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, 2001
--------------------------
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.
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(Exact name of registrant as specified in its charter)
Delaware 06-1275288
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer ID No.)
Ethan Allen Drive, Danbury, Connecticut 06811
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(Address of principal executive offices)
(203) 743-8000
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(Registrant's telephone number, including area code)
N/A
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(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.
39,397,273 at March 31, 2001
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of
March 31, 2001 (unaudited) and June 30,
2000 and for the three and nine months
ended March 31, 2001 and 2000 (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 of Operations 10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 15
Part II. Other Information: 16
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 17
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
March 31,
2001 June 30,
(unaudited) 2000
----------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 37,557 $ 14,024
Accounts receivable, less allowances of $2,828
and $2,751 at March 31, 2001 and
June 30, 2000, respectively 37,276 34,336
Inventories 169,640 159,006
Prepaid expenses and other current assets 20,983 17, 670
Deferred income taxes 12,049 10,751
--------- ---------
Total current assets 277,505 235,787
Property, plant and equipment, net 271,138 247,738
Intangibles, net 53,211 54,770
Other assets 7,882 5,276
--------- ---------
Total assets $ 609,736 $ 543,571
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 232 $ 8,420
Accounts payable 76,210 65,879
Accrued expenses 12,723 11,003
Accrued compensation and benefits 25,037 22,966
--------- ---------
Total current liabilities 114,202 108,268
Long-term debt 9,389 9,487
Other long-term liabilities 2,031 1,593
Deferred income taxes 33,542 33,714
--------- ---------
Total liabilities 159,164 153,062
--------- ---------
Shareholders' equity:
Class A common stock, par value $.01, 150,000,000
shares authorized, 45,120,130 and 45,081,384
shares issued at March 31, 2001 and
June 30, 2000, respectively 451 451
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding
at March 31, 2001 and June 30, 2000 -- --
Additional paid-in capital 274,261 272,710
--------- ---------
274,712 273,161
Less: Treasury stock (at cost), 5,722,859 shares
at March 31, 2001 and 5,674,278 shares at
June 30, 2000 (129,ll8) (128,493)
--------- ---------
145,594 144,668
Retained earnings 304,978 245,841
--------- ---------
Total shareholders' equity 450,572 390,509
--------- ---------
Total liabilities and shareholders' equity $ 609,736 $ 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 Nine Months
Ended March 31, Ended March 31,
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $233,791 $220,300 $677,689 $627,378
Cost of sales 130,280 117,152 366,732 331,810
-------- -------- -------- --------
Gross profit 103,511 103,148 310,957 295,568
Operating expenses:
Selling 42,026 37,197 121,618 107,246
General and administrative 30,292 27,586 87,973 78,732
-------- -------- -------- --------
Operating income 31,193 38,365 101, 366 109,590
-------- -------- -------- --------
Interest and other miscellaneous
income, net 1,188 13 1, 829 328
Interest and other related financing
costs 178 392 563 978
-------- -------- -------- --------
Income before income taxes 32,203 37,986 102,632 108,940
Income tax expense 12,173 14,815 38,795 42,203
-------- -------- -------- --------
Net income $ 2O,O30 $ 23,171 $ 63,837 $ 66,737
======== ======== ======== ========
Per share data:
- --------------
Basic earnings per common share:
Net income per basic share $ 0.51 $ 0.58 $ 1.62 $ 1.65
======== ======== ======== ========
Basic weighted average common
shares outstanding 39, 397 39, 998 39, 386 40,562
Diluted earnings per common share:
Net income per diluted share $ 0.50 $ 0.57 $ 1.59 $ 1.61
======== ======== ======== ========
Diluted weighted average common
shares outstanding 40,442 40,755 40,267 41,523
See accompanying notes to consolidated financial statements.
