<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended June 30, 1996
----------------------------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from_________________________to____________________
Commission file Number 1-11806
-------------------------------------------------------
Ethan Allen Interiors Inc.; Ethan Allen Inc.; Ethan Allen Finance Corporation;
- ------------------------------------------------------------------------------
Ethan Allen Manufacturing Corporation
-------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1275288
- -------------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ethan Allen Drive, Danbury, CT 06811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 743-8000
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
---------------------------- ----------------------------
Common Stock, $.01 par value New York Stock Exchange, Inc.
8-3/4% Senior Notes due 2001 New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
- -------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[x]Yes [ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock, par value $.01 per share
held by non-affiliates (based upon the closing sale price on the New York
Stock Exchange) on August 28, 1996 was approximately $386,208,128. As of
August 28, 1996, there were 14,370,535 shares of Common Stock, par value
$.01 outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement for the 1996 Annual Shareholders Meeting
is incorporated by reference into Part III hereof.
<PAGE>
TABLE OF CONTENTS
Item Page
- ---- ------
PART I
1. Business 2
2. Properties 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
8. Financial Statements and Supplementary Data 18
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 39
PART III
10. Directors and Executive Officers of the Registrant 40
11. Executive Compensation 40
12. Security Ownership of Certain Beneficial Owners
and Management 40
13. Certain Relationships and Related Transactions 40
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 41
Signatures
PART I
------
Item 1. Business
- ----------------
Ethan Allen Inc. ("Ethan Allen") is a leading manufacturer and retailer
of quality home furnishings, offering a full range of furniture products
and accessories. Ethan Allen was founded in 1932 and has sold products
since 1937 under the Ethan Allen brand name. Ethan Allen Interiors Inc.
(the "Company") is a Delaware corporation, incorporated in 1989.
Industry Segments
The Company's operations are classified into two business segments:
wholesale and retail home furnishings. The wholesale home furnishings
segment is principally involved in the manufacture, sale and distribution
of home furnishing products to a network of independently-owned and Ethan
Allen-owned stores. The retail home furnishings segment sells home
furnishing products through a network of Ethan Allen-owned stores. These
products consist of case goods (wood furniture), upholstered products, and
home accessories. Refer to the information appearing in the section
captioned "Segment Information" in the Company's Financial Statements on
page 36.
Narrative Description of Business
Ethan Allen manufactures and distributes three principal product lines:
(i) case goods (wood furnishings), consisting primarily of bedroom and
dining room furniture, wall units and tables; (ii) upholstered products,
consisting primarily of sofas, loveseats, chairs, recliners and swivel
rockers; and (iii) home furnishing accessories including carpeting and area
rugs, lighting products, clocks, wall decor, bedding ensembles, draperies
and decorative accessories. The following table shows the approximate
percentage of wholesale sales of home furnishing products for each of these
product lines during the three most recent fiscal years:
Fiscal Year Ended June 30:
--------------------------
1996 1995 1994
---- ---- ----
Case Goods 58% 60% 61%
Upholstered
Products 30 28 28
Home Furnishing
Accessories 12 12 11
---- ---- ----
100% 100% 100%
==== ==== ====
Ethan Allen's product strategy has been to expand its home furnishings
collections to appeal to a broader consumer base while providing good
quality and value. Ethan Allen continuously monitors consumer demands
through marketing research and through consultation with its dealers and
gallery designers who provide valuable input on consumer tastes and needs.
As a result, the Company is able to react quickly to changing consumer
tastes and has added eight major new home furnishing collections in the
past five years. In addition, Ethan Allen continuously refines and
enhances each collection by adding new pieces and, as appropriate,
discontinuing or redesigning pieces. This allows the Company to maintain
focused lines within each style category which enhances efficiencies. In
fiscal 1996, a new formal collection, Regents Park, and a new classic
elegance collection, British Classics, were introduced.
Current products are positioned in terms of selection, quality and value
within what management believes are the four most important style
categories in home furnishings today: Formal, American Country, Casual
Contemporary, and Classic Elegance.
Ethan Allen's products are grouped into collections within these four
style categories. Each collection includes case goods, upholstered
products and accessories, each styled with distinct design characteristics.
Accessories, including lighting, floor covering, wall decor, draperies and
textiles, play an important role in Ethan Allen's marketing program as this
enables Ethan Allen to provide a complete home furnishings collection.
Ethan Allen's showcase gallery concept allows for the display of these
categories in complete room settings which utilize the related collections
to project the category lifestyle.
The following is a summary of Ethan Allen's major categories of home
furnishing collections:
<TABLE>
<CAPTION>
PRINCIPAL
STYLE HOME FURNISHING CASE GOOD YEAR OF
CATEGORY CHARACTERISTICS COLLECTIONS WOOD TYPE INTRODUCTION
- --------- --------------- --------------- --------- ------------
<S> <C> <C> <C> <C>
Formal An opulent style, Georgian Court Cherry 1965
which includes Medallion Cherry 1990
English 18th 18th Century Mahogany 1987
Century and 19th Regents Park Cherry 1995
Century Neo-Classic
styling.
American Updated country Farmhouse Pine Pine 1988
Country style. Country Crossings Maple 1993
Country Colors Maple 1995
Casual This style is American Impressions Cherry 1992
Contemporary based on classic American Dimensions Maple 1992
contemporary Radius Prima 1994
design elements. Vera
Classic A relaxed yet Country French Birch 1984
Elegance sophisticated mix Collectors Classics Various Various
of furnishings Legacy Collection Maple 1992
inspired by British Classics Maple 1995
designs found in
the countryside of
Europe.
</TABLE>
Ethan Allen Gallery Network
Ethan Allen Galleries. Ethan Allen's products are sold by a network of
288 Ethan Allen galleries which exclusively sell Ethan Allen's products.
Home Furniture Today (a leading industry publication) published a survey of
America's top 100 furniture retailers for 1995, which ranked Ethan Allen's
gallery network as the largest furniture retail network in the United
States utilizing the gallery retailing concept. As of June 30, 1996, Ethan
Allen owned and operated 60 North American galleries and independent
dealers owned and operated 217 North American galleries and 11 galleries
are located abroad. The Company closed 14 smaller under-performing
Japanese dealer-owned stores in 1996, and replaced them with 3 much larger
high volume dealer-owned stores in significant markets in and around Tokyo.
In the past six years, Ethan Allen has opened over 100 new stores, many of
them relocations. Sales to independent dealer-owned stores accounted for
approximately 65% of total net sales of the Company in fiscal 1996. The
ten largest independent dealers own a total of 19 galleries, which
accounted for approximately 22% of net orders booked in fiscal 1996.
Ethan Allen desires to maintain independent ownership of most of its
retail galleries and has an active program to identify and develop new
independent dealers. Independent dealers are required to enter into
license agreements with Ethan Allen authorizing the use of certain Ethan
Allen service marks and requiring adherence to certain standards of
operation. These standards include the exclusive sale of Ethan Allen
products. Additionally, dealers are required to enter into warranty
service agreements. Ethan Allen is not subject to any territorial or
exclusive dealer agreements in the United States.
Showcase Gallery Concept. Each independent and Ethan Allen-owned
gallery employs a consistent showcase gallery concept wherein products are
displayed in complete room ensembles, which include furnishings, wall
decor, window treatments, floor coverings, accents and accessories.
Management believes that the gallery concept results in higher sales of
Ethan Allen products by encouraging the consumer to purchase a complete
home collection, including case goods, upholstery and accessories, and by
providing for a high level of service. The average size of an Ethan Allen
gallery is 15,000 square feet.
Ethan Allen maximizes uniformity of gallery presentation throughout
the gallery network through uniform standards of operation. These
standards of operation help each gallery present the same high quality
image and offer retail customers consistent levels of product selection and
service. The galleries are staffed with a sales force consisting of
approximately 2,500 trained designers, who assist customers at no
additional charge in decorating their homes. Ethan Allen believes this
design service gives it an unusual competitive advantage over other
furniture retailers.
In 1992, Ethan Allen instituted a new image and logo program.
Additionally, Ethan Allen has undertaken a program to have the exterior and
interior presentation of all galleries updated. As of June 30, 1996, 218
stores or 76% of all stores (including dealer-owned and Ethan Allen-owned
stores) have either implemented new exteriors or are under renovation.
Ethan Allen also provides display planning assistance to dealers to assist
them in updating the interior projection of their galleries.
Ethan Allen recognizes the importance of the gallery network to its
long-term success and has developed and maintains a close ongoing
relationship with its dealers. Ethan Allen offers substantial services to
the Ethan Allen galleries in support of their marketing efforts, including
coordinated national advertising, merchandising and display programs, and
extensive dealer training seminars and educational materials. Ethan Allen
believes that the development of designers, sales managers, service and
delivery personnel and dealers is important for the growth of its business.
Ethan Allen has, therefore, committed to offer to all dealers a
comprehensive training program that will help to develop retail
managers/owners, designers and service and delivery personnel to their
fullest potential. Ethan Allen has offered dealers various assistance
programs, including long-term financial assistance in connection with the
financing of their inventory, the opening of new galleries and the
renovation of galleries in accordance with Ethan Allen's new image and logo
program.
Advertising and Promotion
Ethan Allen has developed a highly coordinated, nationwide advertising
and promotional campaign designed to increase consumer awareness of the
breadth of Ethan Allen's product offerings. In addition to a national
television campaign, Ethan Allen utilizes direct mail, magazine, newspaper
and radio advertising. Ethan Allen believes that its ability to coordinate
its advertising efforts with those of its dealers provides a competitive
advantage over other home furnishing manufacturers and retailers.
Advertising is planned to support the Company's sale periods. In January
of 1994, the Company changed to a new annual cycle of six sale events from
four, which increased the frequency and shortened the duration of sale
periods.
Ethan Allen's in-house staff, working with a leading advertising firm,
has developed and implemented what the Company believes the most extensive
national television campaign in the home furnishings industry. This
campaign is designed to support the six annual sale periods and to increase
the flow of traffic into galleries during the sale periods. Ethan Allen
television advertising is aired approximately 24 weeks per year.
Ethan Allen Interiors magazine, which features Ethan Allen's home
furnishing collections, is one of Ethan Allen's most important marketing
tools. Approximately, 42 million copies of the magazine, which features
sale products, are distributed to consumers during the six sale periods.
The Company publishes and sells the magazines to its dealers who, with
demographic information collected through independent market research, are
able to target potential consumers.
Ethan Allen's television advertising and direct mail efforts are
supported by strong print campaigns in various markets, and in leading home
fashion magazines using advertisements and multi-page inserts. The Company
coordinates significant advertisements in major newspapers in its major
markets. The Ethan Allen Treasury, a complete catalogue of the Ethan Allen
home collection which is distributed in the galleries, is one of the most
comprehensive home furnishing catalogues in the industry.
Manufacturing
Ethan Allen is one of the ten largest manufacturers of household
furniture in the United States. Ethan Allen manufactures and/or assembles
approximately 91% of its products at 20 manufacturing facilities and 3 saw
mills, thereby maintaining control over cost, quality and service to its
consumers. The case goods facilities are located close to sources of raw
materials and skilled craftsmen, predominantly in the Northeast and
Southeast regions of the country. Upholstery facilities are located across
the country in order to reduce shipping costs to galleries and based upon
the availability of skilled craftsmen. Management believes that its
manufacturing facilities are currently well positioned to accommodate sales
growth.
Distribution
Ethan Allen distributes its products primarily through eleven regional
distribution centers strategically located throughout the United States.
These distribution centers hold finished products received from Ethan
Allen's manufacturing facilities for shipment to Ethan Allen's dealers or
home delivery service centers. Ethan Allen stocks case goods and
accessories to provide for quick delivery of in-stock items and to allow
for more efficient production runs.
Approximately, 50% of shipments are made to and from the distribution
and home delivery service centers by the Company's fleet of trucks and
trailers. The balance of Ethan Allen's shipments are sub-contracted to
independent carriers. Approximately, 95% of Ethan Allen-owned delivery
vehicles are leased under three to five-year leases.
