UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1998
-----------------------------------------------------
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
(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
- --------------------------------------------------------------------------------
(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.
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, 1998 was approximately $1,039,610,901. As of August 28,
1998, there were 28,192,838 shares of Common Stock, par value $.01 outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The definitive Proxy Statement for the 1998 Annual Shareholders Meeting is
incorporated by reference into Part III hereof.
<PAGE>
Item 8 to the Form 10-K, filed on September 18, 1998, is hereby amended to read
in its entirety as follows:
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 Subsidiary (the "Company") as of June 30, 1998 and 1997, 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, 1998.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement 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 Subsidiary as of June 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1998, 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.
KPMG PEAT MARWICK LLP
Stamford, Connecticut
August 5, 1998
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 1998 and 1997
(Dollars in thousands)
ASSETS 1998 1997
------ ---- ----
Current assets:
Cash and cash equivalents $ 19,380 $ 21,866
Short term investments -- 17,975
Accounts receivable, less allowance of
$2,022 and $1,903 at June 30, 1998 and
1997, respectively 35,640 32,232
Notes receivable, current portion, less
allowance of $27 and $74 at
June 30, 1998 and 1997, respectively 686 1,056
Inventories (note 2) 114,364 107,525
Prepaid expenses and
other current assets 10,735 6,724
Deferred income taxes (note 9) 7,094 7,353
-------- --------
Total current assets $187,899 $194,731
-------- --------
Property, plant and equipment, net (note 3) 188,171 171,406
Property held for sale 1,129 1,135
Notes receivable, net of current portion,
less allowance of $259 and $145 at
June 30, 1998 and 1997,
respectively 1,790 2,725
Intangibles, net (note 4) 50,773 52,419
Deferred financing costs, net of amortization of
$2,280 and $1,916 at June 30, 1998 and 1997,
respectively 632 1,560
Other assets 2,729 3,808
-------- --------
Total assets $433,123 $427,784
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations (notes 5 and 6) $ 879 $ 1,119
Accounts payable 51,135 41,172
Accrued expenses 5,863 8,036
Accrued compensation and benefits 15,735 12,983
------- -------
Total current liabilities 73,612 63,310
------- -------
Long-term debt, less current maturities (note 5) 11,480 64,066
Obligations under capital leases, less current
maturities (note 6) 1,016 2,700
<PAGE>
Other long-term liabilities, principally long-term
compensation, environmental and legal reserves 812 815
Deferred income taxes (note 9) 31,883 31,459
--------- ---------
Total liabilities $ 118,803 $ 162,350
--------- ---------
Commitments and contingencies (notes 5 and 13) -- --
Shareholders' equity (notes 7 and 8):
Class A common stock, par value $.01, 70,000,000
shares authorized, 29,669,470 shares issued
at June 30, 1998, 29,465,400 shares issued
at June 30, 1997 296 294
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding
at June 30, 1998 and 1997 -- --
Additional paid-in capital 262,462 257,684
--------- ---------
$ 262,758 257,978
Less:
Treasury stock (at cost) 1,216,096 shares
at June 30, 1998 and 700,032 shares at
June 30, 1997 (33,750) (10,440)
--------- ---------
229,008 247,538
Retained earnings 85,312 17,896
--------- ---------
Total shareholders' equity 314,320 265,434
Total liabilities and shareholders' equity $ 433,123 $ 427,784
========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended June 30, 1998, 1997, and 1996
(Dollars in thousands, except per share data)
1998 1997 1996
---- ---- ----
Net sales $ 679,321 $ 571,838 $ 509,776
Cost of sales 363,746 323,600 304,650
--------- --------- ---------
Gross profit 315,575 248,238 205,126
Operating expenses:
Selling 110,240 85,927 74,582
General and administrative 85,645 76,462 74,977
--------- --------- ---------
Operating income 119,690 85,849 55,567
--------- --------- ---------
Interest and other miscellaneous
income, net 3,449 1,272 1,039
Interest and related expense:
Interest 4,245 5,864 8,882
Amortization of deferred
financing costs 364 563 734
--------- --------- ---------
4,609 6,427 9,616
--------- --------- ---------
Income before income
taxes and extraordinary
charge 118,530 80,694 46,990
Income tax expense (note 9) 46,582 31,954 18,845
--------- --------- ---------
Income before extraordinary
charge 71,948 48,740 28,145
Extraordinary charge from early
retirement of debt, net of
income tax benefit of $527
(note 5) 802 -- --
--------- --------- ---------
Net income $ 71,146 $ 48,740 $ 28,145
========= ========= =========
Per share data (notes 1 and 7):
Net income per basic share
before extraordinary charge $ 2.51 $ 1.69 $ 0.98
Extraordinary charge (note 5) (0.03) -- --
