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 September 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: 1-11692
Ethan Allen Interiors Inc.; Ethan Allen Inc.; Ethan Allen Finance
Corporation; Ethan Allen Manufacturing Corporation; Andover Woods
Products Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1275288
(State or other jurisdiction
of incorporation or organization) (I.R.S.Employer ID No.)
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.
27,560,032 at September 30, 1998
<PAGE>
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as
of September 30 and June 30, 1998
and for the three months ended
September 30, 1998 and 1997 (unaudited):
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Consolidated Statement of Shareholders' Equity 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations 10
Part II. Other Information: 14
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and reports on Form 8-K
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
September 30,
1998 June 30,
ASSETS (unaudited) 1998
------ ----------- ----
Current assets:
Cash and cash equivalents $ 12,028 $ 19,380
Accounts receivable, less allowances of
$1,931 and $2,022 at September 30 and
June 30, 1998, respectively 35,850 35,640
Notes receivable, current portion, less
allowances of $24 and $27 at September 30
and June 30, 1998, respectively 651 686
Inventories (note 3) 126,349 114,364
Prepaid expenses and other current assets 14,454 10,735
Deferred income taxes 7,470 7,094
----- -----
Total current assets 196,802 187,899
------- -------
Property, plant and equipment, net 195,998 188,171
Property held for sale (note 4) 746 1,129
Notes receivable, net of current portion, less
allowance of $214 and $259 at September 30
and June 30, 1998, respectively 1,730 1,790
Intangibles, net of amortization of $16,028 and
$15,060 at September 30 and June 30, 1998,
respectively 51,851 50,773
Deferred financing costs, net of amortization of
$2,338 and $2,280 at September 30 and June 30,
1998, respectively 574 632
Other assets 2,931 2,729
----- -----
Total assets $450,632 $433,123
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 1,115 $ 879
Accounts payable 61,774 51,135
Accrued expenses 8,198 5,863
Accrued compensation and benefits 12,614 15,735
------ ------
Total current liabilities 83,701 73,612
------ ------
Long-term debt, less current maturities 34,187 11,480
------ ------
Obligations under capital leases,
less current maturities 781 1,016
Other long-term liabilities,
principally long-term
compensation and environmental 799 812
Deferred income taxes 32,324 31,883
------ ------
Total liabilities 151,792 118,803
------- -------
Commitments and contingencies (note 5) - -
Shareholders' equity:
Class A common stock, par value $.01,
70,000,000 shares authorized,
29,680,646 and 29,669,470 shares
issued at September 30 and June 30,
1998, respectively 296 296
Preferred stock, par value $.01,
1,055,000 shares authorized,
no shares issued and outstanding at
September 30 and June 30, 1998,
respectively - -
Additional paid-in capital 264,097 262,462
------- -------
264,393 262,758
Less:
Treasury stock (at cost)
2,120,621 and 1,216,096
shares at September 30
and June 30, 1998, respectively (65,967) (33,750)
------- -------
198,426 229,008
Retained earnings 100,414 85,312
------- ------
Total shareholders' equity 298,840 314,320
------- -------
Total liabilities and shareholders' equity $450,632 $433,123
======== ========
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
(Dollars in thousands, except per share data)
Three Months
Ended September 30,
1998 1997
---- ----
Net sales $166,226 $152,494
Cost of sales 89,222 81,728
------ ------
Gross profit 77,004 70,766
Operating expenses:
Selling 27,824 26,327
General and administrative 22,592 20,479
------ ------
Operating income 26,588 23,960
------ ------
Interest and other miscellaneous
income, net 470 788
Interest and related expense:
Interest expense 296 1,404
Amortization of deferred
financing costs 58 109
-- ---
354 1,513
Income before income taxes 26,704 23,235
Income tax expense 10,495 9,201
------ -----
Net income $ 16,209 $ 14,034
======== ========
Per share data:
Net income per basic share $ 0.58 $ 0.49
======== ========
Basic weighted average common shares
outstanding 28,007 28,740
Net income per diluted share $ 0.57 $ 0.48
======== ========
Diluted weighted average common shares
outstanding 28,663 29,296
Dividends declared per common share $ 0.04 $ 0.03
======== ========
