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 December 31, 2000
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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.
- --------------------------------------------------------------------------------
(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.
39,415,939 at January 31, 2001
ETHAN ALL INTERIORS INC. AND SUBSIDIARY
INDEX
Page
----
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Financial Statements as of
December 31, 2000 (unaudited) and
June 30, 2000 and for the three and
six months ended December 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 17
Part II. OTHER INFORMATION:
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
2000 June 30,
(unaudited) 2000
----------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 24,457 $ 14,024
Accounts receivable, less allowances of $2,493
and $2,751 at December 31, 2000 and
June 30, 2000, respectively 31,274 34,336
Inventories 161,946 159,006
Prepaid expenses and other current assets 19,790 17,670
Deferred income taxes 12,942 10,751
--------- ---------
Total current assets 250,409 235,787
Property, plant and equipment, net 267,548 247,738
Intangibles, net 53,667 54,770
Other assets 7,310 5,276
--------- ---------
Total assets $ 578,934 $ 543,571
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 303 $ 8,420
Accounts payable 65,317 65,879
Accrued expenses 12,230 11,003
Accrued compensation and benefits 23,657 22,966
--------- ---------
Total current liabilities 101,507 108,268
Long-term debt 9,422 9,487
Other long-term liabilities 2,314 1,593
Deferred income taxes 34,115 33,714
--------- ---------
Total liabilities 147,358 153,062
--------- ---------
Shareholders' equity:
Class A common stock, par value $.01, 150,000,000
shares authorized, 45,087,017 and 45,081,384
shares issued at December 31, 2000 and
June 30, 2000, respectively 451 451
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding
at December 31, 2000 and June 30, 2000 -- --
Additional paid-in capital 273,484 272,710
--------- --------
273,935 273,161
Less: Treasury stock (at cost), 5,715,847 shares
at December 31, 2000 and 5,674,278 shares at
June 30, 2000 (128,876) (128,493)
--- ---- --------- --------
145,059 144,668
Retained earnings 286,517 245,841
--------- --------
Total shareholders' equity 431,576 390,509
--------- --------
Total liabilities and shareholders' equity $ 578,934 $ 543,571
========= =========
See accompanying notes to consolidated financial statements.
2
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share data)
Three Months Six Months
Ended December 31, Ended December 31,
2000 1999 2000 1999
-------- -------- ------- --------
Net sales $232,667 $217,486 $443,898 $407,078
Cost of sales 124,930 113,587 236,452 214,658
-------- -------- -------- --------
Gross profit 107,737 103,899 207,446 192,420
Operating expenses:
Selling 41,622 36,591 79,592 70,049
General and administrative 29,244 26,792 57,681 51,146
-------- -------- -------- --------
Operating income 36,871 40,516 70,173 71,225
Interest and other miscellaneous
income, net 468 165 641 315
Interest and other related financing
costs 189 237 385 586
-------- -------- -------- --------
Income before income taxes 37,150 40,444 70,429 70,954
Income tax expense 14,043 15,611 26,622 27,388
-------- -------- -------- --------
Net income $ 23,107 $ 24,833 $ 43,807 $ 43,566
======== ======== ======== ========
Per share data:
- ---------------
Basic earnings per common share:
Net income per basic share $ 0.59 $ 0.61 $ 1.11 $ 1.07
======== ======== ======== ========
Basic weighted average common
shares outstanding 39,371 40,833 39,380 40,845
Diluted earnings per common share:
Net income per diluted share $ 0.58 $ 0.59 $ 1.09 $ 1.04
======== ======== ======== ========
Diluted weighted average common
shares outstanding 40,181 41,899 40,179 41,907
See accompanying notes to consolidated financial statements.