Ethan Allen's policy is to sell its products at the same delivered cost
to all dealers nationwide, regardless of their shipping point. The
adoption of this policy has discouraged dealers from carrying significant
inventory in their own warehouses. As a result, Ethan Allen obtains
accurate information regarding sales to dealers to better plan production
runs and manage inventory. Having one national landed cost has permitted
Ethan Allen to provide one national suggested retail price which, in turn,
helps facilitate a national advertising program.
Raw Materials and Suppliers
The most important raw materials used by Ethan Allen in furniture
manufacturing are lumber, veneers, plywood, particle board, hardware, glue,
finishing materials, glass, mirrored glass, laminates and fabrics. The
various types of wood used in Ethan Allen's products include cherry, oak,
maple, prima vera, mahogany, birch and pine, substantially all of which are
purchased domestically. Fabrics and other raw materials are purchased both
domestically and abroad. Ethan Allen has no long-term supply contracts,
and has experienced no significant problems in supplying its operations.
Ethan Allen maintains a number of sources for its raw materials which
management believes contribute to its ability to obtain competitive pricing
for raw materials. Lumber prices fluctuate over time depending on factors
such as weather and demand, which impact availability. Upward trends in
prices could have a short-term impact on margins. Management believes
however, such increases in cost can be substantially passed along through
retail price increases. A sufficient inventory of lumber and fabric is
usually stocked to maintain approximately 15 to 25 weeks of production.
Management believes that its sources of supply for these materials are
adequate and that it is not dependent on any one supplier.
Competition
The home furnishings industry at the retail level is highly competitive
and fragmented. Although Ethan Allen is among the ten largest furniture
manufacturers, industry estimates indicate that there are over 1,000
manufacturers of all types of furniture in the United States. Some of
these manufacturers produce furniture types not manufactured by Ethan
Allen. Certain of the companies which compete directly with Ethan Allen
may have greater financial and other resources than the Company.
Since Ethan Allen's products are sold primarily through galleries which
sell exclusively Ethan Allen products, Ethan Allen's effort is focused
primarily upon obtaining and retaining independent dealers and upon
increasing the volume of such dealers' retail sales and opening new Ethan
Allen-owned stores. The home furnishings industry competes primarily on
the basis of product styling and quality, personal service, prompt
delivery, product availability and price. Ethan Allen believes that it
effectively competes on the basis of each of these factors and believes
that its gallery format provides it with a competitive advantage because of
the complete home furnishing product selection and service available to the
consumer.
Furniture Today (a leading industry publication) published a survey of
America's Top 100 Furniture Retailers for 1995 which ranked Ethan Allen's
gallery network as the largest furniture retail network which utilizes the
furniture gallery concept. According to the survey, the nation's 100
largest furniture retailers accounted for 33% of all furniture sales in the
United States in 1993.
Trademarks
Ethan Allen currently holds numerous trademarks, service marks and
design patents for the Ethan Allen name, logos and designs in a broad range
of classes for both products and services. Ethan Allen also holds
international registrations for Ethan Allen trademarks in twenty-four
foreign countries and has applications for registration pending in sixteen
foreign countries. Ethan Allen has registered or has applications pending
for many of its major collection names as well as certain of its slogans
coined for use in connection with retail sales and other services. Ethan
Allen views its trade and service marks as valuable assets and has an
on-going program to diligently police their unauthorized use through
institution of legal action.
Backlog and Net Orders Booked
As of June 30, 1996, Ethan Allen had a wholesale backlog of
approximately $31.5 million, compared to a backlog of $29.0 million as of
June 30, 1995, which it is anticipated will be serviced in the first
quarter of fiscal 1997. Backlog at any point in time is primarily a result
of net orders booked in prior periods, manufacturing schedules and the
timing of product shipments. Net orders booked at the wholesale level from
all Ethan Allen galleries (including all independently-owned and Ethan
Allen-owned galleries) for the three months and twelve months ended June
30, 1996 were $102.2 million and $420.9 million, respectively, resulting in
an increase of 15.8% and 7.0% for the three months ended June 30, 1996 and
for the fiscal year 1996, respectively. Net orders booked in any period
are recorded based on wholesale prices and do not reflect the additional
retail margins produced by the Ethan Allen-owned galleries.
Employees
Ethan Allen has 5,991 employees as of June 30, 1996. Approximately, 5%
of the employees are represented by unions under collective bargaining
agreements. Ethan Allen believes it has good relations with its employees
and there have been no work stoppages during the last three years.
Item 2. Properties
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The corporate headquarters of Ethan Allen, located in Danbury,
Connecticut, consists of one building containing 144,000 square feet,
situated on approximately 17.5 acres of land, all of which is owned by
Ethan Allen. Located adjacent to the corporate headquarters is the Ethan
Allen Inn, a hotel containing 199 guest rooms. This hotel, owned by a
wholly-owned subsidiary of Ethan Allen, is used for Ethan Allen functions
and in connection with training programs as well as for accommodations for
the general public.
Ethan Allen has 20 manufacturing facilities and 3 saw mills located in
11 states, all of which are owned, with the exception of a leased
upholstery plant in California, totaling 133,000 square feet. These
facilities consist of 11 case goods manufacturing plants, totaling
2,956,461 square feet (including three sawmills), five upholstered
furniture plants, totaling 1,372,000 square feet and three plants involved
in the manufacture and assembly of Ethan Allen's non-furniture coordinates
totaling 263,000 square feet. In addition, Ethan Allen owns nine
distribution warehouses, totaling 1,354,000 square feet, and leases two
home delivery service centers aggregating 176,000 square feet. The
Company's manufacturing and distribution facilities are located in North
Carolina, Vermont, Pennsylvania, Virginia, New York, Oklahoma, California,
New Jersey, Georgia, Indiana, Maine, and Massachusetts.
Ethan Allen operates 60 Ethan Allen Showcase Galleries in North
America, of which 11 facilities are owned and 49 facilities are leased.
A few of the properties owned are subject to mortgages imposed under the
Company's Bank Credit Agreement and certain store properties are subject to
mortgage loan agreements. In addition, Ethan Allen's Maiden, North
Carolina facility was financed with an industrial revenue bond. Ethan
Allen believes that all of its properties are well maintained and in good
condition.
Ethan Allen estimates that its case goods and upholstery divisions are
currently operating at approximately 75% of capacity, assuming a one-shift
basis. Management believes it has significant additional capacity at many
facilities, which it could utilize with minimal additional capital
expenditures by adding multiple shift operations. Ethan Allen considers
its present manufacturing capacity to be sufficient for its foreseeable
needs.
Item 3. Legal Proceedings
- -------------------------
Ethan Allen is a party to various legal actions with customers,
employees and others arising in the normal course of its business. Ethan
Allen maintains liability insurance which Ethan Allen believes is adequate
for its needs and commensurate with other companies in the home furnishings
industry. Ethan Allen believes that the final resolution of pending
actions (including any potential liability not fully covered by insurance)
will not have a substantial adverse effect on the Company's financial
position.
Environmental Matters
The Company has been named as a potentially responsible party ("PRP")
for the cleanup of four sites currently listed or proposed for inclusion on
the National Priorities List ("NPL") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"). Numerous
other parties have been identified as PRP's at these sites. The Company
believes its share of waste contributed to these sites is small in relation
the total; however, liability under CERCLA may be joint and several. The
Company has total reserves of $500,000 applicable to these sites, which
would be sufficient to cover any resulting liability. With respect to all
of these sites, the Company believes that it is not a major contributor
based on the very small volume of waste generated by the Company in
relation to total volume at the site. For three of the sites, the site
assessment is at a very early stage and there has been no allocation of
responsibility among the parties. Environmental assessment activity with
respect to these sites is expected to continue over the next few years.
With respect to the fourth site, final allocation is in the process of
being negotiated.
Ethan Allen is subject to other federal, state and local environmental
protection laws and regulations and is involved from time to time in
investigations and proceedings regarding environmental matters. The
Company is regulated under several federal, state and local laws and
regulations concerning air emissions, water discharges, and management of
solid and hazardous wastes. The Company believes that its facilities are
in material compliance with all applicable laws and regulations.
Regulations currently being issued under the Clean Air Act Amendments of
1990 may require the Company to implement reformulation of certain
furniture finishes or institute process changes to reduce emissions of
volatile organic compounds. The furniture industry and its suppliers are
attempting to develop alternative finishing materials to replace currently
used organic-based finishes which are a major source of regulated
emissions. Ethan Allen continues to implement reformulating of finishing
materials and processing changes, and will continue to investigate new
treatment technology, in order to reduce such emissions.
Item 4. Submission of Matters to a Vote of Security Holders
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The following matters were submitted to security holders of the Company
in fiscal 1996:
o Election of Directors
1) Clinton A. Clark
2) Kristin Gamble
3) Edward H. Meyer
o Proposal for ratification of KPMG Peat Marwick LLP as Independent
Auditors for the 1996 fiscal year.
o Proposal to approve amendment to the 1992 Stock Option Plan to
award options to purchase an additional 1,500 shares of common
stock to the independent directors.
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
- -----------------------------------------------------------------------------
The Company's Common Stock is traded on the New York Stock Exchange.
The following table indicates the high and low sales prices of the
Company's Common Stock as reported on the New York Stock Exchange Composite
Tape:
Market Price
---------------
High Low
---- ---
Fiscal 1996
-----------
Fourth Quarter 28 3/8 22 1/2
Third Quarter 27 19 5/8
Second Quarter 22 3/8 19 3/8
First Quarter 23 3/8 17 3/4
Fiscal 1995
-----------
Fourth Quarter 22 1/8 17 1/4
Third Quarter 25 20 5/8
Second Quarter 25 3/8 19 7/8
First Quarter 25 19 1/2
As of August 28, 1996, there were approximately 380 security holders of
record of the Company's Common Stock.
On May 20, 1996, the Company declared a $.04 per common share dividend
for all holders of record on July 10, 1996 and payment date of July 25,
1996. The Company expects to continue to declare quarterly dividends for
the foreseeable future.
<PAGE>
Item 6. Selected Financial Data
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The following table sets forth summary consolidated financial
information of the Company for the years and dates indicated (dollars in
thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
---------------------------------------------
1996 1995 1994 1993 1992
------- ------- -------- ------- -------
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Net sales $509,776 $476,111 $437,286 $384,178 $350,983
Cost of sales 304,650 291,038 266,504 240,733 220,938
Selling, general and
administrative expenses 149,559 137,387 120,569 108,028 102,430
Expenses related to business
reorganization and write-down
of assets held for sale (1) - 1,550 - - -
Restructuring charges (2) - - - - 15,093
------- -------- -------- ------- ------
Operating income 55,567 46,136 50,213 35,417 12,522(11)
Interest and other
miscellaneous income 1,039 1,766 1,732 3,043 2,664
-------- ------- -------- ------- -------
Net income before interest
expense, income taxes,
extraordinary charge and
cumulative effect of
accounting change 56,606 47,902 51,945 38,460 15,186
------- ------- ------- ------- ------
Interest expense (3) 9,616 11,937 13,327 41,812 53,151
Income tax expense (benefit) 18,845 13,233(4) 16,047 (1,094) (14,077)(11)
------- ------- ------- ------- --------
Income (loss) before
extraordinary charge and
cumulative effect of
accounting change 28,145 22,732 22,571 (2,258) (23,888)
Extraordinary charge - (2,073)(5) - (15,052)(8) -
Cumulative effect of
accounting change - 1,467(6) - - (4,864)(11)
---------- -------- -------- -------- ---------
Net income (loss) $ 28,145 $ 22,126 $ 22,571 $(17,310) $(28,752)
======== ======= ======= ======== ========
<PAGE>
Other information:
Depreciation and $ 16,761 $ 16,098 $ 15,859 $ 16,483 $ 19,623
amortization
Per Share Data:
Net income (loss) per common
share before extraordinary
charge and cumulative effect
of accounting change $ 1.93 $ 1.56 $ 1.53(7) $ 1.12(9) $ (0.11)(9)
Weighted average common shares
outstanding (10) 14,564 14,623 14,141 13,258 12,941
Balance Sheet Data (at End of Period):
Working capital $109,147 $122,681 $103,709 $ 90,797 $ 82,288
Property, plant and
equipment, net 159,634 161,115 164,615 166,875 174,899
Total assets 395,981 408,288 413,287 396,233 413,133
Long-term debt including
capital lease obligations 82,681 127,032 139,175 153,749 319,587
Redeemable convertible
preferred stock - - - 29,825 -
Shareholders' equity (deficit) 220,293 193,098 171,166 116,053 (22,488)
<FN>
Footnotes on following page.
