Harry & David Holdings, Inc. - FORM 10-Q

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EX-31.1 - SECTION 302 CEO CERTIFICATION - Harry & David Holdings, Inc.	dex311.htm
EX-32.1 - SECTION 906 CEO AND CFO CERTIFICATION - Harry & David Holdings, Inc.	dex321.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - Harry & David Holdings, Inc.	dex312.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 25, 2010

¨	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 333-127173

Harry & David Holdings, Inc.

(Exact name of registrant as specified in its charter)


Delaware		20-0884389
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

2500 South Pacific Highway, Medford, OR		97501
(Address of Principal Executive Offices)		(Zip Code)

(541) 864-2362

(Registrant’s telephone number including area code)

None

(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 if 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. Yes ¨ No x*

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2) Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:


Class		Outstanding as of February 8, 2011
Common stock $0.01 par value		1,034,169

*	The registrant is not currently required to file reports, including this report, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, but is voluntarily filing this report with the Securities and Exchange Commission.

HARRY & DAVID HOLDINGS, INC. AND SUBSIDIARIES

INDEX


		Page

Part I. Financial Information

Item 1.	Condensed Consolidated (unaudited) Financial Statements		3

	Condensed Consolidated Balance Sheets – as of December 25, 2010, June 26, 2010 and December 26, 2009		3

	Condensed Consolidated Statements of Operations – Thirteen Weeks ended December 25, 2010 and December 26, 2009, and Twenty-Six Weeks ended December 25, 2010 and December 26, 2009		4

	Condensed Consolidated Statements of Cash Flows – Twenty-Six Weeks ended December 25, 2010 and December 26, 2009		5

	Notes to Condensed Consolidated Financial Statements		6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		30

Item 4.	Controls and Procedures		30

Part II. Other Information

Item 1.	Legal Proceedings		31

Item 1A.	Risk Factors		31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		31

Item 3.	Defaults Upon Senior Securities		31

Item 4.	[Removed and Reserved]		31

Item 5.	Other Information		31

Item 6.	Exhibits		31

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Harry & David Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)


	December 25, 2010			June 26, 2010			December 26, 2009
	Unaudited						Unaudited
Assets
Current assets
Cash and cash equivalents	$	66,908		$	13,730		$	108,512
Short-term investments		—			4,999			—
Trade accounts receivable, net		10,704			936			10,323
Other receivables		2,493			834			1,760
Inventories		42,961			35,527			33,850
Deferred catalog expenses		4,402			2,286			3,781
Deferred income taxes		2,060			2,173			—
Other current assets		5,392			3,754			6,387

Total current assets		134,920			64,239			164,613
Fixed assets, net		123,473			128,391			136,346
Goodwill		12,236			12,236			12,236
Intangibles, net		27,260			32,376			32,616
Deferred financing costs, net		4,298			3,603			4,789
Other assets		2,106			2,369			2,126

Total assets	$	304,293		$	243,214		$	352,726


Liabilities and stockholders’ deficit
Current liabilities
Accounts payable	$	57,935		$	15,083		$	32,506
Accrued payroll and benefits		12,326			14,673			14,108
Deferred revenue		31,542			14,014			36,554
Deferred income taxes		—			—			9,991
Income taxes payable		2,189			1,860			18,565
Accrued interest		4,471			4,426			4,420
Other accrued liabilities		11,723			3,194			9,463
Current portion of capital lease obligation		156			309			299

Total current liabilities		120,342			53,559			125,906
Long-term debt and capital lease obligation		198,362			198,362			198,519
Accrued pension liabilities		27,744			29,851			27,179
Deferred income taxes		5,329			5,116			2,719
Other long-term liabilities		9,052			9,871			9,626

Total liabilities		360,829			296,759			363,949

Commitments and contingencies (Note 9)
Stockholders’ deficit
Common stock, $0.01 par value, 1,500,000 shares authorized; issued and outstanding: 1,034,169 shares at December 25, 2010 and June 26, 2010 and 1,033,295 shares at December 26, 2009		10			10			10
Additional paid-in capital		17,558			17,062			6,844
Accumulated other comprehensive loss, net of tax		(11,849	)		(12,719	)		(9,402	)
Accumulated deficit		(62,255	)		(57,898	)		(8,675	)

Total stockholders’ deficit		(56,536	)		(53,545	)		(11,223	)

Total liabilities and stockholders’ deficit	$	304,293		$	243,214		$	352,726

See accompanying Notes to Condensed Consolidated Financial Statements.

Harry & David Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands)

(unaudited)


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	December 25, 2010			December 26, 2009			December 25, 2010			December 26, 2009
Net sales	$	262,128		$	267,032		$	302,568		$	313,296
Cost of goods sold		157,971			135,817			186,209			165,858

Gross profit		104,157			131,215			116,359			147,438


Operating expenses:
Selling, general and administrative		72,739			71,372			104,600			104,716
Impairment of trade name and other intangible long-lived assets		5,013			—			5,013			—
Selling, general and administrative – related party		250			250			500			500

		78,002			71,622			110,113			105,216

Operating income		26,155			59,593			6,246			42,222


Other income (expense):
Interest income		—			14			—			17
Interest expense		(5,545	)		(4,905	)		(10,868	)		(9,604	)
Other income, net		27			346			53			369

		(5,518	)		(4,545	)		(10,815	)		(9,218	)

Income (loss) before income taxes		20,637			55,048			(4,569	)		33,004
Benefit (provision) for income taxes		(6,817	)		(23,329	)		212			(23,009	)

Net income (loss)	$	13,820		$	31,719		$	(4,357	)	$	9,995

See accompanying Notes to Condensed Consolidated Financial Statements.

Harry & David Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Twenty-Six Weeks Ended December 25, 2010			Twenty-Six Weeks Ended December 26, 2009
Operating activities
Net income (loss)	$	(4,357	)	$	9,995
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of fixed assets		7,768			9,113
Amortization of intangible assets		103			441
Amortization of deferred financing costs		1,821			1,186
Stock option compensation expense		496			171
Loss (gain) on disposal and impairment of fixed assets, net		159			899
Impairment of trade name and other intangible long-lived assets		5,013			—
Gain on sale of short-term investments		(1	)		—
Deferred income taxes		326			19,111
Amortization of deferred pension loss		850			645
Changes in operating assets and liabilities:
Trade accounts receivable and other receivables		(11,427	)		(8,555	)
Inventories		(7,434	)		10,888
Deferred catalog expenses and other assets		(3,491	)		(2,661	)
Accounts payable		42,852			21,335
Accrued liabilities		5,408			6,981
Income taxes		329			4,922
Accrued pension liabilities		(2,087	)		(185	)
Deferred revenue		17,528			20,237

Net cash provided by operating activities		53,856			94,523


Investing activities
Acquisition of fixed assets		(3,012	)		(1,452	)
Proceeds from the sale of fixed assets `		3			46
Proceeds from maturities of held-to-maturity securities		5,000			—

Net cash provided by (used in) investing activities		1,991			(1,406	)


Financing activities
Borrowings on revolving debt		96,000			85,000
Repayments of revolving debt		(96,000	)		(85,000	)
Repayments of capital lease		(153	)		—
Payments for deferred financing costs		(2,516	)		—

Net cash used in financing activities		(2,669	)		—

Increase in cash and cash equivalents		53,178			93,117
Cash and cash equivalents, beginning of period		13,730			15,395

Cash and cash equivalents, end of period	$	66,908		$	108,512

See accompanying Notes to Condensed Consolidated Financial Statements.

Harry & David Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(dollars in thousands)

(unaudited)

NOTE 1—BUSINESS

Harry & David Holdings, Inc. and subsidiaries (the “Company”) is a vertically integrated multi-channel specialty retailer and producer of branded premium gift-quality fruit, food products and gifts marketed under the Harry and David^®, Wolferman’s^®, and Cushman’s^® brands. The Company markets its products through catalogs distributed through the mail, the Internet, business-to-business, consumer telemarketing, stores, including Cushman’s and pop-up seasonal stores, and wholesale distribution to other retailers.

Sales of the Company’s products are subject to a variety of agricultural risks, fuel and energy price fluctuations, delivery rate increases, and extreme weather conditions, and are subject to regulation and inspection by various governmental agencies. Historically, the Company’s business has been subject to substantial seasonal variations in demand. A significant portion of the Company’s net sales and net earnings are realized during the holiday selling season from October through December, and levels of net sales and net earnings are significantly lower during the period from January to September. Accordingly, operating results will vary based on the timing of holidays and the ripening of seasonal fruits, which, if delayed, can cause delays in product shipments.

As a result of our operating performance in the second quarter of fiscal 2011, the Company does not satisfy the financial covenants under its revolving credit facility and will not be able to borrow funds under the facility unless it is amended or the covenant non-compliance is waived. Based on the Company’s current working capital and anticipated working capital requirements, the Company will not be able to continue to finance operations, including servicing its payment obligations under the Senior Notes, without securing new capital and restructuring its obligations. The Company has commenced preliminary discussions with its revolving credit lenders, bondholders, other creditors and owners in an effort to recapitalize. The Company has retained Rothschild Inc. and Alvarez & Marsal as financial advisors and Jones Day as legal advisor to explore recapitalization structures. The Company and its advisors are exploring all alternatives. There can be no assurance that our efforts to obtain new capital and restructure our obligations will be successful, and therefore, there is substantial doubt as to the Company’s ability to continue as a going concern.

NOTE 2—BASIS OF PRESENTATION

These financial statements include the consolidated results of the Company and its subsidiaries. The Condensed Consolidated Balance Sheets as of December 25, 2010 and December 26, 2009, the Condensed Consolidated Statements of Operations for the thirteen-week and the twenty-six week periods ended December 25, 2010 and December 26, 2009, and the Condensed Consolidated Statements of Cash Flows for the twenty-six week periods ended December 25, 2010 and December 26, 2009 have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and therefore do not include all of the information and footnotes required by accounting principles accepted in the United States for comparable annual financial statements. Our fiscal year ends the last Saturday in June, based on a 52/53 week year. Fiscal 2010 began on June 28, 2009 and ended on June 26, 2010. Fiscal 2011 began on June 27, 2010 and will end on June 25, 2011.

For further information, refer to the consolidated audited financial statements and the notes thereto for the year ended June 26, 2010, which are not included in this report.

In management’s opinion, the Condensed Consolidated Financial Statements include all adjustments, which include typically recurring adjustments, necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen-week periods then ended. Intercompany balances and transactions have been eliminated in consolidation. The Condensed Consolidated Balance Sheet as of June 26, 2010 presented in this Form 10-Q has been derived from the Company’s audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The results of operations for the interim periods presented are not necessarily indicative of results to be expected for other interim periods in the fiscal year. In the second quarter of each fiscal year, the Company realizes its highest sales for the fiscal year as such quarter includes the most significant holidays that drive the largest portion of the gift-giving component of the Company’s sales. It is also the period where the Company recognizes significant cost of goods sold and advertising expenses in connection with the increased sales.

The Company has revised amounts related to its income tax payable and deferred income tax liabilities recorded in the period ended December 26, 2009 on the condensed consolidated balance sheet with corresponding revision on its condensed consolidated statement of cash flows. For the second quarter of fiscal 2010, income tax payable was overstated by $8.7 million, current deferred tax liability was understated by $6.8 million and non-current deferred tax liability was understated by $1.9 million. The Company’s current deferred income taxes, current income tax payable and non-current deferred tax liability, as previously reported for the second quarter of fiscal 2010, as $3.1 million, $27.3 million and $850, respectively, and have been revised to $9.9 million, $18.6 million and $2.7 million, respectively, in the accompanying consolidated balance sheets.

