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, 2000
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 Marketing Corporation;
Ethan Allen Manufacturing Corporation
(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.
39,363,180 at October 31, 2000
<PAGE>
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of
September 30, 2000 (unaudited) and June 30, 2000
and for the three months ended
September 30, 2000 and 1999 (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
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
Part II. Other Information: 16
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
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
Signatures 17
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
September 30,
2000 June 30,
(unaudited) 2000
----------- ----
ASSETS
Current assets:
Cash and cash equivalents $ 30,359 $ 14,024
Accounts receivable, less allowances of $2,215
and $2,751 at September 30, 2000 and
June 30, 2000, respectively 34,664 34,336
Inventories 161,819 159,006
Prepaid expenses and other current assets 24,273 17,670
Deferred income taxes 11,554 10,751
Total current assets 262,669 235,787
Property, plant and equipment, net 251,119 247,738
Intangibles, net 54,063 54,770
Other assets 7,598 5,276
Total assets $ 575,449 $ 543,571
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 373 $ 8,420
Accounts payable 85,410 65,879
Accrued expenses 14,347 11,003
Accrued compensation and benefits 20,697 22,966
Total current liabilities 120,827 108,268
Long-term debt 9,455 9,487
Other long-term liabilities 1,620 1,593
Deferred income taxes 33,912 33,714
Total liabilities 165,814 153,062
Commitments and contingencies
Shareholders' equity:
Class A common stock, par value $.01, 150,000,000
shares authorized, 45,071,726
and 45,081,384 shares issued at
September 30, 2000 and
June 30, 2000, respectively 451 451
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding
at September 30, 2000 and June 30, 2000 - -
Additional paid-in capital 272,924 272,710
273,375 273,161
Less: Treasury stock (at cost), 5,682,196 shares
at September 30, 2000 and 5,674,278 shares at
June 30, 2000 (128,708) (128,493)
144,667 144,668
Retained earnings 264,968 245,841
Total shareholders' equity 409,635 390,509
Total liabilities and shareholders' equity $ 575,449 $ 543,571
See accompanying notes to consolidated financial statements.
2
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share data)
Three Months
Ended September 30,
2000 1999
---- ----
Net sales $ 211,231 $ 189,592
Cost of sales 111,522 101,071
Gross profit 99,709 88,521
Operating expenses:
Selling 38,078 33,458
General and administrative 28,922 24,729
Operating income 32,709 30,334
Interest and other miscellaneous income, net 766 525
Interest and other related financing costs 196 349
Income before income taxes 33,279 30,510
Income tax expense 12,579 11,777
Net income $ 20,700 $ 18,733
Per share data:
Basic earnings per common share:
Net income per basic share $ 0.53 $ 0.46
Basic weighted average common
shares outstanding 39,405 40,856
Diluted earnings per common share:
Net income per diluted share $ 0.52 $ 0.45
Diluted weighted average common
shares outstanding 40,190 41,915
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,
2000 1999
---- ----
Operating activities:
Net income $ 20,700 $ 18,733
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,570 4,137
Compensation (benefit) expense related to
restricted stock award (330) 267
Provision for deferred income taxes (605) (5,610)
Other non-cash (income) expense (636) 83
Change in assets and liabilities:
Accounts receivable (328) (519)
Inventories (4,369) (3,177)
Prepaid and other current assets (7,894) (6,098)
Accounts payable 9,300 10,869
Income taxes payable 11,364 13,005
Accrued expenses 1,322 (936)
Other (196) 41
Net cash provided by operating activities 32,898 30,795
Investing activities:
Proceeds from the disposal of property, plant
and equipment 2,315 34
Capital expenditures (9,185) (11,885)
Acquisition of businesses - (9,886)
Other 120 164
Net cash used in investing activities (6,750) (21,573)
Financing activities:
Borrowings on revolving credit facilities - 17,500
Payments on revolving credit facilities (8,000) (15,500)
Other payments on long-term debt and
capital leases (79) (429)
Increase in deferred financing costs - (507)
Net proceeds from issuance of common stock 51 236
Dividends paid (1,570) (1,637)