Notes to Selected Financial Data
(Dollars in thousands)
(1) Included in the $1,550 charge in fiscal 1995 are fees associated with
the business reorganization (note 15) and the write-down of property
and plants held for sale to fair market value.
(2) The restructuring charges in fiscal 1992 related primarily to the
consolidation of various manufacturing and distribution facilities
and the closing of certain Ethan Allen-owned retail locations of
which $10,522 are non-cash charges related to the write-down of
manufacturing and distribution assets.
(3) Interest expense includes the following non-cash components:
1996 1995 1994 1993 1992
------ ------ ------ -------- --------
Non-cash interest $ - $ - $ - $ 21,717 $ 30,606
Amortization of
deferred financing
costs 596 1,160 1,384 3,023 3,648
------ ------ ------- -------- --------
$ 596 $1,160 $ 1,384 $ 24,740 $34,254
(4) Includes a $1.7 million credit to income tax expense, resulting from
the restatement of deferred taxes to reflect the Company's expected
future effective tax rate upon the completion of the business
reorganization.
(5) During fiscal 1995, the Company entered into a bank credit agreement
to provide up to $110,000 of senior secured debt. As a result of the
new financing, an extraordinary charge of $3,484 in the aggregate,
$2,073 net of tax benefit or $.14 a share was recorded relating to
the write-off of unamortized deferred financing costs associated with
the existing bank financing.
(6) As of July 1, 1994, the Company changed its method of accounting for
packaging costs to better match revenue with expenses. This change
resulted in a cumulative adjustment of $2,466 ($1,467 net of tax or
$.10 a share) which represents the capitalization of packaging costs
into finished goods and retail inventories.
(7) Net income per common share in fiscal 1994 is adjusted for dividend
requirements on the redeemable preferred stock and for the write-off
of fees in connection with the redemption of the preferred stock.
Historical earnings per common share for years prior to fiscal 1994
have been omitted as the historical capitalization of the Company is
not indicative of the Company's current capital structure.
(8) In connection with the full repayment of its 18.17% Senior
Subordinated Exchange Notes and the existing bank credit agreement at
the time of a Recapitalization in 1993, $19,180 of unamortized
deferred financing costs were written off. Additionally, in
connection with the early termination of the bank credit agreement,
the Company was required to make a $5,097 payment to buy out the
related interest rate swap agreement. Such charges ($24,277 in the
aggregate, $15,052 net of tax benefit) are reflected as an
extraordinary charge in the statement of operations.
(9) Represents unaudited pro forma net income per common share data
adjusted assuming the Company's recapitalization, including an
initial public offering, which was effective March 23, 1993 (the
"Recapitalization"), occurred as of the beginning of the periods
presented. The principal adjustments are (1) the elimination of
charges related to a consulting agreement which was terminated in
connection with the Recapitalization and (2) the reduction of
interest and related expense to reflect the Recapitalization as of
the beginning of the periods presented.
(10) Weighted average common shares used in the computation of net income
per share includes shares of common stock outstanding and common
stock equivalents.
(11) The Company adopted SFAS 109 "Accounting for Income Taxes" effective
July 1, 1991. As a result, the Company reported the cumulative effect
of that change in the method of accounting for income taxes of $4,864
in fiscal 1992. Additionally, as a result of the adoption of SFAS
109, operating income in fiscal 1992 reflects a higher depreciation
charge of $3,494 and income tax expense (benefit) includes a credit
of $14,477.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Basis of Presentation
The Company has no material assets other than its ownership of Ethan
Allen's capital stock and conducts all significant transactions through
Ethan Allen; therefore, substantially all of the financial information
presented herein is that of Ethan Allen.
Results of Operations:
Ethan Allen's revenues are comprised of wholesale sales to dealer-owned
galleries and retail sales of Ethan Allen-owned galleries as follows
(dollars in millions):
Fiscal Years Ended June 30,
----------------------------
1996 1995 1994
---- ---- ----
Revenues:
Net wholesale sales to
dealer-owned stores $330.8 $320.3 $309.7
Net retail sales of Ethan
Allen-owned stores 155.6 133.2 105.1
Other revenues 23.4 22.6 22.5
------ ------ ------
Total $509.8 $476.1 $437.3
====== ====== ======
Fiscal 1996 Compared to Fiscal 1995
Sales in fiscal 1996 increased by $33.7 million, or 7.1%, from fiscal
1995 to $509.8 million. Net sales to dealer-owned stores increased by 3.3%
to $330.8 million and net retail sales by Ethan Allen-owned stores
increased by 16.8% to $155.6 million. Sales growth has resulted from newer
product offerings, a coordinated advertising program, and approximately 95%
brand awareness. In addition, new stores have contributed to the sales
growth. During fiscal 1996, the Company opened 19 new stores, of which 7
stores represented relocations. At June 30, 1996, there were 288 total
stores, of which 228 were dealer-owned stores. The Company's objective is
to continue the expansion of both the dealer-owned and Ethan Allen-owned
stores.
The increase in retail sales by Ethan Allen-owned stores is attributable
to an 8.1%, or $9.9 million increase in comparable store sales, and an
increase in sales generated by newly opened or acquired galleries of $16.8
million, partially offset by closed galleries, which generated $4.3 million
less in fiscal 1996 as compared to fiscal 1995. The number of Ethan
Allen-owned stores has decreased to 60 at June 1996 as compared to 61 at
June 1995.
Comparable stores are those which have been operating for at least 15
months. Minimal net sales, derived from the delivery of customer ordered
product, are generated during the first three months of operations of newly
opened stores. Stores acquired from dealers from Ethan Allen are included
in comparable store sales in their 13th full month of Ethan Allen-owned
operations.
Gross profit for fiscal 1996 increased by $20.0 million, or 10.8%, from
fiscal 1995 to $205.1 million. This increase is attributable to a higher
sales volume, combined with an increase in gross margin from 38.9% in
fiscal 1995 to 40.2% in fiscal 1996. The improvement in gross margin is
principally due to a higher wholesale gross margin and a higher
proportionate level of retail sales by Ethan Allen-owned stores relative to
total sales. Retail sales generate a higher gross margin relative to
wholesale sales. At the wholesale level, gross margins increased by .5%
due primarily to greater manufacturing efficiencies and the full benefit of
the prior year price increase and partial benefit of selected price
increases announced during the current fiscal year, partially offset by $.5
million of costs related to the extended plant shutdowns in the first
quarter and higher employee benefit costs. A price increase of 3% on
certain case good products was implemented in the fourth quarter of fiscal
1995.
Operating expenses increased $10.7 million from $138.9 million, or 29.2%
of net sales, in fiscal 1995, to $149.6 million, or 29.3% of net sales, in
fiscal 1996. The prior year included $1.6 million of one-time charges
related to the business reorganization and the write-down to then current
fair market value of property and plants held for sale. Operating expenses
in the current year are $12.3 million higher than the prior year, excluding
these charges. This increase is primarily attributable to an increase in
operating expenses in the Company's retail division of $9.7 million, due to
the higher sales volume experienced by the division in fiscal 1996.
Additionally, wholesale operating expenses increased due to higher employee
benefit costs and increased shipping costs associated with higher volumes.
Operating income for fiscal 1996 was $55.6 million, an increase of $9.4
million, or 20.4%, as compared to fiscal 1995. Wholesale operating income
was $52.7 million in fiscal 1996, an increase of $7.7 million or 17.1% as
compared to the prior year. This increase is attributable to higher sales
volumes, increased gross margins reflecting, in part, improved
efficiencies, and greater monitoring of expenses. Retail operating income
was $4.1 million in fiscal 1996, an improvement of $1.5 million as compared
to fiscal 1995. This increase is attributable to higher retail sales
volume, partially offset by higher operating expenses related to the higher
volumes.
Interest expense for fiscal 1996 decreased by $2.3 million to $9.6
million, due to lower debt balances, and lower amortization of deferred
financing costs.
Income tax expense of $18.8 million was recorded in fiscal 1996. The
Company's effective tax rate for fiscal 1996 was 40.1% as compared to 36.8%
in fiscal 1995. In fiscal 1995, income tax expense included a one-time
deferred tax benefit of $1.7 million, resulting from the adjustment of
deferred taxes to reflect the Company's future tax rate upon the completion
of the business reorganization, exclusive of this adjustment the effective
rate in 1995 would have been 41.4%.
In fiscal 1996, the Company recorded net income of $28.1 million, an
increase of 21.7%, compared to $22.1 million in fiscal 1995.
Fiscal 1995 Compared to Fiscal 1994
Sales in fiscal 1995 increased by $38.8 million, or 8.9%, from fiscal
1994 to $476.1 million. Net sales to dealer-owned stores increased by 3.4%
to $320.3 million, and net retail sales by Ethan Allen-owned stores
increased by 26.7% to $133.2 million. Sales growth is due to higher
volumes which management believes have resulted primarily from Ethan
Allen's expanded product offerings, an updated image which is projected
through new exteriors and interiors, and a coordinated advertising program.
In addition, new stores have contributed to sales growth. At June 30,
1995, there were 297 total stores, of which 236 were dealer-owned, as
compared to 285 total stores, of which 230 were dealer-owned, at June 30,
1994.
The increase in retail sales by Ethan Allen-owned stores is attributable
to a 10.3%, or $8.4 million, increase in comparable store sales, and an
increase in sales generated by newly opened or acquired galleries of $24.8
million, partially offset by closed galleries, which generated $5.1 million
less in sales in fiscal 1995, as compared to fiscal 1994. The number of
Ethan Allen-owned stores has increased to 61 at June 30, 1995, as compared
to 55 at June 30, 1994.
Gross profit for fiscal 1995 increased by $14.3 million, or 8.4%, from
fiscal 1994 to $185.1 million. This increase is attributable to higher
sales volume, partially offset by a decrease in gross margin from 39.1% in
fiscal 1994 to 38.9% in fiscal 1995. The reduction of gross margin is
principally due to lower wholesale margin, partially offset by a higher
proportionate level of retail sales by Ethan Allen-owned stores relative to
total sales. Retail sales generate a higher gross margin relative to
wholesale sales. At the wholesale level, gross margins declined by 1.9%
due to increases in raw materials, medical and labor costs, and
proportionately more product being sold at sales prices due to an increase
in the number of sales events. A price increase of 3% on certain case good
products was implemented, partially effective in the fourth quarter in
order to offset cost increases.
Operating expenses increased $18.3 million from $120.6 million, or 27.6%
of net sales in fiscal 1994 to $138.9 million, or 29.2% of net sales, in
fiscal 1995. This increase is attributable principally to an increase in
operating expenses in the Company's retail division of $11.1 million, due
to higher sales volumes and an increase in the number of Ethan Allen-owned
stores. Additionally, operating expenses increased due to higher shipping
costs associated with higher volumes and expenses of $1.6 million in fiscal
1995 related to the business reorganization and the write-down of property
and plants held for sale.