The Company’s total comprehensive income for the thirteen weeks ended December 25, 2010 of $14,420 and total comprehensive loss for the twenty-six weeks ended December 25, 2010 of $3,487 includes unrealized net losses (net of tax) associated with its pension plans of $600 and $870, respectively. The Company’s total comprehensive income for the thirteen and twenty-six weeks ended December 26, 2009 of $31,923 and $10,388, respectively, includes an adjustment (net of tax) related to unrealized net losses associated with its pension plans of $204 and $393, respectively.

NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements (“ASU 2010-06”), which amends the disclosure guidance with respect to fair value measurements. Specifically, the new guidance requires disclosure of amounts transferred in and out of Levels 1 and 2 fair value measurements, a reconciliation presented on a gross basis rather than a net basis of activity in Level 3 fair value measurements, greater disaggregation of the assets and liabilities for which fair value measurements are presented and more robust disclosure of the valuation techniques and inputs used to measure Level 2 and 3 fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, with the exception of the new guidance around the Level 3 activity reconciliations, which is effective for fiscal years beginning after December 15, 2010. The adoption of the guidance required for interim and annual reporting periods after December 15, 2010 is not expected to have an impact on the Company’s consolidated financial statements.

In October 2009, the FASB issued FASB Accounting Standards Update 2009-13, Revenue Recognition (Topic 605)—Multiple-Deliverable Revenue Arrangements. FASB Accounting Standards Update 2009-13 addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Accounting Standards Codification (“ASC”) Subtopic 605-25, Revenue Recognition-Multiple-Element Arrangements, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. In addition, this guidance significantly expands required disclosures related to a vendor’s multiple-deliverable revenue arrangements. FASB Accounting Standards Update 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of Accounting Standards Update 2009-13 did not have a material impact on the condensed consolidated financial statements.

NOTE 4—BALANCE SHEET INFORMATION

Financial Instruments

The Company’s financial instruments consist principally of cash and cash equivalents, accounts receivable, accounts payable, certain accrued liabilities, capital lease obligations and the Senior Floating Rate Notes due March 1, 2012 and Senior Fixed Rate Notes due March 1, 2013. The estimated carrying value of these instruments (except for the Senior Notes as shown in the table below) approximates fair value due to their short-term maturities.

The fair values for cash and cash equivalents, short-term investments and the Senior Notes are measured using observable inputs such as quoted prices in active markets (Level 1) as defined within the fair value hierarchy prescribed by Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“ASC Topic 820”).

The following table provides the carrying value and fair value of the Company’s Senior Notes:


	December 25, 2010				December 26, 2009
	Book value		Fair value		Book value		Fair value
Senior Floating Rate Notes	$	58,170	$	41,882	$	58,170	$	39,119
Senior Fixed Rate Notes		140,192		99,536		140,192		96,032

Total Senior Notes	$	198,362	$	141,418	$	198,362	$	135,151

Inventories

Inventories consist of the following:


	December 25, 2010		June 26, 2010		December 26, 2009
Finished goods	$	24,816	$	15,611	$	20,674
Materials, packaging supplies and work-in-process		16,961		13,782		11,949
Growing crops		1,184		6,134		1,227

Total	$	42,961	$	35,527	$	33,850

Fixed assets

Fixed assets consist of the following:


	December 25, 2010			June 26, 2010			December 26, 2009
Land	$	19,607		$	19,607		$	19,607
Land improvements and orchard development costs		30,779			30,698			30,697
Buildings and improvements		58,880			58,674			58,610
Machinery and equipment		69,342			68,352			68,149
Leasehold improvements		9,766			9,908			10,352
Purchased and internally developed software		37,319			37,223			37,216
Capital projects-in-process		2,135			882			853

		227,828			225,344			225,484
Accumulated depreciation and amortization		(104,355	)		(96,953	)		(89,138	)

Total	$	123,473		$	128,391		$	136,346

As of December 25, 2010, purchased and internally developed software included software licenses acquired for $895 and financed through an outstanding capital lease agreement. See “Note 6 – Liquidity and Borrowing Arrangements.” Accumulated amortization of purchased and internally developed software costs was $25,828, $23,844 and $21,479 as of December 25, 2010, June 26, 2010 and December 26, 2009, respectively. Amortization of software costs, which include software assets financed through capital leases, were $1,021 and $1,243 for the thirteen weeks ended December 25, 2010 and December 26, 2009, respectively, and $2,043 and $2,516 for the twenty-six weeks ended December 25, 2010 and December 26, 2009, respectively.

During the second quarter of fiscal 2010, the Company completed an evaluation of certain underperforming stores and related fixed assets and certain other long-lived assets. As a result of that evaluation the Company recorded a non-cash impairment charge at December 26, 2009 of $699, all of which related to fixed assets. The impairment charge was recorded within selling, general and administrative expenses in the condensed consolidated statement of operations. The impairment amount was calculated by comparing the applicable stores net assets to fair value, which was based on a discounted cash flow model. In the second quarter of fiscal 2011, we completed an evaluation of certain underperforming stores and related fixed assets and certain other long-lived assets. As a result of our evaluation there was no impairment charge for stores during the second quarter of fiscal 2011.

Additionally, in the second quarter of fiscal 2010, the Company negotiated lease buy-outs for two of its stores and recognized $200 of termination costs, and in December 2009, the Company exercised its termination option related to its Eugene, Oregon call center lease and accrued the contractual amounts due of $78. As a result of the lease termination, fixed assets were reviewed for impairment and a charge of $231 was recorded in the thirteen weeks ended December 26, 2009. All accrued balances associated with the lease buy-outs and lease termination were fully paid by the end of fiscal 2010.

Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite lives are tested for impairment annually. Historically, the annual impairment testing has occurred during the fourth quarter of each fiscal year. The Company reviews goodwill and other intangible assets for impairment on an interim basis should factors or indicators become apparent that their carrying amount may not be recoverable. The Company completed its annual impairment assessment in fiscal 2010 and concluded that goodwill and other intangible assets were not impaired.

In the second quarter of fiscal 2011, due to unfavorable revenue and operating income results compared to expectations attributable to the Company’s Harry and David and Wolferman’s brands, we performed the interim impairment tests specific to the Harry and David trade name and the Wolferman’s trade name, recipe and goodwill. A substantial portion of the revenue and operating income from Cushman’s occurs in the third quarter of our fiscal year. We determined that the quarter and year-to-date results of Cushman’s did not represent a triggering event and therefore, we did not perform an interim test of Cushman’s trade name, recipe and goodwill during the second quarter of 2011. Our analysis compared the estimated fair value to the related carrying value. As a result of our interim test, we concluded that the carrying amounts of the Harry and David trade name and Wolferman’s recipe exceeded their fair value, and an impairment loss was recorded. The Company recorded the impairment charges of $4,448 related to the Harry and David trade name and $565 related to the Wolferman’s recipe within selling, general and administrative expenses in the period ended December 25, 2010. Wolferman’s trade name and goodwill were not impaired as of December 25, 2010.

No impairment charges related to the goodwill and other intangible assets were recorded in prior fiscal year comparable periods.

The following table represents activity for goodwill and other intangible assets for the twenty-six weeks ended December 25, 2010.


	Goodwill		Indefinite-Lived Intangibles			Definite-Lived Intangibles			Total
Net balance as of June 26, 2010	$	12,236	$	32,139		$	237		$	44,612
Impairment charges		—		(5,013	)		—			(5,013	)
Amortization expense		—		—			(103	)		(103	)

Net balance as of December 25, 2010	$	12,236	$	27,126		$	134		$	39,496

Amortization expense was $87 and $395 for the thirteen weeks ended December 25, 2010 and December 26, 2009, respectively, and $103 and $441 for the twenty-six weeks ended December 25, 2010 and December 26, 2009, respectively, and was included within selling, general and administrative expenses in the accompanying condensed consolidated statements of operations.

The following is a summary of intangible assets:


	December 25, 2010										June 26, 2010
	Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment Losses			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Accumulated Impairment Losses			Net Carrying Amount
Trade names, trademarks and recipe	$	41,658	$	—		$	(14,532	)	$	27,126	$	41,658	$	—		$	(9,519	)	$	32,139
Goodwill		12,922		—			(686	)		12,236		12,922		—			(686	)		12,236
Direct marketing customer and rental lists		9,249		(9,150	)		—			99		9,249		(9,068	)		—			181
Favorable lease agreements		1,676		(1,641	)		—			35		1,676		(1,620	)		—			56

	$	65,505	$	(10,791	)	$	(15,218	)	$	39,496	$	65,505	$	(10,688	)	$	(10,205	)	$	44,612

The estimated remaining amortization expense is as follows:


Fiscal Period:	Direct Marketing Customer and Rental Lists		Favorable Lease Agreements		Total Amortization Expense
Remaining 2011		60		14		74
2012		39		21		60

Total	$	99	$	35	$	134

Impairment Testing and Assumptions

The impairment testing results related to our indefinite-lived intangible assets, our goodwill and long-lived assets were calculated using management’s estimates of future cash flows to be generated from the respective assets or reporting units and a discount rate inherent within the Company’s cost of capital. The nature of these analyses requires significant judgment by management about future operating results, including revenues, gross margins, operating expenses, applicable discount and royalty rates. While management believes the assumption used are appropriate based on future expectations regarding revenue, operating income and growth, such assumptions have been developed in a highly uncertain environment in light of our recent financial performance and near term cash requirements. If the Company had used different assumptions and estimates regarding future operating results and discount and royalty rate, the impairment charges we recognized this quarter might have been materially different. However, management believes that the assumptions and estimates are reasonable and represent the most likely future operating results based upon the current information available. The Company classifies the inputs used in these measurements as Level 3 within the fair value hierarchy prescribed by ASC Topic 820.

NOTE 5—INCOME TAXES

$134. For the second quarter of fiscal 2010, the difference in the effective rate and the federal statutory rate is primarily due to a valuation allowance adjustment of $9,042, relating to certain deferred tax assets, and state tax obligations of $821.

The Company routinely reviews the future realization of deferred tax assets based on projected future reversals of taxable temporary differences, available tax planning strategies and projected future taxable income. As of December 25, 2010, the Company has a full valuation allowance against deferred tax assets based on our assessment of whether the realization of these assets is more likely than not. The nature of these analyses requires significant judgment by management about future operating results, including revenues, margins and operating expenses.

NOTE 6—LIQUIDITY AND BORROWING ARRANGEMENTS

Liquidity

At December 25, 2010, the Company had a cash balance of $66,908 and accounts payable of $57,935, compared to a cash balance of $108,512 and accounts payable of $32,506 at December 26, 2009. Based on our results of operations during the fiscal 2011 key holiday selling season, the Company failed to meet the required minimum fixed coverage charge ratio as of December 31, 2010. Accordingly, the Company will not be able to borrow funds under the facility unless it is amended or the covenant non-compliance is waived. There can be no assurance that the facility will be amended or that the financial covenant non-compliance will be waived.

Based on the Company’s current working capital and anticipated working capital requirements, the Company will not be able to continue to finance operations, including servicing its payment obligations under the Senior Notes, without securing new capital and restructuring its obligations. The Company has commenced preliminary discussions with its revolving credit lenders, bondholders, other creditors and owners in an effort to recapitalize. There can be no assurance that our efforts to obtain capital and restructure our obligations will be successful, and therefore, there are substantial doubts as to the Company’s ability to continue as a going concern.

