$38.5 million. These favorable variances were partially offset by a decrease resulting from sold and closed stores, which generated $15.2 million fewer sales in the first nine months of fiscal 2006 as compared to the same period in fiscal 2005.
Year-over-year, written business of Ethan Allen-owned stores increased 16.1% and comparable store written business increased 11.4%. Over that same period, wholesale orders increased 11.5%. The increase in both retail and wholesale written sales during the nine month period was likely attributable to the positive effects of the continued re-positioning of the Company’s retail stores to larger and more prominent locations, ongoing efforts to develop a more professional management structure within the Company’s retail stores, recent product introductions, and, to some degree, the Company’s continued use of national television as an advertising medium during the period.
Gross profit increased during the nine months ended March 31, 2006 to $401.1 million from $340.2 million in the prior year comparable period. The $60.9 million, or 17.9%, increase in gross profit was primarily attributable to (i) an increase in total sales volume, some of which is a result of the Company’s ongoing initiative to reduce the lead time associated with product delivery, (ii) a higher proportionate share of retail sales to total sales (64% in the current period compared to 62% in the prior year period), (iii) improved margins resulting from better plant performance within the Company’s domestic manufacturing operations and the continued off-shore sourcing of selected product lines, and (iv) a reduction in costs associated with excess capacity at the Company’s manufacturing facilities. Consolidated gross margin increased to 50.5% during the nine months ended March 31, 2006 from 48.1% in the prior year comparable period as a result, primarily, of the factors identified previously.
The Company recorded a pre-tax restructuring and impairment charge of $4.2 million in the first quarter of fiscal 2006 relating to its planned conversion of one of its existing manufacturing facilities into a regional distribution center. The facility, currently involved in the production of wood case goods furniture, is located in Dublin, Virginia. In connection with this initiative, the Company has permanently ceased production at the Dublin location and is currently in process of consolidating the distribution operations of its existing Old Fort, North Carolina location into the new, larger facility. The decision impacts approximately 325 employees, of which the Company expects approximately 75 to be employed in new positions. The costs incurred in connection with the decision to cease production at the Dublin facility consisted, primarily, of employee severance and benefits and other plant exit costs ($1.3 million), as well as fixed asset impairment charges ($2.9 million), primarily for machinery and equipment, associated with the affected facilities. In addition, adjustments totaling $0.2 million were recorded during the first nine months of fiscal 2005 to reverse certain accruals previously established in connection with an earlier plant consolidation plan which were no longer required.
As a result of the adoption of FAS 123(R), operating expenses for the nine month period ended March 31, 2006 include share-based compensation expense totaling $1.7 million. For the prior year comparable period, during which time the Company applied the APB No. 25 intrinsic value method of measuring compensation cost, the cost associated with
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
share-based compensation arrangements totaled $0.2 million. As of March 31, 2006, there was $1.1 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 1.8 years.
Including the restructuring and impairment charge of $4.2 million recorded in the first quarter of fiscal 2006, operating expenses increased $51.9 million, or 21.3%, to $295.3 million, or 37.2% of net sales, in the current nine month period from $243.4 million, or 34.4% of net sales, in the prior year comparable period. This increase was primarily attributable to increased costs associated with (i) the continued re-positioning of the Company’s retail stores to larger and more prominent locations, and (ii) ongoing efforts to develop a more professional management structure within the Company’s retail stores, both of which have resulted in higher costs associated with managerial salaries and benefits, commissions, local advertising, occupancy, and delivery and warehousing. In addition, current period operating expenses were unfavorably impacted by (i) an increase in national advertising costs, largely as a result of the decision to utilize television as an advertising medium during the period, (ii) increased distribution costs attributable to higher fuel and freight charges, some of which stem from the improved sales volume noted during the period, (iii) the aforementioned restructuring and impairment charge, and (iv) an increase in compensation and benefit related expenses, including costs recorded in connection with stock options and other share-based awards as a result of the Company’s adoption of FAS 123(R) on July 1, 2005.
