UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-11806
Ethan Allen Interiors Inc.; Ethan Allen Inc.; Ethan Allen Finance
Corporation; Ethan Allen Manufacturing Corporation; Andover Wood
Products Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1275288
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
Ethan Allen Drive, Danbury, Connecticut 06811
(Address of principal executive offices)
(203) 743-8000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
14,403,804 at March 31, 1997
<PAGE>
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of March 31,
1997 and June 30, 1996 and for the three and nine
months ended March 31, 1997 and 1996 (unaudited):
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Consolidated Statements of Shareholders' Equity 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Part II. Other Information: 14
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and reports on Form 8-K
1
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
March 31,
ASSETS 1997 June 30,
(unaudited) 1996
----------- ----
Current assets:
Cash $ 32,270 $ 9,078
Accounts receivable, less allowances of
$2,134 and $2,564 at March 31, 1997 and
June 30, 1996, respectively 34,890 33,984
Notes receivable, current portion, less
allowances of $80 and $314 at March 31,
1997 and June 30, 1996, respectively 1,355 1,314
Inventories (note 3) 102,222 107,224
Prepaid expenses and other current assets 7,990 7,377
Deferred income taxes 7,194 9,305
------- -------
Total current assets 185,921 168,282
------- -------
Property, plant and equipment, net 165,673 159,634
Property, plant and equipment
for sale (note 4) 1,135 4,233
Notes receivable, net of current portion, less
allowance of $176 and $97 at March 31, 1997
and June 30, 1996, respectively 2,290 2,561
Intangibles, net of amortization of $13,003 and
$11,768 at March 31, 1997 and June 30, 1996,
respectively 52,830 54,065
Deferred financing costs, net of amortization of
$1,813 and $1,426 at March 31, 1997 and June 30,
1996, respectively 1,663 1,877
Other assets 4,463 5,329
------- -------
Total assets $413,975 $395,981
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 1,127 $ 2,498
Accounts payable 41,287 36,742
Accrued expenses 5,967 6,956
Accrued compensation and benefits 13,161 12,939
------- -------
Total current liabilities 61,542 59,135
------- -------
Long-term debt, less current maturities 64,176 79,929
Obligations under capital leases, less current
maturities 3,126 2,752
Other long-term liabilities, principally long-term
compensation, environmental and legal reserves 832 1,036
Deferred income taxes 31,880 32,836
------- -------
Total liabilities 161,556 175,688
------- -------
Commitments and contingencies (note 5) - -
Shareholders' equity:
Class A common stock, par value $.01, 35,000,000
shares authorized, 14,710,627 and 14,568,731
shares issued and outstanding at March 31, 1997
and June 30, 1996, respectively 147 146
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding at
March 31, 1997 and June 30, 1996, respectively - -
Additional paid-in capital 255,389 254,971
------- -------
255,536 255,117
Less: Notes receivable from officer and employees - (51)
Treasury stock (at cost) 306,823 and 256,480
shares at March 31, 1997 and June 30,
1996, respectively (7,569) (5,371)
------- -------
247,967 249,695
Retained earnings (accumulated deficit) 4,452 (29,402)
------- -------
Total shareholders' equity 252,419 220,293
------- -------
Total liabilities and shareholders' equity $413,975 $395,981
======= =======
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Nine Months
Ended March 31, Ended March 31,
1997 1996 1997 1996
------------------- -------------------
<S> <C> <C> <C> <C>
Net sales ............................ $144,719 $134,631 $415,404 $378,784
Cost of sales ........................ 81,411 80,490 237,597 227,817
-------- -------- -------- --------
Gross profit ..................... 63,308 54,141 177,807 150,967
Operating expenses:
Selling ............................ 22,965 19,055 61,000 54,681
General and administrative ......... 17,792 19,148 56,204 55,234
-------- -------- -------- --------
Operating income ................. 22,551 15,938 60,603 41,052
-------- -------- -------- --------
Interest and other miscellaneous
income, net ........................ 577 270 921 860
Interest expense ..................... 1,595 2,136 4,606 7,030
Amortization of deferred
financing costs .................... 102 105 459 319
-------- -------- -------- --------
Income before income taxes ......... 21,431 13,967 56,459 34,563
Income tax expense ................... 8,582 5,619 22,60 13,874
-------- -------- -------- --------
Net income ....................... $ 12,849 $ 8,348 $ 33,859 $ 20,689
======== ======== ======== ========
Per share data:
Net income per common share ...... $ 0.88 $ 0.57 $ 2.32 $1.42
======== ======== ======== ========
Dividend declared per common share $ 0.04 $ 0.04 $ 0.12 $0.04
======== ======== ======== ========
Weighted average common shares