-3-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Nine Months
Ended March 31,
2001 2000
-------- --------
Operating activities:
Net income $ 63,837 $ 66,737
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 14,710 12,616
Compensation expense related to
restricted stock award 324 641
Provision for deferred income taxes (1,470) (1,537)
Other non-cash (income) expense (1,621) (553)
Change in assets and liabilities, net of
the effects from acquired and divested
businesses:
Accounts receivable (2,936) 370
Inventories (11,814) (10,401)
Prepaid and other current assets (4,441) (4,661)
Accounts payable 11,311 14,016
Accrued expenses 3,664 4,056
Other (1,138) (362)
-------- --------
Net cash provided by operating activities 70,426 80,922
-------- --------
Investing activities:
Proceeds from the disposal of property, plant
and equipment 6,965 1,096
Capital expenditures (40,880) (31,922)
Acquisition of retail businesses (291) (9,886)
Other 329 627
-------- --------
Net cash used in investing activities (33,877) (40,085)
-------- --------
Financing activities:
Borrowings on revolving credit facilities 1,500 66,000
Payments on revolving credit facilities (9,500) (50,000)
Other payments on long-term debt and
capital leases (287) (701)
Increase in deferred financing costs -- (507)
Net proceeds from issuance of common stock 603 2,123
Dividends paid (4,707) (4,894)
Payments to acquire treasury stock (625) (45,736)
-------- --------
Net cash used in financing activities (13,016) (33,715)
-------- --------
Net increase in cash and cash equivalents 23,533 7,122
Cash and cash equivalents at beginning of period 14,024 8,968
-------- --------
Cash and cash equivalents at end of period $ 37,557 $ 16,090
======== ========
See accompanying notes to consolidated financial statements.
-4-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Nine Months Ended March 31, 2001
(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 -- 927 -- -- 927
Purchase of treasury shares
relating to employee benefit
and compensation plans -- -- (625) -- (625)
Tax benefit associated with the
exercise of employee options
and warrants -- 624 -- -- 624
Dividends declared on common -- -- -- (4,700) (4,700)
stock
Net income -- -- -- 63,837 63,837
------ -------- --------- -------- --------
Balance at March 31, 2001 $ 451 $274,261 $(129,118) $304,978 $450,572
====== ======== ========= ======== ========
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 nine months ended March 31, 2001,
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 March 31, 2001 and June 30, 2000 are summarized as follows:
(dollars in thousands):
March 31, June 30,
2001 2000
-------- ---------
Finished goods $103,203 $103,787
Work in process 21,574 19,233
Raw materials 44,863 35,986
-------- --------
$169,640 $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"), which the Company may be subject to
future costs and/or liabilities. With respect to both of these sites, the
Company believes 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 Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
----- ---- ---- ----
Weighted average common
shares outstanding for
basic calculation 39,397 39,998 39,386 40,562
Add: Effect of stock options
and warrants 1,045 757 881 961
------ ------ ------ ------
Weighted average common
shares outstanding for
diluted calculation 40,442 40,755 40,267 41,523
====== ====== ====== ======
As of March 31, 2000, 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'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 segments: wholesale and retail home
furnishings. The wholesale home furnishings segment is principally involved
in the manufacture, sale and distribution of home furnishing products to a
network of independently-owned and Ethan Allen-owned stores. 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 segment 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
segment.
-7-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(Unaudited)
(7) Segment Information (continued)
The operating segments follow the same accounting policies. The Company
evaluates performance of the respective segments based upon revenues and
operating income. Inter-company eliminations primarily comprise the
wholesale sales and profit on the transfer of inventory between the
wholesale and retail segments. Inter-company eliminations also include
items not allocated to reportable segments.
