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, 2000
---------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-11692
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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 (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.
39,549,387 at March 31, 2000
<PAGE>
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
----
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of March 31,
2000 (unaudited) and June 30, 1999 and for the three
and nine months ended March 31, 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 16
Part II. Other Information: 17
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 18
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
March 31,
2000 June 30,
(unaudited) 1999
----------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 16,090 $ 8,968
Accounts receivable, less allowances of $2,836
and $2,460 at March 31, 2000 and
June 30, 1999, respectively 33,292 34,302
Notes receivable, current portion, less
allowances of $169 and $79 at March 31, 2000
and June 30, 1999, respectively 313 640
Inventories 157,276 144,045
Prepaid expenses and other current assets 18,776 14,088
Deferred income taxes 9,996 7,783
-------- --------
Total current assets 235,743 209,826
Property, plant and equipment, net of accumulated
depreciation of $120,838 and $111,476 at
March 31, 2000 and June 30, 1999, respectively 241,400 214,492
Intangibles, net of amortization of $18,083 and
$16,757 at March 31, 2000 and June 30, 1999,
respectively 53,270 51,598
Other assets 4,641 4,706
-------- --------
Total assets $ 535,054 $ 480,622
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short term debt and current maturities of
capital lease obligations $ 16,308 $ 757
Accounts payable 73,141 59,378
Accrued expenses 9,287 9,174
Accrued compensation and benefits 20,835 16,937
-------- --------
Total current liabilities 119,571 86,246
Long-term debt and capital lease obligations,
less current maturities 9,668 9,919
Other long-term liabilities 979 1,370
Deferred income taxes 33,228 32,552
-------- --------
Total liabilities 163,446 130,087
-------- --------
Commitments and Contingencies - -
Shareholders' equity:
Class A common stock, par value $.01, 150,000,000
shares authorized, 45,056,196
and 44,666,791 shares issued at March 31, 2000
and June 30, 1999, respectively 451 447
Additional paid-in capital 272,203 267,286
-------- --------
272,654 267,733
Less: Treasury stock (at cost), 5,506,809 shares
at March 31, 2000 and 3,745,928 shares at
June 30, 1999, respectively (124,623) (78,887)
-------- --------
148,031 188,846
Retained earnings 223,577 161,689
-------- --------
Total shareholders' equity 371,608 350,535
-------- --------
Total liabilities and shareholders' equity $ 535,054 $ 480,622
======== ========
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)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 220,300 $ 194,571 $ 627,378 $ 554,471
Cost of sales 117,152 103,507 331,810 296,647
------- ------- ------- -------
Gross profit 103,148 91,064 295,568 257,824
Operating expenses:
Selling 36,147 31,887 103,827 90,351
General and administrative 28,901 24,456 83,234 71,335
------ ------ ------- ------
Operating income 38,100 34,721 108,507 96,138
Interest and other miscellaneous
income, net 278 320 1,411 1,138
Interest and other related financing
costs 392 555 978 1,560
------- ------- ------- -------
Income before income taxes 37,986 34,486 108,940 95,716
Income tax expense 14,815 13,312 42,203 37,147
------- ------- ------- -------
Net income $ 23,171 $ 21,174 $ 66,737 $ 58,569
======= ======= ======= =======
Per share data:
Basic earnings per common share:
Net income per basic share $ 0.58 $ 0.52 $ 1.65 $ 1.41
======= ======= ====== ======
Basic weighted average common
shares outstanding 39,998 40,986 40,562 41,403
Diluted earnings per common share:
Net income per diluted share $ 0.57 $ 0.50 $ 1.61 $ 1.38
======= ======= ====== ======
Diluted weighted average common
shares outstanding 40,755 42,015 41,523 42,368
</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)
Nine Months
Ended March 31,
2000 1999
------ --------
Operating activities:
Net income $ 66,737 $ 58,569
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,616 11,893
Compensation expense related to restricted
stock award 641 1,037
Provision for deferred income taxes (1,537) (509)
Other non-cash charges (553) 205
Change in assets and liabilities:
Accounts receivable 370 1,300
Inventories (10,401) (23,099)
Prepaid and other current assets (4,661) (5,647)
Accounts payable 14,016 17,945
Accrued expenses 4,056 2,796
Other (362) (482)
------- -------
Net cash provided by operating activities 80,922 64,008
------- -------
Investing activities:
Proceeds from the disposal of property, plant
and equipment 1,096 135
Capital expenditures (31,922) (28,591)
Acquisition of businesses (9,886) (6,406)
Payments received on long-term notes receivable 762 639
Disbursements made for long-term notes receivable (135) (255)
-------- -------
Net cash used in investing activities (40,085) (34,478)
------- -------
Financing activities:
Borrowings on revolving credit facilities 66,000 70,500
Payments on revolving credit facilities (50,000) (56,000)
Other long-term borrowings - 18
Other payments on long-term debt, including
capital leases (701) (2,550)
Increase in deferred financing costs (507) -
Stock option exercises 2,123 467
Payment of dividends (4,894) (3,331)
Payments to acquire treasury stock (45,736) (44,778)
------- -------
Net cash used in financing activities (33,715) (35,674)
------- -------
Net increase (decrease) in cash and cash
equivalents 7,122 (6,144)
Cash and cash equivalents at beginning of period 8,968 19,380
------- -------
Cash and cash equivalents at end of period $ 16,090 $ 13,236
======= =======
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, 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, 1999 $ 447 $267,286 $(78,887) $161,689 $350,535
Issuance of common stock upon
exercise of stock options
and restricted stock award
compensation 4 2,760 - - 2,764
Purchase of 1,760,881 shares
of treasury stock - - (45,736) - (45,736)
Tax benefit associated with the
exercise of employee options
and warrants - 2,157 - - 2,157
Dividends declared on common
stock - - - (4,849) (4,849)
Net income - - - 66,737 66,737
------ ------- -------- ------- -------
Balance at March 31, 2000 $ 451 $272,203 $(124,623) $223,577 $371,608
====== ======= ======== ======= =======
</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.
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.
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, 2000, are not necessarily indicative of results for
the fiscal year. It is suggested that the interim consolidated financial
statements be 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, 1999.
(3) INVENTORIES
Inventories at March 31, 2000 and June 30, 1999 are summarized as follows
(dollars in thousands):
March 31, June 30,
2000 1999
-------- --------
Finished goods $101,323 $ 92,304
Work in process 19,699 16,143
Raw materials 36,254 35,598
------- -------
$157,276 $144,045
======= =======
(4) 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. Approximately two thirds 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
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(5) SHAREHOLDERS' EQUITY
Since July 1, 1999, 389,405 shares of common stock of the Company have been
issued to employees upon exercise of non-qualified stock options and
warrants under the Company's stock option plan. The increase in additional
paid-in capital from June 30, 1999 to March 31, 2000 represents (i) the
difference between the exercise price of the stock options or warrants and
the par value of the common stock issued to option holders of $2.1 million,
(ii) $0.6 million recorded for restricted stock during the period and (iii)
the income tax benefit of $2.2 million realized on the exercise of these
stock options and warrants.
The Company has been authorized by its Board of Directors to repurchase its
common stock from time to time, either directly or through agents, in the
open market at prices and on terms satisfactory to the Company. The
Company's common stock repurchases are recorded as treasury stock and
result in a reduction of shareholders' equity. For the nine months ended
March 31, 2000, the Company repurchased 1,760,881 shares of its common
stock for $45.7 million.
(6) EARNINGS PER SHARE
Basic and diluted earnings per share are calculated using the following
share data (amounts in thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
------ ------ ------ ------
Weighted average common
shares outstanding for
basic calculation 39,998 40,986 40,562 41,403
Add: Effect of stock options
and warrants 757 1,029 961 965
------ ------ ------ ------
Weighted average common
shares outstanding for
diluted calculation 40,755 42,015 41,523 42,368
====== ====== ====== ======
Stock options to purchase 998,950 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 has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which changes the financial disclosure
requirements for operating segments. Segment information presented for 1999
has been restated to reflect the requirements of the new pronouncement. 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. Wholesale profitability includes the
wholesale gross margin, which is earned on wholesale sales to all retail
stores, including Ethan Allen-owned stores.