3
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Six Months
Ended December 31,
2000 1999
--------- --------
Operating activities:
Net income $ 43,807 $ 43,566
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 9,476 8,376
Compensation expense related to
restricted stock award 52 617
Provision for deferred income taxes (1,790) (969)
Other non-cash (income) expense (800) 141
Change in assets and liabilities, net of
the effects from acquired and divested
companies:
Accounts receivable 3,065 2,829
Inventories (4,122) (4,773)
Prepaid and other current assets (3,174) (3,476)
Accounts payable 326 (4,046)
Accrued expenses 1,786 2,180
Other 101 (371)
-------- --------
Net cash provided by operating activities 48,727 44,074
-------- --------
Investing activities:
Proceeds from the disposal of property, plant
and equipment 4,313 44
Capital expenditures (31,020) (22,241)
Acquisition of retail businesses (279) (9,886)
Other 207 495
-------- --------
Net cash used in investing activities (26,779) (31,588)
-------- --------
Financing activities:
Borrowings on revolving credit facilities 1,500 35,000
Payments on revolving credit facilities (9,500) (27,500)
Other payments on long-term debt and
capital leases (183) (571)
Increase in deferred financing costs -- (507)
Net proceeds from issuance of common stock 190 1,935
Dividends paid (3,139) (3,269)
Payments to acquire treasury stock (383) (12,043)
-------- --------
Net cash used in financing activities (11,515) (6,955)
-------- --------
Net increase (decrease) in cash and cash
equivalents 10,433 (5,531)
Cash and cash equivalents at beginning of period 14,024 8,968
-------- -------
Cash and cash equivalents at end of period $ 24,457 $ 14,499
======== ========
See accompanying notes to consolidated financial statements.
4
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Six Months Ended December 31, 2000
(Unaudited)
(Dollars in thousands)
Additional
Common Paid-in Treasury Retained
Stock Capital Stock Earnings Total
------ --------- --------- --------- ---------
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 242 -- -- 242
Purchase of 41,570 shares
of treasury stock -- -- (383) -- (383)
Tax benefit associated with the
exercise of employee options
and warrants -- 532 -- -- 532
Dividends declared on common
stock -- -- -- (3,131) (3,131)
Net income -- -- -- 43,807 43,807
Balance at December 31, 2000 $ 451 $ 273,484 $(128,876) $ 286,517 $ 431,576
===== ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
5
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 six
months ended December 31, 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 December 31, 2000 and June 30, 2000 are summarized as
follows (dollars in thousands):
December 31, June 30,
2000 2000
------------ --------
Finished goods $ 96,868 $103,787
Work in process 21,501 19,233
Raw materials 43,577 35,986
-------- --------
$161,946 $159,006
======== ========
6
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 two sites currently listed on the National
Priorities List ("NPL") under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), in connection with
which the Company may be subject to future costs and/or liabilities.
With respect to both 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 sites;
however, liability under CERCLA may be joint and several. For one of
the sites, the SRSNE Superfund Site in Southington, Connecticut, the
remedial investigation is ongoing. A volume-based allocation of
responsibility among the parties has been prepared, which includes
other parties identified as PRP's at this site. The Company is also a
settling defendant and is responsible, in part, for funding remedial
design and construction activities at the Parker Landfill Superfund
Site in Lyndonville, Vermont. Over ninety-five percent of these
activities have been successfully completed. The Company believes that
the resolution of these matters will not, either individually or in the
aggregate, 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 Six Months Ended
December 31, December 31,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
Weighted average common
shares outstanding for
Basic calculation 39,371 40,833 39,380 40,845
Add: Effect of stock options
and warrants 810 1,066 799 1,062
------ ------ ------ ------
Weighted average common
shares outstanding for
diluted calculation 40,181 41,899 40,179 41,907
====== ====== ====== ======
As of December 31, 2000, stock options to purchase 142,425 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' 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
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 and six
months ended December 31, 2000 and 1999 (dollars in thousands):
