SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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; Andover Wood Products Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1275288
(State or other jurisdiction of incorporation (I.R.S. Employer ID No.)
or organization)
Ethan Allen Drive, Danbury, Connecticut 06811
(Address of principal executive offices)
(203) 743-8000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
28,765,808 at March 31, 1998
<PAGE>
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of March 31, 1998 (unaudited) and
June 30, 1997 and for the three and nine months ended March 31, 1998
and 1997 (unaudited):
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Consolidated Statements of Shareholders'
Equity 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
Part II. Other Information: 15
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and reports on Form 8-K
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31,
ASSETS 1998 June 30,
(unaudited) 1997
----------- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,909 $ 21,866
Short term investments -- 17,975
Accounts receivable, less allowances of
$2,022 and $1,903 at March 31, 1998 and
June 30, 1997, respectively 33,438 32,232
Notes receivable, current portion, less
allowances of $20 and $74 at March 31,
1998 and June 30, 1997, respectively 540 1,056
Inventories (note 4) 115,764 107,525
Prepaid expenses and other current assets 9,148 6,724
Deferred income taxes 7,150 7,353
--------- ---------
Total current assets 190,949 194,731
--------- ---------
Property, plant and equipment, net 182,127 171,406
Notes receivable, net of current portion, less
allowance of $186 and $145 at March 31, 1998
and June 30, 1997, respectively 1,977 2,725
Intangibles, net of amortization of $14,649 and
$13,414 at March 31, 1998 and June 30, 1997,
respectively 51,184 52,419
Deferred financing costs, net of amortization of
$2,222 and $1,916 at March 31, 1998 and June 30,
1997, respectively (note 3) 689 1,560
Other assets 4,133 4,943
--------- ---------
Total assets $ 431,059 $ 427,784
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 907 $ 1,119
Accounts payable 50,442 41,172
Accrued expenses 6,840 8,036
Accrued compensation and benefits 14,369 12,983
--------- ---------
Total current liabilities 72,558 63,310
--------- ---------
Long-term debt, less current
maturities (note 3) 11,519 64,066
Obligations under capital leases, less current
maturities 1,690 2,700
Other long-term liabilities, principally long-term
compensation, environmental and legal reserves 778 815
Deferred income taxes 31,664 31,459
--------- ---------
Total liabilities 118,209 162,350
--------- ---------
Commitments and contingencies (note 5) -- --
Shareholders' equity:
Class A common stock, par value $.01, 70,000,000
shares authorized, 29,617,369 and 29,465,400
shares issued and outstanding at March 31, 1998
and June 30, 1997, respectively 296 294
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding at
March 31, 1998 and June 30, 1997, respectively -- --
Additional paid-in capital 261,710 257,684
--------- ---------
262,006 257,978
Less: Treasury stock (at cost) 851,561 and 700,032
shares at March 31, 1998 and June 30, 1997,
respectively (15,589) (10,440)
--------- ---------
246,417 247,538
Retained earnings 66,433 17,896
--------- ---------
Total shareholders' equity 312,850 265,434
--------- ---------
Total liabilities and shareholders' equity $ 431,059 $ 427,784
========= =========
</TABLE>
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)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
1998 1997 1998 1997
------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Net sales $ 171,434 $ 144,719 $ 496,671 $ 415,404
Cost of sales 91,030 81,411 264,788 237,597
--------- --------- --------- ---------
Gross profit 80,404 63,308 231,883 177,807
Operating expenses:
Selling 28,338 22,965 81,232 61,000
General and administrative 20,743 17,792 63,255 56,204
--------- --------- --------- ---------
Operating income 31,323 22,551 87,396 60,603
--------- --------- --------- ---------
Interest and other miscellaneous
income, net 1,084 577 2,886 921
Interest expense 1,166 1,595 3,960 4,606
Amortization of deferred