outstanding (in thousands) ...... 14,631 14,544 14,635 14,538
See accompanying notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months
Ended March 31,
1997 1996
---- ----
<S> <C> <C>
Operating activities:
Net income ................................................. $ 33,859 $ 20,689
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........................... 12,725 13,014
Provision for deferred income taxes ..................... 1,824 775
Other non-cash benefit (charge) ......................... 421 (124)
Change in:
Accounts receivable ................................... (798) (4,876)
Inventories ........................................... 5,002 6,397
Prepaid and other current assets ...................... (613) (731)
Other assets .......................................... (114) 19
Accounts payable ...................................... 4,545 4,950
Accrued expenses ...................................... (630) (547)
Other long-term liabilities ........................... (204) (20)
-------- --------
Net cash provided by operating activities .................. 56,017 39,546
-------- --------
Investing activities:
Proceeds from the disposal of property, plant and equipment 110 96
Proceeds from the disposal of property, plant and equipment,
held for sale ............................................ 1,945 --
Capital expenditures ....................................... (15,108) (9,924)
Payments received on long-term notes receivable ............ 949 1,313
Disbursements made for long-term notes receivable .......... (777) (400)
-------- --------
Net cash used by investing activities ...................... (12,881) (8,915)
-------- --------
Financing activities:
Payments on revolving credit facilities .................... (21,500) (69,000)
Borrowings on revolving credit facilities .................. 14,500 44,000
Other long-term borrowings ................................. 794 --
Redemption of senior notes ................................. (9,384) --
Payments on long-term debt, including current maturities ... (118) (58)
Payments under capital leases .............................. (1,547) (1,239)
Issuance of capital stock .................................. 1,407 321
Payments to acquire Treasury stock ......................... (2,198) (2,755)
Increase in deferred financing costs ....................... (173) (101)
Payment of dividends ....................................... (1,725) --
-------- --------
Net cash used by financing activities ...................... (19,944) (28,832)
-------- --------
Net increase in cash ......................................... 23,192 1,799
Cash at beginning of period .................................. 9,078 7,546
-------- --------
Cash at end of period ........................................ $ 32,270 $ 9,345
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Nine Months Ended March 31, 1997
(Unaudited)
(Dollars in thousands)
Additional
Common Paid-in Notes Treasury Retained
Stock Capital Receivable Stock Earnings Total
--------- --------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996 ........ $ 146 $ 254,971 $ (51) $ (5,371) $ (29,402) $ 220,293
Issuance of capital stock ..... 1 1,407 - - - 1,408
Payments received on notes
receivable .................. - - 51 - - 51
Increase in management
warrants .................... - 71 - - - 71
Purchase of 50,343 shares
of treasury stock ........... - - - (2,198) - (2,198)
Tax benefit associated with the
exercise of employee options
and warrants ................ - 669 - - - 669
Dividends declared ............ - (1,729) - - - (1,729)
Foreign currency adjustment ... - - - - (5) (5)
Net income .................... - - - - 33,859 33,859
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1997 ....... $ 147 $ 255,389 $ - $ (7,569) $ 4,452 $ 252,419
========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) 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.
(2) Interim Financial Presentation
All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
In the opinion of the Company, all adjustments, consisting only of
normal recurring accruals necessary for fair presentation, have been
included in the financial statements. The results of operations for the
three and nine months ended March 31, 1997, are not necessarily
indicative of results for the fiscal year.
(3) Inventories
Inventories at March 31, 1997 and June 30, 1996 are summarized as
follows (dollars in thousands):
March 31, June 30,
1997 1996
--------- --------
Retail merchandise $ 30,203 $ 28,695
Finished products 31,085 39,146
Work in process 12,969 12,803
Raw materials 27,965 26,580
-------- --------
$102,222 $107,224
======== ========
(4) Property, Plant and Equipment Held for Sale
Property and plants held for resale are recorded at the lower of cost
or net realizable values. As of July 1, 1996, the Company adopted FAS
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets To Be Disposed Of". The adoption of this standard did not have a
material impact on the Company's financial position or its results of
operations.