--------- --------- ---------
Net income per basic share $ 2.48 $ 1.69 $ 0.98
========= ========= =========
Net income per diluted share
before extraordinary charge $ 2.45 $ 1.67 $ 0.97
Extraordinary charge (note 5) (0.03) -- $ --
--------- --------- ---------
Net income per diluted share $ 2.42 $ 1.67 $ 0.97
========= ========= =========
Dividends declared per common share $ 0.14 $ 0.10 $ 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, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating activities:
Net income $ 71,146 $ 48,740 $ 28,145
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 15,868 16,411 17,495
Compensation expense related to
restricted stock award 2,136 891 180
Provision for deferred
income taxes 683 575 622
Extraordinary charge 802 - -
Other non-cash benefit (charges) 77 498 (64)
Change in:
Accounts receivable (3,340) 1,822 1,407
Inventories (6,839) 2,726 6,891
Prepaid and other current assets (4,011) 653 745
Other assets (891) 137 (271)
Accounts payable 11,576 5,099 4,333
Accrued expenses 414 973 1,621
Other long-term liabilities (3) (221) (36)
------- ------- -------
Net cash provided by operating
activities 87,618 78,304 61,068
------- ------- -------
Investing activities:
Proceeds from the disposal of property,
plant, and equipment 827 110 1,216
Proceeds from the disposal of property
held for sale - 1,945 -
Capital expenditures (29,665) (23,383) (13,314)
Payments received on long-term notes
receivable 1,538 1,152 2,559
Disbursements made for long-term notes
receivable (302) (1,077) (935)
Redemption of short term securities 30,270 - -
Investments in short term securities (12,295) (17,975) -
------- ------- -------
Net cash used in investing activities ( 9,627) (39,228) (10,474)
------- ------- -------
Financing activities:
Borrowings on revolving credit facilities - 14,500 56,500
Payments on revolving credit facilities - (21,500) (95,500)
Redemption of Senior Notes (52,543) (9,457) (6,000)
Premium paid on Senior Note redemption (461) - -
Other payments on long-term debt and
capital leases (2,079) (2,134) (1,823)
Other borrowings on long-term debt 111 794 500
Payments to acquire treasury stock (23,310) (7,249) (3,895)
Net proceeds from issuance of common stock 1,255 1,235 1,294
<PAGE>
Increase
in deferred financing costs -- (173) (138)
Dividends paid (3,450) (2,304) --
-------- -------- --------
Net cash used in financing activities (80,477) (26,288) (49,062)
-------- -------- --------
Net (decrease)/increase in cash and cash
equivalents (2,486) 12,788 1,532
Cash and cash equivalents
at beginning of year 21,866 9,078 7,546
-------- -------- --------
Cash and cash equivalents
at end of year $ 19,380 $ 21,866 $ 9,078
======== ======== ========
Supplemental disclosure:
Cash payments for:
Income taxes $ 45,382 $ 28,116 $ 12,515
Interest 5,585 6,138 9,073
Non cash transactions:
Additions to obligations under
capitalized leases -- 504 1,107
Acquisition of stores with treasury stock -- 3,327 --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Years ended June 30, 1998, 1997 and 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Retained
Additional
Earnings/
Common Paid-in Notes Treasury (Accumulated
Stock Capital Receivable Stock Deficit) Total
----- ------- ---------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 288 252,425 (592) (1,476) (57,547) 193,098
Issuance of common
stock 4 1,470 -- -- -- 1,474
Payments received on
notes receivable -- -- 541 -- -- 541
Increase in vested
management warrants
(note 8) -- 304 -- -- -- 304
Purchase of 358,564 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 $ 292 $ 254,825 $ (51) $ (5,371) $ (29,402) $ 220,293
Issuance of common stock 2 2,124 -- -- -- 2,126
Payments received
on notes receivable -- -- 51 -- -- 51
Increase in vested
management warrants
(note 8) -- 71 -- -- -- 71
Purchase of 333,296 shares of
treasury stock -- -- -- (7,249) -- (7,249)
Shares issued in connection with
acquisition -- 1,147 -- 2,180 -- 3,327
Dividends declared -- (1,152) -- -- (1,442) (2,594)
Tax benefit associated with the
exercise of employee stock
options and warrants -- 669 -- -- -- 669
Net income -- -- -- -- 48,740 48,740
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1997 $ 294 $ 257,684 $ -- $ (10,440) $ 17,896 $ 265,434
Issuance of common stock 2 3,389 -- -- -- 3,391
<PAGE>
Purchase of 516,064 shares of
treasury stock -- -- -- (23,310) -- (23,310)
Dividends declared -- -- -- -- (3,730) (3,730)
Tax benefit associated with the
exercise of employee stock
options and warrants -- 1,389 -- -- -- 1,389
Net income -- -- -- -- 71,146 71,146
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1998 $ 296 $ 262,462 $ -- $ (33,750) $ 85,312 $ 314,320
========= ========= ========= ========= ========= =========
</TABLE>
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 subsidiary, 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 310 retail stores, of which 67 are Ethan
Allen-owned and 243 are independently owned. Retail stores are
primarily located in North America, with 20 located abroad. Ethan Allen
has 21 manufacturing facilities and 3 sawmills throughout the United
States.