7
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(7) SEGMENT INFORMATION (CONTINUED)
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 and nine
months ended March 31, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES:
----------
Case Goods $ 103,451 $ 91,437 $283,094 $258,309
Upholstery 51,101 45,747 142,453 127,187
Home Accessories 27,965 20,982 73,312 64,865
Other (1) 1,905 2,769 6,359 8,581
------- ------- ------- -------
Wholesale Net Sales 184,422 160,935 505,218 458,942
Retail 91,520 75,957 269,472 213,401
Other (2) 1,339 1,355 4,691 4,857
Elimination of inter-segment
sales (56,981) (43,676) (152,003) (122,729)
------- ------- ------- -------
Consolidated Total $220,300 $194,571 $627,378 $554,471
======= ======= ======= =======
OPERATING INCOME:
-----------------
Case Goods $ 36,245 $ 33,881 $ 98,910 $ 93,178
Upholstery 15,298 13,899 43,041 38,240
Home accessories 9,129 6,885 23,401 21,023
Unallocated corporate
expenses (3) (23,797) (22,330) (67,403) (63,867)
------- ------- ------- -------
Wholesale Operating Income 36,875 32,335 97,949 88,574
Retail 4,245 4,101 13,862 10,757
Other (2) 23 149 561 1,055
Eliminations (3,043) (1,864) (3,865) (4,248)
------- ------- ------- -------
Consolidated Total $ 38,100 $ 34,721 $108,507 $ 96,138
======= ======= ======= =======
CAPITAL EXPENDITURES:
---------------------
Case Goods $ 3,511 $ 3,948 $ 10,154 $ 12,572
Upholstery 957 801 2,538 2,138
Home accessories 251 251 353 382
Other (6) 4,129 1,588 20,651 11,186
------- ------- ------- -------
Wholesale Capital
Expenditures 8,848 6,588 33,696 26,278
Retail 710 836 2,995 2,138
Other (2) 123 76 1,242 175
------- ------- ------- -------
Consolidated Total (7) $ 9,681 $ 7,500 $ 37,933 $ 28,591
======= ======= ======= =======
TOTAL ASSETS:
-------------
Case Goods $118,083 $105,217
Upholstery 34,338 30,822
Home accessories 6,749 6,279
Corporate (4) 279,019 256,489
------- -------
Wholesale Total Assets 438,189 398,807
Retail 116,400 97,558
Other (2) 6,773 4,852
Inventory Profit
Elimination (5) (26,308) (22,224)
------- -------
Consolidated Total $535,054 $478,993
======= =======
</TABLE>
8
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(7) SEGMENT INFORMATION (CONTINUED)
(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 receivables from third party
retailers, finished goods inventory, property, plant and equipment,
intangible assets, deferred tax assets, and the Company's distribution
operations.
(5) 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 shipments are made to the retail
customer.
(6) The Other category includes unallocated capital expenditures made by
the corporate office.
(7) Consolidated capital expenditures include $6.0 million of fixed assets
related to retail acquisitions.
There are over 30 independent retail stores located outside the United
States. Approximately 3% 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.
The condensed balance sheets of Ethan Allen as of March 31, 2000 and
June 30, 1999 are as follows (dollars in thousands):
March 31, June 30,
2000 1999
-------- --------
Assets
------
Current assets $ 235,735 $ 209,768
Non-current assets 434,317 357,237
-------- --------
Total assets $ 670,052 $ 567,005
======== ========
Liabilities
-----------
Current liabilities $ 117,868 $ 84,500
Non-current liabilities 43,277 43,841
-------- --------
Total liabilities $ 161,145 $ 128,341
======== ========
9
<PAGE>
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(8) WHOLLY-OWNED SUBSIDIARY (CONTINUED)
A summary of Ethan Allen's operating activity for the three and nine
months ended March 31, 2000 and 1999, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
March 31, March 31,
------------------------ ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $220,300 $194,571 $627,378 $554,471
Gross profit 103,148 91,064 295,568 257,824
Operating income 38,138 34,765 108,620 96,253
Interest expense 358 484 752 1,374
Amortization of deferred
financing costs 34 71 226 186
Income before income
tax expense 38,024 34,530 109,053 95,831
Net income $ 23,209 $ 21,218 $ 66,850 $ 58,684
======== ======== ======== ========
</TABLE>
10
<PAGE>
ITEM 2. 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, 1999. 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 and nine months ended
March 31, 2000. The components of consolidated revenues and operating income are
as follows (dollars in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
REVENUE:
--------
Wholesale Revenue:
Case goods $ 103.4 $ 91.4 $283.1 $258.3