(5) Contingencies
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
6
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
other parties have been identified as PRP's at these sites, and 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. 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 state
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.
(6) Wholly-Owned Subsidiary
The Company owns all of the outstanding stock of Ethan Allen, 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 obligations under its Credit
Agreement and Senior Notes and has pledged all the outstanding capital
stock of Ethan Allen to secure its guarantee under its Credit
Agreement.
The condensed balance sheets of Ethan Allen as of March 31, 1997 and
June 30, 1996 are as follows (dollars in thousands):
March 31, June 30,
1997 1996
---- ----
Assets
------
Current assets ........... $185,914 $168,261
Non-current assets ....... 234,543 231,163
-------- --------
Total assets .... $420,457 $399,424
======== ========
Liabilities
-----------
Current liabilities ...... $ 60,913 $ 58,517
Non-current liabilities .. 100,014 116,553
-------- --------
Total liabilities $160,927 $175,070
======== ========
7
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
A summary of Ethan Allen's operating activity for the three and nine months
ended March 31, 1997 and 1996, is as follows (dollars in thousands):
Three Months Nine Months
Ended March 31, Ended March 31,
1997 1996 1997 1996
---- ---- ---- ----
Net sales .............. $144,719 $134,631 $415,404 $378,784
Gross profit ........... 63,308 54,141 177,807 150,967
Operating income ....... 22,577 15,967 60,665 41,138
Interest expense ....... 1,595 2,136 4,606 7,030
Amortization of deferred
financing costs ...... 102 105 459 319
Income before income
tax expense .......... 21,457 13,994 56,520 34,644
Net income ............. $ 12,875 $ 8,375 $ 33,920 $ 20,770
(7) 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 consists principally of
the following elements: (i) the contribution of Ethan Allen's
manufacturing equipment to Ethan Allen manufacturing Corporation
("EAMC"), which is a newly formed, wholly-owned subsidiary of Ethan
Allen (ii) the execution of operating lease arrangements between EAMC
and 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 newly formed,
wholly-owned subsidiary of Ethan Allen, (iv) the full and unconditional
guarantee on a senior unsecured basis of Ethan Allen's obligations
under its Credit Agreement and 8-3/4% Senior Notes due 2001 by each of
EAMC, EAFC and Andover Wood Products Inc. ("Andover", a wholly-owned
subsidiary of the Company) (collectively, "Guarantor Subsidiaries"),
(v) the amendment of the Company's existing guarantee of Ethan Allen's
obligations under the Senior Notes and the related indenture 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 and a trademark licensing agreement
between EAMC and EAFC, (vii) the execution of a management agreement
between Ethan Allen and EAFC and (viii) the execution of a
manufacturing agreement between Ethan Allen and EAMC. Ethan Allen
continues to own its
8
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
headquarters building in Danbury, Connecticut, the real property
associated with EAMC's manufacturing operations and the assets and
liabilities associated with the Ethan Allen-owned retail operations and
Ethan Allen's distribution, service and home delivery operations.
The summarized historical combined balance sheet information for the
Guarantor Subsidiaries at March 31, 1997 and at June 30, 1996 is as
follows (dollars in thousands):
March 31, June 30,
Assets 1997 1996
------ -------- --------
Current assets $ 73,658 $ 46,394
Non-current assets 167,005 164,602
-------- --------
Total assets $240,663 $210,996
======== ========
Liabilities
Current liabilities $ 27,185 $ 21,346
Non-current liabilities 17,186 17,939
-------- --------
Total liabilities $ 44,371 $ 39,285
======== ========
Summarized historical combined operating activity of the Guarantor
Subsidiaries for the three and nine months ended March 31, 1997 and
1996 is as follows (dollars in thousands):
Three Months Nine Months
Ended Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
Net sales $93,110 $85,780 $255,292 $233,374
Gross profit 18,980 15,727 50,836 40,933
Operating income 14,502 11,295 37,310 28,422
Income before
income taxes 15,613 12,404 40,630 31,643
Net income $ 9,446 $ 7,504 $ 24,581 $ 19,144
The summarized historical financial information for the Guarantor
Subsidiaries above, has been derived from the financial statements of
the Company.
