UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended June 30, 2001
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file Number 1-11692
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Ethan Allen Interiors Inc.; Ethan Allen Inc.; Ethan Allen Marketing Corporation;
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Ethan Allen Manufacturing Corporation
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(Exact name of registrant as specified in its charter)
Delaware 06-1275288
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Ethan Allen Drive, Danbury, CT 06811
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 743-8000
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Securities registered pursuant to Section 12(b) of the Act: None
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Name of Each Exchange
Title of Each Class On Which Registered
-------------------------- -----------------------------
Common Stock, $.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [x]
The aggregate market value of Common Stock, par value $.01 per share held by
non-affiliates (based upon the closing sale price on the New York Stock
Exchange) on August 20, 2001 was approximately $1,415,478,498. As of August 20,
2001, there were 39,406,417 shares of Common Stock, par value $.01 outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The definitive Proxy Statement for the 2001
Annual Shareholders Meeting is incorporated by reference into Part III hereof.
TABLE OF CONTENTS
Item Page
PART I
1. Business 3
2. Properties 10
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 12
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 13
6. Selected Financial Data 14
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
7A. Quantitative and Qualitative Disclosure About
Market Risk 22
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 43
PART III
10. Directors and Executive Officers of the Registrant 44
11. Executive Compensation 44
12. Security Ownership of Certain Beneficial Owners
and Management 44
13. Certain Relationships and Related Transactions 44
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 45
Signatures
2
PART I
Item 1. Business
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Background
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Ethan Allen Interiors Inc. ("Ethan Allen"; together with its direct and
indirect owned subsidiaries, the "Company") is a leading manufacturer and
retailer of quality home furnishings, offering a full range of furniture
products and home accessories. Ethan Allen was incorporated in Delaware in 1989.
Ethan Allen designs, manufacturers and markets its own brand of furniture and
home accent items through the country's largest network of home furnishing
retail stores. The Company was founded in 1932 and has sold products since 1937
under the Ethan Allen brand name.
Products
--------
Ethan Allen markets three main product lines: (1) case goods (wood
furnishings), consisting primarily of bedroom and dining room furniture, wall
units and tables; (2) upholstered products, consisting primarily of sofas,
loveseats, chairs, and recliners; and (3) home accessories and other, including
carpeting and area rugs, lighting, clocks, wall decor, bedding ensembles,
draperies, decorative accessories and indoor\outdoor furnishings. The following
table shows the approximate percentage of wholesale sales of home furnishing
products for each of these product lines during the three most recent fiscal
years:
Fiscal Year Ended June 30:
-------------------------
2001 2000 1999
---- ---- ----
Case Goods 56% 56% 57%
Upholstered Products 30 29 28
Home Accessories and Other 14 15 15
--- --- ---
100% 100% 100%
=== === ===
Ethan Allen's product strategy has been to position its brand as a
`preferred' brand with good quality and value. The Company's focus has been on
expanding its reach to a broader consumer base through a larger selection of
product lines at more attractive price points. The introduction of Horizons by
Ethan Allen and EA Elements during fiscal year 2000 were designed to broaden the
Company's consumer base by offering new collections at lower price points. The
introduction of Swedish Home and the Modular Home Office collections during
fiscal year 2001 broadened the Company's consumer base by offering these new and
distinctive products.
Management believes that the two most important style categories in home
furnishings are the `Classic' and the `Casual' product lifestyles. Each home
furnishing collection includes case goods, upholstered products and home
accessories and each is styled with its own distinct design characteristics.
Home accessories play an important role in Ethan Allen's marketing program as
this enables the Company to provide one-stop shopping to the consumer by
offering a complete home furnishing collection. Ethan Allen's store interiors
are designed for the display of these categories in complete room settings,
which utilize the related collections to project the category lifestyle.
Ethan Allen continuously monitors consumer demands through marketing
research and through consultation with its dealers and store design consultants
who provide valuable input on consumer tastes and needs. As a result, the
Company is able to react quickly to changing consumer tastes and has added or
revised nine major home furnishing collections and has discontinued four home
furnishing collections in the past five years. The Company also refines and
enhances its product lines by adding and redesigning pieces within each
collection.