Cash Equivalents
----------------
Cash equivalents of $4,999,000 and $9,754,000 at June 30, 1998, and
1997, respectively, consist of overnight repurchase agreements and
commercial paper with an initial term of less than three months. For
the purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments with original maturities of three months
or less to be cash equivalents.
Short Term Investments
----------------------
Short term investments consist primarily of certificates of deposits
and debt securities and have been classified as held-to-maturity,
having maturities of one year or less. Because of the short maturity of
the short term investments, the carrying amount approximates fair
value.
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 Held for Sale
----------------------
Property held for sale is recorded at net realizable values. The
Company continues to actively market the properties.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 the fair value of projected discounted future
results.
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.
Deferred Financing Costs
------------------------
Debt financing costs are deferred and amortized, using the
straight-line method, over the term of the related debt.
Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
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.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Advertising costs for the fiscal years 1998, 1997, and 1996 were
$40,035,000, $27,712,000 and $21,289,000, respectively. Prepaid
advertising costs for the fiscal years 1998 and 1997 were $3,021,000,
and $1,497,000.
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
lease or 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
------------------
Effective December 1997, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 128, "Earnings per Share". The
statement sets forth guidance on the presentation of earnings per share
and requires dual presentation of basic and diluted earnings per share
on the face of the statement of operations. Basic earnings per share is
computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if all dilutive
potential common shares were exercised. All earnings per share amounts
have been restated to reflect this new standard.
Stock Options
-------------
In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock
Based Compensation". As permitted by SFAS 123, the Company will
continue to follow the provisions of APB No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for
compensation expense related to the issuance of stock options.
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) Inventories
-----------
Inventories at June 30 are summarized as follows (dollars in
thousands):
1998 1997
---- ----
Retail Merchandise $ 38,329 $ 34,478
Finished products 28,931 32,665
Work in process 15,707 13,333
Raw materials 31,397 27,049
------- -------
$114,364 $107,525
======== ========
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(3) Property, Plant and Equipment
Property, plant and equipment at June 30 are summarized as follows
(dollars in thousands):
1998 1997
---- ----
Land and improvements $ 26,941 22,624
Buildings and improvements 182,437 168,990
Machinery and equipment 80,294 70,288
-------- -------
289,672 261,902
Less accumulated depreciation (101,501) (90,496)
-------- -------
$ 188,171 $171,406
======== =======
(4) Intangibles
Intangibles at June 30 are summarized as follows (dollars in
thousands):
1998 1997
---- ----
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 (15,060) (13,414)
-------- --------
$ 50,773 $ 52,419
======== ========
(5) Borrowings
Long-term debt at June 30 consists of the following (dollars in
thousands):
1998 1997
---- ----
8.75% Senior Notes due 2001 $ -- $52,543
Other Debt:
9.75% mortgage note payable in
monthly installments through 2015
collateralized by Ethan Allen Inn 1,552 1,589
Industrial Revenue Bonds, 4.0% - 8.0%,
maturing at various dates through
2011 8,455 8,455
Other 1,627 1,626
------- -------
Total debt 11,634 64,213
Less current maturities 154 147
------- -------
$11,480 $64,066
======= =======
During fiscal year 1998, the Company completed its optional early
redemption of all of its then-outstanding $52.4 million 8-3/4% Senior
Notes, due on March 15, 2001, at 101.458% of par value. As a result of
the early redemption, an extraordinary charge of $.8 million or $0.03 a
share, net of tax benefit, was recorded. The extraordinary charge
included the write-off of unamortized deferred financing costs
associated with the Senior Notes and the premium related to the early
redemption. During fiscal 1998, 1997, and 1996, $.1 million, $9.5
million, and $6.0 million, respectively, of Senior Notes were
repurchased at 102.19%, 101.48%, and 101.25% of face value,
respectively.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
During 1995, the Company had 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 fiscal years ended June 30,
1998, 1997 and 1996 the weighted-average interest rates were 8.13%,
7.37% and 6.81%, respectively. There are no minimum repayments required
during the term of the facility.