financing costs 95 102 306 459
--------- --------- --------- ---------
Income before income taxes and
extraordinary charge 31,146 21,431 86,016 56,459
Income tax expense 12,353 8,582 34,098 22,600
--------- --------- --------- ---------
Income before extraordinary
charge 18,793 12,849 51,918 33,859
Extraordinary charge, net of tax 802 -- 802 --
--------- --------- --------- ---------
Net income $ 17,991 $ 12,849 $ 51,116 $ 33,859
========= ========= ========= =========
Per share data (note 8):
Basic earnings per common share:
Net income before extraordinary
charge 0.65 0.45 1.81 1.18
Extraordinary charge, net of
tax (note 3) (0.03) -- (0.03) --
--------- --------- --------- ---------
Net income $ 0.62 $ 0.45 $ 1.78 $ 1.18
========= ========= ========= =========
Basic weighted average common
shares outstanding 28,738 28,805 28,731 28,747
Diluted earnings per common share:
Net income before extraordinary
charge 0.64 0.44 1.76 1.16
Extraordinary charge, net of
tax (note 3) (0.03) -- (0.03) --
--------- --------- --------- ---------
Net income $ 0.61 $ 0.44 $ 1.73 $ 1.16
========= ========= ========= =========
Diluted weighted average common
shares outstanding 29,595 29,263 29,423 29,271
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
1998 1997
---------- -------
<S> <C> <C>
Operating activities:
Net income $ 51,116 $ 33,859
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 11,945 12,725
Provision for deferred income taxes 408 1,824
Other non-cash charges 56 421
Extraordinary charge, net of tax 341 --
Change in:
Accounts receivable (1,218) (798)
Inventories (8,239) 5,002
Prepaid and other current assets (2,424) (613)
Other assets (865) (114)
Accounts payable 10,886 4,545
Accrued expenses 313 (630)
Other long-term liabilities (37) (204)
-------- --------
Net cash provided by operating activities 62,282 56,017
-------- --------
Investing activities:
Proceeds from the disposal of property, plant and equipment 812 110
Proceeds from the disposal of property, plant and equipment,
held for sale -- 1,945
Capital expenditures (20,431) (15,108)
Payments received on long-term notes receivable 1,352 949
Disbursements made for long-term notes receivable (77) (777)
Redemptions of short term securities 30,270 --
Investments in short term securities (12,295) --
-------- --------
Net cash used by investing activities (369) (12,881)
-------- --------
Financing activities:
Redemption of senior notes (52,543) (9,384)
Payments on revolving credit facilities -- (21,500)
Borrowings on revolving credit facilities -- 14,500
Other long-term borrowings 111 794
Payments on long-term debt, including current maturities (112) (118)
Payments under capital leases (1,226) (1,547)
Issuance of capital stock 2,636 1,407
Payments to acquire Treasury stock (5,149) (2,198)
Increase in deferred financing costs -- (173)
Payment of dividends (2,587) (1,725)
-------- --------
Net cash used by financing activities (58,870) (19,944)
-------- --------
Net increase in cash and cash
equivalents 3,043 23,192
Cash and cash eqivalents at
beginning of period 21,866 9,078
-------- --------
Cash and cash equivalents at
at end of period $ 24,909 $ 32,270
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Nine Months Ended March 31, 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, 1997 $ 294 $ 257,684 $ (10,440) $ 17,896 $ 265,434
Issuance of common stock 2 2,634 -- -- 2,636
Purchase of 151,529 shares
of treasury stock -- -- (5,149) -- (5,149)
Tax benefit associated with the
exercise of employee options
and warrants -- 1,392 -- -- 1,392
Dividends declared -- -- -- (2,579) (2,579)
Net income -- -- -- 51,116 51,116
--------- --------- --------- --------- ---------
Balance at March 31, 1998 $ 296 $ 261,710 $ (15,589) $ 66,433 $ 312,850
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
Ethan Allen Interiors Inc. (the "Company") is a Delaware corporation
incorporated on May 25, 1989. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary
Ethan Allen Inc. ("Ethan Allen") and Ethan Allen's subsidiaries. All of
Ethan Allen's capital stock is owned by the Company. The Company has no
other assets or operating results other than those associated with its
investment in Ethan Allen.