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
--------- --------- --------- ---------
NET SALES:
----------
Case Goods $ 101,942 $ 93,405 $ 189,760 $ 179,643
Upholstery 52,633 49,012 100,611 91,352
Home Accessories 22,396 24,979 44,723 45,347
Other (1) 936 1,098 3,064 4,454
--------- --------- --------- ---------
Wholesale Net Sales 177,907 168,494 338,158 320,796
Retail 108,733 98,882 207,259 177,952
Other (2) 1,471 1,647 3,175 3,352
Elimination of inter-segment
sales (55,444) (51,537) (104,694) (95,022)
--------- --------- --------- ---------
Consolidated Total $ 232,667 $ 217,486 $ 443,898 $ 407,078
========= ========= ========= =========
OPERATING INCOME:
-----------------
Case Goods $ 29,794 $ 32,128 $ 57,063 $ 62,665
Upholstery 15,735 14,856 30,228 27,743
Home accessories 6,995 7,906 14,460 14,272
Unallocated corporate
expenses (3) (23,840) (21,648) (46,648) (42,788)
---------- ---------- ---------- ----------
Wholesale Operating Income 28,684 33,242 55,103 61,892
Retail 6,603 6,814 12,638 9,617
Other (2) (179) 186 (16) 538
Eliminations (4) 1,763 274 2,448 (822)
--------- --------- --------- ---------
Consolidated Total $ 36,871 $ 40,516 $ 70,173 $ 71,225
========= ========= ========= =========
CAPITAL EXPENDITURES:
---------------------
Case Goods (5) $ 13,648 $ 2,348 $ 16,722 $ 6,643
Upholstery 623 754 1,905 1,581
Home accessories -- 49 45 102
Other (6) 946 377 2,123 2,567
--------- --------- --------- ---------
Wholesale Capital
Expenditures 15,217 3,528 20,795 10,893
Retail 6,504 6,355 9,962 10,229
Other (2) 114 473 263 1,119
Acquisition of retail
businesses 279 -- 279 9,886
--------- --------- --------- ---------
Consolidated Total $ 22,114 $ 10,356 $ 31,299 $ 32,127
========= ========= ========= =========
8
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(7) SEGMENT INFORMATION (continued)
December 31, December 31,
2000 1999
------------ ------------
TOTAL ASSETS:
-------------
Case Goods $ 145,180 $ 113,901
Upholstery 38,095 34,512
Home accessories 2,231 6,518
Corporate (7) 234,010 224,668
--------- ---------
Wholesale Total Assets 419,516 379,599
Retail 174,686 156,680
Other (2) 8,614 6,579
Inventory Profit
elimination (4) (23,882) (23,612)
--------- ---------
Consolidated Total $ 578,934 $ 519,246
========= =========
(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) 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.
(5) Case goods capital expenditures includes the purchase of a
manufacturing facility in Dublin, Virginia in October of 2000.
(6) The Other category primarily includes the capital expenditures made by
the corporate office for the Company's distribution operations.
(7) 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.
There are 29 independent retail stores located outside the United
States. Approximately 2.3% 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.
9
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 December 31, 2000 and
June 30, 2000 are as follows (dollars in thousands):
December 31, June 30,
2000 2000
------------ --------
Assets
------
Current assets $250,277 $235,782
Non-current assets 472,355 448,059
------- -------
Total assets $722,632 $683,841
======== ========
Liabilities
-----------
Current liabilities $ 99,864 $106,595
Non-current liabilities 45,851 44,794
-------- --------
Total liabilities $145,715 $151,389
======== ========
A summary of Ethan Allen's operating activity for the three and six
months ended December 31, 2000 and 1999, are as follows (dollars in
thousands):
Three Months Six Months
Ended Ended
2000 1999 2000 1999
-------- -------- -------- --------
Net sales $232,667 $217,486 $443,898 $407,078
Gross profit 107,737 103,899 207,446 192,420
Operating income 36,908 40,553 70,248 71,300
Interest expense and other
related financing costs 189 237 385 586
Income before income
tax expense 37,187 40,481 70,504 71,029
Net income $ 23,144 $ 24,870 $ 43,882 $ 43,641
10
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
ITEM 2. MANAGEMENTS 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 geographical 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 six months ended
December 31, 2000 and 1999. The components of consolidated revenues and
operating income are as follows (dollars in millions):
Three Months Ended Six Months Ended
December 31, December 31,
2000 1999 2000 1999
-------- -------- -------- --------
Revenue:
Wholesale Revenue:
Case goods $ 101.9 $ 93.4 $ 189.8 $ 179.6
Upholstery 52.6 49.0 100.6 91.4
Home Accessories 22.4 25.0 44.7 45.3
Other 1.0 1.1 3.1 4.5
-------- -------- -------- --------
Total Wholesale Revenue 177.9 168.5 338.2 320.8
Total Retail Revenue 108.7 98.9 207.2 178.0