During 1997, the Company amended its Credit Agreement which it had
originally entered into during 1995, 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 the Eurodollar spread used in
determining adjusted LIBOR 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. At June 30, 1998 and 1997, there were
no outstanding revolving loans under the Credit Agreement.
The Credit Agreement is secured by a first lien in respect of Ethan
Allen's accounts receivable, inventory, trademarks, patents and the
Company's shares of Ethan Allen's capital stock. The Company has
guaranteed Ethan Allen's obligation under the Credit Agreement and has
pledged all the outstanding capital stock of Ethan Allen to secure its
guarantee.
The Credit Agreement contains 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 Credit Agreement contains various customary events of
default. Ethan Allen satisfied the requirements of the covenants in the
Credit Agreement at June 30, 1998.
In 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 bear interest at rates of 3% to 8% and have maturities of 7
to 30 years. The loans 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.
Aggregate scheduled maturities of long-term debt for each of the five
fiscal years subsequent to June 30, 1998, are as follows (dollars in
thousands):
1999 . . . . . . . . . . . $ 154
2000 . . . . . . . . . . . 411
2001 . . . . . . . . . . . 168
2002 . . . . . . . . . . . 180
2003 . . . . . . . . . . . 195
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(6) Leases
Ethan Allen leases real property and equipment under various operating
and capital lease agreements expiring through the year 2028. 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):
1998 1997
---- ----
Land and improvements $ 103 $ 103
Buildings and improvements 911 911
Machinery and equipment 11,131 11,131
-------- --------
12,145 12,145
Less accumulated depreciation (11,744) (10,732)
-------- --------
$ 401 $ 1,413
======== ========
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, 1998
(dollars in thousands):
Capital Operating
Fiscal Year Ending June 30: Leases Leases
--------------------------- ------ ------
1999 $ 841 $10,036
2000 635 9,332
2001 425 8,256
2002 33 7,922
2003 12 7,464
Subsequent to 2003 9 24,928
------- -------
Total minimum lease payments 1,955 $67,938
=======
Amounts representing interest 214
Present value of future minimum -------
lease payments 1,741
Less amounts due in one year 725
-------
Long-term obligations under capital leases $ 1,016
=======
The above amounts will be offset by minimum future rentals from
subleases of $13,000,129 on operating leases.
Total rent expense for the fiscal years ended June 30 was as follows
(dollars in thousands):
1998 1997 1996
-------- -------- --------
Basic rentals under operating
leases $ 14,997 $ 14,578 $14,419
Contingent rentals under
operating leases 977 1,028 1,082
-------- ------- ------
15,974 15,606 15,501
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Less sublease rent 2,173 1,923 1,782
-------- -------- --------
$ 13,801 $ 13,683 $ 13,719
======== ======== ========
35
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(7) Shareholders' Equity
On August 6, 1997, the Company declared a two-for-one stock split to be
distributed on September 2, 1997 to shareholders of record on August
18, 1997. All related amounts have been retroactively adjusted to
reflect the stock split.
During fiscal 1997, the Company acquired a number of retail stores and
used 146,224 treasury shares with a fair value of $3.3 million as part
of the consideration of the transaction.
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
$62.50 on a post split basis.