The following is a summary of Ethan Allen's major home furnishing
collections that have been introduced at the wholesale level and are currently
available:
3
PRINCIPAL CALENDAR
STYLE HOME FURNISHING PRINCIPAL YEAR OF
CATEGORY CHARACTERISTICS COLLECTIONS WOOD TYPE INTRODUCTION
-------- --------------- ----------- --------- ------------
Classic An opulent style, which Georgian Court Cherry 1965
includes English 18th 18th Century Mahogany Mahogany Various
Century and 19th Century Medallion Cherry 1990
Neo-Classic styling. Collectors Classics Various Various
Legacy Maple 1992
British Classics Maple 1995
Country French Birch 1998
Avenue Cherry 1998
Modular Home Office Cherry 2000
Casual This style is based American Impressions Cherry 1991
on classic contemporary Country Crossings Maple 1993
design elements. Country Colors Maple 1995
EA Elements Maple 1999
Horizons Ash 1999
Swedish Home Maple 2000
Business Segments
-----------------
The Company's operations are classified into two main business 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
("Company-owned") stores. The retail home furnishings segment sells home
furnishing products through a network of Ethan Allen-owned stores to consumers.
Wholesale Home Furnishings:
The wholesale segment is engaged in the design, manufacture, selected
procurement from outsourcing, and sale of case goods (wood furniture),
upholstery, and home accent items. These products are sold from the wholesale
segment to the Company's retail network, made-up of independent and
company-owned retail stores. Sales of case good items include beds, dressers,
armoires, night tables, dining room chairs and tables, buffets, sideboards,
coffee tables, entertainment units, and home offices. Sales of upholstery home
furnishing items include sleepers, recliners, chairs, sofas, cut fabrics and
leather. Skilled craftsmen cut and sew custom-designed upholstery items having a
variety of frame and fabric options. Home accent items include wall decor,
lighting, clocks, wood accents, bedspreads, decorative accessories, area rugs,
and bedding.
The Wholesale Segment. For fiscal years 2001, 2000 and 1999, the wholesale
segment had net sales of $705.6 million, $691.1 million, and $637.0 million,
respectively. The Company has 11 case good manufacturing facilities, which
includes 3 sawmill operations, 6 upholstery facilities and 1 home accent
facility in the United States. The Company also outsources select case goods,
upholstery, and home accessory items.
During the fourth quarter of fiscal year 2001, the Company announced its
consolidation plan to close three of its manufacturing facilities employing
approximately 350 people. This consolidation plan was necessary in order to
manufacture case good products more competitively and in the most suitable
plants in the United States. The three facilities are located in Island Pond,
Vermont; Frewsburg, New York, and Asheville, North Carolina and it is expected
that each will be closed by the end of the first quarter of fiscal year 2002.
Other existing Ethan Allen manufacturing plants will absorb most of the
production from these facilities. Estimated closing costs of $6.9 million have
been recorded as restructuring and impairment charges for the year ended June
30, 2001. The closing costs primarily include severance and related payroll and
benefit costs and the write-down of long-lived assets. Actual cash expenditures
are estimated to be $3.3 million. The Company anticipates that the consolidation
plan, once fully implemented, will result in annual savings of approximately
$4.6 million.
4
Retail Home Furnishings:
Ethan Allen exclusively sells its products through a network of 312 retail
stores. As of June 30, 2001, Ethan Allen owned and operated 84 stores and
independent dealers owned and operated 210 North American stores and 18 stores
abroad. In the past five years, Ethan Allen and its independent dealers have
opened 95 new stores, many of them relocations. Sales to independent dealers
accounted for approximately 53% of total net sales of the Company in fiscal year
2001. The ten largest independent dealers own a total of 48 stores, which
accounted for approximately 22% of net orders booked in fiscal year 2001.
It is the Company's intention to grow independent licensees as well as
expand the company owned retail business by opening new stores and by acquiring
stores from our existing independent dealers. Independent dealers are required
to enter into license agreements with Ethan Allen authorizing the use of certain
Ethan Allen service marks and requiring adherence to certain standards of
operation. These standards include the exclusive sale of Ethan Allen products.
Additionally, dealers are required to enter into warranty service agreements.
Ethan Allen is not subject to any territorial or exclusive dealer agreements in
the United States.
Company Retail Segment. For fiscal years 2001, 2000 and 1999, the retail segment
had net sales of $419.3 million, $372.1 million, and $294.7 million,
respectively. For fiscal year 2001, net sales for the Company's retail segment
were 46% of the Company's total net sales. As of June 30, 2001, there were 84
company-owned stores as compared to 82 at the end of the prior fiscal year.
During 2001, the Company acquired 1 store from an independent retailer, sold 4
stores to independent dealers, opened 6 new stores, and closed 1 store.