Payments to acquire treasury stock (215) (4,454)
Net cash used in financing activities (9,813) (4,791)
Net increase (decrease) in cash and cash
equivalents 16,335 4,431
Cash and cash equivalents at beginning of period 14,024 8,968
Cash and cash equivalents at end of period $ 30,359 $ 13,399
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, 2000
(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, 2000 $ 451 $272,710 $(128,493) $245,841 $390,509
Issuance of common stock upon
exercise of stock options
and restricted stock award
compensation (benefit) - (279) - - (279)
Purchase of 7,919 shares
of treasury stock - - (215) - (215)
Tax benefit associated with the
exercise of employee options
and warrants - 493 - - 493
Dividends declared on common
stock - - - (1,573) (1,573)
Net income - - - 20,700 20,700
Balance at September 30, 2000 $ 451 $272,924 $(128,708) $264,968 $409,635
</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 months
ended September 30, 2000, are not necessarily indicative of results for
the fiscal year. It is suggested that the interim consolidated
financial statements are read in conjunction with the consolidated
financial statements and notes included in the Company's Annual Report
on Form 10-K for the year ended June 30, 2000.
Certain reclassifications have been made to prior year financial
information in order to conform to the current year's presentation.
These changes were made for disclosure purposes only and did not have
an impact on previously reported results of operations or shareholders'
equity.
(3) New Accounting Standards
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivatives and Hedging Activities" and in 2000, SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of No. 133." These statements require that all
derivative instruments be recognized on the balance sheet at fair value
effective July 1, 2000. Derivatives that are not hedges should be
adjusted to fair value through earnings. For derivatives that are
effective hedges, changes in fair value of the derivative should be
recorded in either other comprehensive income or earnings. The
ineffective portion of the derivative classified as a hedge will be
immediately recognized in earnings. The Company adopted these standards
as required beginning July 1, 2000. Upon review of the Company's
current contracts, it was determined that the Company has no derivative
instruments as defined under these standards.
(4) Inventories
Inventories at September 30, 2000 and June 30, 2000 are summarized as
follows (dollars in thousands):
September 30, June 30,
2000 2000
---- ----
Finished goods $101,056 $103,787
Work in process 18,847 19,233
Raw materials 41,916 35,986
$161,819 $159,006
6
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(5) Contingencies
The Company has been named as a potentially responsible party ("PRP")
for the cleanup of three 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"). 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 believes its share of waste contributed to these
sites is minimal in relation to the total; however, liability under
CERCLA may be joint and several. For two of the sites, the remedial
investigation is ongoing. A volume-based allocation of responsibility
among the parties has been prepared. Numerous other parties have been
identified as PRP's at these sites.
The Company is also a settling defendant for remedial design and
construction activities at one of the sites. Over seventy-five percent
of the remedial work has been performed at this site and Ethan Allen's
portion of the remedial action should be completed in calendar year
2000. The Company believes that the resolution of such matter will not
have a material adverse effect on its financial condition, results of
operations or cash flows.
(6) Earnings Per Share
Basic and diluted earnings per share are calculated using the following
share data (amounts in thousands):
Three Months Ended
September 30,
2000 1999
---- ----
Weighted average common shares
outstanding for basic calculation 39,405 40,856
Add: Effect of stock options and
warrants 785 1,059
Weighted average common shares
outstanding for diluted calculation 40,190 41,915
Stock options to purchase 895,000 shares of common stock had an
exercise price in excess of the average market price. These options
have been excluded from the diluted earnings per share calculation
since their effect is anti-dilutive.