During the third quarter of 2001, the Company re-evaluated its operating
segments and as a result changed its reporting format from five segments
(Case Goods, Upholstery, Home Accessories, Retail and Other) to two
segments (Wholesale and Retail). This change reflects how management
currently manages its operations, resulting in part from the growth of the
Company's retail business. The following table presents segment information
for the three and nine months ended March 31, 2001 and 2000 (dollars in
thousands):
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
---- ---- ---- ----
NET SALES:
- ---------
Wholesale $ 188,887 $ 185,761 $ 530,220 $ 509,909
Retail 104,333 92,222311,592 270,174
Elimination of inter-company
sales (59,429) (57,683) (164,123) (152,705)
--------- --------- --------- ---------
Consolidated Total $ 233,791 $ 220,300 $ 677,689 $ 627,378
========= ========= ========= =========
OPERATING INCOME:
- ----------------
Wholesale $ 26,881 $ 36,813 $ 81,271 $ 98,546
Retail 5,419 4,947 18,057 14,564
Elimination (1) (1,107) (3,395) 2,038 (3,520)
--------- --------- --------- ---------
Consolidated Total $ 31,193 $ 38,365 $ 101,366 $ 109,590
========= ========= ========= =========
CAPITAL EXPENDITURES:
- --------------------
Wholesale (2) $ 5,362 $ 5,106 $ 26,420 17,118
Retail 4,498 14,575 14,460 14,804
Acquisition of retail
businesses 12 - 291 9,886
--------- --------- --------- ---------
Consolidated Total $ 9,872 $ 9,681 $ 41,171 $ 41,808
========= ========= ========= =========
TOTAL ASSETS:
- ------------
Wholesale $ 450,263 $ 392,313
Retail 184,266 169,049
Inventory profit
elimination (3) (24,793) (26,308)
--------- ---------
Consolidated Total $ 609,736 $ 535,O54
========= =========
(1) The elimination in operating income includes the elimination for retail
profit in ending inventory.
(2) Wholesale capital expenditures for the nine months ended March 31, 2001
include the purchase of a manufacturing facility in Dublin, Virginia in
October of 2000.
(3) 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.
-8-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statement
(Unaudited)
(7) SEGMENT INFORMATION (continued)
There are 29 independent retail stores located outside the United States.
Approximately 2.4% and 2.8% of the Company's net sales for the nine month
period ended March 31, 2001 and 2000, respectively 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, 2001 and June
30, 2000 are as follows (dollars in thousands):
March 31, June 30,
2001 2000
-------- --------
ASSETS
Current assets $277,462 $235,782
Non-current assets 477,371 448,059
-------- --------
Total assets $754,833 $683,841
======== ========
LIABILITIES
Current liabilities $112,521 $106,595
Non-current liabilities 44,962 44,794
-------- --------
Total liabilities $157,483 $151,389
======== ========
A summary of Ethan Allen's operating activity for the three and nine months
ended March 31, 2001 and 2000, are as follows (dollars in thousands):
Three Months Nine Months
Ended Ended
March 31, March 31,
2001 2000 2001 2000
---- ---- ---- -----
Net sales $233,791 $220,300 $677,689 $627,378
Gross profit 103,511 103,148 310,957 295,568
Operating income 31,231 38,403 101,479 109,703
Interest expense and other
related financing costs 178 392 563 978
Income before income
tax expense 32,241 38,024 102,745 109,053
Net income $ 20,068 $ 23,209 $ 63,950 $ 66,850
-9-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
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, 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. See Note 7
to the Company's Consolidated Financial Statements for the three and nine months
ended March 31, 2001 and 2000. The components of consolidated revenues and
operating income are as follows (dollars in millions):
Three Months Ended Nine Months Ended
March 31, March 31,
2001 2000 2001 2000
------ ------ ------ ------
Revenue:
Wholesale $ 188.9 $ 185.7 $ 530.2 $ 509.9
Retail 104.3 92.2 311.6 270.2
Elimination of inter-segment sales (59.4) (57.6) (164.1) (152.7)
------ ------ ------ ------
Consolidated Revenue $ 233.8 $ 220.3 $ 677.7 $ 627.4
====== ====== ====== ======
Operating Income:
Wholesale $ 26.9 $ 36.8 $ 81.3 $ 98.6
Retail 5.4 5.0 18.1 14.6
Eliminations (1.1) (3.4) 2.0 (3.6)
------ ------ ------ ------
Consolidated Operating Income $ 31.2 $ 38.4 $ 101.4 $ 109.6
====== ====== ====== ======
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
Consolidated revenue for the three months ended March 31, 2001 increased by
$13.5 million or 6.1% to $233.8 million from $220.3 million for the three months
ended March 31, 2000. The growth in sales resulted from new product
introductions, a selective price increase effective February 2000, an increase
in company-owned comparable store sales of 10.7% and the addition of six net new
company-owned stores since March 2000.