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months
Ended September 30,
1998 1997
---- ----
Operating activities:
Net income $ 16,209 $14,034
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,897 3,814
Provision for deferred income taxes 65 (634)
Other non-cash charges 8 107
Change in:
Accounts receivable (259) (1,350)
Inventories (9,902) (3,222)
Prepaid and other current assets (3,719) (2,014)
Other assets (446) (1,237)
Accounts payable 12,028 11,314
Accrued expenses (755) (1,817)
Other long-term liabilities (13) (18)
--- ---
Net cash provided by operating activities 17,113 18,977
------ ------
Investing activities:
Proceeds from the disposal of
property, plant and equipment - 18
Capital expenditures (10,625) (8,116)
Payments received on long-term notes receivable 142 498
Disbursements made for long-term notes receivable - (62)
Acquisition of business - Inventory (2,083) -
- Excess of purchase
price over cost (1,500) -
Redemptions of short term securities - 1,503
------ ------
Net cash used by investing activities (14,066) (6,159)
------- -------
Financing activities:
Payments to acquire treasury stock (32,217) (3,393)
Borrowings on revolving credit facility 23,000 -
Redemption of Senior Notes - (139)
Payments on long-term debt,
including current maturities (37) (39)
Issuance of common stock 246 434
Payments under capital leases (253) (409)
Payments of dividends (1,138) (864)
------- -------
Net cash used by financing activities (10,399) (4,410)
------- -------
Net (decrease) increase in cash (7,352) 8,408
Cash at beginning of period 19,380 21,866
------- -------
Cash at end of period $ 12,028 $ 30,274
======= =======
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Three Months Ended September 30, 1998
(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, 1998 $ 296 $262,462 $ (33,750) $ 85,312 $314,320
Issuance of common stock - 246 - - 246
Purchase of treasury stock - - (32,217) - (32,217)
Tax benefit associated with
the exercise of employee
options and warrants - 1,389 - - 1,389
Dividends declared - - - (1,107) (1,107)
Net income - - - 16,209 16,209
------ ------- -------- -------- -------
Balance at September 30, 1998 $ 296 $264,097 $ (65,967) $ 100,414 $298,840
====== ======= ======== ======== =======
</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.
The accompanying quarterly consolidated financial statements are
unaudited. However, 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 months ended September 30, 1998,
are not necessarily indicative of results for the fiscal year.
(3) Inventories
Inventories at September 30 and June 30, 1998 are summarized as follows
(dollars in thousands):
September 30, June 30,
1998 1998
---- ----
Retail merchandise $ 43,365 $ 38,329
Finished products 32,106 28,931
Work in process 16,115 15,707
Raw materials 34,763 31,397
------- -------
$126,349 $114,364
(4) Property Held for Sale
Property held for sale is recorded at lower of cost or net realizable
values.
(5) Contingencies
The Company has been named as a potentially responsible party ("PRP")
for the cleanup of four sites currently listed or proposed for
inclusion on the National Priorities List ("NPL") under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"). Numerous other parties have been identified as PRP's
at these sites. Liability under CERCLA is joint and several. The
Company has total reserves of $500,000 applicable for these sites,
which the Company believes is sufficient to cover any resulting
liability with respect to all of these sites. 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. The Company
believes that it is not a major contributor based on the very small
volume of
-6-
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
waste generated by the Company in relation to the total volume at the
site. 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 and the Company
has entered upon a program to design and construct a landfill cap of
the Parker Landfill site. The cap will be funded be a number of parties
including the Federal Government, the State of Vermont and other
companies who contributed hazardous materials to the site. Another
company is responsible for the ground water remediation and still
another is responsible for operation and maintenance.
(6) Wholly-Owned Subsidiary
The Company owns all of the outstanding stock of Ethan Allen, has no
material assets other than its ownership of Ethan Allen stock, and
conducts all significant operating transactions through Ethan Allen.