Operating income for fiscal 1995 was $46.1 million, a decrease of $4.1
million, or 8.1% as compared to fiscal 1994. Wholesale operating income
was $43.5 million in fiscal 1995, a decrease of $4.7 million as compared to
the prior year. This decrease is attributable to lower gross margins and
higher operating expenses. Operating expenses include $1.6 million related
to the business reorganization and the write-down of property and plants to
fair market value. Retail operating income was $2.6 million in fiscal
1995, an improvement of $0.5 million as compared to fiscal 1994. This
increase is attributable to higher retail sales volume, partially offset by
higher operating expenses principally related to higher volumes and new
stores.
Interest expense for fiscal 1995 decreased by $1.4 million to $11.9
million, due to lower debt balances and lower amortization of deferred
financing costs, partially offset by higher interest rates.
Income tax expense of $13.2 million was recorded in fiscal 1995, which
includes a one-time deferred tax benefit of $1.7 million, resulting from
the adjustment of deferred taxes to reflect the Company's expected future
tax rate upon the completion of the business reorganization of
approximately 39%. As a result of this benefit, the Company's effective
tax rate in fiscal 1995 was 36.8% as compared to 41.6% in fiscal 1994.
An extraordinary charge of $2.1 million (net of tax benefit) was
recorded in fiscal 1995 relating to the write-off of unamortized deferred
refinancing costs associated with the Company's existing bank financing,
which was repaid upon the completion of a new financing arrangement with a
syndicate of banks during 1995.
As of July 1, 1994, the Company changed its method of accounting for
packaging costs. This resulted in a cumulative adjustment of $1.5 million
(net of tax), which represents the capitalization of packaging costs into
finished goods and retail inventories. Such amounts were previously
charged to selling expense in the period the related product was
manufactured and shipped to a Company warehouse. Commencing July 1, 1994,
packaging costs have been included in cost of sales as the product is
shipped to customers.
For fiscal 1995, the Company recorded net income of $22.1 million,
compared to net income in fiscal 1994 of $22.6 million.
Financial Condition and Liquidity
The Company's principal sources of liquidity are cash flow from
operations and additional borrowing capacity under a revolving credit
facility. Net cash provided by operating activities totaled $60.9 million
for fiscal 1996, as compared to $35.5 million in fiscal 1995 and $24.0
million in fiscal 1994. The increase as compared to 1995 is due
principally to a $6.9 million decrease in inventory as compared to an $8.3
million increase in inventory in fiscal 1995 (excluding the effect of the
accounting change), a $6.0 million increase in net income, a $.6 million
increase in net deferred income tax liability before the tax effect of
management options exercised as compared to a $2.3 million decrease in net
deferred income tax liability in fiscal 1995, and a $1.6 million increase
in accrued expenses in fiscal 1996, as compared to a $2.1 million decrease
in accrued expense in fiscal 1995. At June 30, 1996, the Company had
working capital of $109.1 million and a current ratio of 2.84 to 1.
During fiscal 1996, capital spending totaled $13.3 million as compared
to $11.2 million and $11.0 million in fiscal 1995 and 1994, respectively.
Capital expenditures in fiscal 1997 are anticipated to be approximately
$18.0 million. The Company anticipates that cash from operations will be
sufficient to fund this level of capital expenditures. The increased level
of capital spending, which is attributable to new store openings and
manufacturing efficiency improvements, is expected to continue for the
foreseeable future.
Total debt outstanding at June 30, 1996, is $85.2 million of which $7.0
million is outstanding under the Credit Agreement, with Chase Manhattan
Bank as agent. Trade and standby letters of credit of $12.8 million were
also outstanding as of June 30, 1996. The revolving credit facility
provides a maximum availability of $110.0 million, and includes a $40.0
million sub-facility for trade and standby letters of credit availability
and a $3.0 million swingline loan sub-facility. Other debt includes $62.0
million of outstanding Senior Notes which have a final maturity in 2001,
with no scheduled amortization prior to final maturity. The Senior Notes
also may not be redeemed at the option of the Company until March 15, 1998.
Therefore, the Company does not anticipate that any Senior Notes will be
repaid for at least two years; however, the Company may, from time to time,
either directly or through agents, repurchase its Senior Notes in the open
market, through negotiated purchases or otherwise, at prices and on terms
satisfactory to the Company. During fiscal 1996, 1995, and 1994, $6.0
million, $3.0 million and $4.0 million, respectively, principal amount of
Senior Notes were repurchased. The Company has announced that it is
authorized to repurchase up to 600,000 of its common stock shares from time
to time in the open market or otherwise. In fiscal 1996, 179,282 shares
were purchased at an average price of $21.73 per share and 51,619 shares
were purchased in 1995 at an average price of $20.96 per share under this
program. Depending on market prices and other considerations relevant to
the Company, such purchases may be discontinued at any time.
As of June 30, 1996, aggregate scheduled maturities of long-term debt
for each of the next five fiscal years are $0.1 million, $.1 million, $0.3
million, $7.1 million and $62.1 million, respectively. Management
anticipates that excess cash will be used to repay its revolver balance.
Additionally, management believes that its cash flow from operations,
together with its other available sources of liquidity, will be adequate to
make all required payments of principal and interest on its debt, to permit
anticipated capital expenditures and to fund working capital and other cash
requirements.
Impact of Inflation
The Company does not believe that inflation has had a material impact on
its profitability during the last three fiscal years. In the past, the
Company has generally been able to increase prices to offset increases in
operating costs.
Income Taxes
At June 30, 1996, the Company has approximately $33.9 million of net
operating loss carryovers ("NOL's") for federal income tax purposes. The
Recapitalization triggered an "ownership change" of the Company, as defined
in Section 382 of the Internal Revenue Code of 1986, as amended, resulting
in an annual limitation on the utilization of the NOL's by the Company of
approximately $3.9 million.
Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("FAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." This statement, effective for fiscal years beginning after
December 15, 1995, establishes accounting standards for the impairment of
long-lived assets, certain identifiable intangibles, and goodwill related
to those assets to be held and used and for long-lived assets and certain
identifiable intangibles to be disposed of. Management believes the
initial adoption of this standard will not have a material impact on the
Company's financial position or its results of operations.
In October 1995, the FASB issued FAS 123, "Accounting for Stock-Based
Compensation" which is effective for years beginning after December 15,
1995. FAS 123 permits a fair value based method of accounting for employee
stock compensation plans. It also allows a company to continue to use the
intrinsic value method of accounting prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"). Companies electing to continue to use the accounting prescribed by
APB 25, must make pro forma disclosures of net income and net income per
share as if the fair value based method of accounting defined in FAS 123
had been applied. The Company plans to continue to use the intrinsic value
method of accounting when it adopts FAS 123 in fiscal 1997.
<PAGE>
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
Ethan Allen Interiors Inc.:
We have audited the accompanying consolidated balance sheets of Ethan Allen
Interiors Inc. and Subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended June 30,
1996. In connection with our audits of the consolidated financial
statements, we also have audited the financial statements schedule listed
in the index. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ethan
Allen Interiors Inc. and Subsidiaries as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in
the three-year period ended June 30, 1996, in conformity with generally
accepted accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
As discussed in note 2 to the consolidated financial statements, the
Company changed its method of accounting for packaging costs in 1995.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
July 31, 1996
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1996 and 1995
(Dollars in thousands)
ASSETS 1996 1995
------ ----------- ----------
Current assets:
Cash $ 9,078 $ 7,546
Accounts receivable, less allowance of
$2,564 and $2,968 at June 30, 1996 and
1995, respectively 33,984 35,334
Notes receivable, current portion, less
allowance of $314 and $426 at
June 30, 1996 and 1995, respectively 1,314 1,531
Inventories (note 5) 107,224 114,115
Prepaid expenses and other current assets 7,377 8,122
Deferred income taxes (note 12) 9,305 9,505
------- -------
Total current assets 168,282 176,153
------- -------
Property, plant and equipment, net (note 6) 159,634 161,115
Property, plant and equipment held for sale
(note 1) 4,233 3,248
Notes receivable, net of current portion,
less allowance of $97 and $1,173 at
June 30, 1996 and 1995, respectively 2,561 3,487
Intangibles, net (note 7) 54,065 55,725
Deferred financing costs, net of amortization
of $1,426 and $830 at June 30, 1996 and 1995,
respectively (note 4) 1,877 2,351
Other assets 5,329 6,209
------- -------
Total assets $ 395,981 $ 408,288
======= =======
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations (notes 8 and 9) $ 2,498 $ 3,363
Accounts payable 36,742 32,409
Accrued expenses 6,956 6,172
Accrued compensation and benefits 12,939 11,528
------ ------
Total current liabilities 59,135 53,472
------ ------
Long-term debt, less current maturities 79,929 124,534
(note 8)
Obligations under capital leases,
less current maturities (note 9) 2,752 2,498
Other long-term liabilities, principally
long-term compensation, environmental and
legal reserves 1,036 1,072
Deferred income taxes (note 12) 32,836 33,614
------- -------
Total liabilities 175,688 215,190
------- -------
Commitments and contingencies (notes 9 and 16) - -
Shareholders' equity (notes 3, 10 and 11):
Class A common stock, par value $.01, 35,000,000
shares authorized, 14,568,731 shares issued
at June 30, 1996, 14,461,069 shares issued
at June 30, 1995 146 144
Preferred stock, par value $.01, 1,055,000
shares authorized, no shares issued and
outstanding at June 30, 1996 and 1995,
respectively - -
Additional paid-in capital 254,971 252,569
------- -------
255,117 252,713
Less: Notes receivable from officer and
employees (note 17) (51) (592)
Treasury stock (at cost) 256,480 shares
at June 30, 1996 and 77,198 shares at
June 30, 1995 (5,371) (1,476)
------- -------
249,695 250,645
Accumulated deficit (29,402) (57,547)
------- -------
Total shareholders' equity 220,293 193,098
------- -------
Total liabilities and shareholders' equity $395,981 $408,288
======= =======
See accompanying notes to consolidated financial statements.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended June 30, 1996, 1995, and 1994
(Dollars in thousands, except per share data)
1996 1995 1994
------- ------- -------
Net sales $509,776 $476,111 $437,286
Cost of sales 304,650 291,038 266,504
-------- ------- -------
Gross profit 205,126 185,073 170,782
Operating expenses:
Selling 74,582 71,463 60,670
General and administrative 74,977 65,924 59,899
Expenses related to the
business reorganization
and write-down of assets
held for sale (notes 1
and 15) - 1,550 -
------- ------ ------
Operating income 55,567 46,136 50,213
------- ------ ------
Interest and other miscellaneous
income, net 1,039 1,766 1,732
Interest and related expense:
Interest 8,882 10,777 11,943
Amortization of deferred
financing costs 734 1,160 1,384
------ ------- ------
9,616 11,937 13,327
------ ------- ------
Income before income
taxes, extraordinary charge
and cumulative effect of
accounting change 46,990 35,965 38,618
Income tax expense (note 12) 18,845 13,233 16,047
------ ------ ------
<PAGE>
Income before extraordinary
charge and cumulative
effect of accounting change 28,145 22,732 22,571
Extraordinary charge from early
retirement of debt, net of
income tax benefits of $1,411
(note 4) - (2,073) -
Cumulative effect of accounting
change, net of income tax
of $999 (note 2) - 1,467 -