Other 1.5 1.6 3.2 3.3
Elimination of inter-segment sales (55.4) (51.5) (104.7) (95.0)
-------- -------- -------- --------
Consolidated Revenue $ 232.7 $ 217.5 $ 443.9 $ 407.1
======== ======== ======== ========
Operating Income:
Wholesale Operating Income:
Case goods $ 29.8 $ 32.1 $ 57.1 $ 62.7
Upholstery 15.7 14.9 30.2 27.7
Home Accessories 7.0 7.9 14.4 14.3
Unallocated Corporate Expenses (23.8) (21.7) (46.6) (42.8)
-------- -------- -------- --------
Total Wholesale Operating Income 28.7 33.2 55.1 61.9
Total Retail Operating Income 6.6 6.8 12.6 9.6
Other (0.2) 0.2 -- 0.5
Eliminations 1.8 0.3 2.5 (0.8)
-------- -------- -------- --------
Consolidated Operating Income $ 36.9 $ 40.5 $ 70.2 $ 71.2
======== ======== ======== ========
11
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Three Months Ended December 31, 2000 Compared to Three Months
Ended December 31, 1999
- -------------------------------------------------------------
Consolidated revenue for the three months ended December 31, 2000
increased by $15.2 million or 7.0% to $232.7 million from $217.5 million for the
three months ended December 31, 1999. The growth in sales resulted from new
product offerings, a selective price increase effective February 2000, and from
an increase in comparable stores sales of 6.3% and from the addition of six net
new company-owned stores since December 1999 and four during the last quarter.
Total wholesale revenue for the second quarter of fiscal year 2001
increased by $9.4 million or 5.6% to $177.9 million from $168.5 million in the
second quarter of fiscal year 2000.
Case goods revenue increased $8.5 million or 9.1% to $101.9 million for
the three months ended December 31, 2000 as compared to $93.4 million in the
corresponding prior year period. This increase resulted from a selective price
increase and new product introductions offered at more affordable price points,
attracting a broader consumer base.
Upholstery revenue increased $3.6 million or 7.3% to $52.6 million in
the second quarter of fiscal year 2001 as compared to $49.0 million in the
second quarter of fiscal year 2000. The increase in revenue of $3.6 million was
primarily attributable to new product and new fabric introductions and from a
selective price increase.
Home accessories revenue decreased $2.6 million or 10.4% to $22.4
million in the second quarter of fiscal year 2001 as compared to $25.0 million
in the second quarter of fiscal year 2000. This decrease is attributable to the
timing of the Annual Convention held this fall as compared to the prior year and
from a new program put into place this quarter called 'Branding the Interior' of
the stores. This program refers to the Company's plan to feature the best
selling items in the most effective display settings. In preparation, a slowdown
in orders occurred while many stores reduced their overall home accessory
inventory items on display and for sale in the retail stores.
Total retail revenue from Ethan Allen-owned stores for the three months
ended December 31, 2000 increased by $9.8 million or 9.9% to $108.7 million from
$98.9 million for the three months ended December 31, 1999. The increase in
retail sales by Ethan Allen owned stores is attributable to an increase in
comparable store sales of $6.5 million, or 6.3%, and an increase in sales
generated by newly opened or acquired stores of $7.4 million, partially offset
by closed stores, which generated $4.1 million less sales in fiscal year 2001 as
compared to fiscal year 2000. The number of Ethan Allen-owned stores increased
to 84 as of December 31, 2000 as compared to 78 as of December 31, 1999.
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 second 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 $3.8 million or 3.7% to $107.7 million in the
second quarter of fiscal year 2001 from $103.9 million in the second quarter of
the prior year. The $3.8 million increase in gross profit was mainly due to
greater sales volume, a selective price increase effective February 2000 and a
higher percentage of retail sales to total sales. Gross margin decreased to
46.3% in the second quarter of fiscal year 2001 from 47.8% in the prior year
second quarter. Gross margin was negatively impacted by higher raw material and
labor costs at the wholesale level. Changes in production scheduling and new
product introductions increased costs, especially employee training. Higher
costs were also incurred from the start up of the new case good facility in
Dublin, Virginia and other plant expansions initiated to increase production
capacity. Additionally, new product introductions offered at more attractive and
affordable price points contributed to a lower gross margin.
