,667
|
|
301,352
|
|
5,509
|
|
|
|
313,528
|
|
Goodwill and other intangible assets
|
|
|
|
19,740
|
|
25,388
|
|
|
|
|
|
45,128
|
|
Other assets
|
|
|
|
16,972
|
|
693
|
|
4
|
|
|
|
17,669
|
|
Investment in affiliated companies
|
|
597,334
|
|
(53,551
|
)
|
|
|
|
|
(543,783
|
)
|
|
|
Total assets
|
|
$
|
597,334
|
|
$
|
875,571
|
|
$
|
724,679
|
|
$
|
8,704
|
|
$
|
(1,573,818
|
)
|
$
|
632,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
|
|
$
|
|
|
$
|
43
|
|
$
|
|
|
$
|
|
|
$
|
43
|
|
Customer deposits
|
|
|
|
|
|
34,783
|
|
1,790
|
|
|
|
36,573
|
|
Accounts payable
|
|
|
|
8,143
|
|
14,773
|
|
320
|
|
|
|
23,236
|
|
Accrued expenses and other current liabilities
|
|
1,568
|
|
36,599
|
|
17,808
|
|
276
|
|
|
|
56,251
|
|
Intercompany
|
|
307,887
|
|
597
|
|
691,982
|
|
5,318
|
|
(1,005,784
|
)
|
|
|
Total current liabilities
|
|
309,455
|
|
45,339
|
|
759,389
|
|
7,704
|
|
(1,005,784
|
)
|
116,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
199,078
|
|
4,087
|
|
|
|
|
|
203,165
|
|
Other long-term liabilities
|
|
|
|
10,455
|
|
14,729
|
|
139
|
|
|
|
25,323
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
309,455
|
|
254,872
|
|
778,205
|
|
7,843
|
|
(1,005,784
|
)
|
344,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
287,879
|
|
620,699
|
|
(53,526
|
)
|
861
|
|
(568,034
|
)
|
287,879
|
|
Total liabilities and shareholders equity
|
|
$
|
597,334
|
|
$
|
875,571
|
|
$
|
724,679
|
|
$
|
8,704
|
|
$
|
(1,573,818
|
)
|
$
|
632,470
|
|
19
Table of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements (Unaudited)
CONDENSED
CONSOLIDATING BALANCE SHEET
(In thousands)
June 30,
2009
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
$
|
47,712
|
|
$
|
3,592
|
|
$
|
1,656
|
|
$
|
|
|
$
|
52,960
|
|
Accounts receivable, net
|
|
|
|
12,049
|
|
783
|
|
254
|
|
|
|
13,086
|
|
Inventories
|
|
|
|
|
|
179,705
|
|
4,456
|
|
(27,642
|
)
|
156,519
|
|
Prepaid expenses and other current assets
|
|
|
|
20,509
|
|
8,084
|
|
544
|
|
|
|
29,137
|
|
Intercompany receivables
|
|
|
|
782,736
|
|
227,453
|
|
(3,010
|
)
|
(1,007,179
|
)
|
|
|
Total current assets
|
|
|
|
863,006
|
|
419,617
|
|
3,900
|
|
(1,034,821
|
)
|
251,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
|
11,748
|
|
317,144
|
|
4,707
|
|
|
|
333,599
|
|
Goodwill and other intangible assets
|
|
|
|
37,905
|
|
7,223
|
|
|
|
|
|
45,128
|
|
Other assets
|
|
|
|
15,323
|
|
727
|
|
6
|
|
|
|
16,056
|
|
Investment in affiliated companies
|
|
612,391
|
|
(20,616
|
)
|
|
|
|
|
(591,775
|
)
|
|
|
Total assets
|
|
612,391
|
|
907,366
|
|
744,711
|
|
8,613
|
|
(1,626,596
|
)
|
646,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
|
|
|
|
42
|
|
|
|
|
|
42
|
|
Customer deposits
|
|
|
|
|
|
30,412
|
|
1,279
|
|
|
|
31,691
|
|
Accounts payable
|
|
|
|
8,851
|
|
13,106
|
|
242
|
|
|
|
22,199
|
|
Accrued expenses and other current liabilities
|
|
1,552
|
|
41,004
|
|
15,707
|
|
268
|
|
|
|
58,531
|
|
Intercompany payables
|
|
304,917
|
|
8,123
|
|
687,826
|
|
6,313
|
|
(1,007,179
|
)
|
|
|
Total current liabilities
|
|
306,469
|
|
57,978
|
|
747,093
|
|
8,102
|
|
(1,007,179
|
)
|
112,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
198,998
|
|
4,108
|
|
|
|
|
|
203,106
|
|
Other long-term liabilities
|
|
|
|
10,565
|
|
14,290
|
|
138
|
|
|
|
24,993
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
306,469
|
|
267,541
|
|
765,491
|
|
8,240
|
|
(1,007,179
|
)
|
340,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
305,922
|
|
639,825
|
|
(20,780
|
)
|
373
|
|
(619,417
|
)
|
305,923
|
|
Total liabilities and shareholders equity
|
|
$
|
612,391
|
|
$
|
907,366
|
|
$
|
744,711
|
|
$
|
8,613
|
|
$
|
(1,626,596
|
)
|
$
|
646,485
|
|
20
Table
of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
Three months ended December 31, 2009
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
84,465
|
|
$
|
144,000
|
|
$
|
5,527
|
|
$
|
(90,690
|
)
|
$
|
143,302
|
|
Cost of sales
|
|
|
|
69,012
|
|
96,688
|
|
2,821
|
|
(94,243
|
)
|
74,278
|
|
Gross profit
|
|
|
|
15,453
|
|
47,312
|
|
2,706
|
|
3,553
|
|
69,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
42
|
|
10,738
|
|
60,189
|
|
2,561
|
|
|
|
73,530
|
|
Restructuring and impairment charge, (credit) net
|
|
|
|
|
|
777
|
|
|
|
|
|
777
|
|
Total operating expenses
|
|
42
|
|
10,738
|
|
60,966
|
|
2,561
|
|
|
|
74,307
|
|
Operating income (loss)
|
|
(42
|
)
|
4,715
|
|
(13,654
|
)
|
145
|
|
3,553
|
|
(5,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other miscellaneous income, net
|
|
(3,296
|
)
|
(12,550
|
)
|
16
|
|
9
|
|
16,841
|
|
1,020
|
|
Interest and other related financing costs
|
|
|
|
2,902
|
|
76
|
|
|
|
|
|
2,978
|
|
Income (loss) before income tax expense
|
|
(3,338
|
)
|
(10,737
|
)
|
(13,714
|
)
|
154
|
|
20,394
|
|
(7,241
|
)
|
Income tax expense
|
|
|
|
(3,903
|
)
|
|
|
|
|
|
|
(3,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(3,338
|
)
|
$
|
(6,834
|
)
|
$
|
(13,714
|
)
|
$
|
154
|
|
$
|
20,394
|
|
$
|
(3,338
|
)
|
Three Months Ended December 31, 2008
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
109,126
|
|
$
|
194,648
|
|
$
|
5,981
|
|
$
|
(120,197
|
)
|
$
|
189,558
|
|
Cost of sales
|
|
|
|
80,998
|
|
128,343
|
|
3,469
|
|
(125,053
|
)
|
87,757
|
|
Gross profit
|
|
|
|
28,128
|
|
66,305
|
|
2,512
|
|
4,856
|
|
101,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
42
|
|
11,644
|
|
77,394
|
|
2,608
|
|
|
|
91,688
|
|
Restructuring and impairment charge, (credit) net
|
|
|
|
|
|
26
|
|
|
|
|
|
26
|
|
Total operating expenses
|
|
42
|
|
11,644
|
|
77,420
|
|
2,608
|
|
|
|
91,714
|
|
Operating income (loss)
|
|
(42
|
)
|
16,484
|
|
(11,115
|
)
|
(96
|
)
|
4,856
|
|
10,087
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other miscellaneous income, net
|
|
5,530
|
|
(10,157
|
)
|
6
|
|
(2
|
)
|
5,736
|
|
1,113
|
|
Interest and other related financing costs
|
|
|
|
2,856
|
|
76
|
|
|
|
|
|
2,932
|
|
Income before income tax expense
|
|
5,488
|
|
3,471
|
|
(11,185
|
)
|
(98
|
)
|
10,592
|
|
8,268
|
|
Income tax expense
|
|
|
|
2,780
|
|
|
|
|
|
|
|
2,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,488
|
|
$
|
691
|
|
$
|
(11,185
|
)
|
$
|
(98
|
)
|
$
|