------- ------- -------
Net income $ 28,145 $ 22,126 $ 22,571
======= ======= =======
Per share data (note 1):
Net income per common share
excluding extraordinary charge and
cumulative effect of accounting
change $ 1.93 $ 1.56 $ 1.53
Extraordinary charge (note 4) - (0.14) -
Cumulative effect of accounting
change (note 2) - (0.10) -
------- ------- -------
Net income per common share $ 1.93 $ 1.52 $ 1.53
======= ======== =======
Dividends declared per common share $ 0.04 $ - $
======= ======== =======
See accompanying notes to consolidated financial statements.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
Operating activities: ------- ------- -------
Net income $ 28,145 $ 22,126 $ 22,571
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 17,495 17,258 17,243
Provision (benefit) for deferred
income taxes 622 (2,306) 2,001
Extraordinary charge - 2,073 -
Cumulative effect of accounting change - (1,467) -
Other non-cash benefit (charges) (64) (96) 278
Change in:
Accounts receivable 1,407 2,561 1,416
Inventories 6,891 (8,323) (20,814)
Prepaid and other current assets 745 75 43
Other assets (271) 1,581 (1,804)
Accounts payable 4,333 4,463 1,773
Accrued expenses 1,621 (2,068) 1,798
Other long-term liabilities (36) (416) (500)
------ ------ ------
Net cash provided by operating
activities 60,888 35,461 24,005
------ ------ ------
Investing activities:
Proceeds from the disposal of property,
plant, and equipment 1,216 3,071 276
Capital expenditures (13,314) (11,244) (10,967)
Payments received on long-term notes
receivable 2,559 2,642 2,162
Disbursements made for long-term notes
receivable (935) (581) (2,567)
------ ----- ------
Net cash used by investing activities (10,474) (6,112) (11,096)
------ ----- ------
<PAGE>
Financing activities:
Borrowings on revolving credit facilities 56,500 49,000 73,500
Payments on revolving credit facilities (95,500) (67,000) (67,500)
Redemption of Senior Notes (6,000) (3,000) (4,000)
Other payments on long-term debt and
capital leases (1,823) (11,698) (12,835)
Other borrowings on long-term debt 500 4,600 -
Payments to acquire treasury stock (3,895) (1,082) (241)
Net proceeds from issuance of common stock 1,474 421 32,906
Increase in deferred financing costs (138) (742) (571)
Initial borrowing under bank
credit agreement - 43,000 -
Repayment of bank credit agreement - (42,018) -
Paid fees associated with the
common stock offerings - (16) (1,002)
Redemption of preferred stock - - (30,000)
Preferred dividends paid - - (1,281)
------ ------- -------
Net cash used by financing activities (48,882) (28,534) (11,024)
------ ------ ------
Net increase in cash 1,532 815 1,885
Cash at beginning of year 7,546 6,731 4,846
------ ------- -------
Cash at end of year $ 9,078 $ 7,546 $ 6,731
======= ======= =======
Supplemental disclosure:
Cash payments for:
Income taxes $ 12,515 $ 17,867 $ 12,660
Interest 9,073 11,026 11,830
Additions to obligations under
capitalized leases 1,107 2,067 1,210
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years ended June 30, 1994, 1995 and 1996
(Dollars in thousands)
Additional
Common Paid-in Notes Treasury Accumulated
Stock Capital Receivable Stock Deficit Total
-------- ---------- ---------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1993 $ 129 $218,579 $(1,005) $ (153) $(101,497) $116,053
Public offering of common
stock net of offering
cost 14 32,907 - - - 32,921
Write-off of preferred stock
financing fees - (175) - - - (175)
Payments received on notes
receivable - - 364 - - 364
Increase in vested manage-
ment warrants (note 11) - 420 - - - 420
Dividends declared on
preferred stock - - - - (747) (747)
Purchase of 15,207 shares
of treasury stock - - - (241) - (241)
Net income - - - - 22,571 22,571
--------- --------- --------- --------- --------- -------
Balance at June 30, 1994 143 251,731 (641) (394) (79,673) 171,166
Issuance of capital
stock 1 420 - - - 421
Payments received on
notes receivable - - 49 - - 49
Increase in vested
management warrants
(note 11) - 418 - - - 418
Purchase of 51,619 shares
of treasury stock - - - (1,082) - (1,082)
Net income - - - - 22,126 22,126
--------- --------- ------- ------- ------- --------
Balance at June 30, 1995 144 252,569 (592) (1,476) (57,547) 193,098
<PAGE>
Issuance of capital stock 2 1,472 - - - 1,474
Payments received
on notes receivable - - 541 - - 541
Increase in vested
management warrants
(note 11) - 304 - - - 304
Purchase of 179,282 shares of
treasury stock - - - (3,895) - (3,895)
Dividend declared - (574) - - - (574)
Tax benefit associated with the
exercise of employee stock
options and warrants - 1,200 - - - 1,200
Net income - - - - 28,145 28,145
-------- -------- -------- ------- --------- --------
Balance at June 30, 1996 $ 146 $254,971 $ (51 ) $(5,371) $ (29,402) $220,293
======== ======== ======== ======= ======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of Presentation
----------------------
Ethan Allen Interiors Inc. (the "Company") is a Delaware corporation
incorporated on May 25, 1989. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary
Ethan Allen Inc. ("Ethan Allen") and Ethan Allen's subsidiaries. All
intercompany accounts and transactions have been eliminated in the
consolidated financial statements. All of Ethan Allen's capital
stock is owned by the Company. The Company has no other assets or
operating results other than those associated with its investment in
Ethan Allen.
Nature of Operations
--------------------
The Company, through its wholly-owned subsidiaries, is a leading
manufacturer and retailer of quality home furnishings and sells a
full range of furniture products and decorative accessories through
an exclusive network of 288 retail stores, of which 60 are Ethan
Allen-owned and 228 are independently owned. Retail stores are
primarily located in the United States, with 18 located abroad.
Ethan Allen has 20 manufacturing facilities and 3 sawmills throughout
the United States.
Inventories
------------
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Depreciation of
plant and equipment is provided over the estimated useful lives of
the respective assets on a straight-line basis. Estimated useful
lives of the respective assets generally range from twenty to forty
years for buildings and improvements and from three to twenty years
for machinery and equipment.
Property, Plant and Equipment Held for Sale
--------------------------------------------
Property and plants held for sale are recorded at net realizable
values. The Company continues to actively market the properties.
During fiscal 1995, the net realizable values of such assets were
written down by $800,000 to reflect current estimates of fair market
values based upon updated independent assessments of value.
Intangible Assets
-----------------
Intangible assets primarily represent goodwill, trademarks and
product technology which will be amortized on a straight-line basis
over forty years. Goodwill represents the excess of cost of the
Company over the fair value of net identifiable assets acquired. The
Company continuously assesses the recoverability of these intangible
assets by evaluating whether the amortization of the intangible asset
balances over the remaining lives can be recovered through expected
future results. Expected future results are based on projected
undiscounted operating results before the effects of intangible
amortization. Product technology is measured based upon wholesale
operating income, while goodwill and trademarks are assessed based
upon total wholesale and retail operating income. The amount of
impairment, if any, is measured based on projected discounted future
results, using a discount rate reflecting the Company's average cost
of funds.
Notes Receivable
----------------
Notes receivable represent financing arrangements under which Ethan
Allen has made loans to certain of its dealers. These loans
primarily have terms ranging from five to eight years and are
generally secured by the assets of the borrower. Interest is charged
on outstanding balances at a rate which generally approximates the
prime rate plus an additional rate which may be adjustable over the
loan term.
Financial Instruments
---------------------
The carrying value of the Company's financial instruments
approximates fair market value. The Company's Senior Notes as of
June 30, 1996 were traded at 101% of carrying value.
Deferred Financing Costs
------------------------
Debt financing costs are deferred and amortized, using the
straight-line method, over the term of the related debt.
Revenue Recognition
-------------------
Sales are recorded when goods are shipped to dealers, with the
exception of shipments under Ethan Allen's Home Delivery Service
Center Program. These sales are recognized as revenue when goods are
shipped to the Home Delivery Service Centers, at which point title
has passed to the dealers. Ethan Allen, through its Home Delivery
Service Centers, provides preparation and delivery services for its
dealers for a fee which is recognized as revenue upon delivery of
goods to the retail customer. Sales made through Ethan Allen-owned
stores are recognized when delivery is made to the customer.
Advertising Costs
-----------------
Advertising costs are expensed when first aired or distributed.
Advertising costs for the fiscal years 1996, 1995, and 1994 were
$21,289,000, $19,528,000 and $17,183,000 respectively.
Pre-opening Expenses
--------------------
All costs incurred prior to the opening of a new Ethan Allen-owned
store are deferred and amortized over the respective store's first
twelve months of operations.
Closed Store Expenses
---------------------
Future expenses, such as rent and real estate taxes, net of expected
sublease recovery, which will be incurred subsequent to vacating a
closed Ethan Allen-owned store, are charged to operations upon a
formal decision to close the store.
Earnings Per Share
------------------
Earnings per common share are computed by dividing net earnings by
the weighted average number of shares of common stock and common
stock equivalents outstanding during each period. The Company has
issued stock options and warrants, which are the Company's only
common stock equivalents. Weighted average common shares outstanding
includes common stock equivalents calculated in accordance with the
"treasury method" wherein the net proceeds from such common stock
equivalents are assumed to repurchase shares of common stock. Income
per common share, in the fiscal 1994 period is adjusted for dividend
requirements on the preferred stock. Weighted average common shares
outstanding were 14,564,000, 14,623,000 and 14,141,000 in fiscal
1996, 1995 and 1994, respectively.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(2) Cumulative Effect of Accounting Change
As of July 1, 1994, the Company changed its method of accounting for
packaging costs to better match revenue with expenses. This change
resulted in a cumulative adjustment of $2.5 million ($1.5 million net
of tax) which represents the capitalization of packaging costs into
finished goods and retail inventories. Such amounts were previously
charged to selling expense in the period the related product was
manufactured and shipped to a Company warehouse. Commencing July 1,
1994, packaging costs have been included in cost of sales as the
product is shipped to customers. Fiscal 1994 amounts have been
reclassified to conform to this presentation.
(3) Preferred Stock Redemption
During fiscal 1994, the Company completed a second public offering of
1,448,790 shares of Common Stock at $26.875 a share, of which
1,350,000 shares were sold by the Company and 98,790 shares were sold
by a stockholder, Smith Barney Inc. Proceeds in excess of $26.00 per
share ($1.1 million) were paid to the holders of the Company's 6-1/2%
Series A Redeemable Convertible Preferred Stock ("Preferred Stock"),
General Electric Capital Corporation and Smith Barney Inc., pursuant
to an agreement made between the Company and such parties. The net
proceeds to the Company from the offering were $32.9 million. The
Company used approximately $30.3 million of the net proceeds from the
offering to redeem at par plus accrued dividends the Preferred Stock,
and $2.6 million of net proceeds to reduce amounts outstanding under
the Company's term borrowing.
Holders of the Preferred Stock were entitled to cumulative dividends,
when and as declared by the Board of Directors out of funds legally
available for such purpose, at an annual rate of 6-1/2%, payable
quarterly. During 1994, $1,281,000 in such dividends were paid.
(4) Extraordinary Charge
During 1995, the Company entered into a Credit Agreement to provide
up to $110 million of senior secured debt, the proceeds of which were
used to repay existing senior secured debt (see note 8). As a result
of the financing, an extraordinary charge of $3.5 million ($2.1
million net of tax benefit), was recorded relating to the write-off
of unamortized deferred financing costs associated with the previous
bank financing.