Total wholesale revenue for the third quarter of fiscal year 2001 increased
by $3.2 million or 1.7% to $188.9 million from $185.7 million in the third
quarter of fiscal year 2000. This increase resulted from a selective price
increase and new product introductions offered at more affordable price points,
which attracted a larger and broader consumer base to our stores in the third
quarter of fiscal year 2001. These increases were partially offset by a new
program put into place during the second quarter of this fiscal year 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 home accessory orders has occurred while many stores
reduced their overall home accessory inventory items on display and for sale in
the retail stores.
-10-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Total retail revenue from Ethan Allen-owned stores for the three months
ended March 31, 2001 increased by $12.1 million or 13.1% to $104.3 million from
$92.2 million for the three months ended March 31, 2000. The increase in retail
sales by Ethan Allen owned stores is attributable to an increase in comparable
store sales of $8.2 million, or 10.7%, and an increase in sales generated by
newly opened or acquired stores of $8.4 million, partially offset by closed
stores, which generated $3.8 million less sales in fiscal year 2001 as compared
to fiscal year 2000 and a prior quarter gain of $0.7 million on the sale of a
retail store to an independent dealer. The number of Ethan Allen-owned stores
increased to 84 as of March 31, 2001 as compared to 78 as of March 31, 2000.
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.
Booked orders for the quarter were lower than the prior year quarter by
6.0%, however, last year's increase was 19.2%. Total orders include wholesale
orders and written business of company-owned retail stores. Wholesale orders
were down 7.2% and orders for company-owned stores were down 1.7% reflecting an
overall slowdown in the economy during the quarter.
Gross profit increased slightly during the quarter to $103.5 million from
$103.1 million in the third quarter of the prior year. The $0.4 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, offset by a decline in the wholesale gross margin. Gross margin
decreased to 44.3% in the third quarter of fiscal year 2001 from 46.8% in the
prior year third quarter principally from the sale of more affordably priced
products manufactured at lower margins, impacting the wholesale gross margin.
Higher costs were also incurred from plant expansions, including the start-up of
the new case goods manufacturing facility in Dublin, Virginia and other
initiatives necessary to increase production capacity.
Operating expenses increased $7.5 million or 11.6% to $72.3 million or
30.9% of net sales in the current quarter as compared to $64.8 million or 29.4%
of net sales for the third 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 March 2000 and from increased business for
comparable Ethan Allen-owned stores. Additionally, this quarter, the Company
also experienced increases in utilities, fuel and freight, and employee benefit
costs.
Operating income for the three months ended March 31, 2001 was $31.2
million or 13.3% of net sales compared to $38.4 million or 17.4% of net sales
for the three months ended March 31, 2000. Operating income decreased $7.2
million or 18.8% primarily due to a lower wholesale gross margin as noted above,
greater operating expenses resulting from the growth of the retail segment and
an overall increase in energy costs and employee benefits 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 third quarter of fiscal year 2001
was $26.9 million or 14.2% of net sales compared to $36.8 million or 19.8% of
net sales in the third quarter of fiscal year 2000. Wholesale operating income
decreased $9.9 million or 26.9% this quarter due to greater production of lower
margin items designed to broaden our consumer base, higher distribution costs
due to increases in utilities, fuel and freight, and employee benefit costs. In
addition, wholesale operating income was impacted by the costs relating to the
start up of the Dublin, Virginia manufacturing facility and other plant
expansion projects necessary to increase production capacity.
-11-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Operating income for the retail segment increased by $0.4 million for the
three months ended March 31, 2001 to $5.4 million or 5.2% of net sales from $5.0
million or 5.4% of net sales for the three months ended March 31, 2000. The
increase in retail operating income is primarily attributable to higher sales
volume and a selective price increase effective February 2000. These increases
were offset by higher operating expenses related to the addition of six net new
stores since March 2000 and higher compensation costs necessary to strengthen
the staffing of the retail division.
Interest and other miscellaneous income of $1.2 million increased over the
prior year third quarter principally from the gain on the sale of real property
related to a retail store relocation.
Interest expense for the three months ended March 31, 2001 decreased $0.2
to $0.2 from $0.4 in the prior year period due to lower debt balances
outstanding.