10,592
|
|
$
|
5,488
|
|
21
Table of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(In thousands)
Six Months Ended December 31, 2009
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
165,875
|
|
$
|
280,996
|
|
$
|
10,426
|
|
$
|
(177,805
|
)
|
$
|
279,492
|
|
Cost of sales
|
|
|
|
135,973
|
|
191,888
|
|
5,524
|
|
(181,226
|
)
|
152,159
|
|
Gross profit
|
|
|
|
29,902
|
|
89,108
|
|
4,902
|
|
3,421
|
|
127,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
83
|
|
21,770
|
|
120,162
|
|
5,100
|
|
|
|
147,115
|
|
Restructuring and impairment charge, net
|
|
|
|
|
|
1,589
|
|
|
|
|
|
1,589
|
|
Total operating expenses
|
|
83
|
|
21,770
|
|
121,751
|
|
5,100
|
|
|
|
148,704
|
|
Operating income (loss)
|
|
(83
|
)
|
8,132
|
|
(32,643
|
)
|
(198
|
)
|
3,421
|
|
(21,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other miscellaneous income, net
|
|
(16,834
|
)
|
(31,146
|
)
|
49
|
|
9
|
|
49,739
|
|
1,817
|
|
Interest and other related financing costs
|
|
|
|
5,807
|
|
152
|
|
|
|
|
|
5,959
|
|
Income before income tax expense
|
|
(16,917
|
)
|
(28,821
|
)
|
(32,746
|
)
|
(189
|
)
|
53,160
|
|
(25,513
|
)
|
Income tax expense
|
|
|
|
(8,596
|
)
|
|
|
|
|
|
|
(8,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(16,917
|
)
|
$
|
(20,225
|
)
|
$
|
(32,746
|
)
|
$
|
(189
|
)
|
$
|
53,160
|
|
$
|
(16,917
|
)
|
Six Months Ended December 31, 2008
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
|
|
$
|
230,722
|
|
$
|
403,448
|
|
$
|
12,061
|
|
$
|
(250,832
|
)
|
$
|
395,399
|
|
Cost of sales
|
|
|
|
169,403
|
|
264,737
|
|
6,741
|
|
(259,224
|
)
|
181,657
|
|
Gross profit
|
|
|
|
61,319
|
|
138,711
|
|
5,320
|
|
8,392
|
|
213,742
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
83
|
|
24,935
|
|
162,380
|
|
5,650
|
|
|
|
193,048
|
|
Restructuring and impairment charge, net
|
|
|
|
|
|
(1,604
|
)
|
|
|
|
|
(1,604
|
)
|
Total operating expenses
|
|
83
|
|
24,935
|
|
160,776
|
|
5,650
|
|
|
|
191,444
|
|
Operating income (loss)
|
|
(83
|
)
|
36,384
|
|
(22,065
|
)
|
(330
|
)
|
8,392
|
|
22,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other miscellaneous income, net
|
|
12,993
|
|
(20,293
|
)
|
8
|
|
4
|
|
9,501
|
|
2,213
|
|
Interest and other related financing costs
|
|
|
|
5,681
|
|
152
|
|
|
|
|
|
5,833
|
|
Income before income tax expense
|
|
12,910
|
|
10,410
|
|
(22,209
|
)
|
(326
|
)
|
17,893
|
|
18,678
|
|
Income tax expense
|
|
|
|
5,768
|
|
|
|
|
|
|
|
5,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
12,910
|
|
$
|
4,642
|
|
$
|
(22,209
|
)
|
$
|
(326
|
)
|
$
|
17,893
|
|
$
|
12,910
|
|
22
Table
of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
Six months ended December 31, 2009
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
2,897
|
|
$
|
25,505
|
|
$
|
(7,501
|
)
|
$
|
(52
|
)
|
$
|
|
|
$
|
20,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(241
|
)
|
(4,029
|
)
|
(1,045
|
)
|
|
|
(5,315
|
)
|
Acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the disposal of property, plant and
equipment
|
|
|
|
|
|
10,084
|
|
|
|
|
|
10,084
|
|
Other
|
|
|
|
19
|
|
|
|
|
|
|
|
19
|
|
Net cash used in investing activities
|
|
|
|
(222
|
)
|
6,055
|
|
(1,045
|
)
|
|
|
4,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
|
|
|
(21
|
)
|
|
|
|
|
(21
|
)
|
Increase in deferred financing costs
|
|
|
|
(193
|
)
|
|
|
|
|
|
|
(193
|
)
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess tax benefits from share-based payment
arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
(2,897
|
)
|
|
|
|
|
|
|
|
|
(2,897
|
)
|
Net cash provided by (used in) financing activities
|
|
(2,897
|
)
|
(193
|
)
|
(21
|
)
|
|
|
|
|
(3,111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
652
|
|
|
|
652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
|
25,090
|
|
(1,467
|
)
|
(445
|
)
|
|
|
23,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
|
47,712
|
|
3,592
|
|
1,656
|
|
|
|
52,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
|
|
$
|
72,802
|
|
$
|
2,125
|
|
$
|
1,211
|
|
$
|
|
|
$
|
76,138
|
|
23
Table of Contents
ETHAN
ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to
Consolidated Financial Statements (Unaudited)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(In thousands)
Six months ended December 31, 2008
|
|
Parent
|
|
Issuer
|
|
Guarantors
|
|
Non-Guarantors
|
|
Eliminations
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
$
|
13,523
|
|
$
|
(7,350
|
)
|
$
|
9,740
|
|
$
|
(206
|
)
|
$
|
|
|
$
|
15,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(1,085
|
)
|
(14,968
|
)
|
(93
|
)
|
|
|
(16,146
|
)
|
Acquisitions
|
|
|
|
|
|
(647
|
)
|
|
|
|
|
(647
|
)
|
Proceeds from the disposal of property, plant and equipment
|
|
|
|
19
|
|
5,726
|
|
|
|
|
|
5,745
|
|
Other
|
|
|
|
(32
|
)
|
(181
|
)
|
|
|
|
|
(213
|
)
|
Net cash used in investing activities
|
|
|
|
(1,098
|
)
|
(10,070
|
)
|
(93
|
)
|
|
|
(11,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
|
|
|
(20
|
)
|
|
|
|
|
(20
|
)
|
Purchases and other retirements of company stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
2
|
|
|
|
|
|
|
|
|
|
2
|
|
Excess tax benefits from share-based payment arrangements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
(13,525
|
)
|
|
|
|
|
|
|
|
|
(13,525
|
)
|
Net cash provided by (used in) financing activities
|
|
(13,523
|
)
|
|
|
(20
|
)
|
|
|
|
|
(13,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
(735
|
)
|
|
|
(735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
(8,448
|
)
|
(350
|
)
|
(1,034
|
)
|
|
|
(9,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents beginning of period
|
|
|
|
71,117
|
|
1,307
|
|
1,952
|
|
|
|
74,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents end of period
|
|
$
|
|
|
$
|
62,669
|
|
$
|
957
|
|
$
|
918
|
|
$
|
|
|
$
|
64,544
|
|
24
Table of Contents
Item
2. Managements Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion
of financial condition and results of operations should be read in conjunction
with (i) our Consolidated Financial Statements, and notes thereto, as set
forth in this Quarterly Report on Form 10-Q and (ii) our Annual
Report on Form 10-K/A for the year ended June 30, 2009.