The Company has guaranteed Ethan Allen's obligation under the Credit
Agreement 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 September 30 and June
30, 1998 are as follows (dollars in thousands):
September 30, June 30,
1998 1998
---- ----
Assets
------
Current assets $196,659 $187,677
Non-current assets 324,658 282,874
------- -------
Total assets $521,317 $470,551
======== ========
Liabilities
-----------
Current liabilities $82,487 $72,380
Non-current liabilities 68,091 45,191
------ ------
Total liabilities $150,578 $117,571
======== ========
A summary of Ethan Allen's operating activity for the three months
ended September 30, 1998 and 1997 is as follows (dollars in thousands):
Three Months
Ended September 30,
1998 1997
------- -------
Net sales $166,226 $152,494
Gross profit 77,004 70,766
Operating income 26,623 23,980
Interest expense 296 1,404
Amortization of deferred
financing costs 58 109
Income before income
tax expense 26,739 23,255
Net income $ 16,244 $ 14,054
-7-
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
7) Earnings Per Share:
Basic and diluted earnings per share are calculated based upon the
provisions of SFAS 128, using the following share data (in thousands):
September 30, September 30,
1998 1997
---- ----
Weighted average common shares
outstanding for basic
calculation 28,007 28,740
Add: Effect of stock options 656 556
------ ------
Weighted average common shares
outstanding, adjusted for
diluted calculation 28,663 29,296
====== ======
8) 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 furnishings 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.
-8-
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents revenue and operating earnings by respective
business segment for the three months ended September 30, 1998 and 1997(in
thousands):
September 30, 1998:
Inter-Segment
Wholesale Retail Elimination Consolidated
--------- ------ ----------- ------------
Net sales $141,316 $ 61,805 (36,895) $166,226
Gross profit 51,809 27,057 (1,862) 77,004
Operating income 26,102 2,022 (1,536) 26,588
Interest and other
income 363 107 - 470
Interest expense 236 60 - 296
Amortization of deferred
financing costs 46 12 - 58
Income before income
tax expense 26,183 2,057 (1,536) 26,704
September 30, 1997:
Inter-Segment
Wholesale Retail Elimination Consolidated
--------- ------ ----------- ------------
Net sales $130,224 $ 52,486 (30,216) $152,494
Gross profit 49,474 23,323 (2,031) 70,766
Operating income 23,011 2,536 (1,587) 23,960
Interest and other
income 727 61 - 788
Interest expense 1,058 346 - 1,404
Amortization of deferred
financing costs 82 27 - 109
Income before income
tax expense 22,598 2,224 (1,587) 23,235
-9-
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussions set forth in this Form 10-Q should be read in conjunction
with the financial information included herein and the Company's Annual Report
on Form 10-K for the year ended June 30, 1998. Management's discussion and
analysis of financial condition and results of operations and other sections of
this report contain forward-looking statements relating to future results of the
Company. Such forward-looking statements are identified by use of
forward-looking words such as "anticipates", "believes", "plans", "estimates",
"expects", and "intends" or words or phrases of similar expression. These
forward-looking statements are subject to various assumptions, risks and
uncertainties, including but not limited to, changes in political and economic
conditions, demand for the Company's products, acceptance of new products,
developments affecting the Company's products and to those discussed in the
Company's filings with the Securities and Exchange Commission. Accordingly,
actual results could differ materially from those contemplated by the
forward-looking statements.
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
Ended
September 30,
1998 1997
---- ----
Revenues:
Net wholesale sales to dealer-
owned stores $101.9 $ 95.0
Net retail sales of Ethan Allen-
owned stores 61.8 52.5
Other revenues 2.5 5.0
----- -----
Total $166.2 $152.5
===== =====
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1997
Sales for the three months ended September 30, 1998 increased by $13.7
million, or 9.0%, over the corresponding period in the prior year to $166.2
million. Net sales to dealer-owned stores increased by $6.9 million or 7.3% to
$101.9 million, and net retail sales by Ethan Allen-owned stores increased by
$9.3 million or 17.7% to $61.8 million. Sales growth has resulted from increased
sales from relocated and new stores, new product offerings and expanded national
television advertising. At September 30, 1998, there were 310 total stores, of
which 239 were dealer-owned, as compared to 301 total stores, of which 235 were
dealer-owned at September 30, 1997.