(2) Interim Financial Presentation
All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
In the opinion of the Company, all adjustments, consisting only of
normal recurring accruals necessary for fair presentation, have been
included in the financial statements. The results of operations for the
three and nine months ended March 31, 1998, are not necessarily
indicative of results for the fiscal year.
(3) Extraordinary Charge
On March 15, 1998, the Company completed its optional early redemtion
of all of its $52.4 million outstanding 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.
(4) Inventories
Inventories at March 31, 1998 and June 30, 1997 are summarized as
follows (dollars in thousands):
March 31, June 30,
1998 1997
---- ----
Retail merchandise $ 37,285 $ 34,478
Finished products 29,719 32,665
Work in process 15,679 13,333
Raw materials 33,081 27,049
------- -------
$115,764 $107,525
======= =======
(5) Contingencies
The Company has been named as a potentially responsible party ("PRP")
for the cleanup of four sites currently listed or proposed for
inclusion on the National Priorities List ("NPL") under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"). Numerous
6
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
other parties have been identified as PRP's at these sites. Liability
under CERCLA may be joint and several. The Company has total reserves
of $500,000 applicable to these sites, which the Company believes is
sufficient to cover any resulting liability. With respect to all of
these sites, the Company believes that it is not a major contributor
based on the very small volume of waste generated by the Company in
relation to total volume at the site. The Company has concluded its
involvement with one site and has settled as a de-minimis party. For
two of the sites, the remedial investigation is ongoing. A volume-based
allocation of responsibility among the parties has been prepared. With
respect to the fourth site, a consent decree to finally resolve the
matter with the EPA has been signed. The Company believes there may be
some delay in resolution due to objections of a non-signatory to the
consent decree.
(6) Wholly-Owned Subsidiary
The Company owns all of the outstanding stock of Ethan Allen, has no
material assets other than its ownership of Ethan Allen stock, and
conducts all significant operating transactions through Ethan Allen.
The Company has guaranteed Ethan Allen's obligations under its Credit
Agreement and has pledged all the outstanding capital stock of Ethan
Allen to secure its guarantee under its Credit Agreement.
The condensed balance sheets of Ethan Allen as of March 31, 1998 and
June 30, 1997 are as follows (dollars in thousands):
March 31, June 30,
1998 1997
---- ----
Assets
Current assets $190,935 $194,704
Non-current assets 258,855 244,880
------- -------
Total assets $449,790 $439,584
======= =======
Liabilities
Current liabilities $ 71,634 $ 62,398
Non-current liabilities 45,651 99,040
------- -------
Total liabilities $117,285 $161,438
======= =======
7
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
A summary of Ethan Allen's operating activity for the three and nine
months ended March 31, 1998 and 1997, is as follows (dollars in
thousands):
Three Months Nine Months
Ended March 31, Ended March 31,
1998 1997 1998 1997
-------- -------- -------- ------
Net sales $171,434 $144,719 $496,671 $415,404
Gross profit 80,404 63,308 231,883 177,807
Operating income 31,373 22,577 87,487 60,665
Interest expense 1,166 1,595 3,960 4,606
Amortization of deferred
financing costs 95 102 306 459
Income before income
tax expense and
extraordinary charge 31,196 21,457 86,107 56,520
Extraordinary charge
(net of tax) 802 - 802 -
Net income $ 18,041 $ 12,875 $ 51,207 $ 33,920
(7) Business Reorganization
The Company implemented a business reorganization ("Reorganization")
effective July 1, 1995, which permitted a separation of manufacturing
operations from distribution and store operations. 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 by
each of EAMC and EAFC and Andover Woods Products Inc. ("Andover"), a
wholly owned subsidiary of Ethan Allen, (v) the execution of a
management agreement and a service mark licensing agreement between
Ethan Allen and EAFC, (vi) the execution of a management agreement and
a trademark licensing agreement between EAMC and EAFC and (vii) 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.