12
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Operating expenses increased $7.5 million or 11.8% to $70.9 million or
30.5% of net sales in the current quarter as compared to $63.4 million or 29.1%
of net sales for the second quarter of fiscal year 2000. This increase was
mainly due to the expansion of the retail segment resulting in the addition of
six net new Ethan Allen-owned stores since December 1999 (four net new stores
this quarter), from increased business for comparable Ethan Allen-owned stores,
and from an increase in advertising this quarter.
Operating income for the three months ended December 31, 2000 was $36.9
million or 15.9% of net sales compared to $40.5 million or 18.6% of net sales
for the three months ended December 31, 1999. This represents a decrease in
operating income of $3.6 million or 8.9%, which is primarily attributable to a
lower gross margin as noted above, greater operating expenses resulting from the
growth of the retail segment and an increase in advertising expenses this
quarter, partially offset by higher sales volume, a selective price increase
effective February 2000, and a higher percentage of retail sales to total sales.
Total wholesale operating income for the second quarter of fiscal year
2001 was $28.7 million or 16.1% of net sales compared to $33.2 million or 19.7%
of net sales in the second quarter of fiscal year 2000. Wholesale operating
income decreased $4.5 million or 13.6% this quarter.
Case goods operating income decreased $2.3 million or 7.2% to $29.8
million for the second quarter of fiscal year 2001 over the corresponding prior
year period mainly due to higher labor and material costs, resulting, in part
from the introduction of new products at lower margins, changes in production
scheduling and product transfers between manufacturing facilities, and from the
start up of the Dublin, Virginia manufacturing facility and other capital
expansion projects.
Upholstery operating income increased $0.8 million or 5.4% to $15.7
million in the second quarter of fiscal year 2001 as compared to $14.9 million
in the second quarter of fiscal year 2000. This increase resulted from higher
sales volume and a selective price increase.
Home accessories operating income decreased $0.9 million or 11.4% to
$7.0 million in the second quarter of fiscal year 2001 as compared to $7.9
million in the second quarter of fiscal year 2000. Operating income for home
accessories decreased due to lower sales volume caused by the timing of the
Annual Convention and 'Branding the Interior' program launched this quarter,
offset in part, by the February 2000 selective price increase.
Operating income for the retail segment decreased by $0.2 million in
the three months ended December 31, 2000 to $6.6 million or 6.1% of net sales
from $6.8 million or 6.9% of net sales for the three months ended December 31,
1999. The slight decrease in retail operating income by Ethan Allen-owned stores
is primarily attributable to higher operating expenses related to the addition
of six net new stores since December 1999 (four net new stores this quarter) and
higher compensation costs necessary to strengthen the staffing of the retail
division, partially offset by higher sales volume, a selective price increase
effective February 2000, and a higher percentage of retail sales to total sales.
Interest expense for the three months ended December 31, 2000 remained
consistent with the second quarter of last year at $0.2 million.
Income tax expense of $14.0 million was recorded in the second quarter
as compared to $15.6 million in the prior year second quarter. The Company's
effective tax rate was 37.8% for the second quarter of fiscal year 2001 and
38.6% for the second 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 income tax credits.
For the three months ended December 31, 2000, the Company recorded net
income of $23.1 million, a decrease of 6.9%, compared to $24.8 million for the
three months ended December 31, 1999. Earnings per diluted share of $0.58
decreased 1.7% or $0.01 per diluted share in the quarter from $0.59 per diluted
share in the prior year quarter.
13
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Six Months Ended December 31, 2000 Compared to
Six Months Ended December 31, 1999
- ----------------------------------------------
Consolidated revenue for the six months ended December 31, 2000
increased by $36.8 million or 9.0% to $443.9 million from $407.1 million for the
six months ended December 31, 1999. The growth in sales resulted from new
product offerings, a selective price increase effective February 2000, an
increase in comparable stores sales of 12.9% and from the addition of six net
new company-owned stores since December 1999.
Total wholesale revenue for the six month period in fiscal year 2001
increased by $17.4 million or 5.4% to $338.2 million from $320.8 million in the
six month period of fiscal year 2000.
Case goods revenue increased $10.2 million or 5.7% to $189.8 million
for the six months ended December 31, 2000 as compared to $179.6 million in the
corresponding prior year period due to a selective price increase and new
product introductions offered at more affordable price points, offset by fewer
production days in the current six month period as compared to the comparable
prior year period.