9
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Ethan Allen's revenues are primarily comprised of wholesale sales to
dealer-owned stores and retail sales of Ethan Allen-owned stores as follows
(dollars in millions):
Three Months Nine Months
Ended Ended
March 31, March 31,
1997 1996 1997 1996
---- ---- ---- ----
Revenues:
Net wholesale sales to
dealer-owned stores $100.9 $ 89.1 $275.4 $247.1
Net retail sales of Ethan
Allen-owned stores 39.1 38.1 123.5 114.4
Other revenues 4.7 7.4 16.5 17.3
----- ----- ----- -----
Total $144.7 $134.6 $415.4 $378.8
===== ===== ===== =====
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Sales for the three months ended March 31, 1997 increased by $10.1
million, or 7.5%, over the corresponding period in the prior year to $144.7
million. Net sales to dealer-owned stores increased by 13.2% to $100.9 million,
and net retail sales by Ethan Allen-owned stores increased by 2.6% to $39.1
million. The increase in sales to dealer-owned stores has resulted from a 3.5%
wholesale price increase effective January 1, 1997, increased sales from
relocated and new stores, improved effectiveness of existing stores, new product
offerings, and expanded national television advertising. At March 31, 1997,
there were 295 total stores, of which 230 were dealer-owned stores, as compared
to 297 total stores, of which 236 were dealer-owned, at March 31, 1996. The net
decrease in the number of stores is due primarily to the closing of 14 smaller,
underperforming stores in Japan, which were replaced by five larger, high volume
stores.
The increase in retail sales by Ethan Allen-owned stores is
attributable to a 4.9%, or $1.8 million, increase in comparable store sales, and
an increase in sales generated by newly opened or acquired stores of $0.6
million, partially offset by closed stores, which generated $1.4 million less in
sales in the three months ended March 31, 1997, as compared to the three months
ended March 31, 1996. The retail sales increase is partially the result of the
expanded national television campaign. The number of Ethan Allen-owned stores
has increased to 65 at March 31, 1997, as compared to 61 at March 31, 1996.
Comparable stores are stores that, if newly opened, have been open for
at least 15 months. Ethan Allen's retail business is principally special order
and minimal net sales are generated during the first three months of operations
of newly opened galleries. Stores acquired from dealers by Ethan Allen are
included in comparable store sales in their thirteenth full month of Ethan
Allen-owned operations.
Gross profit for the three months ended March 31, 1997 increased by
$9.2 million or 16.9% from the three months ended March 31, 1996 to $63.3
million. This increase is attributable to higher sales volume, combined with an
increase in gross margin from 40.2% in the three months ended March 31, 1996 to
43.7% in the three months ended March 31, 1997. The improvement in gross margins
is the result of greater manufacturing efficiencies and full benefit of the
recent price increase, partially offset by higher raw material costs.
10
<PAGE>
Selling, general and administrative expenses increased $2.6 million
from $38.2 million, or 28.4% of net sales in the three months ended March 31,
1996 to $40.8 million, or 28.2% of net sales in the three months ended March 31,
1997. The increase in operating expenses in the current year quarter is
primarily attributable to a $4.2 million increase in television advertising
expenses. The Company expanded its national television coverage effective
January 1, 1997. This increase is partially offset by lower employee benefit and
related costs.
Operating income for the three months ended March 31, 1997 was $22.6
million, as compared to $15.9 million in the prior year quarter. Wholesale
operating income was $24.0 million for the three months ended March 31, 1997,
compared to $16.4 million in the prior year quarter. For wholesale operations,
higher sales combined with higher gross margins favorably impacted operating
income. Wholesale operating expenses in the quarter ended March 31, 1997
increased $2.1 million as compared to the prior year quarter primarily due to
the increase in national advertising costs. Retail operating income was $0.6
million in the three months ended March 31, 1997, a decrease of $0.2 million
from the corresponding period in the prior year. The decrease in retail
operating income is primarily due to lower gross margin in the current quarter
which is the result of the wholesale price increase and higher operating
expenses.
Interest expense, including the amortization of deferred financing
costs, for the three months ended March 31, 1997 decreased by $0.5 million to
$1.7 million from $2.2 million in the three months ended March 31, 1996. The
lower interest expense reflects lower debt balances outstanding.