(7) Segment Information
The Company's reportable segments are strategic business areas that are
managed separately and offer different products and services. The
Company's operations are classified into two main businesses: wholesale
and retail home furnishings. The wholesale home furnishings business 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 wholesale business consists of three operating
segments; case goods, upholstery, and home accessories.
7
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(7) Segment Information (continued)
Wholesale profitability includes the wholesale gross margin, which is
earned on wholesale sales to all retail stores, including Ethan
Allen-owned stores. The retail home furnishings business sells home
furnishing products through a network of Ethan Allen-owned stores.
Retail profitability includes the retail gross margin, which is earned
based on purchases from the wholesale business.
The operating segments follow the same accounting policies. The Company
evaluates performance of the respective segments based upon revenues
and operating income. Inter-segment eliminations primarily comprise the
wholesale sales and profit on the transfer of inventory between
segments. Inter-segment eliminations also include items not allocated
to reportable segments.
The following table presents segment information for the three months
ended September 30, 2000 and 1999 (dollars in thousands):
Three Months Ended
September 30,
2000 1999
---- ----
Net Sales:
Case Goods $ 87,818 $ 86,238
Upholstery 47,978 42,340
Home Accessories 22,327 20,368
Other (1) 2,128 3,356
Wholesale Net Sales 160,251 152,302
Retail 98,526 79,070
Other (2) 1,704 1,705
Elimination of inter-segment sales (49,250) (43,485)
Consolidated Total $211,231 $189,592
Operating Income:
Case Goods $ 27,269 $ 30,537
Upholstery 14,493 12,887
Home Accessories 7,465 6,366
Unallocated corporate expenses (3) (23,209) (21,515)
Wholesale Operating Income 26,018 28,275
Retail 5,843 2,803
Other (2) 163 352
Eliminations (6) 685 (1,096)
Consolidated Total $ 32,709 $ 30,334
Capital Expenditures:
Case Goods $ 3,074 $ 4,295
Upholstery 1,282 827
Home Accessories 45 53
Other (5) 1,177 2,190
Wholesale Capital Expenditures 5,578 7,365
Retail 3,458 3,874
Other (2) 149 646
Acquisition of businesses - 9,886
Consolidated Total $ 9,185 $ 21,771
8
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(7) Segment Information (continued)
September 30,
2000 1999
---- ----
Total Assets:
Case Goods $128,410 $113,142
Upholstery 38,015 32,637
Home Accessories 2,393 6,769
Corporate (4) 247,564 230,726
Wholesale Total Assets 416,382 383,274
Retail 177,164 150,615
Other (2) 8,389 6,372
Inventory Profit Elimination (6) (26,486) (24,006)
Consolidated Total $575,449 $516,255
(1) The Other category included in the wholesale business consists
of the operating activity for indoor/outdoor furniture and the
corporate office.
(2) The Other category includes miscellaneous operating
activities.
(3) Unallocated corporate expenses primarily consist of corporate
advertising costs, unreimbursed training costs, system
development costs, and other corporate administrative charges.
(4) Corporate assets primarily include assets from the corporate
office and from the Company's distribution operations,
including cash, receivables from independent dealers, finished
goods inventory, property, plant and equipment, intangible
assets, and deferred tax assets.
(5) The Other category primarily includes the capital expenditures
made by the corporate office for the Company's distribution
operations.
(6) Inventory profit elimination reflects the embedded wholesale
profit in the Company-owned store inventory that has not been
realized. These profits will be recorded when shipped to the
retail customer.
There are 29 independent retail stores located outside the United
States. Approximately 2.4% of the Company's net sales are derived from
sales to these retail stores.
(8) 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.