Revolving Credit Facilities

On July 7, 2010, Harry and David entered into a third amendment to its revolving credit agreement. The amendment, among other things, (A) extended the maturity date of the revolving credit agreement from March 20, 2011 to the earliest to occur of (i) July 7, 2014, (ii) 45 days prior to the final maturity date of Harry and David’s Floating Rate Senior Notes due 2012 (unless such notes are paid in full prior to such date) and (iii) 45 days prior to the final maturity date of Harry and David’s 9.0% Senior Notes due 2013 (unless such notes are paid in full prior to such date) and (B) reduced the size of the facility from $125,000 to $105,000 (subject to an accordion feature providing Harry and David with an option to increase the aggregate commitments under the revolving credit agreement by up to $20,000, upon satisfaction of certain conditions and at the sole discretion of any existing lenders requested to provide any increased commitment), (C) increased certain fees payable under the revolving credit agreement and (D) increased the margins on borrowings under the revolving credit agreement, (i) in the case of Eurodollar borrowings, from a range of 1.50% to 2.00% to a range of 3.25% to 3.50% and (ii) in the case of Alternate Base Rate borrowings, from a range of .50% to 1.00% to a range of 2.25% to 2.50% and changed the basis for determining the applicable margin from the method based on the Company’s consolidated leverage ratio to a usage-based method tied to the level of borrowings and letters of credit under the revolving credit facility. In connection with entering into the third amendment, the Company incurred deferred financing costs of $2,516. In accordance with ASC Topic 470-50-55-2-Debt Modifications and Extinguishments, $250 of unamortized deferred costs associated with creditors not participating in the new amendment were written off during the first quarter of fiscal 2011 and recorded in interest expense in the condensed consolidated statement of operations. The remaining portion of unamortized expenses have been combined with the new financing costs and will be amortized through January 15, 2012, the date of the first possible maturity of the revolving credit agreement. The Company had total unamortized deferred financing costs related to its revolving credit facility of $2,188, $929 and $1,551 as of December 25, 2010, June 26, 2010 and December 26, 2009, respectively. If the revolving credit facility terminates we will have to write off all of the remaining unamortized deferred financing costs related to that facility, which at December 25, 2010 amounted to $2,188.

As of December 25, 2010, under the revolving credit facility there was $891 in outstanding letters of credit. The maximum available borrowing, were it available, under the Credit Agreement is determined in accordance with an asset-based debt limitation formula. We are required to pay a commitment fee to each lender equal to (i) 0.75% per annum on the average daily unused amount of the commitment of such lender for each day on which usage is greater than 60% or (ii) 1.00% per annum on the average daily unused amount of each commitment of such lender for each day on which usage is less than or equal to 60%. The commitment fees are payable on the last day of each calendar year quarter and the associated expense is included within interest expense in the condensed consolidated statement of operations. Although the facility is not available we continue to accrue the commitment fees.

The revolving credit facility contains customary affirmative and negative covenants for senior secured credit facilities of this type, including, but not limited to, limitations on the incurrence of indebtedness, capital expenditures, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates. These covenants significantly limit the Company’s ability to obtain funds from its subsidiaries in the form of loans, dividends or other advances other than dividends paid to the Company by Harry and David for the purpose of paying (i) income taxes when and as due, (ii) management fees payable to

Wasserstein under the management agreement or (iii) operating expenses incurred in the ordinary course of business and other corporate overhead costs and expenses (including legal and accounting expenses and similar expenses and customary fees to non-officer directors in an amount not to exceed $350 in any fiscal year).

Long-Term Debt

As of December 25, 2010, the Company’s wholly-owned subsidiary, Harry and David, had outstanding $58,170 in Senior Floating Rate Notes due March 1, 2012 and $140,192 of Senior Fixed Rate Notes due March 1, 2013.

The floating rate Senior Notes accrue interest at a rate per annum equal to LIBOR plus 5%, calculated and paid quarterly. The interest rate was set at 5.30% and 5.54% at December 25, 2010 and June 26, 2010, respectively. The fixed rate Senior Notes accrue interest at an annual fixed rate of 9.0%, with semiannual interest payments due on the first day of March and September.

The deferred financing fees incurred in connection with the Senior Notes offerings and related exchanges have been recorded as deferred financing costs within long-term assets. The remaining costs are amortized over the remaining life of the associated Senior Notes and as of December 25, 2010 and June 26, 2010, $2,110 and $2,674, respectively, remained on the balance sheet for all fees associated with the Senior Notes.

The Senior Notes represent the senior unsecured obligations of Harry and David, a wholly-owned subsidiary of Harry & David Holdings, Inc., and are guaranteed on a senior unsecured basis by Harry & David Holdings, Inc. and all of the Company’s subsidiaries. The indenture governing the Senior Notes contains various restrictive covenants including, but not limited to, limitations on the incurrence of indebtedness, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates. The Company was in compliance with all of the covenants contained in the indenture governing the Senior Notes as of December 25, 2010.

Amortization of Deferred Financing Costs

Amortization expense of deferred financing costs was $798 and $593 for the thirteen weeks ended December 25, 2010 and December 26, 2009, respectively, and $1,821 and $1,186 for the twenty-six weeks ended December 25, 2010 and December 26, 2009, respectively, and is included within interest expense in the accompanying condensed consolidated statements of operations. Amortization expense recorded in the first quarter of fiscal 2011 included $250 of unamortized deferred costs that were written off in association with entering into the third amendment to the revolving credit facility.

If the revolving credit facility is terminated, we will have to write off all of the remaining unamortized deferred financing costs related to that facility, which at December 25, 2010 amounted to $2,188.

Capital lease obligation

In the fourth quarter of fiscal 2008, the Company acquired a software license for $895, financed by a capital lease agreement. The interest rate on the agreement is 5.99% due in two annual installments of principal and interest. The current portion of the remaining obligation in the condensed consolidated balance sheet as of December 25, 2010, was $156.

NOTE 7—STOCK OPTION PLAN

The Company accounts for stock-based compensation using the fair-value method. The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses certain assumptions for use in the model. The expected volatility assumption is based on an average historical volatility of the publicly traded stock of a representative set of comparable companies. The expected term assumption is either the final vesting date or a period derived from the time between the date of final vesting and the expiration of the option, depending on the vesting provisions of the underlying grant. The risk-free rate for the expected term is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions used for the options granted during the thirteen and twenty-six week periods ended December 25, 2010 and December 26, 2009 are as follows:


	Thirteen Weeks ended						Twenty-Six Weeks ended
	December 25, 2010			December 26, 2009			December 25, 2010			December 26, 2009
Expected volatility		75.8	%		59.0	%		75.6	%		57.0	%
Expected dividends		0			0			0			0
Expected term		3.0 years			2.56 years			3.0 years			2.74 years
Risk-free rate		0.64	%		1.44	%		0.75	%		1.62	%

A summary of option activity for the thirteen weeks ended December 25, 2010 is presented below:


Options	Option Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term
Outstanding at June 26, 2010		242,010		$	223.46		9.3 years
Granted		13,620			150.00		—
Exercised		—			—		—
Forfeited		(11,972	)		149.31		—

Outstanding at December 25, 2010		243,658		$	221.54		8.9 years

Exercisable at December 25, 2010		208,223		$	235.33		8.9 years

The total grant date fair value of all options outstanding at December 25, 2010 was $12,500.

A summary of the status of the Company’s nonvested option shares as of December 25, 2010, is presented below:


Nonvested Option Shares	Option Shares			Weighted-Average Grant-Date Fair Value of Options
Nonvested at June 26, 2010		27,464		$	60.00
Granted options		13,620		$	64.44
Vested		(482	)	$	11.50
Forfeited		(5,167	)	$	54.53

Outstanding at December 25, 2010		35,435		$	60.91

For the thirteen and twenty-six week periods ended December 25, 2010, the Company recognized stock compensation expense of $286 and $496, respectively and the total tax benefit recognized for these periods was $112 and $195, respectively. For the thirteen and twenty-six week periods ended December 26, 2009, the Company recognized stock compensation expense of $112 and $171, respectively and the total tax benefit recognized for these periods was $43 and $66, respectively. The Company amortizes the estimated fair value over the vesting period. As of December 25, 2010, there was $1,671 of total unrecognized pre-tax compensation cost related to nonvested share-based compensation arrangements granted under the Plan that will be recognized over the remaining vesting period. The weighted-average period of the remaining cost is 1.9 years.

The Company utilized a forfeiture rate of 0% when arriving at the amount of stock compensation expense recognized, as the options were granted to few individuals with relatively short or immediate vesting.

NOTE 8—BENEFIT PROGRAMS

Pension Plans

The components of net periodic pension expense for the Company’s qualified and excess defined benefit pension plans are as follows:


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	December 25, 2010			December 26, 2009			December 25, 2010			December 26, 2009
Interest cost	$	625		$	661		$	1,251		$	1,322
Expected return on plan assets		(285	)		(234	)		(570	)		(469	)
Amortization of deferred actuarial losses		425			333			850			645

Net periodic pension expense	$	765		$	760		$	1,531		$	1,498

The Company contributed $482 and $825 during the thirteen weeks ended December 25, 2010 and December 26, 2009, respectively, and $2,967 and $1,017 during the twenty-six weeks ended December 25, 2010 and December 26, 2009, respectively, to its defined benefit pension plans. The Company’s qualified and unqualified defined benefit plans were frozen effective June 30, 2007. The Company has a continuing obligation to fund these plans and will continue to recognize net periodic pension expense.

Severances

During fiscal 2010, the Company accrued $7,425 for estimated severance and related benefits, of which $999 and $886 was recorded in the thirteen and twenty-six week periods ended December 26, 2009, respectively. The severance and related benefits were associated with elimination of certain full-time positions across the Company as well as the termination of certain other employees and executives. In the thirteen and twenty-six week periods ended December 25, 2010, the Company recorded additional charges of $206 and $653, as well as adjusted previously accrued amounts of $7 and $583 respectively.

The following table summarizes the Company’s severance related activities for the thirteen weeks ended December 25, 2010:


Beginning balance as of June 26, 2010	$	4,802
Accruals for severance and related benefits		653
Payments of benefits		(3,688	)
Adjustments/reversals		(583	)

Ending balance as of December 25, 2010	$	1,184

NOTE 9—COMMITMENTS AND CONTINGENCIES

In an effort to manage its liquidity relative to its anticipated needs, the Company is seeking to adjust prices and payment terms with third party providers. In some cases, payment obligations to third party providers have become delinquent. In the event that we are unable to negotiate an acceptable resolution with these providers, we expect that legal proceedings may be commenced against us and the outcome of these proceedings could have a material and adverse effect on the Company.

The Company is a party to a variety of agreements pursuant to which it may be obligated to indemnify another party from losses arising in connection with the Company’s products or services. The Company also enters into indemnification provisions under its agreements with other companies in the ordinary course of business, typically with its contractors, customers and landlords. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions generally survive termination of the underlying agreement. In addition, the Company has entered into indemnification agreements with certain of its officers and directors that indemnify such persons for certain liabilities they may incur in connection with their services as an officer or director, and the Company has agreed to indemnify certain investors for certain liabilities they may incur in connection with the sale of the Senior Notes to the initial purchasers and the 2005 exchange offer relating to the Senior Notes. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is generally unlimited. As the Company believes that the occurrence of any events that would trigger payments under these contracts is remote, no liabilities have been recorded in the consolidated financial statements for these indemnifications.

The Company’s food and horticultural products are subject to regulation and inspection by various governmental agencies, and involve the risk of injury to consumers. As such, the Company may be required to recall some of its products. The Company maintains product liability insurance in an amount that it believes is adequate to cover the costs associated with these recalls.