Upholstery 51.1 45.7 142.4 127.2
Home Accessories 28.0 21.0 73.3 64.9
Other 1.9 2.8 6.4 8.5
----- ----- ----- -----
Total Wholesale Revenue 184.4 160.9 505.2 458.9
Total Retail Revenue 91.5 76.0 269.5 213.4
Other 1.3 1.4 4.7 4.9
Elimination of inter-segment sales (56.9) (43.7) (152.0) (122.7)
----- ----- ----- ------
Consolidated Revenue $220.3 $194.6 $627.4 $554.5
===== ===== ===== =====
Operating Income:
- ----------------
Wholesale Operating Income:
Case goods $ 36.3 $ 33.9 $ 98.9 $ 93.2
Upholstery 15.3 13.9 43.0 38.2
Home Accessories 9.1 6.9 23.4 21.0
Unallocated Corporate Expenses (23.8) (22.4) (67.4) (63.8)
----- ----- ----- -----
Total Wholesale Operating Income 36.9 32.3 97.9 88.6
Total Retail Operating Income 4.2 4.1 13.9 10.7
Other 0.0 0.1 0.6 1.0
Eliminations (3.0) (1.8) (3.9) (4.2)
----- ----- ----- -----
Consolidated Operating Income $ 38.1 $ 34.7 $108.5 $ 96.1
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Consolidated revenue for the three months ended March 31, 2000
increased by $25.7 million or 13.2% to $220.3 million from $194.6 million for
the three months ended March 31, 1999. Overall sales growth resulted from new
product offerings, new and relocated stores, and growth in the retail segment.
11
<PAGE>
Total wholesale revenue for the third quarter of fiscal year 2000 increased
by $23.5 million or 14.6% to $184.4 million from $160.9 million in the third
quarter of fiscal year 1999.
Case goods revenue increased $12.0 million or 13.1% to $103.4 million for
the three months ended March 31, 2000 as compared to $91.4 million in the
corresponding prior year period mainly due to new product offerings.
Upholstery revenue increased $5.4 million or 11.8% to $51.1 million in the
third quarter of fiscal year 2000 as compared to $45.7 million in the third
quarter of fiscal year 1999. The increase in revenue of $5.4 million was
primarily attributable to new fabric introductions, a focused marketing effort,
and more attractive price points on new product offerings.
Home accessories revenue increased $7.0 million or 33.3% to $28.0 million
in the third quarter of fiscal year 2000 as compared to $21.0 million in the
third quarter of fiscal year 1999. The increase is attributable to the timing of
new product introductions in the third quarter of fiscal year 2000 as compared
to the second quarter of fiscal year 1999.
Total retail revenue from Ethan Allen-owned stores for the three months
ended March 31, 2000 increased by $15.5 million or 20.4% to $91.5 million from
$76.0 million for the three months ended March 31, 1999. The increase in retail
sales by Ethan Allen-owned stores is attributable to an 8.5% or $6.0 million
increase in comparable store sales, and an increase in sales generated by newly
opened or acquired stores of $11.8 million, partially offset by closed stores,
which generated $2.3 million less sales in fiscal year 2000 as compared to
fiscal year 1999. The number of Ethan Allen-owned stores increased to 78 as of
March 31, 2000 as compared to 72 as of March 31, 1999. As a percentage of total
net sales, retail sales represent 41.5% of total net sales in the third quarter
of fiscal year 2000 as compared to 39.0% in the third 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 $12.1 million or 13.2% to $103.1 million in the
third quarter of fiscal year 2000 from $91.0 million in the third quarter of the
prior year. The gross margin remained constant at 46.8% in the third quarter of
fiscal year 2000 and in the third quarter of fiscal year 1999. Gross margins
have been favorably impacted by higher sales volumes and a higher percentage of
retail sales to total sales, partially offset by higher manufacturing costs.
Operating expenses increased $8.7 million or 15.5% to $65.0 million or
29.5% of net sales in the current quarter as compared to $56.3 million or 29.0%
of net sales for the third quarter of fiscal year 1999. This increase is mainly
attributable to the expansion of the retail segment resulting in the addition of
net six new Ethan Allen-owned stores since March 31, 1999.
Consolidated operating income for the three months ended March 31, 2000 was
$38.1 million or 17.3% of net sales compared to $34.7 million or 17.8% of net
sales for the three months ended March 31, 1999. This represents an increase of
$3.4 million or 9.7%, which is primarily attributable to higher sales volume,
partially offset by a lower wholesale and retail gross margin and higher
operating expenses resulting from the growth in the retail segment.