Income tax expense of $8.6 million or an effective tax rate of 40.0%,
was recorded for the three months ended March 31, 1997, compared to $5.6 million
or an effective tax rate of 40.2%, in the prior year quarter.
For the three months ended March 31, 1997, the Company reported net
income of $12.8 million, as compared to net income for the three months ended
March 31, 1996 of $8.3 million.
Nine Months Ended March 31, 1997 Compared to Nine Months Ended March 31, 1996
Sales for the nine months ended March 31, 1997 increased by $36.6
million, or 9.7%, over the nine months ended March 31, 1996 to $415.4 million.
Net sales to dealer-owned stores increased by $28.3 million to $275.4 million or
11.4%, and net retail sales by Ethan Allen-owned stores increased by $9.1
million or 8.0% to $123.5 million. The increase in sales to dealer-owned stores
has resulted from a 3.5% wholesale price increase effective January 1, 1997,
increased distribution through new and relocated stores, increased effectiveness
of existing stores, new product offerings, and expanded national television
advertising.
The increase in retail sales by Ethan Allen-owned stores is
attributable to an 8.4% or $8.8 million increase in comparable store sales, and
an increase in sales generated by newly opened or acquired stores of $4.2
million, partially offset by closed stores which generated $3.9 million less in
sales in the nine months ended March 31, 1997 as compared to the nine months
ended March 31, 1996.
Gross profit for the nine months ended March 31, 1997 increased by
$26.8 million from the nine months ended March 31, 1996 to $177.8 million. This
increase is attributable to higher sales volume and an improvement in gross
margin from 39.9% in the nine months ended March 31, 1996 to 42.8% in the nine
months ended March 31, 1997. The gross margin percentage improved due to greater
manufacturing efficiencies, higher sales volume and the benefit of recent price
increases.
Selling, general and administrative expenses increased $7.3 million
from $109.9 million, or 29.0% of net sales, in the fiscal 1996 period to $117.2
11
<PAGE>
million or 28.2% of net sales in the fiscal 1997 period. This increase is
attributable principally to an increase in operating expenses in the Company's
retail division of $2.3 million, due to higher sales volumes and an increase in
the number of Ethan Allen-owned stores, and a $4.8 million increase in the
Company's advertising expenses due to the expanded national television campaign
effective January 1, 1997.
Operating income for the nine months ended March 31, 1997 was $60.6
million or 14.6% of sales, as compared to $41.1 million or 10.8% of sales for
the nine months ended March 31, 1996. Wholesale operating income was $58.4
million for the nine months ended March 31, 1997, an increase of $18.3 million
or 45.6% as compared to the prior year. This increase is attributable to higher
sales volumes and improved gross margins partially offset by higher operating
expenses. Retail operating income was $4.8 million for the nine months ended
March 31, 1997 as compared to $2.6 million for the nine months ended March 31,
1996.
Interest expense, including the amortization of deferred financing
costs, for the nine months ended March 31, 1997 decreased by $2.2 million to
$5.1 million from $7.3 million in the fiscal 1996 period, due to lower debt
balances outstanding.
Income tax expense of $22.6 million or an effective rate of 40.0%, was
recorded for the nine months ended March 31, 1997 as compared to $13.9 million,
or an effective rate of 40.1%, in the prior year period.
For the nine months ended March 31, 1997, the Company recorded net
income of $33.9 million, compared to net income for the nine months ended March
31, 1996 of $20.7 million.
12
<PAGE>
Financial Condition and Liquidity
Principal sources of liquidity are cash flow from operations and
additional borrowing capacity under the revolving credit facility. Net cash
provided by operating activities totaled $56.1 million for the nine months ended
March 31, 1997, as compared to $39.5 million in the nine months ended March 31,
1996. The increase is due principally to a higher net income of $13.2 million
and lower increases in accounts receivable by $4.1 million. At March 31, 1997,
the Company had working capital of $124.4 million and a current ratio of 3.02 to
1.
During the nine months ended March 31, 1997, capital spending totaled
$15.1 million as compared to $9.9 million in the nine months ended March 31,
1996. Capital expenditures in fiscal 1997 are anticipated to be approximately
$22.0 million. The Company anticipates that cash from operations will be
sufficient to fund this level of capital expenditures. The current level of
anticipated capital spending, which is attributable primarily to manufacturing
efficiency improvements and new store openings, is expected to continue for the
foreseeable future.