8
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
The summarized historical combined balance sheet information for the
Guarantor Subsidiaries at March 31, 1998 and at June 30, 1997 is as
follows (dollars in thousands):
March 31, June 30,
Assets 1998 1997
------ ----------- -------
Current assets $124,620 $ 85,355
Non-current assets 171,428 168,540
------- -------
Total assets $296,048 $253,895
======= =======
Liabilities
Current liabilities $ 36,300 $ 28,160
Non-current liabilities 16,831 16,893
------- -------
Total liabilities $ 53,131 $ 45,053
======= =======
Summarized historical combined operating activity of the Guarantor
Subsidiaries for the three and nine months ended March 31, 1998 and
1997 is as follows (dollars in thousands):
Three Months Nine Months
Ended Ended
March 31, March 31,
1998 1997 1998 1997
-------- -------- -------- ------
Net sales $104,594 $ 93,110 $299,965 $255,292
Gross profit 21,881 18,980 66,912 50,836
Operating income 17,173 14,502 53,269 37,310
Income before
income taxes 18,220 15,613 56,439 40,630
Net income $ 11,005 $ 9,446 $ 34,089 $ 24,581
The summarized historical financial information for the Guarantor
Subsidiaries above, has been derived from the financial statements of
the Company.
(8) Earnings Per Share
During the quarter ended December 31, 1997, the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No.
128
9
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
"Earnings Per Share", which requires a dual presentation of basic and
diluted earnings per share. All prior period earnings per share data
has been restated to conform with SFAS No. 128. The computation of
basic and diluted earnings per share is presented below, in thousands,
except per share data:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
1998 1997 1998 1997
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Basic weighted average
common shares
outstanding 28,738 28,805 28,731 28,747
Net effect of potential
commom stock 857 458 692 524
------ ------ ------ ------
Diluted weighted average
common shares
outstanding 29,595 29,263 29,423 29,271
====== ====== ====== ======
</TABLE>
10
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Ethan Allen's revenues are primarily comprised of wholesale sales to
dealer-owned stores and retail sales of Ethan Allen-owned stores as follows
(dollars in millions):
Three Months Nine Months
Ended Ended
March 31, March 31,
1998 1997 1998 1997
-------- -------- -------- ------
Revenues:
Net wholesale sales to
dealer-owned stores $108.7 $100.9 $310.7 $275.4
Net retail sales of Ethan
Allen-owned stores 58.3 39.1 172.0 123.5
Other revenues 4.4 4.7 14.0 16.5
----- ----- ----- -----
Total $171.4 $144.7 $496.7 $415.4
===== ===== ===== =====
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Sales for the three months ended March 31, 1998 increased by $26.7
million, or 18.5%, over the corresponding period in the prior year to $171.4
million. Net sales to dealer-owned stores increased by 7.7% to $108.7 million,
and net retail sales by Ethan Allen-owned stores increased by 49.5% to $58.3
million. The increase in sales to dealer-owned stores has resulted from
increased sales from increased distribution through relocated and new stores,
improved effectiveness of existing stores, new product offerings, and expanded
national television advertising. At March 31, 1998, there were 309 total stores,
of which 243 were dealer-owned stores, as compared to 295 total stores, of which
230 were dealer-owned, at March 31, 1997.
The increase in retail sales by Ethan Allen-owned stores is
attributable to a 33.6%, or $12.6 million, increase in comparable store sales,
and an increase in sales generated by newly opened or acquired stores of $7.3
million, partially offset by closed stores, which generated $0.7 million less in
sales in the three months ended March 31, 1998, as compared to the three months
ended March 31, 1997. The number of Ethan Allen-owned stores has increased to 66
at March 31, 1998, as compared to 65 at March 31, 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 March 31, 1998 increased by
$17.1 million or 27.0% from the three months ended March 31, 1997 to $80.4
million. This increase is attributable to higher sales volume, combined with an
increase in gross margin from 43.7% in the three months ended March 31, 1997 to
46.9% in the three months ended March 31, 1998. Gross margins have been
favorably impacted by the leverage benefit of higher sales volume, greater
manufacturing efficiencies, improvements in manufacturing technology and the
higher proportionate share of retail sales relative to total sales.