Total wholesale operating income for the third quarter of fiscal year 2000
was $36.9 million or 20.0% of net sales compared to $32.3 million or 20.1% of
net sales in the third quarter of fiscal year 1999. Wholesale operating income
increased $4.6 million or 14.2%.
Case goods operating income increased $2.4 million or 7.1% to $36.2 million
for the third quarter of fiscal year 2000 over the corresponding prior year
period mainly due to higher sales volume, partially offset by certain
manufacturing labor inefficiencies.
12
<PAGE>
Upholstery operating income increased $1.4 million or 10.1% to $15.3
million in the third quarter of fiscal year 2000 as compared to $13.9 million in
the third quarter of fiscal year 1999. The increase resulted from higher sales
volume and lower manufacturing costs associated with higher production levels.
Home accessories operating income increased $2.2 million or 31.9% to $9.1
million in the third quarter of fiscal year 2000 as compared to $6.9 million in
the third quarter of fiscal year 1999. Operating income for home accessories
increased primarily due to higher sales volume.
Operating income for the retail segment increased by $0.1 million in the
three months ended March 31, 2000 to $4.2 million or 4.6% of net sales from $4.1
million or 5.4% of net sales from the three months ended March 31, 1999. The
increase in retail operating income by Ethan Allen-owned stores is primarily
attributable to increased sales volume, offset by higher operating expenses
related to the opening of three new retail stores and the acquisition of six
stores from independent dealers since March 31, 1999.
Interest expense, including the amortization of deferred financing costs,
for the three months ended March 31, 2000 decreased $0.2 million to $0.4 million
from $0.6 million for the three months ended March 31, 1999. The decrease in
interest expense is due to lower debt balances outstanding.
Income tax expense of $14.8 million was recorded in the third quarter as
compared to $13.3 million in the prior year third quarter. The Company's
effective tax rate was 39.0% for the third quarter of fiscal year 2000 and 38.6%
for the third quarter of fiscal year 1999.
For the three months ended March 31, 2000, the Company recorded net income
of $23.2 million, an increase of 9.4%, compared to $21.2 million for the three
months ended March 31, 1999. Earnings per diluted share of $0.57 increased 14.0%
in the quarter from $0.50 per diluted share in the prior year quarter.
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999
Consolidated revenue for the nine months ended March 31, 2000 increased by
$72.9 million or 13.1% to $627.4 million from $554.5 million for the nine months
ended March 31, 1999. Overall sales growth resulted from new product offerings,
new and relocated stores, and the growth of the retail segment.
Total wholesale revenue for the nine month period in fiscal year 2000
increased by $46.3 million or 10.1% to $505.2 million as compared to $458.9
million for the nine month period in fiscal year 1999.
Case goods revenue increased $24.8 million or 9.6% to $283.1 million for
the nine months ended March 31, 2000 as compared to $258.3 million in the
corresponding period in the prior year mainly due to new product offerings and
the benefit of a selected case good price increase effective December 1, 1998.
Upholstery revenue increased $15.2 million or 11.9% to $142.4 million in
the first nine months of fiscal year 2000 as compared to $127.2 million in the
first nine months of fiscal year 1999. The increase in revenue of $15.2 million
is primarily attributable to new fabric introductions, a focused marketing
effort, and more attractive price points on new product offerings.
Home accessories revenue increased $8.4 million or 12.9% to $73.3 million
for the nine months ended March 31, 2000 as compared to $64.9 million for the
nine months ended March 31, 1999 due to new merchandising strategies and
expanded product lines.
Total retail revenue from Ethan Allen-owned stores for the nine months
ended March 31, 2000 increased by $56.1 million or 26.3% to $269.5 million from
$213.4 million for the nine months ended March 31, 1999. The increase in retail
sales by Ethan Allen-owned stores is attributable to a 15.4% or $31.3 million
increase in comparable store sales and an increase in sales generated by newly
opened or acquired stores of $32.1 million,
13
<PAGE>
partially offset by closed stores, which generated $7.3 million less sales in
fiscal year 2000 as compared to fiscal year 1999. As a percentage of total net
sales, retail sales represent 43.0% of total net sales for the first nine months
of fiscal year 2000 compared to 38.5% in the corresponding prior year period.