Forward-Looking
Statements
Managements discussion
and analysis of financial condition and results of operations and other
sections of this Quarterly Report contain forward-looking statements relating
to our future results. Such forward-looking statements are identified by use of
forward-looking words such as anticipates, believes, plans, estimates, expects,
and intends or words or phrases of similar expression. These forward-looking
statements are subject to management decisions and various assumptions, risks
and uncertainties, including, but not limited to: the effects of terrorist
attacks or conflicts or wars involving the United States or its allies or
trading partners; the effects of labor strikes; weather conditions that may
affect sales; volatility in fuel, utility, transportation and security costs;
changes in global or regional political or economic conditions, including
changes in governmental and central bank policies; changes in business
conditions in the furniture industry, including changes in consumer spending
patterns and demand for home furnishings; effects of our brand awareness and
marketing programs, including changes in demand for our existing and new
products; our ability to locate new design center sites and/or negotiate
favorable lease terms for additional design centers or for the expansion of
existing design centers; competitive factors, including changes in products or
marketing efforts of others; pricing pressures; fluctuations in interest rates
and the cost, availability and quality of raw materials; those matters
discussed in Items 1A and 7A of our Annual Report on Form 10-K/A for the
year ended June 30, 2009 and in our SEC filings; and our future decisions.
Accordingly, actual circumstances and results could differ materially from
those contemplated by the forward-looking statements.
Critical
Accounting Policies
The Companys
consolidated financial statements are based on the accounting policies
used. Certain accounting polices require
that estimates and assumptions be made by management for use in the preparation
of the financial statements. Critical
accounting policies are those that are central to the presentation of the
Companys financial condition and results and that require subjective or
complex estimates by management. The
Companys critical accounting policies regarding Impairment of Long-Lived
Assets and Goodwill are described below.
For information regarding the Companys other critical accounting
policies, see the Companys 2009 Annual Report on Form 10-K/A filed with
the SEC on August 27, 2009
Impairment
of Long-Lived Assets and Goodwill
We periodically evaluate whether events
or circumstances have occurred that indicate that long-lived and
indefinite-lived assets may not be recoverable or that the remaining useful
life may warrant revision. When such
events or circumstances are present, the Company determines whether the
carrying value exceeds the fair value as described below.
In accordance with ASC
Topic 360, Property, Plant and Equipment (SFAS No. 144), the recoverability
of long-lived assets are evaluated for impairment by determining whether the
carrying value will be recovered through the expected undiscounted future cash
flows resulting from the use of the asset.
In the event the sum of the expected undiscounted future cash flows is
less than the carrying value of the asset, an impairment loss equal to the
excess of the assets carrying value over its fair value is recorded. The long-term nature of these assets requires
the estimation of cash inflows and outflows several years into the future and
only takes into consideration technological advances known at the time of the
impairment test.
In accordance with ASC
Topic 350, Intangibles-Goodwill and Other (SFAS No. 142), goodwill and
other indefinite-lived intangible assets are evaluated for impairment on an
annual basis and between annual tests
25
Table
of Contents
whenever events or circumstances
indicate that the carrying value of the goodwill or other intangible asset may
exceed its fair value. We conduct our required annual impairment test of
goodwill and other intangible assets during the fourth quarter of each fiscal
year.
To evaluate goodwill, the
Company determines the current fair value of the Reporting Units using a
combination of Market and Income approaches. In the Market approach, the Guideline
Company method is used, which focuses on comparing the Companys risk profile
and growth prospects to reasonably similar publicly traded companies. Key assumptions used for the Guideline
Company method are total invested capital (TIC) multiples for revenues and
operating cash flows, as well as consideration of control premiums. The TIC multiples are determined based on
public furniture companies within our peer group, and if appropriate, recent
comparable transactions are also considered.
Control premiums are determined using recent comparable transactions in
the open market. Under the Income approach, a discounted cash flow method is
used, which includes a terminal value, and is based on external analyst
financial projection estimates, as well as internal financial projection
estimates prepared by management. The long-term terminal growth rate
assumptions reflect our current long-term view of the market in which we
compete. Discount rates use the weighted
average cost of capital for companies within our peer group, adjusted for specific
company risk premium factors.
The fair value of our
trade name, which is the Companys only indefinite-lived intangible asset other
than goodwill, is valued using the relief-from-royalty method. Significant
factors used in trade name valuation are rates for royalties, future growth,
and a discount factor. Royalty rates are
determined using an average of recent comparable values. Future growth rates are based on the Companys
perception of the long-term values in the market in which we compete, and the
discount rate is determined using the weighted average cost of capital for
companies within our peer group, adjusted for specific company risk premium
factors. The fair value of the trade name substantially exceeded the carrying
value in fiscal 2009.
As a result of the
economic downturn that began in the fall of 2008, the Companys revenues and
operating margins were negatively impacted.
In response, the Company reduced headcount, consolidated its
manufacturing, retail, and logistics footprint and repositioned its marketing
approach. As a result of these changes,
the Companys cash flow forecasts were continually updated to reflect the rapid
changes in the business and the industry.
During fiscal 2009, the Company
determined that $48.4 million of goodwill in the Retail segment was considered
impaired and fully written off.
The cash flow projections
used in its fair value evaluations are the best estimates of the Company and
require significant management judgment.
In the fiscal quarter
ended June 30, 2009, the Company performed its annual impairment test and
no impairment of goodwill was appropriate as the fair value of the Wholesale
reporting unit net assets exceeded the book value by approximately 10%.
In
fiscal 2010, the Company concluded for the first and second quarters that no
interim impairment test was required.
During the six months ended December 31, 2009, although business
performance was slightly below managements expectations, our sales, gross
profit, operating income, net income and other indicators improved from the
previous quarter, and our long-term outlook has not changed. The Companys average quarterly stock price
increased 12% (from $12.11 for the quarter ended June 30, 2009, to $13.53
for the quarter ended December 31, 2009), and cash balances increased to
$76.1 million at December 31, 2009 from $53.0 million at June 30,
2009.
There can be
no assurance that the outcome of future reviews will not result in substantial
impairment charges.
To calculate fair value
of the assets described above, management relies on estimates and assumptions
which by their nature have varying degrees of uncertainty. Wherever possible,
management therefore looks for third party transactions as described above to
provide the best possible support for the assumptions incorporated. Management
considers several factors to be significant when estimating fair value
including expected financial outlook of the business, changes in the Companys
stock price, the impact of changing market conditions on
26
Table
of Contents
financial performance and
expected future cash flows, and other factors. Deterioration in any of these
factors may result in a lower fair value assessment, which could lead to
impairment of the long-lived assets and goodwill of the Company.