Upholstery revenue increased $9.2 million or 10.1% to $100.6 million
for the six months ending December 31, 2000 as compared to $91.4 million in the
six months ending December 31, 1999. The increase in revenue of $9.2 million
resulted from new product and new fabric introductions, more attractive price
points on new product offerings, and from a selective price increase.
Home accessories revenue decreased $0.6 million or 1.3% to $44.7
million in the first six months fiscal year 2001 as compared to $45.3 million in
the first six months of fiscal year 2000. This decrease is attributable to the
timing of the Annual Convention held this fall as compared to the prior year and
from a new program put into place during the three months ended December 31,
2000 called 'Branding the Interior' of the stores. This program refers to the
Company's plan to feature the best selling items in the most effective display
settings. In preparation, a slowdown in orders occurred while many stores
reduced their overall home accessory inventory items on display and for sale in
the retail stores.
Total retail revenue from Ethan Allen-owned stores for the six months
ended December 31, 2000 increased by $29.2 million or 16.4% to $207.2 million
from $178.0 million for the six months ended December 31, 1999. Comparable store
sales increased 12.9% reflecting one additional delivery day included in the
current six months over the comparable prior year period. The increase in retail
sales by Ethan Allen-owned stores is attributable to a $22.2 million increase in
comparable store sales, an increase in sales generated by newly opened or
acquired stores of $13.2 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 $7.0 million less sales in fiscal year 2001 as compared to fiscal year
2000.
Gross profit increased by $15.0 million or 7.8% to $207.4 million in
the six months ending December 31, 2000 from $192.4 million in the six months
ending December 31, 1999. The $15.0 million increase in gross profit was mainly
due to greater sales volume, a selective price increase effective February 2000
and a higher percentage of retail sales to total sales. Gross margin decreased
to 46.7% in the first half of fiscal year 2001 from 47.3% in the first half of
the prior year. Gross margin was negatively impacted by higher raw material and
labor costs at the wholesale level. Changes in production scheduling and new
product introductions have increased costs, especially employee training. Higher
costs were also incurred from the start up of the new case good facility in
Dublin, Virginia and other plant expansions initiated to increase production
capacity. Additionally, new product introductions offered at more attractive and
affordable price points contributed to a lower gross margin.
Operating expenses increased $16.1 million or 13.3% to $137.3 million
or 30.9% of net sales in the six months ended December 31, 2000 compared to
$121.2 million or 29.8% of net sales for the six months ended December 31, 1999.
This increase is mainly attributable to the expansion of the retail segment
resulting in the addition of six net new Ethan Allen-owned stores since December
1999, from increased business for comparable Ethan Allen-owned stores, and from
an increase in advertising during the last three months.
14
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Operating income for the six months ended December 31, 2000 was $70.2
million or 15.8% of net sales compared to $71.2 million or 17.5% of net sales
for the six months ended December 31, 1999. This represents a decrease in
operating income of $1.0 million or 1.4%, which is primarily attributable to a
lower gross margin as noted above, greater operating expenses resulting from the
growth of the retail segment and an increase in advertising expenses, partially
offset by higher sales volume, a selective price increase effective February
2000, and a higher percentage of retail sales to total sales.
Total wholesale operating income for the first half of fiscal year 2001
was $55.1 million or 16.3% of net sales compared to $61.9 million or 19.3% of
net sales in the first half of fiscal year 2000. Wholesale operating income
decreased $6.8 million or 11.0%.
Case goods operating income decreased $5.6 million or 8.9% to $57.1
million for the first half 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 in the six months ended December 31, 2000 as compared to the
comparable prior year period, the start up of the Dublin, Virginia case good
facility and the implementation of capital expansion projects, and the
introduction of new products at lower margins.
Upholstery operating income increased $2.5 million or 9.0% to $30.2
million in the first half of fiscal year 2001 as compared to $27.7 million in
the first half of fiscal year 2000. The increase resulted from higher sales
volume, a selective price increase, and slightly lower manufacturing costs
associated with higher production levels.