The Company leases certain properties consisting primarily of retail stores, seasonal pop-up stores, distribution centers, and equipment with original terms ranging primarily from 3 to 10 years and up to 22 years. Certain leases contain renewal options; generally for five year periods, with rent payments during the lease term dependent on the defined percent increase or increases based on certain indexes, in each case as defined within the individual lease agreements. In accordance with ASC Topic 840 “Leases”, for leases that contain fixed escalations of the minimum annual lease payment during the original term of the lease and other lease incentives, the Company recognizes rental expense on a straight-line basis over the lease term and records the difference between rent expense and the amount that is payable as deferred rent. In addition to minimum rental payments, certain of the Company’s retail store leases require the Company to make contingent rental payments, which are typically structured as either minimum rent plus additional rent based on a percentage of store sales if a specified store sales threshold is exceeded, or rent based on a negotiated threshold of sales after which a percent of sales is paid to the landlord. Such contingent rental expense is accrued in each reporting period if achievement of any factor is considered probable. Extra payments such as common area maintenance and property taxes are also required on certain leases.

Total rental expense for all operating leases was as follows:


	Thirteen Weeks ended				Twenty-Six Weeks ended
	December 25, 2010		December 26, 2009		December 25, 2010		December 26, 2009
Minimum rent expense	$	8,112	$	7,744	$	12,918	$	13,035
Contingent rent expense		93		58		101		85

Total rent expense	$	8,205	$	7,802	$	13,019	$	13,120

On February 18, 2005, the Company established a Liquidity Event Award Program for each member of its senior management team who had received stock options under the 2004 Stock Option Plan as of that date. The aggregate amount of all potential awards to senior management is equal to $6,372 or 7.5% of the portion of the proceeds from the sale of notes, which were distributed on February 25, 2005 to the Company’s equity sponsors as a return of capital. The amount of each award, as a percentage of all awards, is proportional to the percentage of all of the options such member was awarded as of February 18, 2005. The right to receive 20% of the award vested on June 17, 2005, an additional 20% of the award vested on June 17, 2006, and 5% vested in the next twelve quarters.

The awards are 100% vested, representing $6,034, which also reflects forfeitures. In each case, vesting occurred as long as the award recipient was an employee of Harry & David Holdings, Inc. or its affiliates on the vesting date. Award recipients will not be entitled to receive any vested portion of their awards unless by June 17, 2011: (i) a change of control (as so defined) occurs; (ii) the aggregate net sales proceeds in such change of control plus certain other distributions received by the Company’s equity sponsors exceeds a certain level; (iii) the Company has available cash, or if applicable, non-cash consideration equal to the aggregate of all awards; and (iv) certain other conditions are met. Distributions in respect of the awards will be payable in cash or, in some circumstances, the non-cash consideration received in the change of control either at the time of the change of control or, in some circumstances, at a later specified date. As of December 25, 2010, the Company has concluded that it is not obligated to accrue a liability or recognize any expense for the Liquidity Event Award Program.

NOTE 10—RELATED PARTY TRANSACTIONS

The Company has entered into an agreement with its principal shareholders, Wasserstein and Highfields, for financial management, consulting, and advisory services. The Company has agreed to pay fees of $1,000 annually (excluding out-of-pocket reimbursements) under this agreement. The fees are accrued to the extent that they are not paid in any such period. During both the thirteen weeks ended December 25, 2010 and December 26, 2009 the Company paid $250 and during both the twenty-six weeks ended December 25, 2010 and December 26, 2009, the Company paid $500 in connection with this agreement. These amounts were charged to selling, general and administrative expenses – related party.

NOTE 11—SEGMENT REPORTING

Performance of business units is evaluated considering revenue growth achieved and potential profitability, contribution to other units and capital investment requirements. Reportable segments are strategic business units that offer similar products and are managed separately because the business units utilize distinct marketing strategies. The accounting policies of the segments, where applicable, are the same as those described in the summary of significant accounting policies in the Company’s Annual Report on Form 10-K.

The Direct Marketing segment generates net sales of premium gift-quality fruit, gourmet food products and gifts under the Harry & David^®, Wolferman’s^® and Cushman’s^® brands by marketing through catalogs, the Internet, business-to-business and consumer telemarketing operations. The Company’s catalogs reach customers throughout the United States and, to a lesser extent, in Canada. The Stores segment generates net sales of Harry & David^®, Wolferman’s^® and Cushman’s^® merchandise at various retail locations (outlet stores, specialty stores, seasonal pop-up stores, and a Country Village Store). As of December 25, 2010, the Company operated 122 Harry and David stores in 38 states and 16 seasonal pop-up stores. The Wholesale segment generates net sales by selling Harry & David^® brand, Wolferman’s^® brand and Cushman’s^® brand wholesale products to national retailers as well as commercial sales of surplus, non-gift quality fruit grown in the Company’s orchards surrounding Medford, Oregon. Business units that support the Company’s operations, including orchards, product supply, distribution, customer operations, facilities, information technology services and administrative and marketing support functions are grouped in the “Other” segment.

Net intersegment sales were $15,831 and $19,117 for the thirteen weeks ended December 25, 2010 and December 26, 2009, respectively, and $21,743 and $33,457 for the twenty-six weeks ended December 25, 2010 and December 26, 2009, respectively. Total assets in the “Other” segment include corporate cash and cash equivalents, the net book value of corporate facilities and related information systems, third-party debt and other corporate long-lived assets, including the Company’s manufacturing and distribution facilities.


Dollars in thousands	Direct Marketing		Stores		Wholesale		Other			Consolidated
Thirteen weeks ended December 25, 2010
Net external sales	$	193,359	$	56,083	$	12,686	$	—		$	262,128
Depreciation and amortization expense		87		580		—		3,301			3,968
Operating income		19,652		5,326		1,166		11			26,155
Net interest expense		1		—		—		5,544			5,545
Income (loss) before income taxes		19,654		5,326		1,166		(5,509	)		20,637
Capital expenditures		—		715		—		1,185			1,900
Goodwill		10,827		—		1,409		—			12,236
Total assets		65,030		28,329		8,033		202,901			304,293
Thirteen weeks ended December 26, 2009
Net external sales	$	194,466	$	56,780	$	15,786	$	—		$	267,032
Depreciation and amortization expense		386		712		—		3,800			4,898
Operating income		48,358		10,074		1,161		—			59,593
Net interest expense		—		—		—		4,891			4,891
Income (loss) before income taxes		48,638		10,105		1,170		(4,865	)		55,048
Capital expenditures		14		74		—		871			959
Goodwill		10,827		—		1,409		—			12,236
Total assets		67,928		26,588		7,354		250,856			352,726
Twenty-six weeks ended December 25, 2010
Net external sales	$	211,432	$	75,560	$	15,576	$	—		$	302,568
Depreciation and amortization expense		98		1,161		3		6,609			7,871
Operating income (loss)		4,335		225		1,678		8			6,246
Net interest expense		1		—		—		10,867			10,868
Income (loss) before income taxes		4,337		225		1,678		(10,809	)		(4,569	)
Capital expenditures		—		992		—		2,020			3,012
Goodwill		10,827		—		1,409		—			12,236
Total assets		65,030		28,329		8,033		202,901			304,293
Twenty-six weeks ended December 26, 2009
Net external sales	$	214,138	$	77,697	$	21,461	$	—		$	313,296
Depreciation and amortization expense		420		1,510		—		7,624			9,554
Operating income		36,126		4,604		1,492		—			42,222
Net interest expense		—		—		—		9,587			9,587
Income (loss) before income taxes		36,407		4,633		1,500		(9,536	)		33,004
Capital expenditures		14		296		—		1,142			1,452
Goodwill		10,827		—		1,409		—			12,236
Total assets		67,928		26,588		7,354		250,856			352,726

NOTE 12—CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The Company’s wholly-owned subsidiary, Harry and David, has outstanding $58,170 of Senior Floating Rate Notes due 2012 and $140,192 of Senior Fixed Rate Notes due 2013 as of December 25, 2010. The following consolidated financial information presents, in separate columns, financial information for (i) the Company (on a parent-only basis) with its investment in its subsidiaries recorded under the equity method, (ii) Harry and David under the equity method, (iii) Harry & David Holdings, Inc.’s (guarantor) subsidiaries of the Company that guarantee the Senior Notes on a combined basis, (iv) the eliminations and reclassifications necessary to arrive at the information for the Company and its subsidiaries on a consolidated basis, and (v) the Company on a consolidated basis, as of December 25, 2010, and June 26, 2010, and for the thirteen and twenty-six weeks ended December 25, 2010 and December 26, 2009, respectively. The Senior Notes are fully and unconditionally guaranteed on a joint and several basis by the Company and each of its existing and future domestic restricted subsidiaries, which are 100% owned, directly or indirectly, by the Company within the meaning of Rule 3-10 of Regulation S-X. There are no non-guarantor subsidiaries. The Senior Notes place certain restrictions on the payment of dividends, other payments or distributions by Harry and David and between the guarantors.

Condensed Consolidating Balance Sheet

As of December 25, 2010


	Harry & David Holdings, Inc. (Parent-Only)			Harry and David			Guarantor Subsidiaries			Eliminations and Reclassifications			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	123		$	66,785		$	—		$	—		$	66,908
Trade accounts receivable, net		—			10,469			235			—			10,704
Other receivables		—			815			1,678			—			2,493
Inventories		—			27,068			15,893			—			42,961
Deferred catalog expenses		—			4,402			—			—			4,402
Deferred income taxes		2,060			—			—			—			2,060
Other current assets		2			2,224			3,166			—			5,392

Total current assets		2,185			111,763			20,972			—			134,920
Fixed assets, net		—			5,924			117,549			—			123,473
Goodwill		—			12,236			—			—			12,236
Intangibles, net		—			27,260			—			—			27,260
Investment in subsidiaries		101,437			(87,398	)		—			(14,039	)		—
Deferred financing costs, net		—			4,298			—			—			4,298
Other assets		2,032			46			28			—			2,106

Total assets	$	105,654		$	74,129		$	138,549		$	(14,039	)	$	304,293

Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	—		$	38,070		$	19,865		$	—		$	57,935
Accrued payroll and benefits		—			6,490			5,836			—			12,326
Income taxes payable		2,292			(94	)		(9	)		—			2,189
Deferred revenue		—			31,542			—			—			31,542
Accrued interest		—			4,466			5			—			4,471
Other accrued liabilities		16			10,367			1,340			—			11,723
Current portion of capital lease obligations		—			156			—			—			156
Revolving credit facility		—			—			—			—			—

Total current liabilities		2,308			90,997			27,037			—			120,342
Long-term debt		—			198,362			—			—			198,362
Accrued pension liability		—			—			27,744			—			27,744
Deferred income taxes		5,329			—			—			—			5,329
Other long-term liabilities		3,856			3,052			2,144			—			9,052
Intercompany debt		150,697			(319,719	)		169,022			—			—

Total liabilities		162,190			(27,308	)		225,947			—			360,829

Stockholders’ equity (deficit):
Common stock		10			1			—			(1	)		10
Additional paid-in capital		17,558			232,591			53,784			(286,375	)		17,558
Accumulated other comprehensive loss, net of tax		(11,849	)		—			(17,286	)		17,286			(11,849	)
Accumulated deficit		(62,255	)		(131,155	)		(123,896	)		255,051			(62,255	)

Total stockholders’ equity (deficit)		(56,536	)		101,437			(87,398	)		(14,039	)		(56,536	)

Total liabilities and stockholders’ equity (deficit)	$	105,654		$	74,129		$	138,549		$	(14,039	)	$	304,293