Results
of Operations
Our business has been
severely impacted by the economic factors in the United States and abroad which
we began to feel in earnest during our second quarter of fiscal 2009. Weakness in the U.S. economy from continued
high unemployment, volatile capital markets, depressed housing prices and tight
consumer spending have all put negative stress on the economy which continues
to have a negative impact on our business.
As we work through these difficult times, we have taken dramatic actions
to significantly reduce costs in all facets of our business including closing
and realigning manufacturing plants, consolidating logistics operations, and
closing under-performing retail design centers. These actions have been taken
with appropriate consideration for demand and management believes it has
retained sufficient scalable capacity. We
have also launched initiatives to increase sales, such as special savings product
promotions, our designer affiliate program and conversion of our case goods products
to custom.
In fiscal 2009, the
Company consolidated several operations. Upholstery plants in Eldred,
Pennsylvania and Chino, California were consolidated into the Maiden, North
Carolina operations. Sawmill and dimension mill production in Andover, Maine
was transferred to the Beecher Falls, Vermont site. All remaining case goods plants are being
converted to produce custom case goods products. Wholesale distribution locations,
and several retail service centers were consolidated. For these actions, the
Company estimates pre-tax restructuring, impairment, accelerated depreciation
and other related charges will ultimately approximate $31 million ($24 million
wholesale, $7 million retail), consisting of an $18 million impact from
long-lived assets, $8 million in employee severance and other payroll and
benefit costs, and $5 million in other associated costs. In the
current fiscal year, total costs were $0.2 million of restructuring credits and
$6.6 million in accelerated depreciation charges for Wholesale, and $1.3
million of restructuring charges for the Retail segment. Cumulative charges to
date for these actions totaling $20.7 million have been classified in the Statement
of Operations as restructuring and impairment charges, and $6.6 million of
accelerated depreciation was recorded in cost of sales. Adjustments to the restructuring reserve in
the current period consist primarily of gains on the sale of equipment sold and
adjustments on non-cancellable leases.
In fiscal 2008, we
announced a plan to consolidate the operations of certain Ethan Allen-operated
retail design centers and retail service centers. In connection with this
initiative, we permanently ceased operations at ten design centers and six
retail service centers which, for the most part, were consolidated into other
existing operations. Costs for these
actions in the current fiscal year totaled $0.5 million, all for the Retail
segment, due to non-cancellable lease adjustments and net losses on the sale of
real estate. Cumulative charges to date for these actions total $6.0 million,
all of which have been classified in the Statement of Operations as
restructuring and impairment charges of the Retail segment.
Our revenues are
comprised of (i) wholesale sales to independently owned and Company-owned
retail design centers and (ii) retail sales of Company-owned design
centers. See Note 14 to our Consolidated
Financial Statements for the three months and six months ended December 31,
2009 and 2008 for the components of consolidated revenue and operating income,
capital expenditures, and total assets by segment.
27
Table
of Contents
Quarter
Ended December 31, 2009 Compared to Quarter Ended December 31, 2008
Consolidated revenue
for the three months ended December 31,
2009 decreased 24.4% to $143.3 million, from $189.6 million for the three months
ended December 31, 2008. During the quarter, sales continued to be
affected by the negative economic stresses mentioned earlier, as well as the
use of highly promotional pricing strategies by the Companys competitors. These factors were partially offset by (i) several
new marketing initiatives including our special savings pricing, and our new
interactive web site ethanalleninc.com, (ii) the continued use of national
television media, where we emphasize to clients our interior design services
and the full line of our quality product offerings, and (iii) the positive
effects of efforts to reposition the retail network.
Wholesale
revenue
for the
second quarter of fiscal 2010 decreased 22.4% to $84.5 million from $108.8
million in the prior year comparable period.
The quarter-over-quarter decrease was primarily attributable to a
decline in the incoming order rate due to a continued soft retail environment
for home furnishings noted throughout the current period. These decreases were
partially offset by our special savings pricing during the quarter. In addition, there were three more
independent retail design centers at December 31, 2009, which increased to
134 from 131 at December 31, 2008, and twelve fewer Ethan Allen-operated
design centers as noted below.
There were the same number of
shipping days in the quarter both this year and last year.
Retail
revenue
from
Ethan Allen-owned design centers for the three months ended December 31,
2009 decreased 27.2% to $107.1 million from $147.2 million for the three months
ended December 31, 2008. We believe
the decrease in retail sales by Ethan Allen-operated design centers is due to
the same soft market conditions experienced by the wholesale segment, as
evidenced by a 25.3% decrease in comparable store sales, a net $6.0 million
decrease in new/closed store sales, and a net decrease in the number of Ethan
Allen-operated design centers to 150 as of December 31, 2009 as compared
to 162 as of December 31, 2008.
These decreases were partially offset by more aggressive marketing
campaigns including special savings pricing during the quarter. During the quarter, we opened one (a
relocation) and closed five design centers.
Comparable design centers
are those which have been operating for at least 15 months. Minimal net sales, derived from the delivery
of customer ordered product, are generated during the first three months of
operations of newly opened (including relocated) design centers. Design centers
acquired by us from independent retailers are included in comparable design
centers sales in their 13th full month of Ethan Allen-owned operations.
Quarter-over-quarter,
written business of Ethan Allen-owned design centers decreased 9.0% while
comparable design centers written business decreased 6.1%. Over that same period, wholesale orders
decreased 18.2%. Both retail and
wholesale written business reflect the softer retail environment for home
furnishings noted throughout the period as a result of the continued negative
economic stresses previously discussed.
We have made considerable
investment within the retail network to strengthen the level of service,
professionalism, interior design competence, efficiency, and effectiveness of
the retail design center personnel. We
also believe that over time, we will benefit from (i) our repositioning of
the retail network, (ii) new product introductions, (iii) new
marketing initiatives such as our special savings pricing, and our new interior
design affiliate (IDA) program, (iv) continued use of technology including
our state-of-the-art website coupled with personal service from our design
professionals, and (v) ongoing use of national television and shelter
magazines as advertising media.
Gross
profit
decreased
during the quarter to $69.0 million from $101.8 million in the prior year
comparable quarter. The 32.2% decrease
in gross profit was primarily attributable to (i) the reduction in net
sales of 24.4%, with an overall decrease in shipments in both market segments, (ii) plant
transition costs related to the restructuring of our manufacturing plants,
ramping up upholstery production, and transition to custom case goods, and (iii) lower
margins within the retail segment, due to discounted sales through our special
savings
28
Table
of Contents
pricing initiatives and
sales of discontinued product and floor samples. The sales mix had a slightly unfavorable
shift with retail sales representing a lower proportionate share of total sales
in the current quarter (75%) compared to the prior year period (78%).
Consolidated gross margin decreased to 48.2% from 53.7% in the prior year as a
result, primarily, of the factors set forth above.
Operating
profit
, the
elements of which are discussed in greater detail below, was impacted by the
following items during the three months ended December 31, 2009 and 2008:
Operating
expenses
decreased 19.0% to $74.3 million, but increased to 51.9% of sales in the current
quarter from $91.7 million, or 48.4% of sales in the prior year quarter. Selling expenses were down in absolute terms
due to cost cutting actions taken and lower sales volume, and increased as a
percentage of sales due to significantly lower sales volume. Salary related costs decreased due to the
reduced number of employees and other cost cutting efforts taken by the
Company.