9
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(8) Wholly-Owned Subsidiary (continued)
The condensed balance sheets of Ethan Allen as of September 30, 2000
and June 30, 2000 are as follows (dollars in thousands):
September 30, June 30,
2000 2000
---- ----
Assets
Current assets $ 262,623 $ 235,782
Non-current assets 454,868 448,059
Total assets $ 717,491 $ 683,841
Liabilities
Current liabilities $ 119,151 $ 106,595
Non-current liabilities 44,987 44,794
Total liabilities $ 164,138 $ 151,389
A summary of Ethan Allen's operating activity for the three months
ended September 30, 2000 and 1999, are as follows (dollars in
thousands):
Three Months Ended
September 30,
2000 1999
---- ----
Net sales $211,231 $189,592
Gross profit 99,709 88,521
Operating income 32,747 30,372
Interest expense and other related
financing costs 196 349
Income before income
tax expense 33,317 30,548
Net income $ 20,738 $ 18,771
(9) Subsequent Event
In October of 2000, the Company purchased a manufacturing facility in
Dublin, Virginia from Pulaski Furniture Corporation. This facility was
opened in 1973 and consists of 450,000 square feet of Case Good
manufacturing space and 120,000 square feet of distribution space. The
acquisition was financed through cash from operations.
10
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
MANAGEMENT'S 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, 2000. 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, risk and
uncertainties, including but not limited to, changes in political and economic
conditions, demand for the Company's products, acceptance of new products,
conditions in the various real estate markets where the Company does business,
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
and company-owned retail stores and retail sales of company-owned stores. The
Company's wholesale sales are mainly derived from its three reportable operating
segments; case goods, upholstery, and home accessories. The Company's retail
sales are derived from sales from company-owned retail stores. See Note 7 to the
Company's Consolidated Financial Statements for the three months ended September
30, 2000. The components of consolidated revenues and operating income are as
follows (dollars in millions):
Three Months Ended
September 30,
2000 1999
---- ----
Revenue:
Wholesale Revenue:
Case Goods $ 87.8 $ 86.2
Upholstery 48.0 42.3
Home Accessories 22.3 20.4
Other 2.2 3.4
Total Wholesale Revenue 160.3 152.3
Total Retail Revenue 98.5 79.1
Other 1.6 1.7
Elimination of inter-segment sales (49.2) (43.5)
Consolidated Revenue $211.2 $189.6
Operating Income:
Wholesale Operating Income:
Case Goods $ 27.3 $ 30.5
Upholstery 14.5 12.9
Home Accessories 7.4 6.4
Unallocated Corporate Expenses (23.2) (21.5)
Total Wholesale Operating Income 26.0 28.3
Total Retail Operating Income 5.8 2.8
Other 0.2 0.3
Eliminations 0.7 (1.1)
Consolidated Operating Income $ 32.7 $ 30.3
11
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Three Months Ended September 30, 2000 Compared to Three Months Ended September
30, 1999
Consolidated revenue for the three months ended September 30, 2000
increased by $21.6 million or 11.4% to $211.2 million from $189.6 million for
the three months ended September 30, 1999. Overall sales growth resulted from
new product offerings, a selected price increase effective February 2000, and
growth in the retail segment.
Total wholesale revenue for the first quarter of fiscal year 2001
increased by $8.0 million or 5.3% to $160.3 million from $152.3 million in the
first quarter of fiscal year 2000.
Case goods revenue increased $1.6 million or 1.9% to $87.8 million for
the three months ended September 30, 2000 as compared to $86.2 million in the
corresponding prior year period due to a selected price increase and new product
offerings, offset by fewer production days in the current quarter as compared to
the prior year quarter.
Upholstery revenue increased $5.7 million or 13.5% to $48.0 million in
the first quarter of fiscal year 2001 as compared to $42.3 million in the first
quarter of fiscal year 2000. The increase in revenue of $5.7 million was
primarily attributable to a selected price increase, new product and new fabric
introductions, and more attractive price points on new product offerings.
Home accessories revenue increased $1.9 million or 9.3% to $22.3
million in the first quarter of fiscal year 2001 as compared to $20.4 million in
the first quarter of fiscal year 2000. The increase is attributable to new
product introductions and the resulting impact of a better in-stock position,
thereby reducing customer lead times.