The increase in retail sales by Ethan Allen-owned stores is
attributable to a 13.3% or $6.7 million, increase in comparable store sales, and
an increase in sales generated by newly opened or acquired stores of $3.9
million, partially offset by closed stores, which generated $1.3 million less in
sales in the three months ended September 30, 1998, as compared to the three
months ended September 30, 1997.
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 September 30, 1998 increased by
$6.2 million as compared to the three months ended September 30, 1997 to $77.0
million. Gross margin amounted to 46.3% as compared to 46.4% in the prior year
quarter. Gross margins have been negatively impactd by higher lumber and other
raw material costs. These cost increases have been partially offset by a higher
proportion of retail business, gains in manufacturing efficiencies, higher
production levels and streamlined work processes.
Selling, general and administrative expenses increased $3.6 million
from $46.8 million or 30.7% of net sales, in the three months ended September
30, 1997 to $50.4 million or 30.3% of net sales, in the three months ended
-10-
<PAGE>
September 30, 1998. This increase is principally attributable to a $4.2 million
increase in operating expenses of the Company's retail division due to higher
sales volumes and new stores.
Operating income for the three months ended September 30, 1998 was
$26.6 million, an increase of $2.6 million as compared to the three months ended
September 30, 1997. The improvement is principally a result of the higher sales
volume, improvements in manufacturing efficiencies and close monitoring of
expenses. Wholesale operating income was $26.1 million for the three months
ended September 30, 1998, reflecting an increase of $3.1 million as compared to
the prior year quarter. Retail operating income was $2.0 million in the three
months ended September 30, 1998, as compared to $2.5 million in the
corresponding period in the prior year. Retail operating income was negatively
impacted by the acquisition of 3 stores in Connecticut and a concurrent move of
the Connecticut Service Center. Exclusive of these one-time occurrences, retail
operating income would have amounted to $3.3 million.
Interest expense, including amortization of deferred financing costs,
for the three months ended September 30, 1998 decreased by $1.1 million to $.4
million from $1.5 million in the three months ended September 30, 1997, due to
lower debt balances outstanding.
Income tax expense of $10.5 million was recorded for the three months
ended September 30, 1998 as compared to $9.2 million in the prior year quarter.
The Company's effective tax rate for the three months ended September 30, 1998
was 39.3%, as compared to 39.6% for the three months ended September 30, 1997.
For the three months ended September 30, 1998, the Company recorded net
income of $16.2 million compared to net income for the three months ended
September 30, 1997 of $14.0 million.
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 $17.1 million for the three months
ended September 30, 1998 as compared to $19.0 million in the three months ended
September 30, 1997. Net income for the three months ended September 30, 1998 was
$2.2 million higher than the net income reported for the three months ended
September 30, 1997. For the quarter, inventories increased $12.0 million to
$126.3 million, ($2.1 million of this increase related to the purchase of three
stores in Connecticut), as compared to a $3.2 million increase in the prior year
first quarter. Accounts payable and accrued expenses increased $11.3 million for
the three months ended September 30, 1998 as compared to a $9.5 million increase
in the prior year first quarter. At September 30, 1998, the Company had working
capital of $113.1 million and a current ratio of 2.35 to 1.
During the three months ended September 30, 1998, capital spending
totaled $10.6 million as compared to $8.1 million in the three months ended
September 30, 1997. Capital expenditures in fiscal 1999 are anticipated to be
approximately $50.0 million. The Company anticipates that cash from operations
will be sufficient to fund this level of capital expenditures. The increased
level of anticipated capital spending, which is attributable primarily to
manufacturing efficiency improvements and scheduled new store openings, is
expected to continue for the foreseeable future.