Gross profit increased by $37.7 million or 14.6% to $295.6 million for the
first nine months of fiscal year 2000 from $257.8 million as compared to the
first nine months of fiscal year 1999. This increase is attributable to higher
sales volume, combined with an increase in gross margin from 46.5% in the first
nine months of fiscal year 1999 to 47.1% in the first nine months of fiscal year
2000. Gross margins have been favorably impacted by increases in production, a
selected case good price increase effective December 1, 1998, and a higher
percentage of retail sales to total sales.
Operating expenses increased $25.4 million or 15.7% to $187.1 million or
29.8% of net sales in the nine months ended March 31, 2000 as compared to $161.7
million or 29.2% of net sales for the nine months ended March 31, 1999. This
increase is mainly attributable to the expansion of the retail segment resulting
in the addition of net six new Ethan Allen-owned stores since March 31, 1999.
Consolidated operating income for the nine months ended March 31, 2000 was
$108.5 million or 17.3% of net sales compared to $96.1 million or 17.3% of net
sales for the nine months ended March 31, 1999. This represents an increase of
$12.4 million or 12.9%, which is primarily attributable to higher sales volume,
offset by a lower wholesale and retail gross margin and higher operating
expenses resulting from the growth in the retail segment.
Total wholesale operating income for the first nine months of fiscal year
2000 was $97.9 million or 19.4% of net sales compared to $88.6 million or 19.3%
of net sales in the first nine months of fiscal year 1999. Wholesale operating
income increased $9.3 million or 10.5%.
Case goods operating income increased $5.7 million or 6.1% to $98.9 million
for the first nine months of fiscal year 2000 over the corresponding prior year
period mainly due to higher sales volume and a selected price increase effective
December 1, 1998, offset by certain manufacturing labor inefficiencies.
Upholstery operating income increased $4.8 million or 12.6% to $43.0
million for the nine months ended March 31, 2000 as compared to $38.2 million
for the nine months ended March 31, 1999. The increase resulted from higher
sales volume and manufacturing efficiencies gained through increased production.
Home accessories operating income increased by $2.4 million or 11.4% to
$23.4 million for the first nine months of fiscal year 2000 from $21.0 million
in the first nine months of fiscal year 1999. The increase in operating income
is attributable to higher sales volume.
Operating income from the retail segment increased by $3.2 million for the
nine month period ended March 31, 2000 to $13.9 million or 5.1% of net sales
from $10.7 million or 5.0% of net sales for the nine month period ended March
31, 1999. The increase in retail operating income by Ethan Allen-owned stores is
primarily attributable to increased sales volume, offset by a reduction in gross
margin and higher operating expense associated with the addition of new stores.
Interest expense, including the amortization of deferred financing costs,
for the nine months ended March 31, 2000 decreased $0.6 million to $1.0 million
from $1.6 million for the nine months ended March 31, 1999. The decrease in
interest expense is due to lower debt balances outstanding.
Income tax expense of $42.2 million was recorded in the first nine months
as compared to $37.1 million in the prior year. The Company's effective tax rate
was 38.7% as of March 31, 2000 compared to 38.8% in the corresponding prior year
period.
14
<PAGE>
For the nine months ended March 31, 2000, the Company recorded net income of
$66.7 million, an increase of 13.8%, compared to $58.6 million for the nine
months ended March 31, 1999. Earnings per diluted share increased 16.7% to $1.61
from $1.38 in the corresponding prior year period.
FINANCIAL CONDITION AND LIQUIDITY
Principal sources of liquidity are cash flow from operations and additional
borrowing capacity under the revolving credit facility. Through March 31, 2000,
the Company used cash provided by operating activities of $80.9 million,
borrowings of $16.0 million from its revolving credit facility, $7.1 million in
cash balances, $2.1 million received from stock option exercises, $1.1 million
received from asset sales and $0.8 million received in payment of long-term
notes receivable to fund capital expenditures of $31.9 million, repurchases of
treasury stock of $45.8 million, retail store acquisitions of $9.9 million,
dividend payments of $4.9 million, payments of $0.7 million on long-term debt
and capital leases, an increase in deferred financing costs of $0.5 million, and
new long-term notes receivable of $0.1 million.
During the nine months ended March 31, 2000, capital spending totaled $31.9
million as compared to $28.6 million in the nine months ended March 31, 1999.