(5) Inventories
Inventories at June 30 are summarized as follows (dollars in
thousands):
1996 1995
--------- --------
Retail Merchandise $ 28,695 $ 30,485
Finished products 39,146 41,836
Work in process 12,803 13,389
Raw materials 26,580 28,405
------- -------
$107,224 $114,115
======= =======
(6) Property, Plant and Equipment
Property, plant and equipment at June 30 are summarized as follows
(dollars in thousands):
1996 1995
------ ------
Land and improvements 22,075 20,760
Buildings and improvements 152,915 148,341
Machinery and equipment 63,989 61,128
------- -------
238,979 230,229
Less accumulated depreciation (79,345) (69,114)
-------- --------
$159,634 $161,115
======= ========
(7) Intangibles
Intangibles at June 30 are summarized as follows (dollars in
thousands):
1996 1995
---- ----
Product technology $25,950 $25,950
Trademarks 28,200 28,200
Goodwill 11,333 11,333
Other 350 350
------ -------
65,833 65,833
Less accumulated amortization (11,768) (10,108)
--------- --------
$54,065 $55,725
======= ======
(8) Borrowings
Long-term debt at June 30 consists of the following (dollars in
thousands):
1996 1995
---- ----
Revolving Credit Facility $ 7,000 $ 46,000
8.75% Senior Notes due 2001 62,000 68,000
Other Debt:
9.75% mortgage note payable in
monthly installments through 2015
collateralized by Ethan Allen Inn 1,623 1,649
Industrial Revenue Bonds, 4.0% -
8.0%, maturing at various dates
through 2011 8,455 8,521
Other 958 442
------ -------
Total debt 80,036 124,612
Less current maturities 107 78
------ -------
$79,929 $124,534
====== =======
During June 1996, the Company closed on loan commitments in the
aggregate amount of approximately $1.4 million related to the
modernization of its Beecher Falls manufacturing facility. Loans
made pursuant to these commitments will bear interest at rates of 3
to 8% and will have maturities of 7 to 30 years. The loans will have
a first and second lien in respect of equipment financed by such
loans and a first and second mortgage interest in respect of a
building, the construction of which was financed by such loans.
Interest and principal on such loans will be paid monthly, commencing
July 26, 1996, and October 15, 1996. As of June 30, 1996, the
Company received $500,000 of loan proceeds which was included in long
term debt at year end. Additional loan proceeds in the amount of
$439,731 were received during July 1996.
During 1995, the Company completed a five year financing arrangement
to provide up to $110.0 million of senior secured debt under a
revolving credit facility pursuant to a Credit Agreement with Chase
Manhattan Bank, as agent, proceeds of which were used to repay
existing senior secured debt. The revolving credit facility includes
a $40.0 million sub-facility for trade and standby letters of credit
availability and a $3.0 million swingline loan sub-facility. Loans
under the revolving credit facility bear interest at Chase Manhattan
Bank's Alternative Base Rate, or adjusted LIBOR plus .5%, which is
subject to adjustment arising from changes in the credit rating of
Ethan Allen's senior secured debt. For the year ended June 30, 1996,
the weighted-average interest rate was 6.81%. There are no minimum
repayments required during the term of the facility.
The Credit Agreement is secured by a first lien in respect of Ethan
Allen's accounts receivable, inventory, trademarks, patents, certain
fixed assets and the Company's shares of Ethan Allen's capital stock.
The Company has guaranteed Ethan Allen's obligation under the Credit
Agreement and the Senior Notes and has pledged all the outstanding
capital stock of Ethan Allen to secure its guarantee under the Credit
Agreement.
The Credit Agreement and the Senior Note Indenture contain covenants
requiring the maintenance of certain defined tests and ratios and
limit the ability of Ethan Allen and the Company to incur debt,
engage in mergers and consolidations, make restricted payments, make
asset sales, make investments and issue stock. The Senior Notes,
which rank pari passu in right of payment with loans under the Credit
Agreement provide for the repurchase of the Senior Notes in the event
of a change in control and the Credit Agreement and the Senior Note
Indenture contain various customary events of default. Ethan Allen
satisfied the requirements of covenants in the Credit Agreement and
the Senior Note Indenture at June 30, 1996. The Senior Notes may not
be redeemed at the option of the Company until March 15, 1998. The
Company has announced that, from time to time, it will repurchase its
Senior Notes in the open market. During fiscal 1996, 1995, and 1994,
$6.0 million, $3.0 million, and $4.0 million, respectively, of Senior
Notes were repurchased at 101.25%, 99.6%, and 100%, respectively.
Aggregate scheduled maturities of long-term debt for each of the five
fiscal years subsequent to June 30, 1996, are as follows (dollars in
thousands):
1997 . . . . . . . . . . . .$ 107
1998 . . . . . . . . . . . . 93
1999 . . . . . . . . . . . . 348
2000 . . . . . . . . . . . . 7,095
2001 . . . . . . . . . . . . 62,103
(9) Leases
Ethan Allen leases real property and equipment under various
operating and capital lease agreements expiring through the year
2014. Leases covering retail outlets and equipment generally
require, in addition to stated minimums, contingent rentals based on
retail sales and equipment usage. Generally, the leases provide for
renewal for various periods at stipulated rates.
Property, plant and equipment include the following amounts for
leases which have been capitalized at June 30 (dollars in thousands):
1996 1995
---- ----
Land $ 103 $ 103
Buildings and improvements 911 911
Machinery and equipment 11,021 10,381
------ ------
12,035 11,395
Accumulated depreciation (9,833) (8,953)
------- -------
$ 2,202 $ 2,442
====== ======
Future minimum payments by year and in the aggregate, under the
capital leases and non-cancelable operating leases, with initial or
remaining terms of one year or more consisted of the following at
June 30, 1996 (dollars in thousands):
Capital Operating
Fiscal Year Ending June 30: Leases Leases
------- ---------
1997 $ 2,823 $ 8,046
1998 1,843 6,727
1999 1,465 5,637
2000 1,015 4,678
2001 210 3,750
Subsequent to 2001 1,020 19,867
------- -------
Total minimum lease payments 8,376 $48,705
======
Amounts representing interest 3,233
-------
Present value of future minimum lease payments 5,143
Less amounts due in one year 2,391
-------
Long-term obligations under capital leases $ 2,752
=====
The above amounts will be offset by minimum future rentals from
subleases of $8,524,000 on operating leases.
<PAGE>
Total rent expense for the fiscal years ended June 30 was as follows
(dollars in thousands):
1996 1995 1994
------- -------- ------
Basic rentals under operating
leases $ 14,419 $ 8,579 $ 7,124
Contingent rentals under
operating leases 1,082 4,294 3,121
-------- ------- -------
15,501 12,873 10,245
Less sublease rent 1,782 2,091 1,849
-------- ------- -------
$ 13,719 $10,782 $ 8,396
======= ====== ======
(10) Shareholders' Equity
On May 20, 1996, the Board of Directors adopted a Stockholder Rights
Plan and declared a dividend of one Right for each outstanding share
of common stock as of July 10, 1996. Each Right entitles its holder,
under certain circumstances, to purchase one one-hundredth of a share
of the Company's Series C Junior Participating Preferred Stock at a
price of $125.00 (subject to adjustment).
The Rights may not be exercised until 10 days after a person or group
acquires 15% or more of the Company's common stock, or 15 days after
the commencement or the announcement of the intent to commence a
tender offer which, if consummated, would result in a 15% or more
ownership of the Company's common stock.
Until then, separate Rights certificates will not be issued, nor will
the Rights be traded separately from the stock.
Should an acquirer become the beneficial owner of 15% of the
Company's common stock, and under certain additional circumstances,
the Company's stockholders (other than the acquirer) would have the
right to receive in lieu of the Series C Junior Participating
Preferred Stock, a number of shares of the Company's common stock, or
in stock of the surviving enterprise if the Company is acquired,
having a market value equal to two times the purchase price.
The Rights will expire on May 31, 2006, unless redeemed prior to that
date. The redemption price is $0.01 per Right. The Board of
Directors may redeem the Rights at its option any time prior to the
announcement that a person or group has acquired 15% or more of the
Company's common stock.
The Company's authorized capital stock consists of (a) 35,000,000
shares of Common Stock, par value $.01 per share, (b) 600,000 shares
of Class B Common Stock, par value $.01 per share, (c) 1,055,000
shares of Preferred Stock, par value $.01 per share of which (i)
30,000 shares have been designated Series A Redeemable Convertible
Preferred Stock ("the Redeemable Convertible Preferred Stock"), (ii)
30,000 shares have been designated Series B Redeemable Convertible
Preferred Stock, (iii) 155,010 shares have been designated as Series
C Junior Participating Preferred Stock, and (iv) the remaining
839,990 shares may be designated by the Board of Directors with such
rights and preferences as they determine (all such preferred stock,
collectively, the "Preferred Stock"). As of June 30, 1996, no shares
of Preferred Stock or shares of Class B Common Stock were issued or
outstanding.
On May 20, 1996, the Company declared a $.04 quarterly dividend
payable to all stockholders of record as of July 10, 1996.
(11) Employee Stock Plans
The Company has reserved 896,591 shares of Common Stock for issuance
pursuant to the Company's stock option plans as follows:
1992 Stock Option Plan
-----------------------
The 1992 Stock Option Plan provides for the grant of options to
key employees and non-employee directors to purchase shares of
Common Stock that are either qualified or non-qualified under
Section 422 of the Internal Revenue Code, as well as stock
appreciation rights on such options. The awarding of such
options is determined by the Compensation Committee of the Board
of Directors after consideration of recommendations proposed by
the Chief Executive Officer. The options vest 25% per year over
a four-year period and are exercisable at the market value of
the Common Stock at the date of grant. The maximum number of
shares of Common Stock reserved for issuance under the 1992
Stock Option Plan is 580,199 shares. Options covering 34,000
shares have been issued to independent directors and are
exercisable at prices ranging from $18.00 to $19.50 per share
and will vest 50% on each of the first two anniversary dates of
the grant. Options to purchase 60,000 shares were awarded to
Mr. Kathwari during fiscal year 1995 and an additional 240,000
options to purchase shares were awarded to Mr. Kathwari during
1996. These options are exercisable at $19.50 and $19.00 per
share, respectively and will vest over seven years commencing
with the first vesting date of July 27, 1994, and each of the
next six years. Through June 30, 1995, options to purchase
152,000 shares were issued to other employees with exercise
prices ranging from $19.00 to $19.50 per share and options to
purchase 46,700 shares were issued to certain key employees in
fiscal 1996 and are exercisable at $19.00 per share.
Incentive Stock Option Plan
---------------------------
Pursuant to the Incentive Stock Option Plan, the Company has
granted to members of management options to purchase 276,514
shares of Common Stock at an exercise price of $16.50 per share.
Such options vest twenty percent per year over a five-year
period.
Management Warrants
--------------------
Warrants to purchase 174,955 shares of Common Stock were granted
to certain key members of management during fiscal 1992 and
1991. The warrants are currently exercisable at $3.675 per
share.
Earn-In Warrants
----------------
Earn-In Warrants have been fully earned and have been allocated
to Ethan Allen's managers and employees. Earn-In Warrants are
exercisable at $.375 per share.