Total debt outstanding at March 31, 1997 is $68.4 million. At March 31,
1997, there are no outstanding revolving loans under the Credit Agreement. Trade
and standby letters of credit of $14.8 million were outstanding as of March 31,
1997. During the current fiscal year, the Company amended its Credit Agreement
with Chase Manhattan Bank as agent. Amendments to the Credit Agreement include:
(1) the reduction of the commitment of senior secured debt under a revolving
credit facility to $100.0 million; (2) reduction of interest rates to adjusted
LIBOR plus .45% which is subject to adjustment arising from changes in the
credit rating of Ethan Allen's senior secured debt or Fixed Charge Ratio; (3)
elimination of a lien on certain fixed assets as collateral and (4) amendment of
certain additional debt and restricted payment limitations. In connection with
the Amended and Restated Credit Agreement, $173,000 in additional deferred
financing fees were incurred. These charges will be amortized over the remaining
life of the credit agreement.
Other debt includes $52.6 million of outstanding Senior Notes which
have a final maturity in 2001, with no scheduled amortization prior to final
maturity. On April 16, 1997, Standard and Poors upgraded the rating on the
Senior Notes to BBB from BB+. The Company's Senior Secured Debt was also
upgraded to BBB from BBB-. The Senior Notes 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 until this date; 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 the nine months ended March 31,
1997, $9.4 million principal amount was repurchased. The Company may also, from
time to time, either directly or through agents, repurchase its common stock in
the open market through negotiated purchases or otherwise, at prices and on
terms satisfactory to the Company. Depending on market prices and other
conditions relevant to the Company, such purchases may be discontinued at any
time. During the nine months ended March 31, 1997, the Company purchased 50,343
shares of its stock at an average price of $43.65 per share.
As of March 31, 1997, aggregate scheduled maturities of long-term debt
for each of the next five fiscal years are $.1 million, $.4 million, $.1
million, $52.8 million and $.2 million, respectively. 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.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings
There has been no change to matters discussed in Business-Legal Proceedings in
the Company's Form 10-K as filed with the Securities and Exchange Commission on
September 27, 1996.
Item 2. - Changes in Securities
There has been no change to matters discussed in Description and Ownership of
Capital Stock in the Company's Form 10-K as filed with the Securities and
Exchange Commission on September 27, 1996, except that pursuant to the November
4, 1996 Annual Meeting, the shareholders approved an Amendment to the 1992 Stock
Option Plan to increase by 600,000 the authorized shares reserved for use in
connection with the Stock Option Plan.
Item 6. - Exhibits and Reports on Form 8-K
ll. Statement RE Computation of Per Share Earnings.
27. Financial Data Schedule
14
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ETHAN ALLEN INTERIORS INC.
--------------------------
(Registrant)
DATE: 5/15/97 BY: /s/ M. Farooq Kathwari
----------------- -----------------------
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: 5/15/97 BY: /s/ Edward P. Schade
----------------- -----------------------
Edward P. Schade
Vice President &
Treasurer
(Principal Financial Officer)
DATE: 5/15/97 BY: /s/ Gerardo Burdo
----------------- -----------------------
Gerardo Burdo
Corporate Controller
(Principal Accounting Officer)
15
<PAGE>
INDEX TO EXHIBITS
ll. Computation of Per Share Earnings Page 17
27. Financial Data Schedule Page 18
16
<PAGE>
<TABLE>
<CAPTION>
ETHAN ALLEN INTERIORS INC.
Computation of Per Share Earnings
Three Months Ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Average number of
shares outstanding ...... 14,402,000 14,402,000 14,373,000 14,384,000
Treasury stock ........... (513,000) (134,000) (517,000) (134,000)
Net effect of common
stock equivalents ....... 742,000 276,000 779,000 288,000
------------ ------------ ------------ ------------
Average number of
shares - primary ........ 14,631,000 14,544,000 14,635,000 14,538,000
Net income ................ $ 12,849,000 $ 8,348,000 $ 33,859,000 $ 20,689,000
============ ============ ============ ============
Per Share Data:
Net income per common share $ 0.88 $ 0.57 $ 2.32 $ 1.42
============ ============ ============ ============
</TABLE>
Earnings Per Common 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.