Total debt outstanding at September 30, 1998 is $36.1 million. At
September 30, 1998, there was $23.0 million in outstanding revolving loans under
the Credit Agreement. Trade and standby letters of credit of $13.9 million were
outstanding as of September 30, 1998.
-11-
<PAGE>
As of September 30, 1998, aggregate scheduled maturities of long-term
debt for each of the next five fiscal years are $.4 million, $23.2 million, $.2
million, $.2 million and $10.5 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.
The Company may, 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. During the
quarter ended September 30, 1998, 873,300 shares were purchased at an average
price of $35.26 per share. Depending on market prices and other conditions
relevant to the Company, such purchases may be discontinued at any time.
Year 2000
The Company expects to implement the systems and programming changes
necessary to address Year 2000 issues and does not believe the cost of such
actions will have a material effect on the Company's results of operations or
financial condition. However, there is no guarantee that the Company, its
suppliers or other third parties will be able to make all of the modifications
necessary to address Year 2000 issues on a timely basis. This could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company views all of its retail, wholesale and
manufacturing applications as mission critical. The Company recently converted
its retail, wholesale and a portion of its manufacturing applications onto one
single mid range computer, utilizing newly acquired integrated software. The
newly implemented software is substantially compliant, with all date fields
expanded to four digits. The Company has set up a redundant environment and has
rolled the date forward to the year 2000 and is testing all of its business
transactions. The testing of these recently implemented applications is expected
to be completed by December 31, 1998.
Concurrently with the aforementioned project, the Company has been
remediating its pre-existing manufacturing systems. This process is complete in
the Company's wood manufacturing facilities. Substantial progress has been made
in the Company's upholstered and accessory manufacturing systems. These systems
are expected to be fully compliant by December 31, 1998.
Investments have been made in the Company's peripheral hardware. These
investments were necessitated by the retail and wholesale systems conversion.
The Company is currently compiling a list of hardware and associated software
that has not been recently replaced. The Company expects all hardware to be
remediated or replaced by June 30, 1999.
The Company's vertical integrated structure might to some degree mitigate
the impact of third parties' Year 2000 issues to adversely affect the Company.
However, the Company anticipates the possibility that not all of its vendors,
retailers and other third parties will have taken the necessary steps to
adequately address their respective Year 2000 issues on a timely basis. In order
to minimize the impact on the Company, a project team has been formed to monitor
the activities of third parties, including sending out inquiries and evaluating
responses.
Notwithstanding the progress the Company has made thus far in
remediating its existing systems and implementing new systems, the Company is
-12-
<PAGE>
proceeding in drafting a formal contingency plan. The Company intends to
continue monitoring the progress of others in order to determine whether
adequate services will be provided to run the Company's operations in the Year
2000.
Quantitative and Qualitative Disclosure about Market Risk
The Company is exposed to interest rate risk primarily through its
borrowing activities. The Company's policy has been to utilize United States
dollar denominated borrowings to fund its working capital and investment needs.
Short term debt, if required, is used to meet working capital requirements and
long term debt is generally used to finance long term investments. There is
inherent roll-over risk for borrowings as they mature and are renewed at current
market rates. The extent of this risk is not quantifiable or predictable because
of the variability of future interest rates and the Company's future financing
requirements. At June 30, 1998, the Company had no short term debt outstanding
and total long term debt outstanding of $11.5 million. Currently, the Company
has outstanding only one debt instrument (principal amount of $4.6 million)
which has a variable interest rate. Using a yield to maturity analysis and
assuming an increase in the interest rate on this debt of 36 basis points (10%
fluctuation in the rate), interest rate variability on this debt would not have
a material effect on the Company's financial results.
Currently, the Company does not enter into financial instruments
transactions for trading or other speculative purposes or to manage interest
rate exposure.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings
There has been no change to matters discussed in Business-Legal Proceedings in
the Company's Form 10-K as filed with the Securities and Exchange Commission on
September 18, 1998.
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 18, 1998.
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
None
Item 5. - Other Information
None
Item 6. - Exhibits and Reports on Form 8-K
27 - Edgar Financial Data Schedule
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ETHAN ALLEN INTERIORS INC.