Stock option and warrant activity during 1996, 1995 and 1994 is as
follows:
Number of
shares
------------------------------------------------
1992 Stock Incentive Management Earn-In
Option Plan Options Warrants Warrants
----------- ---------- ---------- --------
Outstanding at June 30, 1993 - 268,251 164,458 133,333
------- ------- ------- -------
Granted in 1994 115,600 - - -
Exercised in 1994 - - (6,466) -
Canceled in 1994 (1,700) (12,800) (10,604) (1,500)
------- ------- ------- -------
Outstanding at June 30, 1994 113,900 255,451 147,388 131,833
Granted in 1995 121,400 - - -
Exercised in 1995 (250) (3,467) (26,297) (7,049)
Canceled in 1995 (8,350) (12,000) (312) (4,333)
------- ------- ------- -------
Outstanding at June 30, 1995 226,700 239,984 120,779 120,451
Granted in 1996 295,700 - - -
Exercised in 1996 (2,950) (67,350) (30,319) (43,996)
Canceled in 1996 (12,725) (10,875) (3,117) (5,966)
------- ------- ------- -------
Outstanding at June 30, 1996 506,725 161,759 87,343 70,489
======= ======= ======= =======
Exercisable at June 30, 1996 158,908 161,759 87,343 70,489
======= ======= ======= =======
(12) Income Taxes
Income tax expense consists of the following for the fiscal years
ended June 30 (dollars in thousands):
1996 1995 1994
------- ------- -------
Current:
Federal $ 14,445 $ 12,172 $ 10,489
State 3,778 3,367 3,557
------- ------ ------
Total current 18,223 15,539 14,046
------- ------ ------
Deferred:
Federal 517 (392) 2,280
State 105 (1,914) (279)
------- ------ ------
Total deferred 622 (2,306) 2,001
======= ====== ======
Income tax expense
on income
before extraordinary
charge and the cumulative
effect of accounting
change $ 18,845 $ 13,233 $ 16,047
======= ======= =======
<PAGE>
The following is a reconciliation of expected income taxes (computed
by applying the Federal statutory rate to income before taxes,
extraordinary charge and cumulative effect of accounting change) to
actual income tax expense (dollars in thousands):
1996 1995 1994
------- -------- --------
Computed "expected"
income tax expense $16,447 $12,588 $13,516
State income taxes,
net of federal income
tax benefit 2,016 1,987 2,130
Goodwill amortization 99 99 99
Increase in federal tax rate,
effect on deferred tax
balances - - 500
Decrease in state deferred tax
balances, due to
business reorganization
(note 15) - (1,660) -
Other, net 283 219 (198)
------- ------ -------
Income tax expense
on income before
extraordinary charge
and cumulative effect
of accounting change $18,845 $13,233 $16,047
====== ====== ======
The significant components of the deferred tax expense (benefit) are
as follows (dollars in thousands):
1996 1995 1994
---------- --------- ---------
Deferred tax expense (benefit)
exclusive of the
component below $ (885) $ (3,938) $ 882
Utilization of net operating
loss carryforwards 1,507 1,632 1,119
------- ------- -------
$ 622 $ (2,306) $ 2,001
======= ======== =======
<PAGE>
The components of the net deferred tax liability as of June 30 are as
follows (dollars in thousands):
1996 1995
-------- ---------
Deferred tax assets:
Accounts receivable $ 1,204 $ 1,849
Inventories 3,513 3,927
Other liabilities and reserves 4,588 3,729
Net operating loss carryforwards 13,256 14,763
------- ------
Total deferred tax asset 22,561 24,268
------ ------
Deferred tax liabilities:
Property, plant and equipment 29,006 30,853
Intangible assets other than
goodwill 16,194 16,684
Miscellaneous 892 840
------ ------
Total deferred tax liability 46,092 48,377
------ ------
Net deferred tax liability $23,531 $24,109
====== ======
The Company has tax operating loss carryforwards of approximately
$33.9 million at June 30, 1996, of which $12.0 million expires in
2006, $11.3 million expires in 2007 and $10.6 million expires in
2008. Pursuant to Section 382 of the Internal Revenue Code, the
Company's utilization of the net operating loss carryforwards are
subject to an annual limitation of approximately $3.9 million.
Management believes that the results of future operations will
generate sufficient taxable income to realize deferred tax assets.
(13) Retirement Programs - Employee Benefits
Retirement Program
------------------
Ethan Allen's profit sharing plan, which is the primary retirement
program, is a defined contribution plan. Contributions to the profit
sharing plan are made at the discretion of management. Profit
sharing expense was $1,876,000 in 1996, $1,008,000 in 1995, and
$750,000 in 1994.
401(k) Employee Savings Plan
----------------------------
Ethan Allen offers a 401(k) Employee Savings Plan to all employees of
Ethan Allen who have completed at least one year of service (1,000
hours) during the plan year. Ethan Allen may, at its discretion,
make a matching contribution on behalf of each participant, provided
the contribution does not exceed 50% of the participant's
contribution or $400 per participant per Plan Year.
Other Retirement Plans and Benefits
-----------------------------------
Ethan Allen provides additional benefits to selected members of
senior and middle management in the form of deferred compensation
arrangements and a management incentive program. The total cost of
these benefits was $2,047,000, $1,157,000, and $1,489,000 in 1996,
1995 and 1994, respectively.
(14) Wholly-Owned Subsidiary
The Company owns all of the outstanding stock of Ethan Allen and has
no material assets other than its ownership of Ethan Allen stock and
conducts all significant operating transactions through Ethan Allen.
The Company has guaranteed Ethan Allen's obligation under the Credit
Agreement and the Senior Notes and has pledged all the outstanding
capital stock of Ethan Allen to secure its guarantee under the Credit
Agreement.
The condensed balance sheets of Ethan Allen as of June 30 are as
follows (dollars in thousands):
Assets
------ 1996 1995
-------- --------
Current assets $168,261 $176,068
Non-current assets 231,163 232,153
------- --------
Total assets $399,424 $408,221
======= =======
Liabilities
-----------
Current liabilities $ 58,517 $ 52,583
Non-current liabilities 116,553 161,718
------- -------
Total liabilities $175,070 $214,301
======= =======
<PAGE>
A summary of Ethan Allen's operating activity for each of the years
in the three-year period ended June 30, 1996, is as follows:
1996 1995 1994
-------- ------- --------
Net sales $509,776 $476,111 $437,286
Gross profit 205,126 185,073 170,782
Operating income 55,677 46,216 50,286
Interest expense 8,882 10,777 11,943
Amortization of deferred
financing costs 734 1,160 1,384
Income before income
taxes, extraordinary charge,
and cumulative effect
of accounting change 47,095 36,037 38,674
Net income $ 28,250 $ 22,198 $ 22,627
(15) Business Reorganization
The Company implemented a business reorganization ("Reorganization")
effective July 1, 1995, which permitted a separation of manufacturing
operations from distribution and store operations. This has given
the Company additional flexibility to permit it to reduce its
aggregate state corporate income tax liability by allocating income
to the operations responsible for generating such income, thereby
reducing the Company's effective tax rate. The Company believes that
the separation of manufacturing operations from distribution and
store operations also provides for improved measures of performance
including profitability of operations and return on assets, by
allowing the Company to more easily allocate income, expenses and
assets to the separate operations of the Company's business. The
Reorganization consisted principally of the following elements: (i)
the contribution of Ethan Allen's manufacturing equipment to Ethan
Allen Manufacturing Corporation ("EAMC"), which is a wholly owned
subsidiary of Ethan Allen, (ii) EAMC entered into operating lease
arrangements with Ethan Allen for real property used in manufacturing
operations, (iii) the contribution by Ethan Allen of certain of Ethan
Allen's trademarks and service marks, design patents and related
assets to Ethan Allen Finance Corporation ("EAFC") which is a wholly
owned subsidiary of Ethan Allen, (iv) the full and unconditional
guarantee on a senior unsecured basis of Ethan Allen's obligations
under Ethan Allen's Credit Agreement and Senior Notes due 2001 by
each of EAMC and EAFC and Andover Woods Products Inc. ("Andover", a
wholly owned subsidiary of Ethan Allen), (v) the amendment of the
Company's existing guarantee of Ethan Allen's obligations under the
Senior Notes to include a guarantee of each Guarantor Subsidiary's
obligations under its Subsidiary Guarantee, (vi) the execution of a
management agreement and a service mark licensing agreement between
Ethan Allen and EAFC, (vii) the execution of a management agreement
and a trademark licensing agreement between EAMC and EAFC and (viii)
the execution of a manufacturing agreement between Ethan Allen and
EAMC. Ethan Allen continues to own its headquarters building in
Danbury, Connecticut, the real property associated with EAMC's
manufacturing operations and the assets and liabilities associated
with the current Ethan Allen-owned retail operations and Ethan
Allen's distribution, service and home delivery operations.
Costs associated with the Reorganization of $750,000, including
consent fees paid to the holders of the Company's Senior Notes, were
recorded in fiscal 1995.
The summarized historical combined balance sheet information for
EAMC, EAFC, and Andover (the "Guarantor Subsidiaries") at June 30,
1996 and 1995 is as follows (dollars in thousands):
June 30 June 30
Assets 1996 1995
------ --------- ----------
Current assets $ 46,394 $ 43,609
Non-current assets 164,602 68,057
--------- --------
Total assets $ 210,996 $ 111,666
======== ========
Liabilities
-----------
Current liabilities $ 21,346 $ 139
Non-current liabilities 17,939 19,439
-------- --------
Total liabilities $ 39,285 $ 19,578
======== ========
Summarized historical combined operating activity of the Guarantor
Subsidiaries for each of the years in the three-year period ended
June 30, 1996 is as follows (dollars in thousands):
1996 1995 1994
--------- --------- ---------
Net Sales $ 317,563 $ 292,148 $ 275,496
Gross Profit 57,227 38,721 37,356
Operating Income 39,324 15,882 14,304
Income before
income taxes 43,636 15,717 14,310
Net income $ 26,400 $ 9,351 $ 8,524
<PAGE>
The summarized historical financial information for the Guarantor
Subsidiaries above, has been derived from the financial statements of
the Company.
(16) Litigation
The Company has been named as a potentially responsible party ("PRP")
for the cleanup of four sites currently listed or proposed for
inclusion on the National Priorities List ("NPL") under the
Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA"). Numerous other parties have been identified as
PRP's at these sites. The Company believes its share of waste
contributed to these sites is small in relation to the total;
however, liability under CERCLA may be joint and several. The
Company has total reserves of $500,000 applicable to these sites,
which would be sufficient to cover any resulting liability. With
respect to all of these sites, the Company believes that it is not a
major contributor based on the very small volume of waste generated
by the Company in relation to total volume at the site. For three of
the sites, the site assessment is at a very early stage and there has
been no allocation of responsibility among the parties.
Environmental assessment activity with respect to these sites is
expected to continue over the next few years. With respect to the
fourth site, final allocation is in the process of being negotiated.
(17) Related Party Transactions
The Company has outstanding notes receivable of $51,000 from members
of management at June 30, 1996 ($592,000 at June 30, 1995), the
proceeds of which were used to purchase the Company's common stock.
Accordingly, the notes receivable are reflected as a reduction of
shareholders' equity in the balance sheet. Such loans bear interest
at 7% and are payable January 1997.
(18) Segment Information
The Company's operations are classified into two business segments:
wholesale and retail home furnishings. The wholesale home
furnishings segment is principally involved in the manufacture, sale
and distribution of home furnishing products to a network of
independently-owned and Ethan Allen-owned galleries. The retail home
furnishings segment sells home furnishing products through a network
of Ethan Allen-owned galleries. These products consist of case goods
(wood furniture), upholstered products, and home accessories.
Wholesale profitability includes the wholesale gross margin which is
earned on wholesale sales to all retail galleries, including Ethan
Allen-owned galleries. The retail profitability includes the retail
gross margin which is earned based on purchases from the wholesale
business. Inter-segment eliminations primarily comprise the
wholesale sales and profit on the transfer of inventory between
segments. Operating earnings by business segment are defined as
sales less operating costs and expenses. Income and expense items,
such as corporate operating expenses, are included in the applicable
segment. Identifiable assets are those assets used exclusively in
the operations of each business segment. Corporate assets
principally comprise cash, deferred financing costs, and deferred
income taxes.
The following table shows sales, operating earnings and other
financial information by business segment for the fiscal years ended
June 30, 1996, 1995, and 1994 (dollars in thousands):
Inter-Segment
Wholesale Retail Eliminations Consolidated
--------- ------ ------------- ------------
1996
-----
Net sales $433,886 $155,601 $ (79,711) $509,776
Operating income 53,745 4,059 (2,237) 55,567
Interest and other
income 663 376 - 1,039
Less: Interest expense - - - (9,616)
-------
Income before income
tax expense 46,990
Depreciation and
amortization 15,199 1,562 - 16,761
Identifiable assets 327,371 48,350 - 375,721
Cash 9,078
Deferred income taxes 9,305
Deferred financing costs 1,877
-------
Total assets 395,981
Capital expenditures 7,421 5,893 - 13,314
<PAGE>
Inter-Segment
Wholesale Retail Eliminations Consolidated
--------- ------ ------------- ------------
1995
-----
Net sales $415,412 $133,168 $(72,469) $476,111
Operating income 46,012 2,625 (2,501) 46,136
Interest and other
income 1,451 315 - 1,766
Less: Interest expense (11,937)
--------
Income before income tax
expense, extraordinary
charge, and cumulative
effect of accounting
change 35,965
Depreciation and
amorization 14,798 1,300 - 16,098
Identifiable assets 338,572 50,314 - 388,886
Cash 7,546
Deferred income taxes 9,505
Deferred financing costs 2,351
-------
Total assets 408,288
Capital expenditures 5,768 5,476 - 11,244
Inter-Segment
Wholesale Retail Eliminations Consolidated
--------- ------ ------------- ------------
1994
------
Net sales $392,355 $105,086 $ (60,155) $437,286
Operating income 51,769 2,052 (3,608) 50,213
Interest and other
income 1,594 138 - 1,732
Less: Interest expense (13,327)
-------
Income before income
tax expense 38,618
Depreciation and
amortization 14,566 1,293 - 15,859
Identifiable assets 338,333 51,322 - 389,655
Cash 6,731
Deferred income taxes 10,630
Deferred financing costs 6,271
--------
Total assets 413,287
Capital expenditures 5,585 5,382 - 10,967
(19) Selected Quarterly Financial Data (Unaudited)
Tabulated below are certain data for each quarter of the fiscal years
ended June 30, 1996 and 1995 (dollar amounts in thousands, except per
share data).