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) 70,000,000
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,
(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, 1998, no shares of Preferred
Stock or shares of Class B Common Stock were issued or outstanding.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Basic and diluted earnings per share are calculated based upon the
provisions of SFAS 128, using the following share data (in thousands):
1998 1997 1996
---- ---- ----
Weighted average common shares
outstanding for basic
calculation 28,700 28,793 28,624
Add: Effect of stock options 724 417 504
------ ------ ------
Weighted average common shares
outstanding, adjusted for
diluted calculation 29,424 29,210 29,128
====== ====== ======
(8) Employee Stock Plans
The Company has reserved 4,946,466 shares of Common Stock for issuance
pursuant to the Company's stock option and warrant 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 awarded
to employees 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
3,660,398 shares. Through June 30, 1997, options covering
68,000 shares, which are exercisable at prices ranging from
$9.00 to $9.75, were awarded to independent directors and will
vest 50% on each of the first two anniversary dates of the
grant. During fiscal 1998, options to purchase 24,000 shares
at an exercise price of $31.75 per share were granted to the
independent directors. Options to purchase 120,000 shares were
awarded to Mr. Kathwari, Chairman of the Board, Chief
Executive Officer, and President of Ethan Allen Interiors
Inc., during fiscal year 1995 and an additional 480,000
options to purchase shares were awarded to Mr. Kathwari during
1996. These options are exercisable at $9.75 and $9.50 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. During fiscal 1998, Mr. Kathwari was awarded
options to purchase 500,000 shares at an exercise price of
$31.75 and options to purchase 500,000 shares at an exercise
price of $41.28. These options will vest over three years from
the date of grant. Through June 30, 1997, options to purchase
537,300 shares were issued to other employees with exercise
prices ranging from $9.50 to $21.75 per share and options to
purchase 49,600 shares were issued to certain key employees in
fiscal 1998 and are exercisable at prices ranging from $27.31
to $49.00 per share.
Incentive Stock Option Plan
---------------------------
Pursuant to the Incentive Stock Option Plan, the Company has
granted to members of management options to purchase 553,028
shares of Common Stock at an exercise price of $8.25 per
share. Such options vest twenty percent per year over a
five-year period.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Management Warrants
-------------------
Warrants to purchase 466,374 shares of Common Stock were
granted to certain key members of management during fiscal
1991 and 1992. The warrants are currently exercisable at
$1.838 per share.
Earn-In Warrants
----------------
Earn-In Warrants have been fully earned and 266,666 shares
have been allocated to Ethan Allen's managers and employees.
Earn-In warrants were exercisable at $.188 per share.
Restricted Stock Award
----------------------
Commencing in 1994 and for each of the four subsequent years,
annual awards of 20,000 shares of restricted stock were
granted to Mr. Kathwari with the vesting based on performance
of the Company's stock price during the three year period
after grant as compared to the Standard and Poors 500 index.
Stock Unit Award
----------------
During fiscal 1998, pursuant to his New Employment Agreement,
the Company has established a book account for Mr. Kathwari,
which will be credited with 14,000 Stock Units as of July 1 of
each year, commencing July 1, 1997, for a total of up to
70,000 Stock Units over the term of the New Employment
Agreement, with an additional 14,000 Stock Units to be
credited in connection with each of the two one-year
extensions. Following the termination of Mr. Kathwari's
employment, Mr. Kathwari will receive shares of Common Stock
equal to the number of Stock Units credited to the account.
Stock option and warrant activity during 1998, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
Number of
shares
----------------------------------------------------
1992 Stock Incentive Management Earn-In
Option Plan Options Warrants Warrants
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1995 453,400 479,968 241,558 240,902
---------- ---------- ---------- ----------
Granted in 1996 591,400 -- -- --
Exercised in 1996 (5,900) (134,700) (60,638) (87,992)
Canceled in 1996 (25,450) (21,750) (6,234) (11,932)
---------- ---------- ---------- ----------
Outstanding at June 30, 1996 1,013,450 323,518 174,686 140,978
Granted in 1997 139,900 -- -- --
Exercised in 1997 (61,108) (65,734) (46,118) (134,978)
Canceled in 1997 (17,776) (2,230) (12) (6,000)
---------- ---------- ---------- ----------
Outstanding at June 30, 1997 1,074,466 255,554 128,556 --
Granted in 1998 1,073,600 -- -- --
Exercised in 1998 (75,086) (36,807) (72,183) --
Canceled in 1998 (4,600) (10) (10) --
---------- ---------- ---------- ----------
Outstanding at June 30, 1998 2,068,380 218,737 56,363 --