Including the restructuring and impairment charge of $4.2 million recorded in the first quarter of fiscal 2006, operating income for the nine months ended March 31, 2006 totaled $105.8 million, or 13.3% of net sales, compared to $96.8 million, or 13.7% of net sales, for the nine months ended March 31, 2005. This represents an increase of $9.0 million, and was attributable to the overall increase in gross profit referred to previously, partially offset by higher operating expenses noted during the period.
Including the restructuring and impairment charge of $4.2 million recorded in the first quarter of fiscal 2006, wholesale operating income for the nine months ended March 31, 2006 totaled $97.3 million, or 17.4% of net sales, as compared to $86.6 million, or 17.6% of net sales, in the comparable prior year period. The increase of $10.7 million, or 12.4%, was primarily attributable to (i) the increase in wholesale sales volume, (ii) improved margins resulting from better plant performance within the Company’s domestic manufacturing operations and the continued off-shore sourcing of selected product lines, and (iii) a reduction in costs associated with excess capacity at the Company’s manufacturing facilities. These increases were partially offset by (i) an increase in national advertising costs, largely as a result of the decision to utilize television as an advertising medium during the period, (ii) increased distribution costs attributable to higher fuel and freight charges, (iii) the aforementioned restructuring and impairment charge, (iv) an increase in compensation and benefit related expenses, and (v) losses incurred in connection with the disposition of certain plant machinery and equipment.
Operating income for the retail segment increased $3.2 million to $11.2 million, or 2.2% of net retail sales, for the nine month period ended March 31, 2006, as compared to $8.0 million, or 1.8% of net retail sales, for the prior year comparable period. The increase in retail operating income generated by Ethan Allen-owned stores is primarily attributable to higher sales volume generated by comparable, and newly-opened (including relocations) or acquired stores, partially offset by higher operating expenses related to the continued re-positioning of the Company’s retail store network and ongoing efforts to develop a more professional management structure within the Company’s retail stores.
Interest and other miscellaneous income, net for the nine months ended March 31, 2006 increased to $2.9 million from $1.4 million in the prior year comparable period. The $1.5 million increase was due, primarily, to increased investment income resulting from higher cash and short-term investment balances maintained during the current year period.
Interest and other related financing costs for the current nine month period ended March 31, 2006 increased $6.0 million to $6.5 million from $0.5 million in the prior year
28
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
comparable period. The increase was due, primarily, to interest expense incurred in connection with the Company’s issuance of senior unsecured debt in September 2005.
Income tax expense for the nine months ended March 31, 2006 was $102.3 million as compared to $97.7 million for the nine months ended March 31, 2005. The Company’s effective tax rate for the current period was 38.1%, down from 38.8% in the prior year period. The slightly lower effective tax rate was a result, primarily, of the benefit associated with the manufacturers’ deduction provided for under The Jobs Creation Act of 2004, partially offset by the adverse impact of (i) recently-enacted changes within certain state tax legislation, and (ii) increased state income tax liability arising in connection with the operation of a greater number of Company-owned stores.
The Company recorded net income of $63.3 million for the nine months ended March 2006, as compared to $59.8 million in the prior year comparable period. Net income per diluted share totaled $1.85 for the current year period and $1.63 per diluted share in the prior year period.
Financial Condition and Liquidity
The Company’s principal sources of liquidity include cash and cash equivalents, cash flow from operations, and borrowing capacity under a $200.0 million revolving credit facility. In addition to the $200.0 million revolving credit component, the credit facility includes an accordion feature which provides for an additional $100.0 million of liquidity, if needed, as well as sub-facilities for trade and standby letters of credit of $100.0 million and swingline loans of $5.0 million.
The credit facility contains various covenants which may limit the Company's ability to: incur debt; engage in mergers and consolidations; make restricted payments; sell certain assets; make investments; and issue stock. The Company is also required to meet certain financial covenants including a fixed charge coverage ratio, which shall not be less than 3.00 to 1 for any period of four consecutive fiscal quarters ended on or after June 30, 2005, and a leverage ratio, which shall not be greater than 3.00 to 1 at any time. As of March 31, 2006, the Company had satisfactorily complied with these covenants.
