UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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.
28,702,171 at December 31, 1997
<PAGE>
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of
December 31 and June 30, 1997 and for the
three and six months ended December 31,
1997 and 1996 (unaudited):
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Cash Flows 4
Consolidated Statement of Shareholders'
Equity 5
Notes to Consolidated Financial
Statements 6
Item 2. Management Discussion and Analysis
of Financial Condition and Results
of Operations 11
Part II. Other Information: 15
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and reports on Form 8-K
1
<PAGE>
<TABLE>
<CAPTION>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
1997 June 30,
ASSETS (unaudited) 1997
------ ----------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................ $ 47,823 $ 21,866
Short term investments ........................................... 19,794 17,975
Accounts receivable, less allowances of
$2,376 and $1,903 at December 31 and
June 30, 1997, respectively .................................... 28,437 32,232
Notes receivable, current portion, less
allowances of $21 and $74 at December
31 and June 30, 1997,respectively .............................. 430 1,056
Inventories (note 3) ............................................. 108,802 107,525
Prepaid expenses and other current assets ........................ 10,851 6,724
Deferred income taxes ............................................ 8,342 7,353
------------ ------------
Total current assets ........................................ 224,479 194,731
------------ ------------
Property, plant and equipment, net ................................. 178,138 171,406
Notes receivable, net of current portion, less
allowance of $400 and $145 at December 31 and
June 30, 1997, respectively ...................................... 2,044 2,725
Intangibles, net of amortization of $14,237 and
$13,414 at December 31 and June 30, 1997,
respectively .................................................... 51,596 52,419
Deferred financing costs, net of amortization of
$2,127 and $1,916 at December 31 and June 30,
1997, respectively .............................................. 1,349 1,560
Other assets ....................................................... 4,728 4,943
------------ ------------
Total assets .................................................. $ 462,334 $ 427,784
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations ....................................... $ 986 $ 1,119
Accounts payable ................................................. 48,250 41,172
Accrued expenses ................................................. 8,135 8,036
Accrued compensation and benefits ................................ 12,234 12,983
------------ ------------
Total current liabilities ..................................... 69,605 63,310
------------ ------------
Long-term debt, less current maturities ............................ 63,962 64,066
Obligations under capital leases, less current
maturities ....................................................... 2,014 2,700
Other long-term liabilities, principally long-term
compensation and environmental ................................... 788 815
Deferred income taxes .............................................. 31,552 31,459
------------ ------------
Total liabilities ............................................. 167,921 162,350
------------ ------------
Commitments and contingencies (note 4) ............................. -- --
Shareholders' equity:
Class A common stock, par value $.01, 70,000,000 shares authorized,
29,547,519 and 29,465,400 shares
issued at December 31 and June 30, 1997 respectively ............. 295 294
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding at
December 31 and June 30, 1997, respectively ...................... -- --
Additional paid-in capital ......................................... 260,091 257,684
------------ ------------
260,386 257,978
Less: Treasury stock (at cost) 845,348 and 700,032 shares
at December 31 and June 30, 1997, respectively ........... (15,281) (10,440)
------------ ------------
245,105 247,538
Retained Earnings .................................................. 49,308 17,896
------------ ------------
Total shareholders' equity .................................... 294,413 265,434
------------ ------------
Total liabilities and shareholders' equity .................... $ 462,334 $ 427,784
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months Six Months
Ended December 31, Ended December 31,
1997 1996 1997 1996
-------- -------- -------- ---------
Net sales ......................... $172,743 $138,330 $325,237 $270,685
Cost of sales ..................... 92,030 78,409 173,758 156,186
-------- -------- -------- --------
Gross profit .................. 80,713 59,921 151,479 114,499
Operating expenses:
Selling ......................... 26,567 18,875 52,894 38,035
General and administrative ...... 22,033 19,396 42,512 38,412
-------- -------- -------- --------
Operating income .............. 32,113 21,650 56,073 38,052
-------- -------- -------- --------
Interest and other miscellaneous
income, net ..................... 1,014 295 1,802 344
Interest and related expense:
Interest expense ................ 1,390 1,420 2,794 3,011
Amortization of deferred
financing costs ............... 102 136 211 357
-------- -------- -------- --------
1,492 1,556 3,005 3,368
-------- -------- -------- --------
Income before income taxes ...... 31,635 20,389 54,870 35,028
Income tax expense ................ 12,544 8,162 21,745 14,018
-------- -------- -------- --------
Net income ...................... $ 19,091 $ 12,227 $ 33,125 $ 21,010
======== ======== ======== ========
Per share data (note 7):
Basic earnings per common share . $ 0.66 $ 0.42 $ 1.15 $ 0.73
======== ======== ======== ========
Diluted earnings per common share $ 0.65 $ 0.42 $ 1.13 $ 0.72
======== ======== ======== ========
Dividend declared per
common share ................... $ 0.03 $ 0.02 $ 0.06 $ 0.04
======== ======== ======== ========
Weighted average common shares
outstanding - basic ............ 28,713 28,777 28,727 28,726
Weighted average common shares
outstanding - diluted .......... 29,380 29,243 29,338 29,255
See accompanying notes to consolidated financial statements.