--------------------------
(Registrant)
DATE: 11/13/98 BY: /s/ M. Farooq Kathwari
-------- ----------------------
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: 11/13/98 BY: /s/ Gerardo Burdo
-------- ----------------------
Gerardo Burdo
Vice President &
Corporate Controller
(Principal Financial Officer)
DATE: 11/13/98 BY: /s/ Mary Beth Walsh
-------- ----------------------
Mary Beth Walsh
Assistant Corporate Controller
(Principal Accounting Officer)
-15-
<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 September 30, 1998 and is
qualified in its entirety by
reference to such financial
statements.
</LEGEND>
<CIK> 0000896156
<NAME> 0
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> Sep-30-1998
<EXCHANGE-RATE> 1 <F1>
<CASH> 12,028
<SECURITIES> 0
<RECEIVABLES> 35,850 <F2>
<ALLOWANCES> 0
<INVENTORY> 126,349
<CURRENT-ASSETS> 196,802 <F3>
<PP&E> 300,510
<DEPRECIATION> 104,512
<TOTAL-ASSETS> 450,632 <F4>
<CURRENT-LIABILITIES> 83,710 <F5>
<BONDS> 34,968 <F6>
0
0 <F7>
<COMMON> 296 <F8>
<OTHER-SE> 298,544 <F9>
<TOTAL-LIABILITY-AND-EQUITY> 450,632
<SALES> 166,226
<TOTAL-REVENUES> 166,226 <F10>
<CGS> 89,222
<TOTAL-COSTS> 89,222
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354 <F11>
<INCOME-PRETAX> 26,704
<INCOME-TAX> 10,495
<INCOME-CONTINUING> 16,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,209
<EPS-PRIMARY> 0.58 <F12>
<EPS-DILUTED> 0.57 <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
$1,931.
<F3> Includes prepaid expenses of $14,454.
<F4> Includes goodwill of $10,203 (net of amortization).
<F5> Includes current portion of long-term debt of $1,115 of September 30,
1998.
<F6> Includes long-term debt of $34,187 (net of the current portion of
long-term debt)and capitalized leases of $781 (net of the current
portion of capitalized leases). As of September 30, 1998 outstanding
long-term debt of Ethan Allen on a consolidated basis consisted of (i)
revolving loans under the Credit Agreement of $23,000, (ii) 9.75%
mortgage note of $1,503 (net of current portion), (iii) industrial
revenue bonds of $8,455, and (iv) other of $1,229 (net of current
portion). For a description of the terms of Ethan Allen's long-term
debt, see Footnote 5 to Ethan Allen's fiscal 1998 Consolidated
Financial Statements.
<F7> As of September 30, 1998, 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, 1998, see Ethan Allen's fiscal
1998 Consolidated Statement of Stockholders' Equity and Footnote 7 to
Ethan Allen's fiscal 1998 Notes to Consolidated Financial Statements.
<F8> As of September 30, 1998, Ethan Allen had 29,680,646 shares of common
stock, $.01 par value per share, issued. For a description of Ethan
Allen's common stock as of June 30, 1998, see Ethan Allen's fiscal 1998
Consolidated Statement of Stockholders' Equity and Footnote 7 of Ethan
Allen's fiscal 1997 Consolidated Financial Statements.
<F9> Consists of $264,097 of additional paid in capital, $100,414 of
retained earnings, and ($65,967) of treasury stock.
<F10> In the quarter ended September 30, 1998, Ethan Allen's revenues were
derived from sales generated by its wholesale and retail operations.
<F11> Consists of $296 of interest expense and $58 of amortization of
deferred costs during fiscal 1998.
<F12> Basic earnings per share for the quarter ended September 30, 1998 was
$0.58. For information on Ethan Allen's earnings per share, see Ethan
Allen's Consolidated Financial Statements for the quarter ended
September 30, 1998.
<F13> Diluted earnings per share for the quarter ended September 30, 1998,
was $0.57.
</FN>
</TABLE>