On September 27, 2005, the Company 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 Ethan Allen Global, Inc. (“Global”), a wholly-owned subsidiary of the Company, and have an annual coupon rate of 5.375%. The Company intends to utilize the net proceeds of $198.4 million to expand its retail network, invest in its manufacturing and logistics operations, and for other general corporate purposes.
In connection with the issuance of the Senior Notes, Global, in July and August 2005, entered into 6 separate forward contracts to hedge the risk-free interest rate associated with $108.0 million of the related debt in order to minimize 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 and settlement of the related forward contracts, losses totaling $0.9 million were incurred representing the change in the fair value of the forward contracts since their respective trade dates. In accordance with FAS No. 133,Accounting for Certain Derivative Instruments and Certain Hedging Activities, as amended, it was determined that a portion of the related losses was the result of hedge ineffectiveness and, as such, $0.1 million of the losses was included, within interest and other related financing costs, in the Consolidated Statement of Operations for the three month period ended September 30, 2005. The balance of the losses, $0.8 million, has, as of March 31, 2006, been included (on a net-of-tax basis) in the Consolidated Balance Sheets within accumulated other comprehensive income and will be amortized to interest expense over the life of the Senior Notes.
As of March 31, 2006 the Company maintained cash and short-term investments totaling $185.8 million and outstanding debt and capital lease obligations totaling $202.9 million. The current and long-term portions of the Company’s outstanding debt and capital lease obligations totaled $0.2 million and $202.7 million, respectively, at that date. The Company had no revolving loans outstanding under the credit facility as of March 31, 2006,
29
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
and standby letters of credit outstanding under the facility at that date totaled $16.2 million. Remaining available borrowing capacity under the facility was $183.8 million at March 31, 2006.
Net cash provided by operating activities totaled $92.5 million for the first nine months of fiscal 2006 as compared to $79.2 million for the first nine months of fiscal 2005. The period-over-period increase of $13.3 million was principally the result of changes in (i) accounts payable ($9.7 million effect) due, primarily, to increased payables activity associated with advertising-related expenditures and income taxes, (ii) restructuring and impairment charges ($4.5 million effect), (iii) an increase in net income ($3.5 million effect), (iv) changes in the gain/loss on disposal of certain property, plant and equipment ($2.8 million effect), (v) customer deposits ($2.2 million effect) reflecting the period-to-period change in the level of written and delivered sales, and (vi) compensation expense related to stock option grants and restricted stock awards ($1.5 million effect) as a result of the Company’s adoption of FAS 123(R) on July 1, 2005. These favorable variances were partially offset by unfavorable variances related to (i) inventories ($5.7 million effect) which, net of acquired inventory, decreased $0.6 million in the current period as compared to an increase of $5.1 million in the prior year period, (ii) prepaid and other current assets ($2.3 million effect), (iii) deferred income taxes ($2.2 million effect), and (iv) accrued expenses ($2.0 million effect) as a result of normal business activity.
The increase in inventory levels from June 2005 was the result, primarily, of an increase within retail inventories associated with the higher volume of retail written sales and corresponding wholesale shipments occurring during the period. This increase was partially offset by an increase in retail delivered sales and a reduction in plant inventories as a result of the Company’s continued efforts to efficiently manage its raw material and work-in-process inventories while, at the same time, meeting production needs.
Net cash used in investing activities totaled $32.2 million for the first nine months of fiscal 2006 compared to $18.2 million in the prior year comparable period. The period-over-period increase of $14.0 million was due, primarily, to (i) an increase in cash utilized to fund acquisition activity of $5.3 million, (ii) an increase in cash utilized for capital expenditures of $4.1 million, (iii) a decrease in proceeds from the sale of retail stores of $2.1 million, (iv) a decrease in proceeds from the disposal of certain property, plant and equipment of $2.0 million, and (v) cash payments on hedging contracts of $0.9 million. The current level of capital spending is principally attributable to (i) new store development and renovation, (ii) Company-wide technology initiatives, and (iii) improvements within the Company’s remaining manufacturing facilities. The Company anticipates that cash from operations will be sufficient to fund future capital expenditures.