Retail Store Concept and Marketing
Ethan Allen's interior and exterior design is dependent on the store's
location and size. Ethan Allen stores are located in busy urban settings,
suburban strip malls and freestanding destination stores, depending upon the
real estate opportunities in a particular market. Although stores range in size
from approximately 6,000 square feet to 30,000 square feet, the average size of
a store is about 15,000 square feet.
Ethan Allen maximizes uniformity of store presentation throughout the
retail network through a comprehensive set of operating standards. These
operating standards help each store present the same high quality image and
offer retail customers consistent levels of product selection and service. A
uniform store image was conveyed through Ethan Allen's program to renovate the
exterior of its retail stores with similar and consistent exterior facades. As
of June 30, 2001, this program was essentially completed for all stores,
including Company-owned stores and independent dealers.
Ethan Allen provides display-planning assistance to all company-owned
stores and independent dealers to support them in updating the interior
projection of their stores and to maintain a consistent image across the
country. In 1997, the Company developed a new interior design format for its
retail stores. This new design format positions Ethan Allen as a specialist in
`Casual' and `Classic' lifestyles and decorative accessory retailing. The
stores' interiors present products in focused vignettes that are easy and
relatively inexpensive to update each season. Information displays also educate
consumers as they travel throughout the store. To date, 101 or 32% of all stores
have implemented or are currently in the process of implementing this new
interior design. Ethan Allen expects to have essentially all of its
Company-owned retail stores incorporate the new interior look over the next few
years and believes that many of its independent retail stores will also
incorporate the new interior design. Additionally, during this fiscal year, the
Company implemented a major re-merchandising effort called "Branding the
5
Interior" of the stores. This program refers to the Company's plan to feature
the best selling home accessory items in the most effective display setting
within the store.
The retail network is staffed with a sales force of approximately 3,000
trained design consultants and professionals, who assist customers at no
additional charge in decorating their homes. Ethan Allen believes this design
service provides a competitive advantage over other furniture retailers.
Ethan Allen recognizes the importance of its store network to its long-term
success and has developed and maintains a close ongoing relationship with its
dealers. The Company also offers substantial services to the Ethan Allen stores
in support of their marketing efforts, including coordinated national
advertising, merchandising and display programs, and extensive dealer training
seminars and educational materials. Ethan Allen believes that the development of
design consultants, sales managers, service and delivery personnel and dealers
is important for the growth of its business. Ethan Allen has, therefore,
committed to offer to all dealers a comprehensive training program that will
help to develop retail managers/owners, design consultants and service and
delivery personnel to their fullest potential. Ethan Allen has offered dealers
various assistance programs as well, including long-term financial assistance in
connection with the financing of their inventory, the opening of new stores and
the renovation of stores in accordance with Ethan Allen's image and logo
program.
Advertising
Ethan Allen has developed a highly coordinated, nationwide advertising and
promotional campaign designed to increase consumer awareness of the breadth of
Ethan Allen's product offerings. Ethan Allen's in-house staff, working with a
leading advertising firm, has developed and implemented what the Company
believes is the most extensive national television campaign in the home
furnishings industry. This campaign is designed to support eight annual retail
sale periods and to increase the flow of traffic into stores during these sale
periods. The sale periods run between six and seven weeks at a time during the
fiscal year.
Ethan Allen's television advertising is aired approximately 25 weeks per
year. In addition to its national television campaign, Ethan Allen utilizes
direct mail, newspaper, and radio advertising. Ethan Allen believes that its
ability to coordinate its advertising efforts with those of its independent
dealers provides a competitive advantage over other home furnishing
manufacturers and retailers.
The Ethan Allen Interiors direct mail magazine, which features Ethan
Allen's home furnishing collections, is one of Ethan Allen's most important
marketing tools. Over 75 million copies of the magazine, which features sale
products, are distributed to consumers during the eight sale periods. The
Company publishes and sells the magazines to its company-owned and independent
dealers who, with demographic information collected through independent market
research, are able to target potential consumers.
Ethan Allen's television advertising and direct mail efforts are supported
by strong print campaigns in various markets, and in leading home fashion
magazines using advertisements and public relations efforts. The Company
coordinates significant advertisements in major newspapers in its major markets.
The Ethan Allen Treasury, a complete catalogue of the Ethan Allen home
furnishing collections, which is distributed in the stores, is one of the most
comprehensive home furnishing catalogues in the industry.