Fully Diluted Earnings Per Share:
Fully diluted earnings per share is within 3% of primary earnings per
share for all periods presented.
17
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule Contains Summary Financial Information Extracted From The
Consolidated Financial Statements Of Ethan Allen Interiors, Inc. For The Quarter
Ended March 31,1997 And Is Qualified In Its Entirety By Reference To Such
Financial Statements.
</LEGEND>
<CIK> 0000896156
<NAME> 0 <F1>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 0 <F2>
<CASH> 32,270
<SECURITIES> 0
<RECEIVABLES> 34,890 <F3>
<ALLOWANCES> 0
<INVENTORY> 102,222
<CURRENT-ASSETS> 185,921 <F4>
<PP&E> 254,564
<DEPRECIATION> 88,891
<TOTAL-ASSETS> 413,975 <F5>
<CURRENT-LIABILITIES> 61,542 <F6>
<BONDS> 67,302 <F7>
0
0 <F8>
<COMMON> 147 <F9>
<OTHER-SE> 252,272 <F10>
<TOTAL-LIABILITY-AND-EQUITY> 413,975
<SALES> 144,719
<TOTAL-REVENUES> 144,719 <F11>
<CGS> 81,411
<TOTAL-COSTS> 81,411 <F12>
<OTHER-EXPENSES> 0 <F13>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,697 <F14>
<INCOME-PRETAX> 21,431
<INCOME-TAX> 8,582
<INCOME-CONTINUING> 12,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,849
<EPS-PRIMARY> 0.88 <F15>
<EPS-DILUTED> 0.88 <F16>
<FN>
<F1> Not applicable
<F2> Not applicable. All figures for Ethan Allen Interiors, Inc. are in U.S.
dollars.
<F3> Figure for receivables is net of allowances for doubtful accounts of
$2,134.
<F4> Includes prepaid expenses of $7,990.
<F5> Includes goodwill of $9,113 (net of amortization).
<F6> Includes current portion of long-term debt of $1,127 as of March 31,
1997.
<F7> Includes long-term debt of $64,176 (net of the current portion of
long-term debt) and capitalized leases of $3,126 (net of the current
portion of capitalized leases). As of March 31, 1997 outstanding long-
term debt of Ethan Allen on a consolidated basis consisted of (i) 8.75%
senior notes of $52,616, (ii) 9.75% mortgage note of $1,565 (net of
current portion), (iii) industrial revenue bonds of $8,455, and (iv)
other of $1,540 (net of current portion). For a description of the
terms of Ethan Allen's long-term debt, see Footnote 8 to Ethan Allen's
fiscal 1996 Consolidated Financial Statements.
<F8> As of March 31, 1997, Ethan Allen had no shares of preferred stock,
$.01 par value per share, outstanding. For a description of Ethan
Allen's preferred stock as of June 30, 1996, see Ethan Allen's fiscal
1996 Consolidated Statement of Stockholders' Equity and Footnote 10 to
Ethan Allen's fiscal 1996 Notes to Consolidated Financial Statements.
<F9> As of March 31, 1997, Ethan Allen had 14,710,627 shares of common
stock, $.01 par value per share, issued. For a description of Ethan
Allen's common stock as of June 30, 1996, see Ethan Allen's fiscal 1996
Consolidated Statement of Stockholders' Equity and Footnote 10 of Ethan
Allen's fiscal 1996 Consolidated Financial Statements.
<F10> Consists of $255,389 of additional paid in capital, $4,452 of retained
earnings, and ($7,569) of treasury stock.
<F11> In the quarter ended March 31,1997, Ethan Allen's revenues were derived
from sales generated by its wholesale and retail operations.
<F12> -
<F13> -
<F14> Consists of $1,595 of interest expense and $102 of amortization of
deferred costs during fiscal 1996.
<F15> Earnings per share for the quarter ended March 31, 1997, was $0.88. For
information on Ethan Allen's earnings per share, see Ethan Allen's
Consolidated Financial Statements for the quarter ended March 31, 1997.
<F16> Earnings per share on a fully diluted basis for the quarter ended March
31, 1997, were $0.88.
</FN>
</TABLE>