Net cash provided by financing activities totaled $121.8 million for the nine months ended March 2006 as compared to cash used of $77.7 million in the prior year period. The period-over-period increase of $199.5 million was the result, primarily, of (i) the receipt of the net proceeds ($198.4 million) associated with the issuance of the Senior Notes during the current period, (ii) a $8.6 million reduction in payments related to the acquisition of treasury stock, and (iii) a $4.6 million reduction in cash used for the repayment of debt. These favorable variances were partially offset by unfavorable variances related to (i) net borrowing activity on the Company’s revolving credit facility ($8.0 million), (ii) an increase in cash utilized in the payment of dividends ($2.8 million), and (iii) an increase in cash utilized in the payment of deferred financing costs ($2.1 million).
On January 24, 2006, the Company declared a dividend of $0.18 per common share, payable on April 25, 2006, to shareholders of record as of April 10, 2006. Additionally, on April 25, 2006, the Company declared a dividend of $0.18 per common share, payable on July 25, 2006, to shareholders of record as of July 10, 2006. The Company expects to continue to declare quarterly dividends for the foreseeable future.
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
30
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
dividends, the Company has been authorized by its Board of Directors to repurchase its common stock, from time to time, either directly or through agents, in the open market at prices and on terms satisfactory to the Company. All of the Company’s common stock repurchases and retirements are recorded as treasury stock and result in a reduction of shareholders’equity.
During the nine months ended March 31, 2006 and 2005, the Company repurchased and/or retired the following shares of its common stock:
| Nine Months Ended
March 31, |
|---|
| 2006
| 2005(1)
|
|---|
| Common shares repurchased | | | | 1,606,900 | | | 1,693,500 | |
| Cost to repurchase common shares | | | $ | 51,136,909 | | $ | 58,867,835 | |
| Average price per share | | | $ | 31.82 | | $ | 34.76 | |
| | (1) | The cost to repurchase shares during the first nine months of fiscal year 2005 excludes $745,735 in treasury stock purchases with a June 2004 trade date and a July 2004 settlement date. |
For each of the periods presented above, the Company funded its purchases of treasury stock with existing cash on hand and cash generated through current period operations. On November 15, 2005, the Board of Directors increased the share purchase authorization to 2.5 million shares. As of March 31, 2006, the full Board authorization of 2.5 million shares remained.
As of March 31, 2006, aggregate scheduled maturities of long-term debt, including capital lease obligations, for each of the next five fiscal years are: $0.2 million in fiscal 2006; and less than $0.1 million in each of fiscal 2007, fiscal 2008, fiscal 2009, and fiscal 2010. The balance of the Company’s long-term debt and capital lease obligations ($202.5 million) matures in fiscal years 2011 and thereafter. The Company believes that its cash flow from operations, together with its other available sources of liquidity, will be adequate to make all required payments of principal and interest on its debt, to permit anticipated capital expenditures and to fund working capital and other cash requirements. As of March 31, 2006, the Company had working capital of $306.5 million and a current ratio of 3.10 to 1.
Off-Balance Sheet Arrangements and Other Commitments, Contingencies and Contractual Obligations
Except as indicated below, the Company does not utilize or employ any off-balance sheet arrangements, including special-purpose entities, in operating its business. As such, the Company does not maintain, as of March 31, 2006, any (i) retained or contingent interests, (ii) derivative instruments, or (iii) variable interests which could serve as a source of potential risk to its 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 6 separate forward contracts to hedge the risk-free interest rate associated with $108.0 million of the related debt in order to minimize 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, the Company has no current plans to engage in further hedging activities.
The Company, 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 the underlying relationship of the benefiting party to the Company and the business purpose for which the guarantee or obligation is being provided. Details of those arrangements for which the Company acts as guarantor or obligor are provided below.