Internet
Ethan Allen is located on the worldwide web at www.ethanallen.com. The
Company's primary goal for the web site is to drive additional business into the
retail network through lead generation and information sourcing. Customers may
access the Company's web site to review home furnishing collections or to
6
purchase home accessories or selected upholstery items. Customers may also apply
for the simple finance plan on-line in order have an approved credit line before
making a large purchase. The Company developed an extranet web site which links
the retail stores with consumer information captured on-line. This information
includes requests for design assistance and for copies of the Company's
catalogue. Approximately 10,000 average daily users logged onto the Ethan Allen
web site during fiscal year 2001.
Ethan Allen Consumer Credit Programs
Ethan Allen offers its consumers two financing options; an installment
finance plan and a revolving credit plan.
The Installment Finance Plan. The Company introduced an installment financing
plan for consumers during fiscal year 2000 called the Simple Finance Plan.
Financing offered through this option is granted on a non-recourse basis to the
Company. The plan provides credit lines from $2,000 to $50,000 with repayment
terms of up to seven years and has an annual interest rate of 9.99%. Consumers
may apply for this financing plan either at the retail stores or through the
Company's web site. Approximately 78% of applications submitted since inception
of the plan were approved, and there are over 28,000 accounts currently
outstanding. Total open credit lines approved exceed $445.0 million. Information
on the financing plan and instructions on how to apply for it have been
incorporated into the Company's national marketing campaign during this fiscal
year.
The Revolving Credit Card Plan. The Company offers financing to consumers under
a revolving credit card program. The program is also granted on a non-recourse
basis to the Company. This program provides revolving credit lines from $1,500
to $25,000 and has an annual interest rate of 18.60%. Consumers may apply for
revolving credit either at the retail stores or through the Company's web site.
Approximately 90% of applications submitted this year were approved, and there
are over 40,000 accounts currently outstanding.
Manufacturing
Ethan Allen is one of the largest manufacturers of household furniture in
the United States. Ethan Allen manufactures and/or assembles approximately 81%
of its products at 18 manufacturing facilities which includes 3 saw mills,
thereby maintaining control over cost, quality and service to its consumers. The
case goods facilities are located close to sources of raw materials and skilled
craftsmen, predominantly in the Northeast and Southeast regions of the country.
Upholstery facilities are located across the country in order to reduce shipping
costs to stores and are located at sites where skilled craftsmanship is
available. Management believes that continued investment at its manufacturing
facilities, combined with outsourcing will accommodate future sales growth.
In October of 2000, the Company purchased a case goods manufacturing plant
in Dublin, Virginia. This plant which originally opened in 1973, consists of
450,000 square feet of case good manufacturing space and 120,000 square feet of
distribution space. The Company retained most of the employees and converted the
operations to manufacture Ethan Allen product lines.
Distribution
Ethan Allen distributes its products primarily through 6 regional
distribution centers strategically located throughout the United States. These
distribution centers hold finished products received from Ethan Allen's
manufacturing facilities for shipment to Ethan Allen's dealers or home delivery
service centers. Ethan Allen stocks case goods and accessories to provide for
quick delivery of in-stock items and to allow for more efficient production
runs.
7
Approximately 37% of shipments are made to and from the distribution and
home delivery service centers by the Company's fleet of trucks and trailers. The
balance of Ethan Allen's shipments are subcontracted to independent carriers.
Approximately 82% of Ethan Allen-owned delivery vehicles are leased under two to
eight-year leases.
Ethan Allen's policy is to sell its products at the same delivered cost to
all dealers nationwide, regardless of their shipping point. The adoption of this
policy has created credibility by offering product to the consumer at one
suggested national retail price. This policy has also discouraged dealers from
carrying significant inventory in their own warehouses. As a result, Ethan Allen
obtains accurate information regarding sales to dealers to better plan
production runs and manage inventory.
Raw Materials and Suppliers
The most important raw materials used by Ethan Allen in furniture
manufacturing are lumber, veneers, plywood, particle board, hardware, glue,
finishing materials, glass, mirrored glass, laminates and fabrics. The various
types of wood used in Ethan Allen's products include cherry, oak, maple, prima
vera, mahogany, birch and pine, substantially all of which are purchased
domestically.
Fabrics and other raw materials are purchased both domestically and abroad.
Ethan Allen has no significant long-term supply contracts, and has experienced
no significant problems in supplying its operations. Ethan Allen maintains a
number of sources for its raw materials which management believes contribute to
its ability to obtain competitive pricing for raw materials. Lumber prices
fluctuate over time depending on factors such as weather and demand, which
impact availability. Upward trends in prices could have a short-term impact on
margins.