Condensed Consolidating Balance Sheet

As of June 26, 2010


	Harry & David Holdings, Inc. (Parent-Only)			Harry and David			Guarantor Subsidiaries			Eliminations and Reclassifications			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	123		$	13,607		$	—		$	—		$	13,730
Short-term investments		—			—			4,999			—			4,999
Trade accounts receivable, net		—			832			104			—			936
Other receivables		—			296			538			—			834
Inventories		—			15,368			20,159			—			35,527
Deferred catalog expenses		—			2,286			—			—			2,286
Deferred income taxes		2,173			—			—			—			2,173
Other current assets		—			1,322			2,432			—			3,754

Total current assets		2,296			33,711			28,232			—			64,239
Fixed assets, net		—			5,985			122,406			—			128,391
Goodwill		—			12,236			—			—			12,236
Intangibles, net		—			32,376			—			—			32,376
Investment in subsidiaries		105,183			(88,263	)		—			(16,920	)		—
Deferred financing costs, net		—			3,603			—			—			3,603
Other assets		1,985			55			329			—			2,369

Total assets	$	109,464		$	(297	)	$	150,967		$	(16,920	)	$	243,214

Liabilities and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	—		$	7,127		$	7,956		$	—		$	15,083
Accrued payroll and benefits		—			6,869			7,804			—			14,673
Income taxes payable		1,963			(94	)		(9	)		—			1,860
Deferred revenue		—			14,014			—			—			14,014
Accrued interest		—			4,426			—			—			4,426
Other accrued liabilities		—			1,352			1,842			—			3,194
Current portion of capital lease obligations		—			309			—			—			309

Total current liabilities		1,963			34,003			17,593			—			53,559
Long-term debt		—			198,362			—			—			198,362
Accrued pension liability		—			—			29,851			—			29,851
Deferred income taxes		5,116			—			—			—			5,116
Other long-term liabilities		3,911			3,866			2,094			—			9,871
Intercompany debt		152,019			(341,711	)		189,692			—			—

Total liabilities		163,009			(105,480	)		239,230			—			296,759

Stockholders’ equity (deficit):
Common stock		10			1			—			(1	)		10
Additional paid-in capital		17,062			232,591			53,783			(286,374	)		17,062
Accumulated other comprehensive loss, net of tax		(12,719	)		—			(18,156	)		18,156			(12,719	)
Accumulated deficit		(57,898	)		(127,409	)		(123,890	)		251,299			(57,898	)

Total stockholders’ equity (deficit)		(53,545	)		105,183			(88,263	)		(16,920	)		(53,545	)

Total liabilities and stockholders’ equity (deficit)	$	109,464		$	(297	)	$	150,967		$	(16,920	)	$	243,214

Condensed Consolidating Statement of Operations

For the Thirteen Weeks Ended December 25, 2010


	Harry & David Holdings, Inc. (Parent-Only)			Harry and David			Guarantor Subsidiaries			Eliminations and Reclassifications			Consolidated
Net sales	$	—		$	262,433		$	15,526		$	(15,831	)	$	262,128
Cost of goods sold		—			158,284			15,518			(15,831	)		157,971

Gross profit		—			104,149			8			—			104,157
Selling, general and administrative		—			78,005			(3	)		—			78,002

Operating income		—			26,144			11			—			26,155

Other income (expense):
Interest income		—			—			—			—			—
Interest expense		—			(5,537	)		(8	)		—			(5,545	)
Other income (expense), net		24			3			—			—			27
Equity in earnings of consolidated subsidiaries		20,613			3			—			(20,616	)		—

Total other income (expense)		20,637			(5,531	)		(8	)		(20,616	)		(5,518	)

Income (loss) before income taxes		20,637			20,613			3			(20,616	)		20,637
Provision for income taxes		(6,817	)		—			—			—			(6,817	)

Net income (loss)		13,820			20,613			3			(20,616	)		13,820

Condensed Consolidating Statement of Operations

For the Thirteen Weeks Ended December 26, 2009


	Harry & David Holdings, Inc. (Parent-Only)			Harry and David			Guarantor Subsidiaries			Eliminations and Reclassifications			Consolidated
Net sales	$	—		$	267,427		$	18,722		$	(19,117	)	$	267,032
Cost of goods sold		—			136,216			18,718			(19,117	)		135,817

Gross profit		—			131,211			4			—			131,215
Selling, general and administrative		—			71,618			4			—			71,622

Operating income		—			59,593			—			—			59,593

Other income (expense):
Interest income		11			—			3			—			14
Interest expense		—			(4,892	)		(13	)		—			(4,905	)
Other income (expense), net		25			321			—			—			346
Equity in earnings of consolidated subsidiaries		55,012			(10	)		—			(55,002	)		—

Total other income (expense)		55,048			(4,581	)		(10	)		(55,002	)		(4,545	)

Income (loss) before income taxes		55,048			55,012			(10	)		(55,002	)		55,048
Provision for income taxes		(23,329	)		—			—			—			(23,329	)

Net income (loss)		31,719			55,012			(10	)		(55,002	)		31,719

Condensed Consolidating Statement of Operations

For the Twenty-Six Weeks Ended December 25, 2010


	Harry & David Holdings, Inc. (Parent-Only)			Harry and David			Guarantor Subsidiaries			Eliminations and Reclassifications			Consolidated
Net sales	$	—		$	302,954		$	21,357		$	(21,743	)	$	302,568
Cost of goods sold		—			186,596			21,356			(21,743	)		186,209

Gross profit		—			116,358			1			—			116,359
Selling, general and administrative		—			110,120			(7	)		—			110,113

Operating income		—			6,238			8			—			6,246

Other income (expense):
Interest income		—			—			—			—			—
Interest expense		—			(10,854	)		(14	)		—			(10,868	)
Other income (expense), net		49			4			—			—			53
Equity in earnings of consolidated subsidiaries		(4,618	)		(6	)		—			4,624			—

Total other income (expense)		(4,569	)		(10,856	)		(14	)		4,624			(10,815	)

Income (loss) before income taxes		(4,569	)		(4,618	)		(6	)		4,624			(4,569	)
Benefit for income taxes		212			—			—			—			212

Net income (loss)		(4,357	)		(4,618	)		(6	)		4,624			(4,357	)

Condensed Consolidating Statement of Operations

For the Twenty-Six Weeks Ended December 26, 2009


	Harry & David Holdings, Inc. (Parent-Only)			Harry and David			Guarantor Subsidiaries			Eliminations and Reclassifications			Consolidated
Net sales	$	—		$	313,959		$	32,794		$	(33,457	)	$	313,296
Cost of goods sold		—			166,511			32,804			(33,457	)		165,858

Gross profit		—			147,448			(10	)		—			147,438
Selling, general and administrative		—			105,226			(10	)		—			105,216

Operating income		—			42,222			—			—			42,222

Other income (expense):
Interest income		11			—			6			—			17
Interest expense		—			(9,596	)		(8	)		—			(9,604	)
Other income (expense), net		50			319			—			—			369
Equity in earnings of consolidated subsidiaries		32,943			(2	)		—			(32,941	)		—

Total other income (expense)		33,004			(9,279	)		(2	)		(32,941	)		(9,218	)

Income (loss) before income taxes		33,004			32,943			(2	)		(32,941	)		33,004
Provision for income taxes		(23,009	)		—			—			—			(23,009	)

Net income (loss)		9,995			32,943			(2	)		(32,941	)		9,995

Condensed Consolidating Statement of Cash Flows

For the Twenty-Six Weeks Ended December 25, 2010


	Harry & David Holdings, Inc. (Parent-Only)			Harry and David			Guarantor Subsidiaries			Eliminations and Reclassifications		Consolidated
Operating activities
Net cash provided by operating activities	$	1,324		$	35,090		$	17,442		$	—	$	53,856

Investing activities
Acquisition of fixed assets		—			(1,236	)		(1,776	)		—		(3,012	)
Proceeds from the sale of fixed assets		—			—			3			—		3
Proceeds from maturities of held-to-maturity securities		—			—			5,000			—		5,000

Net cash provided by (used in) investing activities		—			(1,236	)		3,227			—		1,991

Financing activities
Borrowings of revolving debt		—			96,000			—			—		96,000
Repayments of revolving debt		—			(96,000	)		—			—		(96,000	)
Repayments of capital lease obligation		—			(153	)		—			—		(153	)
Payments for deferred financing costs		—			(2,516	)		—			—		(2,516	)
Net (payments) receipts on intercompany debt		(1,324	)		21,993			(20,669	)		—		—

Net cash provided by (used in) financing activities		(1,324	)		19,324			(20,669	)		—		(2,669	)

Increase in cash and cash equivalents		—			53,178			—			—		53,178
Cash and cash equivalents, beginning of period		123			13,607			—			—		13,730

Cash and cash equivalents, end of period	$	123		$	66,785		$	—		$	—	$	66,908

Condensed Consolidating Statement of Cash Flows

For the Twenty-Six Weeks Ended December 26, 2009


	Harry & David Holdings, Inc. (Parent-Only)			Harry and David			Guarantor Subsidiaries			Eliminations and Reclassifications		Consolidated
Operating activities
Net cash provided by operating activities	$	1,305		$	72,605		$	20,613		$	—	$	94,523

Investing activities
Acquisition of fixed assets		—			(309	)		(1,143	)		—		(1,452	)
Proceeds from the sale of fixed assets		—			—			46			—		46

Net cash used in investing activities		—			(309	)		(1,097	)		—		(1,406	)

Financing activities
Borrowings of revolving debt		—			85,000			—			—		85,000
Repayments of revolving debt		—			(85,000	)		—			—		(85,000	)
Net (payments) receipts on intercompany debt		(1,305	)		20,821			(19,516	)		—		—

Net cash provided by (used in) financing activities		(1,305	)		20,821			(19,516	)		—		—

Increase (decrease) in cash and cash equivalents		—			93,117			—			—		93,117
Cash and cash equivalents, beginning of period		51			15,344			—			—		15,395

Cash and cash equivalents, end of period	$	51		$	108,461		$	—		$	—	$	108,512

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions that, if they do not fully materialize or prove incorrect, could cause our business and results of operations to differ materially from those expressed or implied by such forward-looking statements. Such forward-looking statements include, without limitation, projections of earnings, revenues or financial items, statements relating to our capital resources and recapitalization efforts, statements of the plans, strategies and objectives of management for future operations, statements related to the future performance and growth potential of our brands, statements related to litigation matters, statements related to introducing new core and seasonal merchandise assortments, statements related to reducing returns, replacements and damages, statements related to new marketing initiatives and expanding electronic direct marketing initiatives, statements related to transportation costs, statements related to costs and availability of raw materials, statements related to macroeconomic and retail trends, statements related to our plans to open new retail stores, statements related to implementing new e-commerce functionality, statements related to future comparable store sales, statements related to our income tax provision and effective tax rate, statements related to government regulation, statements related to the use of our available cash, statements related to our projected capital expenditures, statements related to the impact of new accounting pronouncements, statements related to the impact of acquisitions, statements related to indemnifications under our agreements, and statements of belief and statements of assumptions underlying any of the foregoing. You can identify these and other forward-looking statements by the use of words such as “will,” “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue,” or the negative of such terms, or other comparable terminology.