3
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months
Ended December 31,
1997 1996
-------- --------
<S> <C> <C>
Operating activities:
Net income ................................................ $ 33,125 $ 21,010
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization .......................... 8,115 8,855
Provision for deferred income taxes .................... (896) 544
Other non-cash charges ................................. 82 419
Change in:
Accounts receivable .................................. 3,997 3,196
Inventories .......................................... (1,277) 6,988
Prepaid and other current assets ..................... (4,127) (99)
Other assets ......................................... (1,122) 68
Accounts payable ..................................... 8,470 (2,163)
Accrued expenses ..................................... (525) 761
Other long-term liabilities .......................... (27) (183)
-------- --------
Net cash provided by operating activities ................. 45,815 39,396
-------- --------
Investing activities:
Proceeds from the disposal of property, plant and equipment 780 110
Proceeds from the disposal of property
held for sale ........................................... -- 1,945
Capital expenditures ...................................... (13,446) (9,753)
Payments received on long-term notes receivable ........... 1,182 621
Disbursements made for long-term notes receivable ......... (77) (727)
Redemptions of short term securities ...................... 10,476 --
Investments in short term securities ...................... (12,295) --
-------- --------
Net cash used by investing activities ..................... (13,380) (7,804)
-------- --------
Financing activities:
Payments on revolving credit facility ..................... -- (21,500)
Borrowings on revolving credit facility ................... -- 14,500
Other long-term borrowings ................................ 111 440
Redemption of Senior Notes ................................ (139) (9,384)
Payments on long-term debt, including current maturities .. (76) (77)
Payments under capital leases ............................. (821) (1,039)
Issuance of capital stock ................................. 1,015 611
Payments to acquire treasury stock ........................ (4,842) (235)
Increase in deferred financing costs ...................... -- (173)
Payment of dividends ...................................... (1,726) (575)
-------- --------
Net cash used by financing activities ..................... (6,478) (17,432)
-------- --------
Net increase in cash and cash equivalents ................... 25,957 14,160
Cash and cash equivalents at beginning of period ............ 21,866 9,078
-------- --------
Cash and cash equivalents at end of period .................. $ 47,823 $ 23,238
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Six Months Ended December 31, 1997
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Treasury Retained
Stock Capital Stock Earnings Total
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997 .... $ 294 $ 257,684 $ (10,440) $ 17,896 $ 265,434
Issuance of common stock .. 1 1,015 -- -- 1,016
Purchase of 145,316 shares
of treasury stock ....... -- -- (4,841) -- (4,841)
Tax benefit associated with
the exercise of employee
options and warrants .... -- 1,392 -- -- 1,392
Dividends declared ........ -- -- -- (1,713) (1,713)
Net income ................ -- -- -- 33,125 33,125
--------- --------- --------- --------- ---------
Balance at December 31, 1997 $ 295 $ 260,091 $ (15,281) $ 49,308 $ 294,413
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
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 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 six months ended December 31, 1997 are not necessarily
indicative of results for the fiscal year.