Selling, general and administrative expenses increased $8.3 million
from $40.8 million or 28.2% of net sales in the three months ended March 31,
1997 to $49.1 million or 28.6% of net sales in the three months ended March 31,
1998.
11
<PAGE>
The primary increase in operating expenses in the quarter arose from a $6.0
million increase in the retail division's expenses due primarily to the higher
sales volumes and newer stores.
Operating income for the three months ended March 31, 1998 was $31.3
million, (18.3% of sales) as compared to $22.6 million (15.6% of sales) in the
prior year quarter. Wholesale operating income was $29.0 million for the three
months ended March 31, 1998, compared to $24.0 million in the corresponding
prior year quarter. Higher sales combined with higher gross margins favorably
impacted wholesale operating income. Retail operating income was $3.5 million in
the three months ended March 31, 1998, an increase of $2.9 million from the
corresponding period in the prior year.
Interest expense, including the amortization of deferred financing
costs, for the three months ended March 31, 1998, decreased by $0.4 million to
$1.3 million from $1.7 million in the three months ended March 31, 1997. The
lower interest expense reflects lower debt balances outstanding.
During the quarter ended March 31, 1998, the Company recorded an $.8
million extraordinary charge (net of tax benefit) related to the early
retirement of its 8-3/4% Senior Notes due 2001. The extraordinary charge
included the write-off of unamortized deferred financing costs and the premium
paid related to the early redemption.
Income tax expense of $12.4 million or an effective tax rate of 39.7%,
was recorded for the three months ended March 31, 1998, compared to $8.6 million
or an effective tax rate of 40.0%, in the prior year quarter.
For the three months ended March 31, 1998, the Company reported net
income of $18.0 million, as compared to net income for the three months ended
March 31, 1997, of $12.8 million.
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
Sales for the nine months ended March 31, 1998 increased by $81.3
million or 19.6%, over the nine months ended March 31, 1997 to $496.7 million.
Net sales to dealer-owned stores increased by $35.3 million or 12.8% to $310.7
million and net retail sales by Ethan Allen-owned stores increased by $48.5
million or 39.3% to $172.0 million. The increase in sales to dealer-owned stores
has resulted from increased distribution through new and relocated stores, a
3.5% wholesale price increase, increased effectiveness of existing stores, new
product offerings, expanded national television advertising and an increase in
annual sales events from six per year to eight per year.
The increase in retail sales by Ethan Allen-owned stores is
attributable to a 25.4% or $30.0 million increase in comparable store sales, and
an increase in sales generated by newly opened or acquired stores of $20.4
million, partially offset by closed stores which generated $1.9 million less in
sales in the nine months ended March 31, 1998 as compared to the nine months
ended March 31, 1997.
Gross profit for the nine months ended March 31, 1998, increased by
$54.1 million from the nine months ended March 31, 1997 to $231.9 million. This
increase is attributable to higher sales volume and an improvement in gross
margin from 42.8% in the nine months ended March 31, 1997 to 46.7% in the nine
months ended March 31, 1998. The gross margin improvement is due to the leverage
benefit of greater manufacturing volumes, greater manufacturing efficiencies,
the benefit of the 3.5% wholesale price increase and improvements in
manufacturing technology.
Selling, general and administrative expenses increased $27.3 million
from $117.2 million or 28.2% of net sales, in the fiscal 1997 period to $144.5
million
12
<PAGE>
or 29.1% of net sales in the fiscal 1998 period. This increase is attributable
principally to an increase in operating expenses of the Company's retail
division of $15.5 million, due to higher sales volumes and an increase in the
number of Ethan Allen-owned stores and an $8.9 million increase in the Company's
advertising expenses due to the expanded national television campaign effective
January 1, 1997.
Operating income for the nine months ended March 31, 1998 was $87.4
million or 17.6% of sales, as compared to $60.6 million or 14.6% of sales for
the nine months ended March 31, 1997. Wholesale operating income was $79.2
million for the nine months ended March 31, 1998, an increase of $20.8 million
or 35.6% as compared to the prior year. This increase is attributable to higher
sales volumes and improved gross margins partially offset by higher operating
expenses. Retail operating income was $10.2 million for the nine months ended
March 31, 1998, as compared to $4.8 million for the nine months ended March 31,
1997.