Consolidated
operating income (loss)
for the three month period ended December 31, 2009 was a loss of
$5.2 million, or 3.7% of sales, as compared to income of $10.1 million, or 5.3%
of sales, for the three months ended December 31, 2008. This decrease of $15.4 million is due to a
decrease in gross profit mostly due to reduced sales, and transitional costs
due to restructuring activities, partly offset by a decrease in period over
period operating expenses, both of which were discussed previously.
Wholesale
operating income
for
the three months ended December 31, 2009 was $1.0 million, or 1.2% of
sales, as compared to income of $8.6 million, or 7.9% of sales, in the prior
year comparable quarter. The decrease of $7.6 million was primarily
attributable to a decrease in sales volume, and the plant transition costs
relating to the closure of manufacturing plants as discussed previously.
Retail
operating loss
increased $6.6 million to a loss of $9.8 million, or a negative 9.1% of sales,
for the second quarter of fiscal 2010 from a loss of $3.2 million, or a
negative 2.2% of sales, for the second quarter of fiscal 2009. The increase in retail operating loss
generated by Ethan Allen-operated design centers was primarily due to reduced
sales attributed to the weak retail environment for home furnishings offset
partially by cost cutting actions taken.
Interest
and other miscellaneous income, net
decreased $0.1 million from the prior year comparable
quarter. The decrease was due, primarily
to lower rates of interest during the current period.
Interest
and other related financing costs
amounted to just under $3.0 million in both the current
and prior year periods. This amount
consists, primarily, of interest expense incurred in connection with our
issuance of senior unsecured debt in September 2005.
Income
Tax Expense
for
the three months ended December 31, 2009 totaled a benefit of $3.9 million
as compared to an expense of $2.8 million for the three months ended December 31,
2008. Our effective tax rate for the current quarter was 53.9% compared to
33.6% in the prior year quarter. In the current quarter, the effective tax rate
is primarily related to the tax benefit on the current quarter loss. The tax
benefit is partially offset by the foreign valuation allowance on the Canadian
net operating losses, by state valuation allowance on certain state net
operating losses and by state income tax expense in states where the Companys
subsidiaries file on a separate company basis. The prior period effective tax
rate benefited from a one time adjustment of $0.7 million made in the first
quarter of fiscal 2009.
Net
income (loss)
for
the three months ended December 31, 2009, was a loss of $3.3 million as
compared to net income of $5.5 million in the prior year comparable
period. This resulted in a net loss per
diluted share of $0.12 in the current quarter and net income per diluted share
of $0.19 in the prior year quarter.
29
Table
of Contents
Six
Months Ended December 31, 2009 Compared to Six Months Ended December 31,
2008
Consolidated revenue
for the six months ended December 31,
2009 decreased 29.3% to $279.5 million, from $395.4 million for the six months
ended December 31, 2008. During the period, sales continue to be affected
by the negative economic stresses mentioned earlier, as well as the use of highly
promotional pricing strategies by the Companys competitors. These factors were partially offset by (i) several
new marketing initiatives including our special savings pricing, and our new
interactive web site ethanalleninc.com, (ii) the continued use of national
television media, where we emphasize to clients our interior design services
and the full line of our quality product offerings, and (iii) the positive
effects of efforts to reposition the retail network.
Wholesale
revenue
for the
first six months of fiscal 2010 decreased 28.0% to $165.8 million from $230.1
million in the prior year comparable period.
The period-over-period decrease
was
primarily attributable to a decline in the incoming order rate due to a continued
soft retail environment for home furnishings noted throughout the current
period.
These decreases were partially offset by our special
savings pricing during the quarter.
In addition, there were three more
independent retail design centers at December 31, 2009, which increased to
134 from 131, and twelve fewer Ethan Allen-operated design centers as noted
below.
There were the same number of shipping days in the
current six month period both this year and last year.
Retail
revenue
from
Ethan Allen-owned design centers for the six months ended December 31,
2009 decreased 30.6% to $210.3 million from $303.1 million for the six months
ended December 31, 2008. We believe
the decrease in retail sales by Ethan Allen-operated design centers is due to
the same soft market conditions experienced by the wholesale segment, as
evidenced by a 30.5% decrease in comparable store sales, a net $8.2 million
decrease in new/closed store sales, and a net decrease in the number of Ethan
Allen-operated design centers to 150 as of December 31, 2009 as compared
to 162 as of December 31, 2008.
These decreases were partially offset by our special savings pricing
during the period. During the period, we
opened six (including four relocations) and closed fifteen design centers.
Comparable design centers
are those which have been operating for at least 15 months. Minimal net sales, derived from the delivery
of customer ordered product, are generated during the first three months of
operations of newly opened (including relocated) design centers. Design centers
acquired by us from independent retailers are included in comparable design
centers sales in their 13th full month of Ethan Allen-owned operations.
Year-over-year, written
business of Ethan Allen-owned design centers decreased 14.9% while comparable
design centers written business decreased 13.9%. Over that same period, wholesale orders
decreased 19.9%. Both retail and
wholesale written business reflect the softer retail environment for home
furnishings noted throughout the period as a result of continued negative
economic stresses previously discussed.
We have made considerable
investment within the retail network to strengthen the level of service,
professionalism, interior design competence, efficiency, and effectiveness of
the retail design center personnel. We
also believe that over time, we will benefit from (i) our repositioning of
the retail network, (ii) new product introductions, (iii) new
marketing initiatives such as our special savings pricing, and our new interior
design affiliate (IDA) program, (iv) continued use of technology including
our state-of-the-art website coupled with personal service from our design
professionals, and (iv) ongoing use of national television and shelter
magazines as advertising media.
Gross
profit
decreased
during the six months to $127.3 million from $213.7 million in the prior year
comparable period. The 40.4% decrease in
gross profit was primarily attributable to (i) the reduction in net sales
of 29.3%, with an overall decrease in shipments in both market segments, (ii) lower
margin percentages within the wholesale segment due to accelerated depreciation
from closed manufacturing operations totaling $6.6 million, under absorption of
plant overhead costs on the lower production volume, both in the first fiscal
quarter, and
30
Table of
Contents
other plant transition
costs related to the restructuring of our manufacturing plants throughout the
six month period, and (iii) lower margins within the retail segment, due
to discounted sales through our special pricing initiatives and sales of
discontinued product and floor samples.
The sales mix had a slightly unfavorable shift with retail sales
representing a lower proportionate share of total sales in the current six
month period (75%) compared to the prior year (77%). Consolidated gross margin decreased to 45.6%
from 54.1% in the prior year as a result, primarily, of the factors set forth
above.
Operating
profit
, the
elements of which are discussed in greater detail below, was impacted by the
following items during the six months ended December 31, 2009 and 2008:
Operating
expenses
decreased 22.3% to $148.7 million, but increased to 53.2% of sales in the
current quarter from $191.4 million, or 48.4% of sales in the prior six month
period. Selling expenses were down in
absolute terms due to cost cutting actions taken and lower sales volume. Salary related costs decreased due to the
reduced number of employees and other cost cutting efforts taken by the
Company. Advertising expenses were down
$3.7 million versus the previous year.
Consolidated
operating income (loss)
for the six month period ended December 31, 2009 was a loss of
$21.4 million, or a negative 7.6% of sales, as compared to income of $22.3
million, or 5.6% of sales, for the six months ended December 31,
2008. This decrease of $43.7 million is
due to a decrease in gross profit mostly due to reduced sales, and accelerated
depreciation charges due to restructuring activities, partly offset by a
decrease in period over period operating expenses, both of which were discussed
previously.