========== ========== ========== ==========
</TABLE>
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following tables summarize information about stock awards outstanding at
June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding
Weighted Weighted
Average Average
Range of Number Remaining Exercise
Prices Outstanding Life Prices
--------------- ------------ --------- --------
<S> <C> <C> <C> <C>
1992 Stock Option Plan $9.50 to 9.75 866,180 6.2 yrs. $9.53
$21.75 to 31.75 673,600 9.1 yrs. $29.70
$41.28 to 49.00 528,600 9.2 yrs. $41.69
-------
2,068,380
Incentive Options $8.25 218,737 1.5 yrs. $8.25
Management Warrants $1.838 56,363 1.5 yrs. $1.838
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
Weighted
Number of Average
Range of Shares Exercise
Prices Exercisable Prices
--------------- ------------ ---------
<S> <C> <C> <C>
1992 Stock Option Plan $9.50 to 9.75 465,548 $9.54
$21.75 to 31.75 23,675 $21.75
-------
489,223
Incentive Options $8.25 218,737 $8.25
Management Warrants $1.838 56,363 $1.838
</TABLE>
Had compensation costs related to the issuance of stock options under the
Company's 1992 Stock Option Plan been determined based on the estimated fair
value at the grant dates for awards under SFAS 123, the Company's net income end
earnings per share for the fiscal years ended June 30, 1998, 1997 and 1996 would
have been reduced to the proforma amounts listed below, (dollars in thousands,
except per share data):
1998 1997 1996
------- ------- --------
Net Income
----------
As reported $ 71,146 $ 48,740 $ 28,145
Proforma 67,945 48,350 27,925
Basic Earnings Per Share
------------------------
As reported $ 2.48 $ 1.69 $ 0.98
Proforma 2.37 1.68 0.97
Diluted Earning Per Share
-------------------------
As reported $ 2.42 $ 1.67 $ 0.97
Proforma 2.31 1.66 0.96
The per share weighted average fair value of stock options granted during fiscal
1998, 1997 and 1996 was $13.14, $8.90, and $3.78, respectively. The fair value
of each stock option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions; weighted
average risk-free interest rates of 5.99%, 6.35% and 6.09% for fiscal 1998, 1997
and 1996, respectively, dividend yield of .5%, 1%, and 1% for fiscal 1998, 1997
and 1996,
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
respectively, expected volatility of 43.3%, 39.8% and 38.7% in fiscal 1998, 1997
and 1996, respectively, and expected lives of five years for each.
(9) Income Taxes
Total income taxes were allocated as follows (dollars in thousands):
1998 1997 1996
-------- -------- -------
Income from operations $46,582 $31,954 $18,845
Extraordinary charge (527) - -
Stockholders' equity (1,389) (669) (1,200)
------- ------- -------
$44,666 $31,285 $17,645
======= ======= =======
The income taxes credited to stockholders' equity relate to the tax
benefit arising from the exercise of employee stock options.
Income tax expense attributable to income from operations consists of
the following for the fiscal years ended June 30 (dollars in
thousands):
1998 1997 1996
-------- -------- --------
Current:
Federal $ 37,205 $ 25,434 $ 14,445
State 8,694 5,945 3,778
------ ------- -------
Total current 45,899 31,379 18,223
------ ------- -------
Deferred:
Federal 625 595 517
State 58 (20) 105
------ ------- -------
Total deferred 683 575 622
------ ------- -------
Income tax expense
on income before
extraordinary charge $ 46,582 $ 31,954 $ 18,845
======= ======= =======
The following is a reconciliation of expected income taxes (computed by
applying the Federal statutory rate to income before taxes and
extraordinary charge) to actual income tax expense (dollars in
thousands):
1998 1997 1996
-------- -------- --------
Computed "expected"
income tax expense $ 41,486 $ 28,243 $ 16,447
State income taxes,
net of federal income
tax benefit 4,786 3,163 2,016
Goodwill amortization 99 99 99
Other, net 211 449 283
------- ------- ------
Income tax expense
on income before
extraordinary charge $ 46,582 $ 31,954 $ 18,845
======= ======= =======
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The significant components of the deferred tax expense (benefit) are as
follows (dollars in thousands):
1998 1997 1996
-------- -------- --------
Deferred tax (benefit)
exclusive of the
component below $ (825) $ (933) $ (885)
Utilization of net operating
loss carryforwards 1,508 1,508 1,507
-------- ------- -------
$ 683 $ 575 $ 622
======== ======= =======
The components of the net deferred tax liability as of June 30 are as
follows (dollars in thousands):
1998 1997
-------- ------
Deferred tax assets:
Accounts receivable $ 901 $ 853
Inventories 2,483 2,774
Other liabilities and reserves 3,710 3,726
Net operating loss carryforwards 10,243 11,750
------ ------
Total deferred tax asset 17,337 19,103
------ ------
Deferred tax liabilities:
Property, plant and equipment 25,423 26,811
Intangible assets other than
goodwill 15,186 15,681
Miscellaneous 1,517 717
------- -------
Total deferred tax liability 42,126 43,209
------- -------
Net deferred tax liability $24,789 $24,106
======= =======
The Company has tax operating loss carryforwards of approximately $26.0
million at June 30, 1998, of which $4.1 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.