Interest expense, including the amortization of deferred financing
costs, for the nine months ended March 31, 1998 decreased by $0.8 million to
$4.3 million from $5.1 million in the prior year period, due to lower debt
balances outstanding.
Income tax expense of $34.1 million or an effective rate of 39.6%, was
recorded for the nine months ended March 31, 1998 as compared to $22.6 million
or an effective rate of 40.0%, in the prior year period.
For the nine months ended March 31, 1998, the Company recorded net
income of $51.1 million, compared to net income for the nine months ended March
31, 1997 of $33.9 million.
13
<PAGE>
Financial Condition and Liquidity
Principal sources of liquidity are cash flow from operations and
additional borrowing capacity under the revolving credit facility. Net cash
provided by operating activities totaled $62.3 million for the nine months ended
March 31, 1998, as compared to $56.0 million in the nine months ended March 31,
1997. Net income for the nine months ended March 31, 1998 was $17.3 million
higher than the net income reported for the nine months ended March 31, 1997.
For the nine months ended March 31, 1998, inventories increased $8.2 million as
compared to a $5.0 million reduction in the prior year period. Accounts payable
increased $10.9 million in the nine months ended March 31, 1998 as compared to a
$4.5 million increase in the prior year period. At March 31, 1998, the Company
had working capital of $118.4 million and a current ratio of 2.63 to 1.
During the nine months ended March 31, 1998, capital spending totaled
$20.4 million as compared to $15.1 million in the nine months ended March 31,
1997. Capital expenditures in fiscal 1998 are anticipated to be approximately
$27.0 million. The Company anticipates that cash from operations will be
sufficient to fund this level of capital expenditures. The current level of
anticipated capital spending, which is attributable primarily to manufacturing
efficiency improvements and new store openings, is expected to continue for the
foreseeable future.
Total debt outstanding at March 31, 1998 is $14.1 million. At March 31,
1998, there are no outstanding revolving loans under the Credit Agreement. Trade
and standby letters of credit of $12.6 million were outstanding as of March 31,
1998.
On March 15, 1998, the Company completed its optional early redemption
of all of its $52.4 million outstanding 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, 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.
As of March 31, 1998, aggregate scheduled maturities of long-term debt
for each of the next five fiscal years are $.4 million, $.2 million, $.2
million, $.2 million and $.2 million, respectively. Management believes that its
cash flow from operations, together with its other available sources of
liquidity, will be adequate to make all required payments of principal and
interest on its debt, to permit anticipated capital expenditures and to fund
working capital and other cash requirements.
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. Depending on
market prices and other conditions relevant to the Company, such purchases may
be discontinued at any time. During the nine months ended March 31, 1998, the
Company purchased 151,529 shares of its stock on the open market at an average
price of $33.98 per share.
14
<PAGE>
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings
There has been no change to matters discussed in Business-Legal Proceedings in
the Company's Form 10-K as filed with the Securities and Exchange Commission on
September 30, 1997.
Item 2. - Changes in Securities
There has been no change to matters discussed in Description and Ownership of
Capital Stock in the Company's Form 10-K as filed with the Securities and
Exchange Commission on September 30, 1997, except as noted on the Form S-8 filed
by the Company on March 13, 1998, pursuant to which the Company increased by
1,300,000 the authorized shares reserved for use in connection with the Stock
Option Plan.
Item 6. - Exhibits and Reports on Form 8-K
Exhibits
27. EDGAR Financial Data Schedule
Reports on Form 8-K
On February 11, 1998, the Company filed a Form 8-K relating to the
redemption of the Company's Senior Notes.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ETHAN ALLEN INTERIORS INC.