(3) Inventories
Inventories at December 31 and June 30, 1997 are summarized as follows
(dollars in thousands):
December 31, June 30,
1997 1997
------------ ---------
Retail merchandise $ 35,207 $ 34,478
Finished products 28,800 32,665
Work in process 14,824 13,333
Raw materials 29,971 27,049
------- -------
$108,802 $107,525
======= =======
(4) 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 other parties have been identified as PRP's
at these sites. Liability under CERCLA may be joint and several. The
Company has total reserves of $500,000 applicable to these sites, which
the Company believes is 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. The Company has
concluded its involvement with one site and has settled as a de-minimis
party. For two of the sites, the remedial investigation is ongoing. A
volume based allocation of responsibility among the parties has been
prepared. With respect to the fourth site, a consent decree to finally
resolve the matter with the EPA has been signed. The Company believes
there may be some delay in resolution due to objections of a
non-signatory to the consent decree.
6
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(5) 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 the 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 December 31 and June
30, 1997 are as follows (dollars in thousands):
December 31, June 30,
1997 1997
------------ ---------
Assets
Current assets $224,430 $194,704
Non-current assets 255,926 244,880
------- -------
Total assets $480,356 $439,584
======= =======
Liabilities
Current liabilities $ 68,687 $ 62,398
Non-current liabilities 98,316 99,040
------- -------
Total liabilities $167,003 $161,438
======= =======
A summary of Ethan Allen's operating activity for the three and six
months ended December 31, 1997 and 1996, is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended December 31, Ended December 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $172,743 $138,330 $325,237 $270,685
Gross profit 80,713 59,921 151,479 114,499
Operating income 32,134 21,668 56,114 38,088
Interest expense 1,390 1,420 2,794 3,011
Amortization of deferred
financing costs 102 136 211 357
Income before income
tax expense 31,656 20,407 54,911 35,063
Net income 19,112 12,245 33,166 21,045
</TABLE>
6) Business Reorganization
The Company implemented a business reorganization ("Reorganization")
effective July 1, 1995, which permitted the separation of manufacturing
operations from distribution and store operations. The Company believes
that the separation of manufacturing operations from distribution and
7
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
store operations will provide 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 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 Ethan Allen's Credit Agreement and 8-3/4% Senior Notes Indenture
by each of EAMC and EAFC and Andover Wood Products Inc. ("Andover", the
existing 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 8-3/4% Senior Notes
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 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 EAMC,
EAFC, and Andover (the "Guarantor Subsidiaries") at December 31 and
June 30, 1997 is as follows (dollars in thousands):
December 31, June 30,
Assets 1997 1997
------ ------------ --------
Current assets $111,304 $ 85,355
Non-current assets 170,700 168,540
------- -------
Total assets $282,004 $253,895
======= =======
Liabilities
Current liabilities $ 33,197 $ 28,160
Non-current liabilities 16,893 16,893
------- -------
Total liabilities $ 50,090 $ 45,053
======= =======
8
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
Summarized historical combined operating activity for the three and six
months ended December 31, 1997 and 1996 is as follow (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
December 31, December 31,
1997 1996 1997 1996
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net Sales $100,675 $ 84,769 $195,371 $162,182
Gross Profit 22,380 16,176 45,031 31,856
Operating income 17,761 11,519 36,096 22,808
Income before income
taxes 18,833 12,630 38,219 25,017
Net income 11,375 7,641 23,084 15,135
</TABLE>
The summarized historical financial information for the Guarantor
Subsidiaries above, has been derived from the financial statements of
the Company.
7) Earnings per Share
During the quarter ended December 31, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS) No.
128 " Earnings Per Share", which requires a dual presentation of basic
and diluted earnings per share. All prior period earnings per share
data has been restated to conform with SFAS No. 128. The computation of
basic and diluted earnings per share is presented below, in thousands,
except per share data:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Net income available
to shareholders $19,091 $12,227 $33,125 $21,010
====== ====== ====== ======
Weighted average common
shares outstanding -
basic 28,713 28,777 28,727 28,726
Net effect of potential
common stock 667 466 611 529
------ ------ ------ -----
Weighted average common
shares outstanding -
diluted 29,380 29,243 29,338 29,255
Earnings per share -
basic $ 0.66 $ 0.42 $ 1.15 $ 0.73
===== ===== ===== =====
Earnings per share -
diluted $ 0.65 $ 0.42 $ 1.13 $ 0.72
===== ===== ===== =====
</TABLE>
9
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
8) Subsequent Event
On January 27, 1998, the Company announced that Ethan Allen had called
all of its outstanding 8-3/4% Senior Notes due 2001 for redemption on
March 15, 1998. Approximately $52.4 million principal amount of the
Senior Notes is outstanding at December 31, 1997.