Income tax expense of $12.2 million was recorded in the third quarter as
compared to $14.8 million in the prior year third quarter. The Company's
effective tax rate was 37.8% for the third quarter of fiscal year 2001 and 39.0%
for the third 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 and from the
realization of tax planning strategies.
For the three months ended March 31, 2001, the Company recorded net income
of $20.0 million, a decrease of 13.8%, compared to $23.2 million for the three
months ended March 31, 2000. Earnings per diluted share of $0.50 decreased 12.3%
or $0.07 per diluted share in the quarter from $0.57 per diluted share in the
prior year quarter.
NINE MONTHS ENDED MARCH 31, 2001 COMPARED TO NINE MONTHS ENDED MARCH 31, 2000
Consolidated revenue for the nine months ended March 31, 2001 increased by
$50.3 million or 8.0% to $677.7 million from $627.4 million for the nine months
ended March 31, 2000. The growth in sales resulted from new product offerings, a
selective price increase effective February 2000, an increase in company-owned
comparable store sales of 12.2% and from the addition of six net new
company-owned stores since March 2000.
Total wholesale revenue for the nine month period in fiscal year 2001
increased by $20.3 million or 4.0% to $530.2 million from $509.9 million in the
nine month period of fiscal year 2000. The increase in wholesale revenue was due
to a selective price increase and new product introductions offered at more
affordable price points, offset by fewer production days in the current nine
month period as compared to the comparable prior year period 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 home accessory 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 nine months
ended March 31, 2001 increased by $41.4 million or 15.3% to $311.6 million from
$270.2 million for the same period in the prior year. Comparable store sales
increased 12.2%. The increase in retail sales by Ethan Allen-owned stores is
attributable to a $30.4 million increase in comparable store sales, an increase
in sales generated by newly opened or acquired stores of $21.6 million, and the
gain on the sale of retail stores to independent dealers for $0.2 million,
partially offset by closed stores, which generated $10.8 million less sales in
fiscal year 2001 as compared to fiscal year 2000.
Booked orders for the nine month period ended March 31, 2001 were slightly
lower than the same period in the prior year by 0.5%. The prior year's increase
in booked orders was 18.4%. Total orders include wholesale orders and written
business of company-owned retail stores. Wholesale orders were down 1.8% and
orders for company-owned stores were higher by 4.8% reflecting slower economic
growth in the second and third quarter of this fiscal year.
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Gross profit increased by $15.4 million or 5.2% to $311.0 million in the
nine months ended March 31, 2001 from $295.6 million in the nine months ending
March 31, 2000. The $15.4 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, offset by a decline in the
wholesale gross margin. Gross margin decreased to 45.9% for the nine months
ending March 31, 2001 from 47.1% in the comparable period of the prior year.
Gross margin was negatively impacted by changes in production scheduling mainly
due to new product introductions and from the sale of more affordably priced
products manufactured at lower margins. Margins were also negatively impacted by
higher costs incurred from plant expansions, including the start-up of the new
case goods manufacturing facility in Dublin, Virginia and from other plant
expansions initiated to increase production capacity.
Operating expenses increased $23.6 million or 12.7% to $209.6 million or
30.9% of net sales in the nine months ended March 31, 2001 compared to $186.0
million or 29.6% of net sales for the nine months ended March 31, 2000. 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 March 2000, and
from increased business for comparable Ethan Allen-owned stores. Advertising
expenses, utilities, fuel and freight, and employee benefit costs have also
increased over the last nine months.
Operating income for the nine months ended March 31, 2001 was $101.4
million or 15.0% of net sales compared to $109.6 million or 17.5% of net sales
for the nine months ended March 31, 2000. This represents a decrease in
operating income of $8.2 million or 7.5%, which is primarily attributable to a
lower wholesale gross margin as noted above, greater operating expenses
resulting from the growth of the retail segment and an increase in advertising,
energy costs and employee benefits, 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 nine months of fiscal year
2001 was $81.3 million or 15.3% of net sales compared to $98.6 million or 19.3%
of net sales in the first nine months of fiscal year 2000. Wholesale operating
income decreased $17.3 million or 17.6%. This decrease was attributable to a
lower wholesale gross margin as noted above, higher labor and material costs
resulting in part from changes in production scheduling between manufacturing
facilities primarily caused by the introduction of new products, fewer
production days in the nine month period ending March 31, 2001 as compared to
the comparable prior year period, the start up of the Dublin, Virginia case good
facility and the implementation of plant expansion projects, and the
introduction of new products at lower margins.