During fiscal 1997, Ethan Allen received a $5.2 million investment tax
credit from the State of Vermont. The credit may be utilized to offset
80% of current and future years tax liability and may be carried
forward up to 10 years. Ethan Allen does not expect to be able to
utilize the entire credit. The estimated net realizable credit of $2
million is being accounted for under the deferral method, with
amortization over the average life of the related assets.
Management believes that the results of future operations will generate
sufficient taxable income to realize the deferred tax assets.
(10) Retirement Programs - Employee Benefits
The Ethan Allen Profit Sharing and 401(k) Retirement Plan
---------------------------------------------------------
The Ethan Allen Profit Sharing and 401(k) Retirement Plan (the "Plan")
was formed effectively July 1, 1994 with the merger of the Retirement
Program of Ethan Allen Inc. ("Retirement Program") into the Ethan Allen
401(k) Employee Savings Plan. As a result of the merger on July 1,
1994, all participant investments in the Retirement Program (except for
the Ethan Allen Restricted stock which was transferred directly) were
liquidated and the proceeds were transferred into the Plan and
allocated to participant accounts at each participant's request.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Plan is offered to substantially all employees of the Company who
have completed both one year and 1,000 hours of service during the Plan
year.
Ethan Allen, may at its discretion, make a matching contribution to the
401(k) portion of the Plan on behalf of each participant, provided the
contribution does not exceed the lesser of 50% of the participant's
contribution or $1,000 per participant per Plan year. Contributions to
the profit sharing portion of the Plan are made at the discretion of
management. Total profit sharing and 401(k) company match expense was
$2,287,549 in 1998, $1,595,099 in 1997, and $2,866,000 in 1996.
Other Retirement Plans and Benefits
-----------------------------------
Ethan Allen provides additional benefits to selected members of senior
and middle management in the form of previously entered deferred
compensation arrangements and a management incentive program. The total
cost of these benefits was $3,105,000, $1,567,000, and $2,047,000 in
1998, 1997 and 1996, respectively.
(11) 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 has pledged all the outstanding capital stock of Ethan
Allen to secure its guarantee.
The condensed balance sheets of Ethan Allen as of June 30 are as
follows (dollars in thousands):
Assets 1998 1997
------ -------- --------
Current assets $187,677 $194,704
Non-current assets 282,874 244,880
-------- --------
Total assets $470,551 $439,584
======== ========
Liabilities
Current liabilities $ 72,380 $ 62,398
Non-current liabilities 45,191 99,040
-------- -------
Total liabilities $117,571 $161,438
======== =======
A summary of Ethan Allen's operating activity for each of the years in
the three-year period ended June 30, 1998, is as follows:
1998 1997 1996
-------- -------- --------
Net sales $679,321 $571,838 $509,776
Gross profit 315,575 248,238 205,126
Operating income 119,845 85,943 55,677
Interest expense 4,245 5,864 8,882
Amortization of deferred
financing costs 364 563 734
Income before income
taxes and extraordinary
charge 118,685 80,787 47,095
Net income $ 71,301 $ 48,833 $ 28,250
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(12) 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. The Company believes
that the separation of manufacturing operations from distribution and
store operations 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 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 which were repurchased in March 1998 (refer to Note 5)
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.