A sufficient inventory of lumber and fabric is usually stocked to maintain
approximately 6 to 22 weeks of production. Management believes that its sources
of supply for these materials are adequate and that it is not dependent on any
one supplier.
Competition
The home furnishings industry at the retail level is highly competitive and
fragmented. Although Ethan Allen is among the ten largest furniture
manufacturers, industry estimates indicate that there are over 1,000
manufacturers of all types of furniture in the United States. Some of these
manufacturers produce furniture types not manufactured by Ethan Allen. Certain
of the companies, which compete directly with Ethan Allen, may have greater
financial and other resources than the Company.
Ethan Allen's products are sold primarily through retail stores, which
exclusively sell Ethan Allen products. Ethan Allen's effort is focused primarily
upon obtaining and retaining independent dealers, increasing the volume of such
dealer's sales, and expanding the company-owned retail business by opening new
stores and when appropriate acquiring stores from our existing independent
dealers. The home furnishings industry competes primarily on the basis of
product styling and quality, personal service, prompt delivery, product
availability and price. Ethan Allen believes that it effectively competes on the
basis of each of these factors and believes that its store format provides it
with a competitive advantage because of the complete home furnishing product
selection and service available to the consumer.
Furniture Today (a leading industry publication) published a survey of
America's Top 100 Furniture Stores on May 21, 2001. Ethan Allen moved from the
No.2 ranking last year to No. 1 this year as the nations' leader in sales of
furniture, bedding and home accessories. Additionally, for the second year in a
row, Ethan Allen was the No. 1 single-source store network. During the last
fiscal year, the furniture industry and several retailers have been challenged
8
by changes in economic conditions. Several competitors of the Company have filed
for bankruptcy protection and have announced plans to close their retail stores.
Ethan Allen has been able to maintain stability and credibility by managing its
growth and balancing this growth with the ability to service its customers.
Trademarks
Ethan Allen currently holds numerous trademarks, service marks and design
patents for the Ethan Allen name, logos and designs in a broad range of classes
for both products and services. Ethan Allen also holds international
registrations for Ethan Allen trademarks in forty-seven foreign countries and
has applications for registration pending in fourteen other foreign countries.
Ethan Allen has registered or has applications pending for many of its major
collection names as well as certain of its slogans coined for use in connection
with retail sales and other services. Ethan Allen views its trade and service
marks as valuable assets and has an ongoing program to diligently monitor their
unauthorized use through appropriate action.
Backlog and Net Orders Booked
As of June 30, 2001, Ethan Allen had a wholesale backlog of approximately
$51.9 million, compared to a backlog of $75.4 million as of June 30, 2000. The
backlog is anticipated to be serviced in the first quarter of fiscal year 2002.
Backlog at any point in time is primarily a result of net orders booked in prior
periods, manufacturing schedules and the timing of product shipments. Net orders
booked at the wholesale level from all Ethan Allen stores (including all
independently-owned and Ethan Allen-owned stores) for the twelve months ended
June 30, 2001 were $689.0 million as compared to $706.9 million for the twelve
months ended June 30, 2000. Net orders booked in any period are recorded based
on wholesale prices and do not reflect the additional retail margins produced by
the Ethan Allen-owned stores.
Employees
Ethan Allen has 7,797 employees as of June 30, 2001. Approximately 6% of
the Company's employees are represented by unions under collective bargaining
agreements. The Company's labor contracts expire at various times in 2002. The
Company expects no significant changes in its relations with these unions and
Ethan Allen believes it has good relations with its employees.
Recent Developments
The Company signed an agreement with Markor Furniture International Ltd. of
Urumqi, China to develop a chain of retail stores in the People's Republic of
China. The agreement calls for the two companies to collaborate on the
development of a retail store format that will market two retail concepts; the
Ethan Allen retail program along with the Markor retail program. The Company's
objective is to open the first store in the summer of 2002 and to open
additional stores thereafter.
The Company has also made arrangements with several leading manufacturers
in South East Asia, including Markor Furniture International Ltd., to produce
products for Ethan Allen to be marketed in Ethan Allen Home Interior stores.
9
Item 2. Properties
------------------
The corporate headquarters of Ethan Allen, located in Danbury, Connecticut,
consists of one building containing 144,000 square feet, situated on
approximately 17.5 acres of land, all of which is owned by Ethan Allen. Located
adjacent to the corporate headquarters is the Inn at Ethan Allen, a hotel
containing 195 guestrooms. This hotel, owned by a wholly-owned subsidiary of
Ethan Allen, is used for Ethan Allen functions and in connection with training
programs as well as for accommodations for the general public.