31
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Retailer-Related Guarantees
Ethan Allen has obligated itself, on behalf of one of its independent retailers, with respect to a $1.5 million credit facility (the “Credit Facility”) comprised of a $1.1 million revolving line of credit and a $0.4 million term loan. This obligation requires the Company, in the event of the retailer’s default under the Credit Facility, to repurchase the retailer’s inventory, applying such purchase price to the retailer’s outstanding indebtedness under the Credit Facility. The Company’s obligation remains in effect for the life of the term loan which expires in April 2008. The maximum potential amount of future payments (undiscounted) that the Company could be required to make under this obligation is limited to the amount outstanding under the 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 the Company maintains the right to take title to the repurchased inventory. Management anticipates that the repurchased inventory could subsequently be sold through the Company’s retail store network. As of March 31, 2006, the amount outstanding under the Credit Facility totaled approximately $1.1 million, of which $1.0 million was outstanding under the revolving credit line. Management expects that, based on the underlying creditworthiness of the respective retailer, this obligation will expire without requiring funding by the Company. However, in accordance with the provisions of FASB Interpretation No. 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, a liability has been established to reflect the Company’s non-contingent obligation under this arrangement as a result of modifications made to the Credit Facility subsequent to January 1, 2003. As of March 31, 2006, the carrying amount of such liability is less than $50,000.
Indemnification Agreement
In connection with the Company’s joint venture arrangement with United Kingdom-based MFI Furniture Group Plc., Ethan Allen has entered into a tax cross-indemnification agreement with the joint venture partner. The indemnification agreement stipulates that both parties agree to pay fifty percent of the amount of any tax liability arising as a result of (i) an adverse tax judgment or (ii) the imposition of additional taxes against either partner, and attributable to the operations of the joint venture. The indemnification agreement is effective until such time that the joint venture is terminated. In December 2005, both parties mutually agreed to terminate the joint venture. It is anticipated that such termination will be completed by June 30, 2006.
The maximum potential amount of future payments (undiscounted) that the Company could be required to make under this indemnification agreement is indeterminable as no such tax liability currently exists. Further, the nature, extent and magnitude of any such tax liability arising in the future as a result of an adverse tax judgment or change in applicable tax law cannot be estimated with any reasonable certainty. It should be further noted that no recourse or collateral provisions exist that would enable recovery of any portion of amounts paid under this indemnification agreement. Management expects, based on its current understanding of the applicable tax laws and the existing legal structure of the joint venture, subject to future changes in applicable laws and regulations, this cross-indemnity agreement will expire without requiring funding by the Company. Accordingly, as of March 31, 2006, the carrying amount of the liability related to this indemnification agreement is zero.
Product Warranties
The Company’s products, including its case goods, upholstery and home accents, generally carry explicit product warranties that extend from three to five years and are provided based on terms that are generally accepted in the industry. All of the Company’s domestic independent retailers are required to enter into, and perform in accordance with the terms and conditions of, a warranty service agreement. The Company records provisions for estimated warranty and other related costs at time of sale based on historical warranty loss experience and makes periodic adjustments to those provisions to reflect actual experience. On rare occasion, certain warranty and other related claims involve
32
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
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 the Company’s historical experience. The Company provides 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 the Company’s historical experience. As of March 31, 2006, the Company’s product warranty liability totaled $1.3 million.
Business Outlook
In recent months, the Company has continued to note encouraging signs with respect to the incoming order rate. While management of the Company cannot reasonably predict whether a recent improvement in order trends will prove to be sustainable, the Company believes that it is well-positioned for the next phase of economic growth based upon its existing business model which includes: (i) an established brand; (ii) a comprehensive complement of home decorating solutions; and (iii) a vertically-integrated operating structure.
As macro-economic factors change, however, it is also possible that the Company’s costs associated with production (including raw materials and labor), distribution (including freight and fuel charges), and retail operations (including compensation and benefits, delivery and warehousing, occupancy, and advertising expenses) may increase. Management of the Company cannot reasonably predict when, or to what extent, such events may occur or what effect, if any, such events may have on the Company’s 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 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 Ethan Allen, have increased their overseas sourcing activities in an attempt to maintain a competitive advantage and retain market share. At the present time, the Company domestically manufactures and/or assembles approximately 65-70% of its products. Management of the Company continues 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.
In addition, the Company believes that its retail strategy, which involves (i) a continued focus on providing a wide array of product solutions and superior customer service, (ii) the relocation of retail stores to larger and more prominent locations, and (iii) the development of a more professional management structure within our stores, provides an opportunity to further grow the retail business.