Wholesale
operating income (loss)
for the six months ended December 31, 2009 totaled a loss of $3.6
million, or a negative 2.2% of sales, as compared to income of $20.4 million,
or 8.9% of sales, in the prior year comparable period. The decrease of $24.1
million was primarily attributable to a decrease in sales volume, and to plant
transition costs including the $6.6 million of accelerated depreciation
relating to the closure of manufacturing plants as discussed previously.
Retail
operating loss
increased $14.9 million to a loss of $21.1 million, or a negative 10.1% of
sales, for the first six months of fiscal 2010 from a loss of $6.2 million, or
a negative 2.1% of sales, for the comparable period of fiscal 2009. The increase in retail operating loss
generated by Ethan Allen-operated design centers was primarily due to reduced
sales attributable to the weak retail environment for home furnishings offset
partially by cost cutting actions taken.
Interest
and other miscellaneous income, net
decreased $0.4 million from the prior year comparable
period. The decrease was due, primarily
to a decrease in investment income resulting from lower rates of interest
during the current period.
Interest
and other related financing costs
amounted to just under $6.0 million in both the
current and prior year periods. This
amount consists, primarily, of interest expense incurred in connection with our
issuance of senior unsecured debt in September 2005.
Income
tax expense
for
the six months ended December 31, 2009 totaled a benefit of $8.6 million
as compared to an expense of $5.8 million for the six months ended December 31,
2008. Our effective tax rate for the current period was 33.7% compared to 30.9%
in the prior year period. In the current period, the effective tax rate is
primarily related to the tax benefit on the current period loss. The tax
benefit is partially offset by the foreign valuation allowance on the Canadian
net operating losses, by state valuation allowance on certain state net
operating losses and by state income tax expense in states where the Companys
subsidiaries file on a separate company basis. The prior period effective tax
rate benefited from a one-time adjustment of $0.7 million made in the first
quarter of fiscal 2009. A valuation allowance must be established for deferred
tax assets when it is more likely than not that they will not be realized. In
prior periods, the Company established a valuation allowance for
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Table
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the state deferred tax assets and Canadian net operating losses in its
Retail segment. As of December 31, 2009, after considering both positive
and negative evidence, managements assessment is that a valuation allowance is
not needed for the Companys other deferred tax assets. Due to the economic times and recent losses,
management will continue to assess the realizability of the tax assets based on
actual and forecasted operating results on a quarterly basis, as required under
ASC topic 740. It is possible during the
current fiscal year, that the realization of tax assets is not reasonably
assured due to a lack of available objective evidence. Management would then record a valuation
allowance against the tax assets which would result in a non-cash charge to
earnings.
Net
income (loss)
for
the six months ended December 31, 2009, was a loss of $16.9 million as
compared to net income of $12.9 million in the prior year comparable
period. This resulted in a net loss per
diluted share of $0.58 in the current period and net income per diluted share
of $0.45 in the prior year period.
Liquidity
and Capital Resources
At December 31,
2009, we held cash and cash equivalents of $76.1 million. Our principal sources of liquidity include
cash and cash equivalents, cash flow from operations, the revolving line of
credit, and borrowings.
The global economy
continues to be unsettled, and capital markets continue to be disrupted and
volatile. The cost and availability of
funding has been and may continue to be adversely affected by illiquid credit
markets. Some lenders have reduced or, in some cases, ceased to provide funding
to borrowers. However, our lenders have
not indicated to us that they would not continue to provide funding to us or
not honor or be able to fully perform their obligations under the credit
facility. Our access to the credit
facility could also be negatively affected if operating results fall below prescribed
levels or if the assets used to determine the borrowing base availability fall
below the total available credit under the facility. Continued turbulence in the financial markets
could also adversely affect the cost and availability of financing to us in the
future.
On October 23, 2009, the Company
expanded to $60 million the three-year senior secured asset-based revolving
credit facility (the Facility) established on May 29, 2009. The Facility provides revolving credit
financing of up to $60 million, subject to borrowing base availability. At the Companys option, revolving loans
under the Agreement bear interest at an annual rate of either:
(a) London Interbank Offered rate (LIBOR)
plus 3.25% to 4.25%, based on the average availability, or
(b) the higher of (i) a prime
rate, (ii) the federal funds effective rate plus 0.50%, or (iii) a
LIBOR rate plus 1.00% plus, in each case, an additional 2.25% to 3.25%, based
on average availability.
The Facility is secured by all property
owned, leased or operated by the Company in the United States excluding any
real property owned by the Company and, at December 31, 2009, also
excluded any intellectual property owned by the Company unless availability was
less than or equal to $17.5 million. The
Facility contains customary covenants which may limit the Companys ability to
incur debt; engage in mergers and consolidations; make restricted payments
(including dividends); sell certain assets; and make investments. The Company
may make restricted payments (including dividends) as long as availability
equals or exceeds the greater of (i) 25% of the aggregate commitment or (ii) $12
million. If the average monthly
availability is less than the greater of (i) 15% of the aggregate
commitment and (ii) $9 million, the Company is also required to meet a
fixed charge coverage ratio financial covenant which may not be less than 1 to
1 for any period of four consecutive fiscal quarters. The Facility also
contains customary borrowing conditions and events of default, the occurrence
of which would entitle the lenders to accelerate the maturity of any
outstanding borrowings and terminate their commitment to make future loans.
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Table of Contents
The Company has not drawn any cash
advances against the facility, and has no plans to do so. At December 31, 2009, after excluding
the $12.5 million we had utilized in letters of credit, remaining availability
under the revolver totaled $47.5 million subject to limitations set forth in
the agreement noted above. We are in compliance with the terms and conditions
of the agreement and as a result, the coverage charge ratio, or other
restricted payment limitations did not apply.
As of December 31, 2009, we are in compliance with all covenants of
our credit facility.
In September 2005, we completed a
private offering of $200.0 million in ten-year senior unsecured notes due 2015
(the Senior Notes). The Senior Notes were offered by Global and have an
annual coupon rate of 5.375% with interest payable semi-annually in arrears on April 1
and October 1 of each year. We have
used the net proceeds of $198.4 million to expand our retail network, invest in
our manufacturing and logistics operations, and for other general corporate
purposes.
In June 2009, Moodys Investors
Service lowered our corporate and senior unsecured credit ratings to Ba1 from
Baa3, and Standard & Poors (S&P) lowered our corporate and
senior unsecured credit ratings to BB from BBB-. In November 2009, S&P
lowered our corporate and senior unsecured credit ratings to B+. Both rating
services pointed to the Companys depressed operating performance due to lower
consumer spending and a tough retail environment as reasons for the
downgrades. While the change in our
credit rating had no impact on our existing credit facilities, if the S&P
rating is not improved to investment grade by March 13, 2010, the issuer
of our private label credit cards has a right to demand a standby letter of
credit of up to $12 million, which would reduce availability under the
revolving credit agreement. It does not appear likely that the S&P rating
will improve to investment grade prior to March 13, 2010. The Company believes it has sufficient cash
and access to credit to fund operations and growth plans.