Quarter Ended
----------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
1996 Quarters:
Net sales $116,941 $127,212 $134,631 $130,992
Gross profit 45,471 51,355 54,141 54,159
Net income 4,500 7,841 8,348 7,456
Net income per common
share $ 0.31 $ 0.54 $ 0.57 $ 0.51
1995 Quarters:
Net sales $113,535 $125,735 $123,615 $113,226
Gross profit 44,944 48,189 47,878 44,062
Income before
extraordinary charge
and cumulative effect
of accounting change 5,839 7,139 6,890 2,864
Extraordinary charge - - (2,073) -
Cumulative effect of
accounting change 1,467 - - -
Net income $ 7,306 $ 7,139 $ 4,817 $ 2,864
Net income per common
share before extra-
ordinary charge
and cumulative effect
of accounting change $ 0.40 $ 0.49 $ 0.47 $ 0.20
Net income per common
share $ 0.50 $ 0.49 $ 0.33 $ 0.20
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures
No changes in or disagreements with accountants on accounting or
financial disclosure occurred in fiscal years 1996 and 1995.
<PAGE>
PART III
---------
Part III is omitted as the Company intends to file with the
Commission within 120 days after the end of the Company's fiscal year a
definitive proxy statement pursuant to Regulation 14A which will involve
the election of directors.
ITEM 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
See reference to definitive proxy statement under Part III.
ITEM 11. Executive Compensation
- -------- ----------------------
See reference to definitive proxy statement under Part III.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
See reference to definitive proxy statement under Part III.
ITEM 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
See reference to definitive proxy statement under Part III.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------- ----------------------------------------------------------------
(a) Listing of Documents
(1) Financial Statements. The Company's Consolidated Financial
Statements included in Item 8 hereof, as required at June 30,
1996 and 1995, and for the years ended June 30, 1996, 1995 and
1994, consist of the following:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
<PAGE>
(2) Financial Statement Schedules. Financial Statement Schedules of
the Company appended hereto, as required for the years ended
June 30, 1996, 1995 and 1994, consist of the following:
II. Valuation and Qualifying Accounts
The schedules listed in Reg. 210.5-04, except those listed above,
have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
(3) The following Exhibits are filed as part of this report on Form
10-K:
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- --------
<S> <C>
*2(a) Agreement and Plan of Merger, dated May 20, 1989 among the
Company, Green Mountain Acquisition Corporation ("Merger
Sub"), INTERCO Incorporated, Interco Subsidiary, Inc. and
Ethan Allen
*2(b) Restructuring Agreement, dated as March 1, 1991, among
Green Mountain Holding Corporation, Ethan Allen, Chemical
Bank, General Electric Capital Corporation, Smith Barney
Inc. and the stockholder's name on the signature page
thereof
*3(a) Restated Certificate of Incorporation for Green Mountain
Holding Corporation
*3(b) Restated and Amended By-Laws of Green Mountain Holding
Corporation
*3(c) Restated Certificate of Incorporation of the Company
*3(d) Amended and Restated By-laws of the Company
*3(e) Certificate of Designation relating to the New Convertible
Preferred Stock
*3(f) Certificate of Incorporation of Ethan Allen Finance
Corporation
*3(g) By-Laws of Ethan Allen Finance Corporation
*3(h) Certificate of Incorporation of Ethan Allen Manufacturing
Corporation
*3(i) By-Laws of Ethan Allen Manufacturing Corporation
*4(a) First Amendment to Management Non-Qualified Stock Option
Plan
*4(b) Second Amendment to Management Non-Qualified Stock Option
Plan
*4(c) 1992 Stock Option Plan
*4(d) Management Letter Agreement among the Management Investors
and the Company
*4(e) Management Warrant, issued by the Company to members of the
Management of Ethan Allen
*4(f) Form of Dealer Letter Agreement among Dealer Investors and
the Company
*4(g) Form of Kathwari Warrant, dated June 28, 1989
*4(j) Form of Indenture relating to the Senior Notes
*4(j)-1 First Supplemental Indenture dated as of March 23, 1995
between Ethan Allen and the First National Bank of Boston for
$75,000,000 8-3/4% Senior Notes due 2007
*4(k) Credit Agreement among the Company, Ethan Allen and Bankers
Trust Company
*4(k)-1 Amended Credit Agreement among the Company, Ethan Allen and
Bankers Trust Company
*4(k)-2 110,000,000 Senior Secured Revolving Credit Facility dated
March 10, 1995 between Ethan Allen and Chase Manhattan Bank
*4(l) Catawba County Industrial Facilities Revenue Bond
*4(l)-1 Trust Indenture dated as of October 1, 1994 securing
$4,600,000 Industrial Development Revenue Refunding Bonds,
Ethan Allen Inc. Series 1994 of the Catawba County
Industrial Facilities and Pollution Control Financing
Authority
*4(m) Lease for 2700 Sepulveda Boulevard, Torrance, California
*4(n) Amended and Restated Warrant Agreement, dated March 1,
1991, among Green Mountain Holding Corporation and First
Trust National Association
*4(o) Exchange Notes Warrant Transfer Agreement
*4(p) Warrant (Earned) to purchase shares of the Company's Common
Stock dated March 24, 1993
*4(q) Warrant (Earned-In) to purchase shares of the Company's
Common Stock, dated March 23, 1993
*4(r) Recapitalization Agreement among the Company, General
Electric Capital Corporation, Smith Barney Inc., Chemical
Fund Investments, Inc., Legend Capital Group, Inc., Legend
Capital International Ltd., Castle Harlan, Inc., M. Farooq
Kathwari, the Ethan Allen Retirement Program and other
stockholders named on the signature pages thereto, dated as
of March 24, 1993
*4(s) Preferred Stock and Common Stock Subscription Agreement,
dated March 24, 1993, among the Company, General Electric
Capital Corporation, and Smith Barney Inc.
*10(b) Employment Agreement, dated June 29, 1989, among Mr.
Kathwari, the Company and Ethan Allen
*10(c) Employment Agreement dated July 27, 1994 among Mr.
Kathwari, the Company and Ethan Allen
*10(d) Restated Directors Indemnification Agreement, dated March
1993, among the Company and Ethan Allen and their Directors
*10(e) Registration Rights Agreement, dated March 1993, by and
among Ethan Allen, General Electric Capital Corporation and
Smith Barney Inc.
*10(f) Form of management Bonus Plan, dated October 30, 1991
*10(g) Ethan Allen Profit Sharing and 401(k) Retirement Plan
*10(h) General Electric Capital Corporation Credit Card Agreement
11 Statement Regarding Computation of Per Share Earnings
*21 List of wholly-owned subsidiaries of the Company
*23(a) Consent of KPMG Peat Marwick LLP.
__________________
<FN>
* Incorporated by reference to the exhibits filed with the
Registration Statement on Form S-1 of the Company and Ethan Allen
Inc. filed with the Securities and Exchange Commission on March 16,
1993 (Commission File No. 33-57216) and the exhibits filed with the
Annual Report on Form 10-K of the Company and Ethan Allen Inc.
filed with the Securities and Exchange Commission of September 24,
1993 (Commission File No. 1-11806) and the Registration Statement
on Form S-3 of the Company, Ethan Allen, Ethan Allen Manufacturing
Corporation, Ethan Allen Finance Corporation and Andover Wood
Products Inc. filed with the Securities and Exchange Commission on
October 23, 1994 (Commission File No. 33-85578-01) and all
supplements thereto.
(b) The Company filed a Form 8-K on July 3, 1996 related to the
Company's declaration of a dividend of one preferred stock purchase
right for each outstanding share of common stock of $.01 par value
of the Company. The dividend is payable to stockholders of record
at the close of business on July 10, 1996. Each right entitles the
registered holder to purchase one one-hundredth (1/100) of a share
of the Company's Series C Junior Participating Preferred Stock at a
purchase price of $125.
</TABLE>
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
As of and for the Fiscal Years Ended June 30, 1996, 1995 and 1994
(Dollars in thousands)
Balance at Additions Balance at
Beginning Charged to End of
of Period Income Adjustments Period
------------- --------- ----------- ----------
Receivables:
Allowance for doubtful
accounts:
June 30, 1996 $ 4,567 $ 47 $ (1,639) $ 2,975
June 30, 1995 $ 3,718 $ 977 $ (128) $ 4,567
June 30, 1994 $ 4,547 $ 97 $ (926) $ 3,718
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ETHAN ALLEN INTERIORS INC.
(Registrant)
By /s/ M. Farooq Kathwari
------------------------
Chairman, Chief Executive Officer
and Director
ETHAN ALLEN INC.
(Registrant)
By /s/ M. Farooq Kathwari
-------------------------
Chairman, Chief Executive Officer
and Director
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ M. Farooq Kathwari Chairman, Chief Executive
- ---------------------------- Officer and Director
(M. Farooq Kathwari)
/s/ Clinton A. Clark Director
- ----------------------------
(Clinton A. Clark)
/s/ Kristin Gamble Director
- ----------------------------
(Kristin Gamble)
/s/ Steven A. Galef Director
- ----------------------------
(Steven A. Galef)
/s/ Horace McDonell Director
- ----------------------------
(Horace McDonell)
/s/ Edward H. Meyer Director
- ----------------------------
(Edward H. Meyer)
/s/ William W. Sprague Director
- -----------------------------
(William W. Sprague)
/s/ Edward P. Schade Vice President &
- ------------------------------ Treasurer
(Edward P. Schade)
/s/ Gerardo Burdo Corporate Controller
- ------------------------------
(Gerardo Burdo)
EXHIBIT 11. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Fiscal Year Ended
June 30,
1996 1995
-------- ---------
Primary Earnings Per Share:
- ---------------------------
Average number of
shares outstanding 14,366,000 14,384,000
Net effect of common
stock equivalents 198,000 239,000
---------- ----------
Average number of
shares-primary 14,564,000 14,623,000
Net income available
to common
shareholders before
extraordinary charge
and cumulative effect of
accounting change $28,145,000 $22,732,000
Extraordinary charge - (2,073,000)
Cumulative effect of
accounting change - 1,467,000
----------- ----------
Net income $28,145,000 $22,126,000
========== ==========
<PAGE>
Per Share Data:
- --------------
Net income per common shares,
excluding extraordinary charge
and cumulative effect of
accounting change $1.93 $1.56
Extraordinary charge - (0.14)
Cumulative effect of
accounting change - 0.10
----------- ---------
Net income per
common share $1.93 $1.52
=========== =========
Earnings Per Common Share:
- -------------------------
Earnings per common share are computed by dividing net earnings by
the weighted average number of shares of common stock equivalents
outstanding during each period. The Company has issued stock options and
warrants which are the Company's only common stock equivalents.
Fully Diluted Earnings Per Share:
- --------------------------------
Fully diluted earnings per share is within 3% of primary earnings per share
for all periods presented.