10
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Ethan Allen's revenues are comprised of wholesale sales to dealer-owned
stores and retail sales of Ethan Allen-owned stores as follows (dollars in
millions):
Three Months Six Months
Ended Ended
December 31, December 31,
1997 1996 1997 1996
-------- -------- -------- ------
Revenues:
Net wholesale sales to
dealer-owned stores $106.9 $ 88.4 $202.0 $174.5
Net retail sales of Ethan
Allen-owned stores 61.2 44.2 113.7 84.4
Other revenues 4.6 5.7 9.5 11.8
----- ----- ----- -----
Total $172.7 $138.3 $325.2 $270.7
===== ===== ===== =====
Three Months Ended December 31, 1997 Compared to Three Months Ended
December 31, 1996
Sales for the three months ended December 31, 1997 increased by $34.4
million, or 24.9%, over the corresponding period in the prior year to $172.7
million. Net sales by Ethan Allen-owned stores increased $17.0 million or 38.5%
to $61.2 million and net sales to dealer-owned stores increased $18.5 million or
20.9% to $106.9 million. Sales growth has resulted from increased sales from
relocated and new stores, 3.5% wholesale price increase effective January 1,
1997, new product offerings, an increase in annual sales events from six events
per year to eight events per year and expanded national television advertising.
At December 31, 1997, there were 306 total stores, of which 241 were
dealer-owned, as compared to 290 total stores, of which 232 were dealer-owned at
December 31, 1996.
The increase in retail sales by Ethan Allen-owned stores is
attributable to a 22.0%, or $9.6 million increase in comparable store sales, and
sales generated by newly opened or acquired stores of $7.7 million, partially
offset by closed stores, which generated $.3 million less in sales in the three
months ended December 31, 1997 as compared to the three months ended December
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 stores. 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 December 31, 1997 increased by
$20.8 million, or 34.7% from the three months ended December 31, 1996 to $80.7
million. This increase is attributable to higher sales volume combined with an
increase in gross margin from 43.3% in the three months ended December 31, 1996
to 46.7% in the three months ended December 31, 1997. Gross margins have been
favorably impacted by the increased sales volume, the benefit of the 3.5%
wholesale price increase, greater manufacturing efficiencies, and improvements
in manufacturing technology.
11
<PAGE>
Selling, general and administrative expenses increased $10.3 million
from $38.3 million, or 27.7% of net sales, in the three months ended December
31, 1996 to $48.6 million, or 28.1% of net sales, in the three months ended
December 31, 1997. This increase is principally attributable to an increase in
the operating expenses of Ethan Allen-owned stores of $5.6 million due to higher
sales volumes and the addition of new stores. The remaining increase can be
principally attributed to a $3.5 million increase in television advertising
costs due to the Company's expanded television presence.
Operating income for the three months ended December 31, 1997 was $32.1
million (18.6% of sales), an increase of $10.5 million as compared to the three
months ended December 31, 1996. Wholesale operating income was $27.6 million for
the three months ended December 31, 1997, reflecting an increase of $8.6 million
as compared to the prior year period. This increase is attributable to higher
sales volumes and increased gross margins. Retail operating income was $4.2
million for the three months ended December 31, 1997, an increase of $1.3
million from the prior year.
Interest expense, including the amortization of deferred financing
costs, for the three months ended December 31, 1997 decreased by $0.1 million to
$1.5 million from $1.6 million in the three months ended December 31, 1996. The
lower expense reflects the lower debt balances outstanding.
Income tax expense of $12.5 million or an effective tax rate of 39.6%
was recorded for the three months ended December 31, 1997, as compared to $8.2
million or an effective tax rate of 40.0% in the prior year quarter.
For the three months ended December 31, 1997, the Company recorded net
income of $19.1 million, compared to net income for the three months ended
December 31, 1996 of $12.2 million.
Six Months Ended December 31, 1997 Compared to Six Months Ended December 31,
1996
Sales for the six months ended December 31, 1997 increased by $54.5
million, or 20.2%, over the six months ended December 31, 1996 to $325.2
million. Net retail sales by Ethan Allen-owned stores increased by 34.7% to
$113.7 million and sales to dealer-owned stores increased by 15.8% to $202.0
million. The increase in sales to dealer-owned stores has resulted from
increased sales from relocated and new stores, a 3.5% wholesale price increase,
newer product offerings, expanded national television advertising, and an
increase in annual sales events from six per year to eight per year.