Operating income for the retail segment increased by $3.5 million in the
nine months ended March 31, 2001 to $18.1 million or 5.8% of net sales from
$14.6 million or 5.4% of net sales from the nine months ended March 31, 2000.
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, the 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 March 2000 and higher
compensation costs necessary to strengthen the staffing of the retail division.
Interest and other miscellaneous income of $1.8 million increased $1.5
million from $0.3 million in the nine month period ended March 31, 2000 mainly
due to the gain recorded on the sale of real property related to a retail store
relocation and from an increase in investment income due to lower debt balances
outstanding.
Interest expense for the nine months ended March 31, 2001 decreased $0.4
million to $0.6 million from $1.0 million for the nine months ended March 31,
2000. The decrease in interest expense is due to lower debt balances outstanding
and lower amortization of deferred financing costs.
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Income tax expense of $38.8 million was recorded in the first nine months
as compared to $42.2 million in the prior year. The Company's effective tax rate
was 37.8% for the first nine months of fiscal year 2001 and 38.7% for the first
nine months of fiscal year 2000. The decline in the effective income tax rate in
the current nine months compared to the prior year nine months resulted from the
utilization of various state income tax credits and from the realization of tax
planning strategies.
For the nine months ended March 31, 2001, the Company recorded net income
of $63.8 million, a decrease of 4.3%, compared to $66.7 million for the nine
months ended March 31, 2000. Earnings per diluted share of $1.59 decreased 1.2%
or $0.02 per diluted share in the current nine months from $1.61 per diluted
share in the prior year.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal sources of liquidity are cash flows from operations
and borrowing capacity under a revolving credit facility. Net cash provided by
operating activities totaled $70.4 million for the nine months ended March 31,
2001 as compared to $80.9 million for the nine months ended March 31, 2000. The
decrease of $10.5 million in net cash provided by operating activities resulted
from lower earnings and from changes in working capital requirements for the
nine months ended March 31, 2001 compared to the nine months ended March 31,
2000. Total debt outstanding at March 31, 2001 was $9.6 million. There were no
revolving loans outstanding under the Credit Agreement. As of March 31, 2001,
there were $16.7 million of trade and standby letters of credit outstanding.
During the nine months ended March 31, 2001, capital spending, exclusive of
retail acquisitions, totaled $40.9 million as compared to $31.9 million in the
nine months ended March 31, 2000. Capital expenditures made during the nine
months ended March 31, 2001 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 March 31, 2001, 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 March 31, 2001, the
Company had working capital of $163.3 million and a current ratio of 2.43 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 nine months ended March 31, 2001, the
Company did not purchase any of its common shares through the open market.
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
The Company is exposed to interest rate risk primarily through its
borrowing activities. The Company's policy has been to utilize United States
dollar denominated borrowings to fund its working capital and investment needs.
Short term debt, if required, is used to meet working capital requirements and
long term debt is generally used to finance long term investments. There is
inherent roll-over risk for borrowings as they mature and are renewed at current
market rates. The extent of this risk is not quantifiable or predictable because
of the variability of future interest rates and the Company's future financing
requirements. Although the Company did not have any revolving loans outstanding
under the Credit Agreement as of March 31, 2001, the Company had $0.2 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.
-15-
PART II. OTHER INFORMATION
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
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
None.
ITEM 5. - OTHER INFORMATION
None.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
None.
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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ETHAN ALLEN INTERIORS INC.
--------------------------
(Registrant)
DATE: 05/10/01 BY: /s/ M. Faroog Kathwari
-------- ---------------------------------
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive and Financial
Officer)
DATE: 05/10/01 BY: /s/ Michele Bateson
-------- ---------------------------------
Michele Bateson
Corporate Controller
(Principal Accounting Officer)
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