(Registrant)
DATE: 5/7/98 BY: /s/ M. Farooq Kathwari
------ ----------------------
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: 5/7/98 BY: /s/ Edward P. Schade
------ --------------------
Edward P. Schade
Vice President &
Treasurer
(Principal Financial Officer)
DATE: 5/7/98 BY: /s/ Gerardo Burdo
------ -----------------
Gerardo Burdo
Corporate Controller
(Principal Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of Ethan Allen Interiors, Inc. for the quarter
ended March 31,1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000896156
<NAME> *acn3zeg
<MULTIPLIER> 1,000
<CURRENCY> U.S.Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1 <F1>
<CASH> 24,909
<SECURITIES> 0
<RECEIVABLES> 33,438 <F2>
<ALLOWANCES> 0
<INVENTORY> 115,764
<CURRENT-ASSETS> 190,949 <F3>
<PP&E> 280,746
<DEPRECIATION> 98,619
<TOTAL-ASSETS> 431,059 <F4>
<CURRENT-LIABILITIES> 72,558 <F5>
<BONDS> 13,209 <F6>
0
0 <F7>
<COMMON> 296 <F8>
<OTHER-SE> 312,554 <F9>
<TOTAL-LIABILITY-AND-EQUITY> 431,059
<SALES> 171,434
<TOTAL-REVENUES> 171,434 <F10>
<CGS> 91,030
<TOTAL-COSTS> 91,030
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,261 <F11>
<INCOME-PRETAX> 31,146
<INCOME-TAX> 12,353
<INCOME-CONTINUING> 18,793
<DISCONTINUED> 0
<EXTRAORDINARY> 802 <F12>
<CHANGES> 0
<NET-INCOME> 17,991
<EPS-PRIMARY> 0.62 <F13>
<EPS-DILUTED> 0.61 <F14>
<FN>
<F1> Not applicable. All figures for Ethan Allen Interiors, Inc. are in U.S.
dollars.
<F2> Figure for receivables is net of allowances for doubtful accounts of
$2,022.
<F3> Includes prepaid expenses of $9,148.
<F4> Includes goodwill of $8,853 (net of amortization).
<F5> Includes current portion of long-term debt of $907 as of March 31, 1998.
<F6> Includes long-term debt of $11,519 (net of the current portion of long-term
debt) and capitalized leases of $1,690 (net of the current portion of
capitalized leases). As of March 31, 1998 outstanding long-term debt of
Ethan Allen on a consolidated basis consisted of (i) 9.75% mortgage note of
$1,524 (net of current portion), (ii) industrial revenue bonds of $8,455,
and (iii) other of $1,540 (net of current portion). For a description of
the terms of Ethan Allen's long-term debt, see Footnote 7 to Ethan Allen's
fiscal 1997 Consolidated Financial Statements.
<F7> As of March 31, 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, 1997, see Ethan Allen's fiscal 1997
Consolidated Statement of Stockholders' Equity and Footnote 9 to Ethan
Allen's fiscal 1997 Notes to Consolidated Financial Statements.
<F8> As of March 31, 1998, Ethan Allen had 29,617,369 shares of common stock,
$.01 par value per share, issued. For a description of Ethan Allen's common
stock as of June 30, 1997, see Ethan Allen's fiscal 1997 Consolidated
Statement of Stockholders' Equity and Footnote 9 of Ethan Allen's fiscal
1997 Consolidated Financial Statements.
<F9> Consists of $261,710 of additional paid in capital, $66,433 of retained
earnings, and ($15,589) of treasury stock.
<F10>In the quarter ended March 31,1998, Ethan Allen's revenues were derived
from sales generated by its wholesale and retail operations.
<F11>Consists of $1,166 of interest expense and $95 of amortization of deferred
costs.
<F12>On March 15, 1998, the Company redeemed all of its $52.4 million
outstanding 8-3/4% Senior Notes at 101.458% of par value. The early
redemption of the Senior Notes, which had a final maturity in 2001, was
financed entirely by operations. As a result of the 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 early redemption.
<F13>Basic earnings per share for the quarter ended March 31, 1998, was $0.62.
For information on Ethan Allen's earnings per share, see Ethan Allen's
Consolidated Financial Statements for the quarter ended March 31, 1998.
<F14>Diluted earnings per share for the quarter ended March 31, 1998, were
$0.61.
</FN>
</TABLE>