Risk factors that may affect our results include risks relating to our results of operations and capital resources and recapitalization efforts, risks relating to the unavailability of our revolving credit facility, including that the lender may terminate it or decline to amend it or waive the covenant noncompliance, risks relating to our ability to secure new capital and restructure our obligations, risks relating to payment delinquencies relating to third party providers and related potential litigation, risks relating to our ability to maintain our relationships with existing third party providers and find suitable replacement providers as necessary, risks relating to market demand for our products, the seasonality of our business, production capabilities, relationships with customers and suppliers, implementation of our business and marketing strategies, competition, fluctuations in energy and other commodity costs, financial leverage, postal rate increases, loss of key management, disruptions in IT, increase in labor costs and the availability of a seasonal workforce and changes in federal and state tax laws, potential effect of extreme weather and pests on crops, government regulation by the Food and Drug Administration (“FDA”) and the United States Department of Agriculture (“USDA”), protection of intellectual property, compliance with environmental regulations and natural disasters, terrorism and acts of war, as well as the other risks included in the Risk Factors set forth in Item 1A of Harry and David’s Annual Report on Form 10-K for the fiscal year ended June 26, 2010, the risks identified in Item 1A of this Quarterly Report or Form 10-K, and those risks which may be described from time to time in Harry and David’s other filings with the Securities and Exchange Commission.

You should keep in mind that any forward-looking statement made by us in this Form 10-Q speaks only as of the date on which we make it. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this Form 10-Q after the date of this Form 10-Q, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this Form 10-Q or elsewhere might not occur.

As used in this Item 2 and all of Part II, except as the context requires otherwise, reference to “us,” “we,” “our” and “our company” refer to Harry & David Holdings, Inc. and its subsidiaries on a consolidated basis. Dollars presented in this Item 2 are in thousands.

OVERVIEW

General

We are a multi-channel specialty retailer and producer of branded premium gift-quality fruit and gourmet food products and other gifts, which are marketed under the Harry & David^®, Wolferman’s^® and Cushman’s^® brands. We market our products through multiple channels, including direct marketing (via catalog, phone, Internet, mail/fax and telemarketing), business-to-business, our stores, including Cushman’s and pop-up seasonal stores, and wholesale distribution through select retailers.

MATTERS AFFECTING COMPARABILITY

A portion of our Direct Marketing sales are derived from Fruit-of-the-Month Club^® product shipments. As such, results in this segment may vary between periods due to variations in fruit availability year-to-year, as well as other factors.

RESULTS OF OPERATIONS

Despite making product improvements, introducing new packaging, accelerating marketing initiatives, enhancing Harry & David’s website and taking cost-reduction actions, our operating results for the second quarter were disappointing. While we were successful in attracting new customers, growing our core business and increasing our website orders, sales were below our expectations, and we were forced to offer significant discounts late in the holiday selling period. Significant discounting of our products negatively impacted our gross margin percentage and gross profit, which resulted in a significantly lower cash balance as of December 25, 2010. For further details on our liquidity and ability to continue to finance operations, see the discussion under “Liquidity and Capital Resources” below.

NET SALES

The following table summarizes net sales by reportable business segment for the periods indicated (dollars are in thousands).


	Thirteen Weeks Ended										Twenty-Six Weeks Ended
	December 25, 2010		Percent of Total			December 26, 2009		Percent of Total			December 25, 2010		Percent of Total			December 26, 2009		Percent of Total
Direct Marketing	$	193,359		73.8	%	$	194,466		72.8	%	$	211,432		69.9	%	$	214,138		68.4	%
Stores		56,083		21.4	%		56,780		21.3	%		75,560		25.0	%		77,697		24.8	%
Wholesale		12,686		4.8	%		15,786		5.9	%		15,576		5.1	%		21,461		6.8	%

Total net sales	$	262,128		100.0	%	$	267,032		100.0	%	$	302,568		100.0	%	$	313,296		100.0	%

Net sales of $262,128 for the thirteen weeks ended December 25, 2010, decreased $4,904, or 1.8%, from the thirteen weeks ended December 26, 2009. The decline was primarily attributable to lower sales volume in our Wholesale segment combined with higher discounts and markdowns in our Direct Marketing segment. The decline was partially offset by higher order volume in the Direct Marketing segment.

Net sales of $302,568 for the twenty-six weeks ended December 25, 2010, decreased $10,728, or 3.4%, from the twenty-six weeks ended December 26, 2009. The decline was attributable to the same factors mentioned above for the thirteen-week period.

Direct Marketing

Net sales in our Direct Marketing segment decreased $1,107, or 0.6%, from the thirteen weeks ended December 26, 2009 to the thirteen weeks ended December 25, 2010. The decline was primarily driven by increased markdowns and discounts, partially offset by increased order volumes. The volume of orders increased 2.2%, although the average sales per order fell by 2.8%.

Net sales in our Direct Marketing segment decreased $2,706, or 1.3%, from the twenty-six weeks ended December 26, 2009 to the twenty-six weeks ended December 25, 2010. The decline was attributable to the same factors mentioned above for the thirteen-week period. In the twenty-six week period, volume of orders increased 2.7%, although the average sales per order fell by 2.9%.

Stores

Our Stores segment net sales decreased $697, or 1.2%, from the thirteen weeks ended December 26, 2009 to the thirteen weeks ended December 25, 2010. The total sales decrease was primarily driven by higher markdowns and fewer comparable stores, partially offset by the impact of our new seasonal pop-up stores and a sales increase of 3%, or approximately $1,527, in our comparable stores.

Our Stores segment net sales decreased $2,137, or 2.8%, from the twenty-six weeks ended December 26, 2009 to the twenty-six weeks ended December 25, 2010. The decrease was primarily attributable to the same factors mentioned above for the thirteen-week period. On a comparable store basis, sales increased 2%, or approximately $1,441, during the twenty-six week period.

As of December 25, 2010, we had 122 regular stores in operation compared to 136 stores in operation as of December 26, 2009. Not included in the store counts are our seasonal pop-up stores. During the second quarter of fiscal 2011, as part of new marketing initiatives, we opened 17 seasonal pop-up stores, 16 of which were still in operation as of December 25, 2010. We did not have pop-up stores in the prior fiscal year comparable period.

A store becomes comparable in the first fiscal month after it has been open for a full twelve fiscal months, at which point its results are included in comparable sales comparisons. When a store’s square footage has been changed as a result of reconfiguration or relocation in the same mall or retail complex, the store continues to be treated as a comparable store. However, when a store is closed for an extended period of time, it is no longer treated as a comparable store and is excluded from comparable sales comparisons for that period.

Wholesale

Our Wholesale segment net sales declined $3,100, or 19.6%, from the thirteen weeks ended December 26, 2009 to the thirteen weeks ended December 25, 2010. The decline was primarily due to lower sales to certain wholesale customers.

Our Wholesale segment net sales declined $5,885, or 27.4%, from the twenty-six weeks ended December 26, 2009 to the twenty-six weeks ended December 25, 2010. The decline was primarily due to the same factors mentioned above.

GROSS PROFIT

The following table summarizes gross profit by reportable business segment and gross profit as a percentage of consolidated and segment net sales for the periods indicated (dollars are in thousands).


	Thirteen Weeks Ended										Twenty-Six Weeks Ended
	December 25, 2010		Percent of Net Sales			December 26, 2009		Percent of Net Sales			December 25, 2010		Percent of Net Sales			December 26, 2009		Percent of Net Sales
Direct Marketing	$	76,051		39.3	%	$	99,470		51.2	%	$	77,480		36.6	%	$	104,292		48.7	%
Stores		25,854		46.1	%		28,912		50.9	%		35,266		46.7	%		38,952		50.1	%
Wholesale		2,252		17.8	%		2,833		17.9	%		3,613		23.2	%		4,194		19.5	%

Total gross profit	$	104,157		39.7	%	$	131,215		49.1	%	$	116,359		38.5	%	$	147,438		47.1	%

Gross profit decreased $27,058, or 20.6%, to $104,157 in the thirteen weeks ended December 25, 2010, from $131,215 in the thirteen weeks ended December 26, 2009. Consolidated gross profit as a percentage of consolidated net sales 39.7% in the thirteen-week period ended December 25, 2010, and 49.1% in the thirteen-week period ended December 26, 2009. The decreases in gross profit and gross margin were primarily due to higher markdowns and discounts, lower average selling prices and higher product costs.

Gross profit decreased $31,079, or 21.1%, to $116,359 in the twenty-six weeks ended December 25, 2010, from $147,438 in the twenty-six weeks ended December 26, 2009. Consolidated gross profit as a percentage of consolidated net sales was 38.5% in the twenty-six week period ended December 25, 2010, and 47.1% in the twenty-six week period ended December 26, 2009. The decreases in gross profit and gross margin were primarily due to the same factors mentioned above.

Direct Marketing

Our Direct Marketing segment gross profit decreased $23,419, or 23.5%, with gross margin declining to 39.3% in the thirteen weeks ended December 25, 2010 from 51.2% in the thirteen weeks ended December 26, 2009. The gross profit and gross margin decreases were primarily due to higher markdowns and discounts, lower average retail prices, and higher product costs.

Our Direct Marketing segment gross profit decreased $26,812, or 25.7%, with gross margin declining to 36.6% in the twenty-six weeks ended December 25, 2010 from 48.7% in the twenty-six weeks ended December 26, 2009. The gross profit and gross margin declines were primarily due to the same factors discussed above for the thirteen-week period.

Stores

Our Stores segment gross profit decreased $3,058, or 10.6%, in the thirteen weeks ended December 25, 2010, with gross margin declining to 46.1%% in the twenty-six weeks ended December 25, 2010 from 50.9% in the twenty-six weeks ended December 26, 2009. The gross profit and gross margin declines were primarily due to higher markdowns and discounts combined with higher product costs.

Our Stores segment gross profit decreased $3,686, or 9.5%, with gross margin declining to 46.7% in the twenty-six weeks ended December 25, 2010 from 50.1% in the twenty-six weeks ended December 26, 2009. The gross profit and margin declines were primarily due to the same factors discussed above for the thirteen-week period.

Wholesale

Our Wholesale segment gross profit decreased $581, or 20.5%, in the thirteen weeks ended December 25, 2010, with gross margin declining to 17.8% in the thirteen weeks ended December 25, 2010 from 17.9% in the thirteen weeks ended December 26, 2009. The declines in gross profit and margin were primarily due to lower sales volume.

Our Wholesale segment gross profit decreased $581, or 13.9%, and gross margin decreased to 23.2% in the twenty-six weeks ended December 25, 2010 from 19.5% in the twenty-six weeks ended December 26, 2009. The declines in gross profit and margin were attributable to the same factor as described above.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

The following table summarizes selling, general and administrative expenses by reportable business segment and as a percentage of net sales for the periods indicated (dollars are in thousands).


	Thirteen Weeks Ended										Twenty-Six Weeks Ended
	December 25, 2010		Percent of Net Sales			December 26, 2009		Percent of Net Sales			December 25, 2010		Percent of Net Sales			December 26, 2009		Percent of Net Sales
Direct Marketing	$	56,399		29.2	%	$	51,112		26.3	%	$	73,146		34.6	%	$	68,166		31.8	%
Stores		20,611		36.8	%		18,838		33.2	%		35,123		46.5	%		34,348		44.2	%
Wholesale		992		7.8	%		1,672		10.6	%		1,844		11.8	%		2,702		12.6	%

Total selling, general, and administrative expenses	$	78,002		29.8	%	$	71,622		26.8	%	$	110,113		36.4	%	$	105,216		33.6	%

Selling, general and administrative expenses increased $6,381, or 8.9%, in the thirteen weeks ended December 25, 2010 from the thirteen weeks ended December 26, 2009. The increase was primarily due to the trade name impairment charge of $5,013 combined with increased outside services spending as a result of outsourcing certain functions.

Selling, general and administrative expenses increased $4,898, or 4.7%, in the twenty-six weeks ended December 25, 2010 from the twenty-six weeks ended December 26, 2009. The increase was driven primarily by the factors discussed above.