Total retail revenue from Ethan Allen-owned stores for the three months
ended September 30, 2000 increased by $19.4 million or 24.5% to $98.5 million
from $79.1 million for the three months ended September 30, 1999. Comp stores
sales increased 17.8% reflecting one additional delivery day included in the
current quarter over the prior year quarter. The increase in retail sales by
Ethan Allen-owned stores is attributable to a $12.8 million increase in
comparable store sales, an increase in sales generated by newly opened or
acquired stores of $8.7 million, and the gain on the sale of retail stores to an
independent dealer of $0.8 million, partially offset by closed stores, which
generated $2.9 million less sales in fiscal year 2001 as compared to fiscal year
2000. The number of Ethan Allen-owned stores increased to 80 as of September 30,
2000 as compared to 77 as of September 30, 1999. As a percentage of total net
sales, retail sales represent 46.2% of total net sales in the first quarter of
fiscal year 2000 as compared to 41.7% in the first quarter of the prior year.
Comparable stores are those which have been operating for at least 15
months. Minimal net sales, derived from the delivery of customer ordered
product, 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 13th full month of Ethan Allen-owned operations.
Gross profit increased by $11.2 million or 12.7% to $99.7 million in
the first quarter of fiscal year 2001 from $88.5 million in the first quarter of
the prior year. The gross margin increased to 47.2% in the first quarter of
fiscal year 2001 from 46.7% in the prior year first quarter. Gross margins have
been favorably impacted by higher sales volumes, a price increase effective
February 2000, and a higher percentage of retail sales to total sales, partially
offset by higher manufacturing costs.
Operating expenses increased $8.8 million or 15.1% to $67.0 million or
31.7% of net sales in the current quarter as compared to $58.2 million or 30.7%
of net sales for the first quarter of fiscal year 2000. This increase is mainly
attributable to the expansion of the retail segment resulting in the addition of
three net new Ethan Allen-owned stores
12
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
since September 30, 1999 and from increased business for comparable Ethan
Allen-owned stores.
Operating income for the three months ended September 30, 2000 was
$32.7 million or 15.5% of net sales compared to $30.3 million or 16.0% of net
sales for the three months ended September 30, 1999. This represents an increase
of $2.4 million or 7.9%, which is primarily attributable to higher sales volume
and a selected price increase, offset by higher manufacturing costs, primarily
material and labor costs.
Total wholesale operating income for the first quarter of fiscal year
2001 was $26.0 million or 16.2% of net sales compared to $28.3 million or 18.6%
of net sales in the first quarter of fiscal year 2000. Wholesale operating
income decreased $2.3 million or 8.1% this quarter.
Case goods operating income decreased $3.2 million or 10.5% to $27.3
million for the first quarter of fiscal year 2001 over the corresponding prior
year period mainly due to higher labor and material costs resulting, in part
from changes in production scheduling between manufacturing facilities, fewer
production days during the quarter as compared to the prior year quarter, and
from the introduction of new products at lower margins.
Upholstery operating income increased $1.6 million or 12.4% to $14.5
million in the first quarter of fiscal year 2001 as compared to $12.9 million in
the first quarter of fiscal year 2000. The increase resulted from higher sales
volume, a selected price increase, and lower manufacturing costs associated with
higher production levels.
Home accessories operating income increased $1.0 million or 15.6% to
$7.4 million in the first quarter of fiscal year 2001 as compared to $6.4
million in the first quarter of fiscal year 2000. Operating income for home
accessories increased primarily due to higher sales volume and a selected price
increase.
Operating income for the retail segment increased by $3.0 million in
the three months ended September 30, 2000 to $5.8 million or 5.9% of net sales
from $2.8 million or 3.5% of net sales from the three months ended September 30,
1999. The increase in retail operating income by Ethan Allen-owned stores is
primarily attributable to increased sales volume and the gain recorded on the
sale of retail stores, offset by higher operating expenses related to the
addition of three net new stores this quarter and higher costs necessary to
service the increase in sales volume.