The increase in retail sales by Ethan Allen-owned stores is
attributable to a 20.4% or $16.8 million increase in comparable store sales, and
sales generated by newly opened or acquired stores of $13.6 million, partially
offset by closed stores which generated $1.1 million less in sales in the six
months ended December 31, 1997 as compared to the six months ended December 31,
1996.
Gross profit for the six months ended December 31, 1997 increased by
$37.0 million from the six months ended December 31, 1996 to $151.5 million.
This increase is attributable to higher sales volume and an improvement in gross
margin from 42.3% in the six months ended December 31, 1996 to 46.6% in the six
months ended December 31, 1997. The gross margin percentage improved due to
greater manufacturing efficiencies,the benefit of the 3.5% wholesale price
increase, and improvements in manufacturing technology.
Selling, general and administrative expenses increased $19.0 million
from $76.4 million, or 28.2% of net sales, in the six months ended December 31,
1996 to $95.4 million, or 29.3% of net sales, in the six months ended December
31, 1997. This increase is attributable principally to an increase in operating
expenses in the Company's retail division of $9.5 million due to higher sales
12
<PAGE>
volumes and the addition of new stores. The remaining increase is attributable
to an increase in television advertising costs due to the expanded presence.
Operating income for the six months ended December 31, 1997 was $56.1
million (17.2% of sales), an increase of $18.0 million, as compared to the six
months ended December 31, 1996. Wholesale operating income was $50.2 million for
the six months ended December 31, 1997, an increase of $15.8 million as compared
to the six months ended December 31, 1996. This increase is attributable to
higher sales volumes and an improved gross margin. Retail operating income was
$6.7 million for the six months ended December 31, 1997. This represents a $2.5
million increase from the six months ended December 31, 1996. This increase is
attributable to higher sales volumes and the addition of new stores partially
offset by higher operating expenses due to the higher sales volumes.
Interest expense, including the amortization of deferred financing
costs, for the six months ended December 31, 1997 decreased by $.4 million to
$3.0 million, from $3.4 million in the prior year period, due to lower debt
balances outstanding.
Income tax expense of $21.7 million or an effective tax rate of 39.6%,
was recorded for the six months ended December 31, 1997, as compared to $14.0
million or an effective rate of 40.0% in the prior year period.
For the six months ended December 31, 1997, the Company recorded net
income of $33.1 million, compared to net income for the six months ended
December 31, 1996 of $21.0 million.
13
<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 $45.8 million for the six months ended
December 31, 1997, as compared to $39.4 million in the six months ended December
31, 1996. Net income for the six months ended December 31, 1997 was $12.1
million higher than the net income reported for the six months ended December
31, 1996. For the six months ended December 31, 1997, inventories increased $1.3
million to $108.8 million as compared to a $7.0 million reduction in the prior
year period. Additionally, accounts payable increased $8.5 million in the six
months ended December 31, 1997 as compared to a $2.2 million reduction in
accounts payable in the prior year period. At December 31, 1997, the Company had
working capital of $154.9 million and a current ratio of 3.23 to 1.
During the six months ended December 31, 1997, capital spending totaled
$13.4 million as compared to $9.8 million in the six months ended December 31,
1996. Capital expenditures in fiscal 1998 are anticipated to be approximately
$27.0 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 December 31, 1997 is $67.0 million. At
December 31, 1997, there are no outstanding revolving loans under the Credit
Agreement. Trade and standby letters of credit of $12.6 million were outstanding
as of December 31, 1997. Other debt includes $52.4 million of outstanding Senior
Notes which have a final maturity in 2001, with no scheduled amortization prior
to final maturity. The Senior Notes may not be redeemed at the option of the
Company until March 15, 1998. The Company does not anticipate that any Senior
Notes will be repaid prior to this date at the earliest; 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 six months ended December
31, 1997, $.1 million principal amount was repurchased. On January 27, 1998, the
Company announced that Ethan Allen Inc. had called all of its outstanding 8-3/4%
Senior Notes due 2001 for redemption on March 15, 1998. 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 six months ended December 31, 1997, the Company purchased
145,316 shares of its stock on the open market at an average price of $33.32 per
share.