OTHER INCOME (EXPENSE)

Other income (expense) consists of interest and other non-operating income (expense). The following table summarizes other income (expense) for the periods indicated (dollars in thousands).


	Thirteen Weeks ended						Twenty-Six Weeks ended
	December 25, 2010			December 26, 2009			December 25, 2010			December 26, 2009
Net interest expense	$	(5,545	)	$	(4,891	)	$	(10,868	)	$	(9,587	)
Other income (expense), net		27			346			53			369

Total other income (expense)	$	(5,518	)	$	(4,545	)	$	(10,815	)	$	(9,218	)

The increase in interest expense in both the thirteen and twenty-six week periods ended December 25, 2010 was primarily associated with increased interest rates and a higher level of seasonal borrowings under our revolving credit facility, offset by lower interest on our Senior Floating Rate Notes.

INCOME TAXES

For interim financial reporting purposes, tax expense or benefit is calculated based on the estimated effective tax rate, adjusted to give effect to anticipated permanent differences. The effective tax rates for the second quarter of fiscal 2011 and fiscal 2010 were 33.0% and 42.4%, respectively. For the second quarter of fiscal 2011, the difference in the effective rate and the federal statutory rate is primarily due to a valuation allowance adjustment expense of $17,594, relating to certain deferred tax assets and state tax expense of $134. For the second quarter of fiscal 2010, the difference in the effective rate and the federal statutory rate is primarily due to a valuation allowance adjustment of $9,042, relating to certain deferred tax assets, and state tax obligations of $821.

We routinely review the future realization of deferred tax assets based on projected future reversal of taxable temporary differences, available tax planning strategies and projected future taxable income. As of December 25, 2010, we have a full valuation allowance against deferred tax assets based on our assessment of whether the realization of these assets is more likely than not. The nature of these analyses requires significant judgment by management about future operating results, including revenues, margins and operating expenses.

EBITDA

EBITDA is defined as earnings before net interest expense, income taxes, depreciation, and amortization. Our EBITDA for the thirteen-week period ended December 25, 2010 decreased $42,059, primarily due to the increase in the operating loss as a result of the factors discussed above.

For an explanation of why management believes EBITDA is a useful measure for understanding our results of operations, see “Non-GAAP Financial Measure: EBITDA” below. The following table reconciles EBITDA to net cash provided by operating activities, which we believe to be the closest GAAP liquidity measure to EBITDA, and net income, which we believe to be the closest GAAP performance measure to EBITDA (dollars are in thousands).


	Thirteen Weeks Ended						Twenty-Six Weeks Ended
	December 25, 2010			December 26, 2009			December 25, 2010			December 26, 2009
Net income (loss)	$	13,820		$	31,719		$	(4,357	)	$	9,995
Interest expense, net		5,545			4,891			10,868			9,587
Provision (benefit) for income taxes		6,817			23,329			(212	)		23,009
Depreciation and amortization		3,968			4,898			7,871			9,554

EBITDA from continuing operations	$	30,150		$	64,837		$	14,170		$	52,145
Interest expense, net		(5,545	)		(4,891	)		(10,868	)		(9,587	)
Benefit (provision) for income taxes		(6,817	)		(23,329	)		212			(23,009	)
Amortization of deferred financing costs		798			593			1,821			1,186
Stock option compensation expense		286			112			496			171
Loss on disposal and impairment of fixed assets and other long-lived assets		5,071			883			5,172			899
Gain on sale of short-term investments		—			—			(1	)		—
Deferred income taxes		7,484			11,796			326			19,111
Amortization of deferred pension loss		425			333			850			645
Changes in operating assets and liabilities		89,700			104,149			41,678			52,962

Net cash provided by operating activities	$	121,552		$	154,483		$	53,856		$	94,523

In the thirteen-week period ended December 25, 2010, net income and EBITDA included:

•

$5,071 loss on disposal and impairment of fixed assets and other long-lived assets;

•

$443 gain on insurance premium refund from prior years;

•

$322 of consulting fees associated with certain corporate initiatives and information technology projects;

•

$286 of non-cash stock option compensation expenses;

•

$250 of fees paid to Wasserstein and Highfields under the management agreement;

•

$199 in severance and re-organization payroll and benefits; and

•

$24 gain related to uncertain tax positions.

In the thirteen-week period ended December 26, 2009, net income and EBITDA included:

•

$999 in severance and re-organization payroll and benefits;

•

$883 loss on disposal and impairment of fixed assets and other long-lived assets, net;

•

$285 gain on legal settlement;

•

$278 related to store closure expenses and lease termination costs for our Eugene, Oregon call center;

•

$250 of fees paid to Wasserstein and Highfields under the management agreement;

•

$225 of consulting fees associated with certain corporate initiatives and information technology projects;

•

$110 of state net worth tax adjustments; and

•

$25 gain related to uncertain tax positions.

In the twenty-six week period ended December 25, 2010, net loss and EBITDA included:

•

$5,172 loss on disposal and impairment of fixed assets and other long-lived assets;

•

$500 of fees paid to Wasserstein and Highfields under the management agreement;

•

$500 of consulting fees associated with certain corporate initiatives and information technology projects;

•

$496 of non-cash stock option compensation expenses;

•

$443 gain on insurance premium refund from prior years;

•

$70 in severance and re-organization payroll and benefits; and

•

$48 gain related to uncertain tax positions.

In the twenty-six week period ended December 26, 2009, net income and EBITDA included:

•

$899 loss on disposal and impairment of fixed assets and other long-lived assets, net;

•

$886 in severance and re-organization payroll and benefit expenses;

•

$500 of fees paid to Wasserstein and Highfields under the management agreement;

•

$421 of consulting fees associated with certain corporate initiatives and information technology projects;

•

$285 gain on legal settlement;

•

$278 related to store closure expenses and lease termination costs for our Eugene, Oregon call center;

•

$110 of state net worth tax adjustments;

•

$89 in approved recruiting and relocation expenses; and

•

$50 gain related to uncertain tax positions.

LIQUIDITY AND CAPITAL RESOURCES

General

Our primary liquidity and capital resource needs are to service our debt, finance working capital and make capital expenditures. Historically, our primary sources of liquidity were cash, cash equivalents and available unused borrowings under our revolving credit facility. As of December 25, 2010, the revolving credit borrowings were fully repaid, and we had $891 in outstanding letters of credit. As further discussed below, we were unable to maintain a sufficient available cash balance at December 31, 2010 and to maintain a minimum fixed charge coverage ratio under our $105 million revolving credit facility and, as a result, we will not be able to borrow under the facility unless it is amended or the financial covenant non-compliance is waived. There can be no assurance that the facility will be amended or that the financial covenant non-compliance will be waived.

Based on our current working capital and anticipated working capital requirements, we will not be able to finance continuing operations including servicing its payment obligations under the Senior Notes, without securing new capital and restructuring our obligations. There can be no assurance that our efforts to obtain new capital and restructure our obligations will be successful; and therefore, there is substantial doubt as to our ability to continue as a going concern.

Revolving Credit Facility

Historically, our principal sources of liquidity have been available cash, cash flows from operations and borrowings under our revolving credit facility. In July 2010, we amended our credit facility to, among other things, (A) extend the maturity date from March 20, 2011 to the earliest to occur of (i) July 7, 2014, (ii) 45 days prior to the final maturity date of Harry and David’s Floating Rate Senior Notes due 2012 (unless such notes are paid in full prior to such date) and (iii) 45 days prior to the final maturity date of Harry and David’s 9.0% Senior Notes due 2013 (unless such notes are paid in full prior to such date), (B) reduce the size of the facility from $125,000 to $105,000 (subject to an accordion feature providing Harry and David with an option to increase the aggregate commitments under the Credit Agreement by up to $20,000, upon satisfaction of certain conditions and at the sole discretion of any existing lenders requested to provide any increased commitment), (C) increase certain fees payable under the revolving credit facility and (D) increase the margins on borrowings under the revolving credit facility, (i) in the case of Eurodollar borrowings, from a range of 1.50% to 2.00% to a range of 3.25% to 3.50% and (ii) in the case of Alternate Base Rate borrowings, from a range of .50% to 1.00% to a range of 2.25% to 2.50% and changed the basis for determining the applicable margin from the method based on our consolidated leverage ratio to a usage-based method tied to the level of borrowings and letters of credit under the revolving credit facility.

Due to the seasonal nature of our business, we have historically drawn on our revolving credit facility to provide seasonal working capital to support inventory buildup and catalog production in advance of the holiday selling season and for other general corporate purposes. We have historically generated substantial amounts of cash each holiday selling season. We are required by our banks to pay down the revolving credit facility to zero by the next business day following December 25th of each year. We always were able to meet this requirement, including fiscal year 2011. In addition, the revolving credit facility requires that, on a consolidated basis, we maintain as of December 31st each year an available cash balance (defined as all cash, cash equivalents and short-term investments,

minus all accounts payable) of at least $50,000, failing which we are required to meet and maintain a minimum fixed charge coverage ratio (as defined in the revolving credit facility), subject to certain conditions. At December 31, 2010, we had an available cash balance of $15,075 and failed to meet the required minimum fixed coverage charge ratio and, accordingly, we will not be able to borrow under the facility unless it is amended or the financial covenant non-compliance is waived. There can be no assurance that the facility will be amended or that the financial covenant non-compliance will be waived. Cash generated during the holiday selling season has historically been used to fund our operations for several months during the post-holiday selling season, until we begin to build inventories and other working capital components to support our next holiday selling season.

As of December 25, 2010, under the revolving credit facility there was $891 in outstanding letters of credit. We are required to pay a commitment fee to each lender equal to (i) 0.75% per annum on the average daily unused amount of the commitment of such lender for each day on which usage is greater than 60% or (ii) 1.00% per annum on the average daily unused amount of each commitment of such lender for each day on which usage is less than or equal to 60%. The commitment fees are payable on the last day of each calendar year quarter and the associated expense is included within interest expense in the condensed consolidated statement of operations. Although the facility is not available, we continue to accrue the commitment fees.

Harry and David’s obligations under the revolving credit facility are guaranteed by us and by all of Harry and David’s existing and future direct and indirect domestic subsidiaries and are secured by first-priority pledges of the stock of Harry and David and each of the subsidiary guarantors’ equity interests and 65% of the equity interests of any future first-tier foreign subsidiaries, as well as first-priority security interests in and mortgages on all of our, Harry and David’s and each of the subsidiary guarantors’ respective tangible and intangible property.

The revolving credit facility requires mandatory prepayments upon the receipt of proceeds from certain assets sales, casualty events and debt offerings. The revolving credit facility contains customary affirmative and negative covenants for senior secured credit facilities of this type, including, but not limited to, limitations on the incurrence of indebtedness, capital expenditures, asset dispositions, acquisitions, investments, dividends and other restricted payments, liens and transactions with affiliates.

Long-term Debt

As of December 25, 2010, Harry and David, our wholly owned subsidiary, had outstanding $58,170 in Senior Floating Rate Notes due March 1, 2012, and $140,192 of Senior Fixed Rate Notes due March 1, 2013 (collectively, the “Senior Notes”). The Senior Floating Rate Notes accrue interest at a rate per annum equal to LIBOR plus 5%, calculated and paid quarterly. The interest rate was set at 5.30% and 5.54% at December 25, 2010 and June 26, 2010, respectively. The Senior Fixed Rate Notes accrue interest at an annual fixed rate of 9.0%, with semiannual interest payments.