A summary of net
cash provided by (used in) operating, investing, and financing activities for
the six month periods ended December 31, 2009 and 2008 is provided below (in
millions):
|
|
Six Months Ended
|
|
|
|
December 31,
|
|
|
|
2009
|
|
2008
|
|
Operating Activities
|
|
|
|
|
|
Net income plus depreciation and amortization
|
|
$
|
1.4
|
|
$
|
25.7
|
|
Working capital
|
|
26.6
|
|
(4.5
|
)
|
Other (non-cash items, long-term assets and
liabilities)
|
|
(7.2
|
)
|
(5.5
|
)
|
Total provided by operating activities
|
|
$
|
20.8
|
|
$
|
15.7
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
Capital expenditures
|
|
$
|
(5.3
|
)
|
$
|
(16.1
|
)
|
Acquisitions
|
|
|
|
(0.7
|
)
|
Asset sales
|
|
10.1
|
|
5.7
|
|
Other
|
|
|
|
(0.2
|
)
|
Total provided by (used in) investing activities
|
|
$
|
4.8
|
|
$
|
(11.3
|
)
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
Payment of dividends
|
|
$
|
(2.9
|
)
|
$
|
(13.5
|
)
|
Payment of deferred financing costs
|
|
(0.2
|
)
|
|
|
Total provided by (used in) financing activities
|
|
$
|
(3.1
|
)
|
$
|
(13.5
|
)
|
Operating
Activities
Compared to the
same period in fiscal year 2009, cash provided by operating activities
increased $5.1 million. This occurred
due to the $31.1 million increase in cash generated from working capital
(accounts receivable,
33
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Contents
inventories,
prepaid and other current assets, customer deposits, payables, accrued
expenses, and other current liabilities) resulting from an increase in customer
deposits, inventory initiatives taken and income tax refunds, offset by
decreases in accounts receivable and accrued expenses. This was offset by a decrease in net income
of $29.8 million (partially offset by $6.6 million in depreciation charges due
to restructuring activities). The $1.7 million
in cash generated from other items was largely a result of restructuring
charges, partially offset by a net increase in deferred tax benefits.
Investing
Activities
As compared to the
same period in fiscal year 2009, cash used in investing activities decreased
$16.0 million during the six months ended December 31, 2009 due,
primarily, to a reduction in cash utilized to fund capital expenditures and
acquisitions and an increase in proceeds from the sale of assets. We anticipate that cash from operations will
be sufficient to fund future capital expenditures.
Financing
Activities
As compared to the
same period in fiscal year 2009, cash used in financing activities decreased
$10.4 million during the six months ended December 31, 2009, primarily as
a result of a decrease in dividend payments.
The Company has continuously paid dividends every quarter since
1996. On November 16, 2009, the
Board declared a dividend of $0.05 per common share, payable on January 25,
2010, to shareholders of record as of January 11, 2010. On January 19, 2010, the Board declared
a dividend of $0.05 per common share, payable on April 26, 2010, to
shareholders of record as of April 9, 2010. If adverse economic conditions continue, the
Company may further reduce our quarterly dividends.
As of December 31,
2009, our outstanding debt totaled $203.2 million, the current and long-term
portions of which amounted to less than $0.1 million and $203.2 million,
respectively. The aggregate scheduled
maturities of long-term debt for each of the next five fiscal years are: less
than $0.1 million in fiscal 2010, $3.9 million in fiscal 2011 and less than
$0.1 million in fiscal 2012 and 2013.
The balance of our long-term debt ($199.3 million) matures in fiscal
years 2014 and thereafter.
There has been no
material change to the amount or timing of cash payments related to our
outstanding contractual obligations as set forth in Part II, Item 7
Managements Discussion and Analysis of Financial Condition and Results
of Operation
of our Annual Report on Form 10-K/A for the year
ended June 30, 2009 as filed with the Securities and Exchange Commission
on August 27, 2009.
We believe that
our cash flow from operations, together with our other available sources of
liquidity, will be adequate to make all required payments of principal and
interest on our debt, to permit anticipated capital expenditures, and to fund
working capital and other cash requirements.
As of December 31, 2009, we had working capital of $140.0 million
and a current ratio of 2.2 to 1.
In addition to
using available cash to fund changes in working capital, necessary capital
expenditures, acquisition activity, the repayment of debt, and the payment of
dividends, we have been authorized by our Board of Directors to repurchase our
common stock, from time to time, either directly or through agents, in the open
market at prices and on terms satisfactory to us. All of our common stock
repurchases and retirements are recorded as treasury stock and result in a
reduction of shareholders equity.
There were no
repurchases during the six months ended December 31, 2009 and 2008. As of December 31, 2009, we had a
remaining Board authorization to repurchase 1,567,669 shares.
34
Table of Contents
Off-Balance
Sheet Arrangements and Other Commitments, Contingencies and Contractual
Obligations
Except as
indicated below, we do not utilize or employ any off-balance sheet
arrangements, including special-purpose entities, in operating our
business. As such, we do not maintain
any (i) retained or contingent interests, (ii) derivative instruments
(other than as specified below), or (iii) variable interests which could
serve as a source of potential risk to our future liquidity, capital resources
and results of operations.
In connection with
the issuance of the Senior Notes, Global, in July and August 2005,
entered into six separate forward contracts to hedge the risk-free interest
rate associated with $108.0 million of the related debt in order to mitigate
the negative impact of interest rate fluctuations on earnings, cash flows and
equity. The forward contracts were entered into with a major banking
institution thereby mitigating the risk of credit loss. Upon issuance of the
Senior Notes in September 2005, the related forward contracts were
settled. At the present time we have no current plans to engage in further
hedging activities.
We may, from time
to time in the ordinary course of business, provide guarantees on behalf of
selected affiliated entities or become contractually obligated to perform in
accordance with the terms and conditions of certain business agreements. The
nature and extent of these guarantees and obligations may vary based on our
underlying relationship with the benefiting party and the business purpose for
which the guarantee or obligation is being provided. Details of those
arrangements for which we act as guarantor or obligor are provided below.
Retailer-Related
Guarantees
Independent
Retailer Credit Facility
On June 11, 2009, we
obligated ourselves, on behalf of one of our independent retailers, with
respect to a $0.5 million credit facility (the
Amended
Credit Facility
). The Company had previously guaranteed
on April 9, 2009, on behalf of the independent retailer, a $0.9 million
credit facility (the Credit Facility).
This obligation requires us, in the event of the retailers default
under the Amended Credit Facility, to repurchase the retailers inventory,
applying such purchase price to the retailers outstanding indebtedness under
the Amended Credit Facility. Our obligation remains in effect for the life of
the term loan. The agreement expires in April 2011.
The maximum potential amount of future
payments (undiscounted) that we could be required to make under this obligation
is limited to the amount outstanding under the Amended Credit Facility at the
time of default (subject to pre-determined lending limits based on the value of
the underlying inventory) and, as such, is not an estimate of future cash
flows. No specific recourse or
collateral provisions exist that would enable recovery of any portion of
amounts paid under this obligation, except to the extent that we maintain the
right to take title to the repurchased inventory. We anticipate that the
repurchased inventory could subsequently be sold through our retail design
center network.
As of December 31,
2009, the amount outstanding under the Amended Credit Facility totaled
approximately $0.5 million. Based on the
underlying creditworthiness of the respective retailer, we believe this
obligation will expire without requiring funding by us. Our non-contingent obligations under this
arrangement as a result of modifications made to the Credit Facility subsequent
to January 1, 2003 are not material.