As of December 31, 1997, aggregate scheduled maturities of long-term
debt for each of the next five fiscal years are $.4 million, $.2 million, $52.6
million, $.2 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.
14
<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 30, 1997.
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 30, 1997.
Item 6. - Exhibits and Reports on Form 8-K
27 EDGAR Financial Data Schedule
15
<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: 2/13/98 BY: /s/ M. Farooq Kathwari
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: 2/13/98 BY: /s/ Edward P. Schade
Edward P. Schade
Vice President &
Treasurer
(Principal Financial Officer)
DATE: 2/13/98 BY: /s/ Gerardo Burdo
Gerardo Burdo
Corporate Controller
(Principal Accounting Officer)
16
<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 December 31, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000896156
<NAME> *acn3zeg
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jun-30-1998
<PERIOD-START> Oct-01-1997
<PERIOD-END> Dec-31-1997
<EXCHANGE-RATE> 1 <F1>
<CASH> 47,823
<SECURITIES> 0
<RECEIVABLES> 28,437 <F2>
<ALLOWANCES> 0
<INVENTORY> 108,802
<CURRENT-ASSETS> 224,479 <F3>
<PP&E> 273,882
<DEPRECIATION> 95,744
<TOTAL-ASSETS> 462,334 <F4>
<CURRENT-LIABILITIES> 69,605 <F5>
<BONDS> 65,976 <F6>
0
0 <F7>
<COMMON> 295 <F8>
<OTHER-SE> 294,118 <F9>
<TOTAL-LIABILITY-AND-EQUITY> 462,334
<SALES> 172,743
<TOTAL-REVENUES> 172,743 <F10>
<CGS> 92,030
<TOTAL-COSTS> 92,030
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,492 <F11>
<INCOME-PRETAX> 31,635
<INCOME-TAX> 12,544
<INCOME-CONTINUING> 19,091
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,091
<EPS-PRIMARY> 0.66 <F12>
<EPS-DILUTED> 0.65 <F13>
<FN>
<F1> Not applicable. All figures for Ethan Allen Interiors, Inc. are in U.S.
dollars.
<F2> Figure for receivables is net of allowances for doubtful accounts of
$2,376.
<F3> Includes prepaid expenses of $10,851.
<F4> Includes goodwill of $8,924 (net of amortization).
<F5> Includes current portion of long-term debt of $986 as of December 31,
1997.
<F6> Includes long-term debt of $63,962 (net of the current portion of
long-term debt) and capitalized leases of $2,014 (net of the current
portion of capitalized leases). As of December 31, 1997 outstanding
long-term debt of Ethan Allen on a consolidated basis consisted of (i)
8.75% senior notes of $52,404, (ii) 9.75% mortgage note of $1,534 (net of
current portion), (iii) industrial revenue bonds of $8,455, and (iv) other
of $1,569 (net of current portion). For a description of the terms of
Ethan Allen's long-term debt, see Footnote 7 to Ethan Allen's fiscal 1997
Consolidated Financial Statements.
<F7> As of December 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, 1997, see Ethan Allen's fiscal 1997
Consolidated Statement of Stockholders' Equity and Footnote 9 to Ethan
Allen's fiscal 1997 Notes to Consolidated Financial Statements.
<F8> As of December 31, 1997, Ethan Allen had 29,547,519 shares of common
stock, $.01 par value per share, issued. For a description of Ethan
Allen's common stock as of June 30, 1997, see Ethan Allen's fiscal 1997
Consolidated Statement of Stockholders' Equity and Footnote 9 of Ethan
Allen's fiscal 1997 Consolidated Financial Statements.
<F9> Consists of $260,091 of additional paid in capital, $49,308 of retained
earnings, and ($15,281) of treasury stock.
<F10> In the quarter ended December 31, 1997, Ethan Allen's revenues were
derived from sales generated by its wholesale and retail operations.
<F11> Consists of $1,390 of interest expense and $102 of amortization of
deferred costs during the quarter ended December 31, 1997.
<F12> Basic earnings per share for the quarter end December 31, 1997, was $0.66.
For information on Ethan Allen's earnings per share, see Ethan Allen's
Consolidated Financial Statements for the quarter ended December 31, 1997.
<F13> Diluted earnings per share for the quarter ended December 31, 1997, were
$0.65.
</FN>
</TABLE>