Capital expenditures for fiscal year 2000 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. Capital expenditures made during the
nine months ended March 31, 2000 primarily relate to manufacturing efficiency
improvements and new store openings.
Total debt outstanding at March 31, 2000 was $26.0 million. There were
$16.0 million of revolving loans outstanding under the Credit Agreement and
$16.2 million of trade and standby letters of credit outstanding as of March 31,
2000.
As of March 31, 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,
$0.1 million and $4.7 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 March 31, 2000, the
Company had working capital of $116.2 million and a current ratio of 1.97 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 March 31, 2000, the
Company purchased 1,341,300 shares of its stock on the open market at an average
price of $25.01 per share. The Company financed these purchases through its
revolving credit facility.
15
<PAGE>
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. At March 31, 2000, the Company had $16.3 million of short term
debt outstanding and $9.7 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.
16
<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 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on September 22, 1999.
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 22, 1999.
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
17
<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: 5/11/00 BY: /s/ M. Farooq Kathwari
------------------ --------------------------------
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: 5/11/00 BY: /s/ William C. Beisswanger
------------------ --------------------------------
William C. Beisswanger
Vice President and
Chief Financial Officer
(Principal Financial Officer)
DATE: 5/11/00 BY: /s/ Michele Bateson
------------------ -------------------------------
Michele Bateson
Corporate Controller
(Principal Accounting Officer)
18
<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, 2000 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000896156
<NAME> Ethan Allen Interiors Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1 <F1>
<CASH> 16,090
<SECURITIES> 0
<RECEIVABLES> 33,292 <F2>
<ALLOWANCES> 0
<INVENTORY> 157,276
<CURRENT-ASSETS> 235,743 <F3>
<PP&E> 362,238
<DEPRECIATION> 120,838
<TOTAL-ASSETS> 535,054 <F4>
<CURRENT-LIABILITIES> 119,571 <F5>
<BONDS> 9,668 <F6>
0
0 <F7>
<COMMON> 451 <F8>
<OTHER-SE> 371,157 <F9>
<TOTAL-LIABILITY-AND-EQUITY> 535,054
<SALES> 627,378
<TOTAL-REVENUES> 627,378 <F10>
<CGS> 331,810
<TOTAL-COSTS> 331,810
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 978 <F11>
<INCOME-PRETAX> 108,940
<INCOME-TAX> 42,203
<INCOME-CONTINUING> 66,737
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,737
<EPS-BASIC> 1.65 <F12>
<EPS-DILUTED> 1.61 <F13>
<FN>
<F1>
Not applicable. All figures for Ethan Allen Interiors, Inc. are in
U.S. dollars.
<F2>
Figure for receivables is net of allowances for doubtful accounts of
$2,836.
<F3>
Includes prepaid expenses of $17,360.
<F4>
Includes goodwill of $13,664 (net of amortization).
<F5>
Includes current portion of long-term debt of $16,308 as of March 31,
2000.
<F6>
Includes long-term debt of $9,519 (net of the current portion of
long-term debt) and capitalized leases of $149 (net of the current
portion of capitalized leases). As of March 31, 2000 outstanding
long-term debt of Ethan Allen on a consolidated basis consisted of (i)
industrial revenue bonds of $8,455, and (ii) other of $1,064 (net of
current portion). For a description of the terms of Ethan Allen's
long-term debt, see the Company's Consolidated Financial Statements and
Notes to the Annual Report on Form 10-K for fiscal year ended June 30,
1999.
<F7>
Not applicable.
<F8>
As of March 31, 2000, Ethan Allen had 45,056,196 shares of common
stock, $.01 par value per share, issued. For a description of Ethan
Allen's common stock, see the Company's Consolidated Statement of
Shareholders' Equity and Consolidated Financial Statements in the
Annual Report on Form 10-K for fiscal year 1999.
<F9>
Consists of $272,203 of additional paid in capital, $223,577 of
retained earnings and ($124,623) of treasury stock.
<F10>
For the quarter ended March 31, 2000, Ethan Allen's revenues were
derived from sales generated by its wholesale and retail operations.
<F11>
Consists of $752 of interest expense and $226 of deferred amortization
costs.
<F12>
Basic earnings per share for the quarter ended March 31, 2000 was $0.58.
<F13>
Diluted earnings per share for the quarter ended March 31, 2000 was $0.57.
</FN>
</TABLE>