The Senior Notes are the senior unsecured obligations of Harry and David and are guaranteed on a senior unsecured basis by us and all of Harry and David’s subsidiaries.The indenture governing the Senior Notes contains various restrictive covenants including, but not limited to, limitations on the incurrence of indebtedness, engaging in asset dispositions or acquisitions, making investments, and our and our subsidiaries’ ability to pay dividends and other restricted payments as well as our ability to incur liens and transactions with affiliates. Our ability to comply with these covenants, as well as our ability to service our payment obligations under the Senior Notes, may be affected by events beyond our control, such as those described under “Item 1A. -Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 26, 2010 and “Item 2A.-Risk Factors” in this Quarterly Report on Form 10-Q. If we do not remain in compliance with these covenants and payment terms, we may not be able to borrow additional funds as necessary, and the holders of the Senior Notes and lenders under the credit facility could accelerate all amounts then outstanding to be immediately due and payable.

At December 25, 2010, we were in compliance with all of our covenants under the indenture. Our debt service requirements consist primarily of interest expense on the Senior Notes and on any current and future borrowings under our revolving credit facility. Our other short-term cash requirements are expected to consist mainly of cash to fund our operations, capital expenditures, cash payments under various operating leases and repayment of any borrowings under our revolving credit facility.

Certain funds are sponsored by Wasserstein Partners, LP, and its affiliates (“Wasserstein”) and certain funds are sponsored by Highfields Capital Management LP (“Highfields”) who currently own approximately 63% and 34%, respectively, of our common stock. Wasserstein and/or Highfields have purchased and may continue to purchase our outstanding Senior Notes in open market purchases, privately negotiated transactions or otherwise. Such purchases will depend on prevailing market conditions and other factors, and there can be no assurance as to when or whether any such purchases may occur. The amounts involved may be material.

Consolidated Cash Flows

Cash Flows Provided by Operating Activities

Cash provided by operating activities totaled $53,856 in the twenty-six-week period ended December 25, 2010, compared to $94,523 in the same period ended December 26, 2009. The decrease in operating cash flows was primarily driven by increased operating loss

as a result of disappointing operating results during the key holiday selling season. For further details on our key performance indicators, see the discussion on our operating results presented above.

Cash Flows Provided by (Used in) Investing Activities

Cash provided by investing activities totaled $1,991 for the twenty-six weeks ended December 25, 2010, compared to cash flows used in investing activities of $1,406 in the same period last year. Investing activities in the twenty-six weeks ended December 25, 2010 consisted of proceeds from matured investment securities, partially offset by capital expenditures. Investing activities in the twenty-six weeks ended December 26, 2009 consisted primarily of capital expenditures.

Cash Flows Used in Financing Activities

Cash used in financing activities totaled $2,669 for the twenty-six weeks ended December 25, 2010 and was primarily comprised of payments for financing fees associated with the renewal of our revolving credit facility.

Seasonality

Historically, our business has been subject to substantial seasonal variations in demand. A significant portion of our net sales and net earnings are realized during the holiday selling season from October through December, and levels of net sales and net earnings have generally been significantly lower during the period from January to September. We believe this is a general pattern for the direct-to-customer and retail industries, but it is more pronounced for our company than for others due to the gift-giving nature of our products.

Accordingly, changing economic conditions or deviations from projected demand for products during the holiday selling season (the fourth calendar quarter) can have a materially favorable or adverse impact on our financial position and results for the full year. Because we commit to certain fixed costs in anticipation of expected sales during the holiday selling season, if our actual sales during that calendar quarter are lower than anticipated, our profitability and cash flows will be negatively impacted. In addition, our primary growing season occurs during the second and third calendar quarters. Because we must commit to certain fixed costs before we know the results of a particular harvest, lower than expected harvest yields can also negatively impact our sales and profitability.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. The accompanying Condensed Consolidated Financial Statements are prepared using the same critical accounting policies discussed in our Annual Report on Form 10-K. The estimates and assumptions are evaluated on an ongoing basis and are based on historical experiences and various other factors that are believed to be reasonable under the circumstances. Actual results may differ significantly from these estimates.

During the second quarter of fiscal 2011, we performed an interim evaluation of potential impairment related to certain of our indefinite lived intangible assets, our goodwill and long-lived assets. Our tests were calculated using management’s estimates of future cash flows to be generated from the respective assets or reporting units and a discount rate inherent within the Company’s cost of capital. The nature of these analyses requires significant judgment by management about future operating results, including revenues, gross margins, operating expenses and applicable discount and royalty rates. While management believes the assumptions used are appropriate based on future expectations for revenue, operating income growth, such assumptions have been developed in an uncertain environment in light of our recent unfavorable operating results and near term cash requirements. The carrying value of our goodwill at December 25, 2010 is $12,236, including $6,818 for Wolferman’s and $5,418 for Cushman’s. Other than goodwill, the carrying value of our trade names, trademarks and recipes for Harry and David, Wolferman’s and Cushman’s at December 25, 2010 is $22,472, $3,466 and $1,188, respectively. In our impairment tests of goodwill and intangibles during the second quarter of fiscal 2011, we assumed that revenues and EBITDA performance will recover and in future years will be similar to historical levels. If the Company had used different assumptions and estimates regarding future expectations and discount and royalty rates, the results of our impairment testing during the second quarter of fiscal 2011 might have been materially different. In addition, if our near term actions to address our recent unfavorable operating results are not as successful as we expect or we are unable to fund our operations, our goodwill and intangibles may become impaired in during the remainder of fiscal 2011 or in future periods. The recognition of impairment of all or a significant portion of our goodwill and intangibles would negatively affect the Company’s reported results of operations and total capitalization, the effect of which could be material.

For details regarding recent accounting pronouncements, see “Note 3 – Recent Accounting Pronouncements and Developments” in the notes to our condensed consolidated financial statements included in this Form 10-Q.

NON-GAAP FINANCIAL MEASURE: EBITDA

Our measure of EBITDA is a non-GAAP financial measure.

EBITDA is defined as earnings before net interest expense, income taxes, depreciation and amortization and is computed on a consistent method from quarter to quarter and year to year.

We use EBITDA, in conjunction with GAAP measures such as cash flows from operating activities, cash flows from investing activities and cash flows from financing activities, to assess our liquidity, financial leverage and ability to service our outstanding debt. For example, certain covenant and compliance ratios under our revolving credit facility and the indenture governing the Senior Notes use EBITDA, as further adjusted for certain items as defined in each agreement. If we are not able to comply with these covenants, we may not be able to borrow additional amounts, incur more debt to finance our ongoing operations and working capital or take other actions. In addition, the lenders could accelerate the outstanding amounts, which could materially and adversely affect our liquidity and financial position.

We use EBITDA, in conjunction with the other GAAP measures discussed above, to assess our debt to cash flow leverage, to plan and forecast overall expectations and to evaluate actual results against such expectations; to assess our ability to service existing debt and incur new debt; and to measure the rate of capital expenditure and cash outlays from year to year and to assess our ability to fund future capital and non-capital projects. We believe that, like management, debt and equity investors frequently use (and expect to be able to continue to use) EBITDA to compare debt to cash flow leverage among companies.

EBITDA, when used as a liquidity measure, has limitations as an analytical tool. These limitations include:

•

EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

•

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

•

EBITDA is not a measure of discretionary cash available to us to pay down debt;

•

EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt; and

•

other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

To compensate for these limitations, we analyze EBITDA in conjunction with other GAAP financial measures impacting liquidity and cash flow, including depreciation and amortization, capital spending and net income in terms of the impact on depreciation and amortization, changes in net working capital, other non-operating income and losses that affect cash flow and liquidity, interest expense and taxes. Similarly, you should not consider EBITDA in isolation or as a substitute for these GAAP liquidity measures.

We also use EBITDA, in conjunction with GAAP measures such as operating income and net income, to assess our operating performance and that of each of our businesses and segments. Specifically, we use EBITDA, alongside the GAAP measures mentioned above, to measure profitability and profit margins and to make budgeting decisions relating to historical performance and future expectations of our operating segments and business as a whole, and to make performance comparisons of our company compared to other peer companies. We believe that, like management, debt and equity investors frequently use (and expect to be able to continue to use) EBITDA to assess our operating performance and compare it to that of other peer companies.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

We are exposed to certain market risks as part of our normal business operations, including risks from changes in interest rates and commodity prices, which could impact our financial condition, results of operations and cash flows. We plan to manage our exposure to these and other market risks through regular operating and financing activities and on a limited basis, the use of derivative financial instruments. We intend to use such derivative financial instruments as risk management tools and not for speculative investment purposes.

Interest Rate Risk

Interest on our floating rate Senior Notes and on our borrowings under the revolving credit facility accrues at variable rates based on factors such as LIBOR and the federal funds overnight rate. Assuming we were to borrow the entire $105 million under our revolving credit facility, were it available, together with the principal amount due for our floating rate Senior Notes as of December 25, 2010, a 1.0% change in the interest rate on our variable rate debt would result in a $1,632 corresponding effect on our interest expense on an annual basis.

Commodity Risk

We have commodity risk as a result of some of the raw materials we utilize in our business, including paper for our catalog operations, corrugated packaging for our shipping needs, chocolate, butter fat, sugar and cheese used to produce some of our products, and fruit that we do not grow ourselves. Although we do not enter into formal hedging arrangements to manage our commodity risk, we typically have multiple sources for these commodities.

ITEM 4.

CONTROLS AND PROCEDURES

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation examined those disclosure controls and procedures as of December 25, 2010. Based upon this evaluation, our management, including our Chief Executive Officer and our Chief Financial Officer, concluded that, as of December 25, 2010, our disclosure controls and procedures were effective to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

None.

ITEM 1A.

RISK FACTORS

Other than as set forth below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended June 26, 2010.

We are unable to borrow under our revolving credit facility. We will not be able to finance continuing operations without securing new capital and restructuring our debt obligations. Our difficulties may be exacerbated by problems resulting from our liquidity issues.

As a result of our operating performance in the second quarter of fiscal 2011, we do not satisfy the financial covenants under our revolving credit facility and, as a result, we are not able to borrow under the facility unless it is amended or the covenant non-compliance is waived. There is no assurance we will be able to successfully amend our credit facility or obtain a waiver from the covenant non-compliance. In order for us to satisfy our obligations, including our payment obligation under the Senior Notes, and to continue to operate, we will need to restructure our debt obligations and will need to obtain adequate financing on reasonable terms. If we are unsuccessful in this endeavor, we will not be able to continue as a going concern.

Difficulties arising from our stressed financial position may further exacerbate our problems. In an effort to manage our liquidity relative to our anticipated needs, we are seeking to adjust prices and payment terms with our third party providers. In some cases, payment obligations to third party providers have became delinquent. In the event that we are unable to negotiate an acceptable resolution with these providers, we expect that legal proceedings may be commenced against us, and the outcome of these proceedings could have a material and adverse effect on the Company. There can be no assurance that our third party providers will otherwise continue to do business with us as they previously have in the ordinary course. In the event that we need to find replacement third party providers, we may not be able to find suitable replacements providing services to us on comparable terms which may further adversely impact our operations.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.

[REMOVED AND RESERVED]

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS



31.1		Certification of Principal Executive Officer

31.2		Certification of Principal Financial Officer

32.1		Section 1350 Certification of Chief Executive Officer and Chief Financial Officer

SIGNATURES

The Company has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereto duly authorized.


HARRY & DAVID HOLDINGS, INC.

By:		/S/ STEVEN J. HEYER
		Steven J. Heyer
		Chairman of the Board and Chief Executive Officer

By:		/S/ EDWARD F. DUNLAP
		Edward F. Dunlap
		Chief Financial Officer

Date: February 8, 2011

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company