Ethan Allen
Consumer Credit Program
The terms and conditions
of our consumer credit program, which is financed and administered by a
third-party financial institution on a non-recourse basis to Ethan Allen, are
set forth in an agreement between us and that financial service provider (the Program
Agreement). Any independent retailer choosing to participate in the consumer
credit program is required to enter into a separate agreement with that same
third-party financial institution which sets forth the terms and conditions
under which the retailer is to perform in connection with its offering of
consumer credit to its customers (the Retailer Agreement). We have obligated
ourselves on behalf of any independent retailer choosing to participate in our
consumer credit program by agreeing, in the event of default, breach, or
failure of the independent retailer to perform under such Retailer Agreement,
to take on certain
35
Table of Contents
responsibilities of the
independent retailer, including, but not limited to, delivery of goods and
reimbursement of customer deposits. Customer receivables originated by
independent retailers remain non-recourse to Ethan Allen. Our obligation
remains in effect for the term of the Program Agreement which expires in July 2012.
While the maximum potential amount of future payments (undiscounted) that we
could be required to make under this obligation is indeterminable, recourse
provisions exist that would enable us to recover, from the independent
retailer, any amount paid or incurred by us related to our performance. Based
on the underlying creditworthiness of our independent retailers, including
their historical ability to satisfactorily perform in connection with the terms
of our consumer credit program, we believe this obligation will expire without
requiring funding by us.
Product Warranties
Our products,
including our case goods, upholstery and home accents, generally carry explicit
product warranties that extend from one to ten years and are provided based on
terms that are generally accepted in the industry. All of our domestic independent retailers are
required to enter into, and perform in accordance with the terms and conditions
of, a warranty service agreement. We record provisions for estimated warranty
and other related costs at time of sale based on historical warranty loss
experience and make periodic adjustments to those provisions to reflect actual
experience. On rare occasion, certain warranty and other related claims involve
matters of dispute that ultimately are resolved by negotiation, arbitration or
litigation. In certain cases, a material
warranty issue may arise which is beyond the scope of our historical
experience. We provide for such warranty issues as they become known and are
deemed to be both probable and estimable. It is reasonably possible that, from
time to time, additional warranty and other related claims could arise from
disputes or other matters beyond the scope of our historical experience. As of December 31,
2009, our product warranty liability totaled $0.8 million.
Business
Outlook
Stresses in the U.S.
economy from continued high unemployment, volatile capital markets, depressed
housing prices and tight consumer spending continue to have a negative impact
on our business. We remain cautiously optimistic
about our long term outlook, as current business conditions have marginally
improved in the six months ended December 31, 2009. We cannot predict, with any degree of
certainty when these difficult economic conditions will improve meaningfully.
As macro-economic
factors change, it is also possible that our costs associated with production
(including raw materials, labor and utilities), distribution (including freight
and fuel charges), and retail operations (including compensation, benefits,
delivery, warehousing, occupancy, and advertising expenses) may increase. We may also experience production
difficulties as we consolidate manufacturing plants and convert our case goods
to custom. We cannot reasonably predict
when, or to what extent, such events may occur or what effect, if any, such
events may have on our consolidated financial condition or results of
operations.
The home
furnishings industry remains extremely competitive with respect to both the
sourcing of products and the retail sale of those products. Domestic manufacturers
continue to face pricing pressures as a result of the manufacturing
capabilities and significant manufacturing capacities developed during recent
years in other countries, specifically within Asia. In response to these
pressures, a large number of U.S. furniture manufacturers and retailers,
including the Company, have increased their overseas sourcing activities in an
attempt to maintain a competitive advantage and retain market share. We
continue to believe that a balanced approach to product sourcing, which
includes the domestic manufacture of certain product offerings coupled with the
import of other selected products, provides the greatest degree of flexibility
and is the most effective approach to ensuring that acceptable levels of
quality, service and value are attained.
We believe that our
existing business model which includes: (i) an established brand with a
broad offering of Company designed quality products; (ii) a comprehensive
complement of home decorating solutions and complimentary interior design
services and (iii) a vertically-integrated operating structure will
position us well to take advantage of improved economic conditions when they
occur.
36
Table of
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In addition, we
believe that our retail strategy, which involves (i) a continued focus on
providing a wide array of product solutions including custom upholstery and
case goods products and superior customer service coupled with state-of-the-art
technology in our newly launched website, (ii) the opening of new or
relocated design centers in more prominent locations, while encouraging
independent retailers to do the same, and (iii) the development of a more
professional structure within our retail network, provides an opportunity to
grow our business when the current difficult economic conditions improve.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
There have been no
material changes to the market risks disclosed in our Annual Report on Form 10-K/A
for the year ended June 30, 2009 as filed with the Securities and Exchange
Commission on August 27, 2009.
Item 4.
Controls and Procedures
Managements
Report on Disclosure Controls and Procedures
Our management,
including the Chairman of the Board and Chief Executive Officer (CEO) and the
Vice President-Finance (VPF), conducted an evaluation of the effectiveness of
disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of the end of the period covered by this report. Based on such
evaluation, the CEO and VPF have concluded that, as of December 31, 2009,
our disclosure controls and procedures were effective in ensuring that material
information relating to us (including our consolidated subsidiaries), which is
required to be disclosed by us in our periodic reports filed or submitted under
the Exchange Act is (i) recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and (ii) accumulated
and communicated to management, including the CEO and VPF, as appropriate, to
allow timely decisions regarding required disclosure.
Changes
in Internal Control over Financial Reporting
There have been no
changes in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fiscal quarter ended December 31, 2009 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II
- OTHER INFORMATION
Item 1.
Legal Proceedings
There have been no
material changes to the matters discussed in Part I, Item 3 -
Legal Proceedings
in our Annual Report on Form 10-K/A
for the year ended June 30, 2009 as filed with the Securities and Exchange
Commission on August 27, 2009.
Item 1A.
Risk Factors
There have been no
material changes to the market risks disclosed in our Annual Report on Form 10-K/A
for the year ended June 30, 2009 as filed with the Securities and Exchange
Commission on August 27, 2009.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer
Purchases of Equity Securities
There were no purchases
made by or on behalf of the Company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under
the Exchange Act) of our common stock during the three months ended December 31,
2009. The maximum number of shares that
may yet be purchased under the plans or program is 1,567,669 shares.
37
Table of
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Item 3.
Defaults Upon Senior Securities
Not applicable.
Item 4.
Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5.
Other Information
Not applicable.
Item 6.
Exhibits
Exhibit
Number
|
|
Description
|
31.1
|
|
Rule 13a-14(a)
|
Certification of
Principal Executive Officer
|
31.2
|
|
Rule 13a-14(a)
|
Certification of
Principal Financial Officer
|
32.1
|
|
Section 1350
|
Certification of
Principal Executive Officer
|
32.2
|
|
Section 1350
|
Certification of
Principal Financial Officer
|
38
Table of
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SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ETHAN ALLEN INTERIORS INC.
(Registrant)
DATE:
February 5, 2010
|
BY:
|
/s/ M. Farooq Kathwari
|
|
|
Farooq Kathwari
|
|
|
Chairman, President and
Chief Executive Officer
|
|
|
(Principal Executive
Officer)
|
|
|
|
|
|
|
|
|
DATE: February 5, 2010
|
BY:
|
/s/ David R.
Callen
|
|
|
David R. Callen
|
|
|
Vice President,
Finance & Treasurer
|
|
|
(Principal
Financial Officer and Principal Accounting Officer)
|
39
Table of Contents
EXHIBIT INDEX
Exhibit
Number
|
|
Exhibit
|
31.1
|
|
Rule 13a-14(a) Certification
of Principal Executive Officer
|
31.2
|
|
Rule 13a-14(a) Certification
of Principal Financial Officer
|
32.1
|
|
Section 1350
Certification of Principal Executive Officer
|
32.2
|
|
Section 1350
Certification of Principal Financial Officer
|
40
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