Interest expense for the three months ended September 30, 2000
decreased $0.1 million to $0.2 million from $0.3 million for the three months
ended September 30, 1999. The decrease in interest expense is due to lower debt
balances outstanding and lower amortization of deferred financing costs.
Income tax expense of $12.6 million was recorded in the first quarter
as compared to $11.8 million in the prior year first quarter. The Company's
effective tax rate was 37.8% for the first quarter of fiscal year 2001 and 38.6%
for the first quarter of fiscal year 2000. The decline in the effective income
tax rate in the current quarter as compared to the prior year quarter resulted
from the utilization of various state tax credits.
13
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
For the three months ended September 30, 2000, the Company recorded net
income of $20.7 million, an increase of 10.7%, compared to $18.7 million for the
three months ended September 30, 1999. Earnings per diluted share of $0.52
increased 15.6% or $0.07 per diluted share in the quarter from $0.45 per diluted
share in the prior year quarter.
Financial Condition and Liquidity
The Company's principal sources of liquidity are cash flow from
operations and borrowing capacity under a revolving credit facility. Net cash
provided by operating activities totaled $32.9 million for the three months
ended September 30, 2000. The increase in net cash provided by operating
activities principally resulted from an increase of $2.0 million in net income.
Total debt outstanding at September 30, 2000 was $9.8 million. There were no
revolving loans outstanding under the Credit Agreement. As of September 30,
2000, there were $16.2 million of trade and standby letters of credit
outstanding.
During the three months ended September 30, 2000, capital spending,
exclusive of acquisitions, totaled $9.2 million as compared to $11.9 million in
the three months ended September 30, 1999. Capital expenditures made during the
three months ended September 30, 2000 primarily relate to i) manufacturing plant
expansions in Boonville, New York and Andover, Maine, ii) manufacturing
equipment purchases and upgrades, iii) the expansion of a distribution facility
in Kentland, Indiana, and iv) new store construction and interior redesigns.
Capital expenditures, exclusive of acquisitions, for fiscal year 2001 are
expected to be approximately $45.0 million. The Company anticipates that cash
from operations will be sufficient to fund this level of capital expenditures.
As of September 30, 2000, aggregate scheduled maturities of long-term
debt for each of the next five fiscal years are $0.1 million, $0.1 million, $0.1
million, $4.7 million and $0.1 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 over the next twelve months. As of
September 30, 2000, the Company had working capital of $141.8 million and a
current ratio of 2.17 to 1.
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 three months ended September 30, 2000,
the Company did not purchase any of its common shares through the open market.
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Item 3. 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. Although the Company did not have any revolving loans outstanding
under the Credit Agreement as of September 30, 2000, the Company had $0.4
million of short term debt outstanding and $9.4 million of total long term debt
outstanding, including capital lease obligations.
The Company has one long term debt instrument outstanding with a
variable interest rate. This debt instrument has a principal balance of $4.6
million, which matures in 2004. Based on the principal balance outstanding, a
one percentage point increase in the variable interest rate would not have had a
significant impact on the Company's interest expense.
Currently, the Company does not enter into financial instruments
transactions for trading or other speculative purposes or to manage interest
rate exposure.
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings
There has been no change to matters discussed in Business-Legal
Proceedings in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on September 13, 2000.
Item 2. - Changes in Securities
There has been no change to matters discussed in Description and
Ownership of Capital Stock in the Company's Annual Report on Form 10-K as filed
with the Securities and Exchange Commission on September 13, 2000.
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
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
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: 11/13/00 BY: /s/ M. Farooq Kathwari
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive Officer
and acting Principal
Financial Officer)
DATE: 11/13/00 BY: /s/ Michele Bateson
Michele Bateson
Corporate Controller
(Principal Accounting Officer)
17