33
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates.
Interest rate risk exists primarily through the Company’s borrowing activities. Ethan Allen’s policy has been to utilize United States dollar denominated borrowings to fund its working capital and investment needs. Short-term debt, if required, is used to meet working capital requirements and long-term debt is generally used to finance long-term investments. There is inherent rollover risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Company’s future financing requirements.
For floating-rate obligations, interest rate changes do not affect the fair value of the underlying financial instrument but do impact future earnings and cash flows, assuming other factors are held constant. Conversely, for fixed-rate obligations, interest rate changes affect the fair value of the underlying financial instrument but do not impact earnings or cash flows. At March 31, 2006, the Company had no floating-rate debt obligations outstanding. As of that same date, the Company’s fixed-rate debt obligations consist, primarily, of the Senior Notes issued on September 27, 2005. The estimated fair value of the Senior Notes as of March 31, 2006, which is based on interest rate changes subsequent to the date on which the debt was issued, and which has been determined using quoted market prices, was $185.6 million as compared to a carrying value of $198.5 million.
Foreign currency exchange risk is primarily limited to its operation of 5 Ethan Allen-owned retail stores located in Canada as substantially all purchases of imported parts and finished goods are denominated in United States dollars. As such, gains or losses resulting from market changes in the value of foreign currencies have not had, nor are they expected to have, a material effect on the Company’s consolidated results of operations.
Historically, the Company has not entered into financial instrument, including derivative, transactions for trading or other speculative purposes or to manage interest rate or currency exposure. However, in connection with the issuance of the Senior Notes, Global, in July and August 2005, entered into 6 separate forward contracts to hedge the risk-free interest rate associated with $108.0 million of the related debt in order to minimize 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, the Company has no current plans to engage in further hedging activities.
Item 4. Controls and Procedures
Management’s Report on Disclosure Controls and Procedures
Ethan Allen’s 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 March 31, 2006, the Company’s disclosure controls and procedures were effective in ensuring that material information relating to the Company, which is required to be included in the Company’s periodic filings under the Exchange Act, was made known to them in a timely manner.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s 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 quarter ended March 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
34
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
There has been no material change to the matters discussed in Part I, Item 3 — Legal Proceedings in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission as of September 13, 2005.
Item 1A. Risk Factors
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
Certain information regarding purchases made by or on behalf of the Company or any affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934, as amended) of our common stock during the three months ended March 31, 2006 is provided below:
Period
| Total Number
of Shares
Purchased
| Average Price
Paid Per Share
| Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs (a)
| Maximum Number
of Shares
That May Yet Be Purchased
Under the Plans or
Programs (a)
|
|---|
| January 2006 | | | | — | | $ | — | | | — | | | 2,500,000 | |
| February 2006 | | | | — | | $ | — | | | — | | | 2,500,000 | |
| March 2006 | | | | — | | | — | | | — | | | 2,500,000 | |
|
| | |
| | |
| Total | | | | — | | $ | — | | | — | |
|
| | |
| | |
| | (a) | On November 21, 2002, the Company’s Board of Directors approved a share repurchase program authorizing the Company to repurchase up to 2,000,000 shares of its common stock, from time to time, either directly or through agents, in the open market at prices and on terms satisfactory to the Company. Subsequent to that date, the Board of Directors increased the remaining authorization as follows: from 904,755 shares to 2,500,000 shares on April 27, 2004; from 753,600 shares to 2,000,000 shares on November 16, 2004; from 691,100 shares to 2,000,000 shares on April 26, 2005; and from 393,100 shares to 2,500,000 shares on November 15, 2005. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
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 |
| |
| * | Filed | herewith. | |
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
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: May 9, 2006 | | BY:/s/ M. Farooq Kathwari
M. Farooq Kathwari
Chairman, President and
Chief Executive Officer
(Principal Executive Officer) |
| DATE: May 9, 2006 | | BY:/s/ Jeffrey Hoyt
Jeffrey Hoyt
Vice President, Finance
and Treasurer
(Principal Financial Officer and
Principal Accounting Officer) |
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
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 |
37