The summarized historical combined balance sheet information for EAMC,
EAFC, and Andover (the "Guarantor Subsidiaries") at June 30, 1998 and
1997 is as follows (dollars in thousands):
Assets 1998 1997
------ --------- --------
Current assets $ 134,188 $ 85,355
Non-current assets 174,427 168,540
-------- --------
Total assets $ 308,615 $ 253,895
======== ========
Liabilities
-----------
Current liabilities $ 37,040 $ 28,160
Non-current liabilities 16,316 16,893
-------- --------
Total liabilities $ 53,356 $ 45,053
======== ========
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Summarized historical combined operating activity of the Guarantor
Subsidiaries for each of the years in the three-year period ended June
30, 1998 is as follows (dollars in thousands):
1998 1997 1996
---- ---- ----
Net sales $ 408,884 $ 357,470 $ 317,563
Gross profit 91,596 75,278 57,227
Operating income 72,537 57,113 39,324
Income before
income taxes 76,871 61,475 43,636
Net income $ 43,430 $ 37,131 $ 26,400
The summarized historical financial information for the Guarantor
Subsidiaries above has been derived from the financial statements of
the Company.
(13) 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 the Company believes 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. The Company has concluded its
involvement with one site and 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.
(14) 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 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, home accessories and indoor/outdoor
furniture.
Wholesale profitability includes the wholesale gross margin which is
earned on wholesale sales to all retail stores, including Ethan
Allen-owned stores. 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.
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table shows sales, operating earnings and other financial
information by respective business segment for the fiscal years ended
June 30, 1998, 1997, and 1996 (dollars in thousands):
<TABLE>
<CAPTION>
Inter-Segment
1998 Wholesale Retail Eliminations Consolidated
---- --------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $575,867 $235,230 $(131,776) $679,321
Operating income 109,714 13,747 (3,771) 119,690
Interest and other
income 3,159 290 - 3,449
Interest expense - - ( 4,609)
-------
Income before income
tax expense and
extraordinary charge 118,530
Depreciation and
amortization 13,753 1,751 - 15,504
Identifiable assets 336,210 69,807 - 406,017
Cash 19,380
Deferred income taxes 7,094
Deferred financing costs 632
-------
Total assets 433,123
Capital expenditures 14,895 14,770 - 29,665
Inter-Segment
1997 Wholesale Retail Eliminations Consolidated
---- --------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $495,001 $175,825 $ (98,988) $571,838
Operating income 84,034 7,419 (5,604) 85,849
Interest and other
income 974 298 - 1,272
Interest expense - - - (6,427)
-------
Income before income
tax expense 80,694
Depreciation and
amortization 14,235 1,613 - 15,848
Identifiable assets 335,260 61,745 - 397,005
Cash 21,866
Deferred income taxes 7,353
Deferred financing costs 1,560
-------
Total assets 427,784
Capital expenditures 9,990 13,393 - 23,383
Inter-Segment
1996 Wholesale Retail Eliminations Consolidated
---- --------- ------ ------------ ------------
<S> <C> <C> <C> <C>
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
Interest expense - - - (9,616)
-------
Income before income tax
expense and extraordinary
charge 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
</TABLE>
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(15) Selected Quarterly Financial Data (Unaudited)
Tabulated below are certain data for each quarter of the fiscal years
ended June 30, 1998 and 1997 (dollar amounts in thousands, except per
share data).
Quarter Ended
----------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
1998 Quarters:
Net Sales $152,494 $172,743 $171,434 $182,650
Gross Profit 70,766 80,713 80,404 83,692
Income before
extraordinary charge $ 14,034 $ 19,091 $ 18,793 $ 20,030
Net income $ 14,034 $ 19,091 $ 17,991 $ 20,030
Net income per basic
share $ 0.49 $ 0.66 $ 0.62 $ 0.70
Net income per diluted
share $ 0.48 $ 0.65 $ 0.61 $ 0.68
Dividend declared per
common share $ 0.03 $ 0.03 $ 0.04 $ 0.04
1997 Quarters:
Net sales $132,355 $138,330 $144,719 $156,434
Gross profit 54,578 59,921 63,308 70,431
Net income $ 8,783 12,227 12,849 14,881
Net income per basic
share $ 0.31 $ 0.42 $ 0.45 $ 0.52
Net income per diluted
share $ 0.30 $ 0.42 $ 0.44 $ 0.51
Dividend declared per
common share $ 0.02 $ 0.02 $ 0.03 $ 0.03
<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/ Horace McDonell Director
- ----------------------------------
(Horace McDonell)
/s/ Edward H. Meyer Director
- ----------------------------------
(Edward H. Meyer)
/s/ William W. Sprague Director
- ----------------------------------
(William W. Sprague)
/s/ Gerardo Burdo Vice President &
- ---------------------------------- Corporate Controller
(Gerardo Burdo)
/s/ Mary Beth Walsh Assistant Corporate
- ---------------------------------- Controller
(Mary Beth Walsh)