Home accessories operating income increased $0.1 million or 0.7% to
$14.4 million in the first half of fiscal year 2001 as compared to $14.3 million
in the first half of fiscal year 2000. Operating income for home accessories
remained consistent with the prior year period due to comparable prior year
sales volume, resulting in part, from the timing of the Annual Convention and
'Branding the Interior' program launched during the last three months, partially
offset by the February 2000 selective price increase.
Operating income for the retail segment increased by $3.0 million in
the six months ended December 31, 2000 to $12.6 million or 6.1% of net sales
from $9.6 million or 5.4% of net sales from the six months ended December 31,
1999. The increase in retail operating income by Ethan Allen-owned stores is
primarily attributable to increased sales volume, a selective price increase
effective February 2000, gain recorded on the sale of retail stores, and a
higher percentage of retail sales to total sales, offset by higher operating
expenses related to the addition of six net new stores since December 1999 and
higher compensation costs necessary to strengthen the staffing of the retail
division.
Interest expense for the six months ended December 31, 2000 decreased
$0.2 million to $0.4 million from $0.6 million for the six months ended December
31, 1999. The decrease in interest expense is due to lower debt balances
outstanding and lower amortization of deferred financing costs.
Income tax expense of $26.6 million was recorded in the first half as
compared to $27.4 million in the prior year first half. The Company's effective
tax rate was 37.8% for the first half of fiscal year 2001 and 38.6% for the
first half of fiscal year 2000. The decline in the effective income tax rate in
the current six months compared to the prior year six months resulted from the
utilization of various state income tax credits.
For the six months ended December 31, 2000, the Company recorded net
income of $43.8 million, an increase of 0.5%, compared to $43.6 million for the
six months ended December 31, 1999. Earnings per diluted share of $1.09
increased 4.8% or $0.05 per diluted share in the current six months from $1.04
per diluted share in the prior year.
15
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
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 $48.7 million for the six months ended
December 31, 2000. The increase in net cash provided by operating activities
resulted from a change in working capital requirements for the six months ended
December 31, 2000 compared to the six months ended December 31, 1999. Total debt
outstanding at December 31, 2000 was $9.7 million. There were no revolving loans
outstanding under the Credit Agreement. As of December 31, 2000, there were
$16.7 million of trade and standby letters of credit outstanding.
During the six months ended December 31, 2000, capital spending,
exclusive of retail acquisitions, totaled $31.0 million as compared to $22.2
million in the six months ended December 31, 1999. Capital expenditures made
during the six months ended December 31, 2000 primarily relate to (i) the
purchase of a manufacturing facility in Dublin, Virginia, (ii) manufacturing
plant expansions in Boonville, New York and Andover, Maine, iii) manufacturing
equipment purchases and upgrades, iv) the expansion of a distribution facility
in Kentland, Indiana, and v) new store construction and interior redesigns.
Capital expenditures, exclusive of acquisitions, for fiscal year 2001 are
expected to be approximately $55.0 million. The Company anticipates that cash
from operations will be sufficient to fund this level of capital expenditures.
As of December 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, $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
December 31, 2000, the Company had working capital of $148.9 million and a
current ratio of 2.47 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 six months ended December 31, 2000, the
Company did not purchase any of its common shares through the open market.
16
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 December 31, 2000, the Company had $0.3 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.
17
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 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 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
At the annual shareholders' meeting held on November 16, 2000, the
following proposals were submitted to a vote:
1. The election of a director to a term expiring in 2003; William B.
Sprague (votes for 35,382,767, votes against 0, withheld 245,837). The
terms of Clinton A. Clark, Kristin Gamble and Edward H. Meyer will
continue until the annual shareholders meeting in 2001. The terms of M.
Farooq Kathwari and Horace G. McDonell will continue until the annual
shareholders meeting in 2002.
2. Ratification of the appointment of KPMG LLP as independent auditors for
fiscal year 2001 (votes for 35,507,556, votes against 30,073, withheld
90,975).
Item 5. - OTHER INFORMATION
None.
Item 6. - EXHIBITS AND REPORTS ON FORM 8-K
None.
18
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: 02/14/01 BY: /s/ M. Farooq Kathwari
----------------- ---------------------------
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive and Financial
Officer)
DATE: 02/14/01 BY: /s/ Michele Bateson
----------------- ---------------------------
Michele Bateson
Corporate Controller
(Principal Accounting Officer)
19