Ethan Allen has 18 manufacturing facilities, which includes 3 saw mills
located in 10 states, all of which are owned, with the exception of a leased
upholstery plant in California, totaling 122,300 square feet. These facilities
consist of 11 case goods manufacturing plants, totaling 3,416,400 square feet
(including three sawmills), 6 upholstery furniture plants, totaling 1,384,000
square feet and 1 plant involved in the manufacture and assembly of Ethan
Allen's home accessory products with 295,000 square feet. In addition, Ethan
Allen owns six and leases three ancillary distribution warehouses, totaling
1,099,500 square feet, and leases one home delivery service center with 52,000
square feet. The Company's manufacturing and distribution facilities are located
in North Carolina, Vermont, Pennsylvania, Virginia, New York, Oklahoma,
California, New Jersey, Indiana, Maine and Massachusetts.
There are 84 Ethan Allen-owned retail stores in the United States, of which
30 stores are owned and 54 stores are leased.
Ethan Allen's manufacturing facility in Maiden, North Carolina and the Inn
at Ethan Allen in Danbury, Connecticut were financed with industrial revenue
bonds and the Beecher Falls, Vermont facility was financed in part by the State
of Vermont Economic Development Authority. In addition, one retail store is
subject to a mortgage loan agreement. Ethan Allen believes that all of its
properties are well maintained and in good condition.
Ethan Allen estimates that its manufacturing division is currently
operating at approximately 90% of capacity. Management believes it has
additional capacity at many facilities, which it could utilize with minimal
additional capital expenditures.
10
Item 3. Legal Proceedings
-------------------------
Ethan Allen is a party to various legal actions with customers, employees
and others arising in the normal course of its business. Ethan Allen maintains
liability insurance, which Ethan Allen believes, is adequate for its needs and
commensurate with other companies in the home furnishings industry. Ethan Allen
believes that the final resolution of pending actions (including any potential
liability not fully covered by insurance) will not have a substantial adverse
effect on the Company's results of operations and financial position.
Environmental Matters
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"). The Company has resolved its
liability at one of the sites by completing remedial action activities. The
Company has resolved its liability at another site through legal settlement and
in regards to the third site the Company does not anticipate incurring
significant cost. 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.
Ethan Allen is subject to other federal, state and local environmental
protection laws and regulations and is involved from time to time in
investigations and proceedings regarding environmental matters. The Company is
regulated under several federal, state and local laws and regulations concerning
air emissions, water discharges, and management of solid and hazardous wastes.
The Company believes that its facilities are in material compliance with all
applicable laws and regulations. Regulations issued under the Clean Air Act
Amendments of 1990 required the Company to reformulate certain furniture
finishes or institute process changes to reduce emissions of volatile organic
compounds. These requirements have been implemented via high solids coating
technology and alternative formulations. Ethan Allen has implemented a variety
of technical and procedural controls, such as reformulating of finishing
materials to reduce toxicity, implementation of high velocity low pressure spray
systems, development of inspections/audit teams including coating emissions
reductions teams at all finishing factories and storm water protection plans and
controls, that have reduced emissions per unit of production. In addition, Ethan
Allen is currently reclassifying its waste as part of the factory waste
minimization programs, developing environment and safety job hazard analysis
programs on the shop floor to reduce emissions and safety risks, and developing
an auditing system to control and ensure consistent protocols and procedures are
applied. The Company will continue to evaluate the best applicable, cost
effective, control technologies for finishing operations and design production
methods which will reduce the use of hazardous materials in manufacturing
processes.
11
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The following matters were submitted to security holders of the Company during
the fourth quarter of fiscal year 2001:
None.
12
PART II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
-----------------------------------------------------------------------------
The Company's Common Stock is traded on the New York Stock Exchange under
ticker symbol `ETH'. The following table indicates the high and low stock prices
as reported on the New York Stock Exchange and dividends paid by the Company:
Closing Market Price
--------------------
High Low Dividends Paid
-------------------- --------------
Fiscal 2001
-----------
Fourth Quarter $ 38.01 $ 32.50 $ 0.04
Third Quarter 38.80 30.88 0.04
Second Quarter 33.50 24.69 0.04
First Quarter 30.75 24.81 0.04
Fiscal 2000
-----------
Fourth Quarter $ 28.75 $ 23.06 $ 0.04
Third Quarter 30.19 21.63 0.04
Second Quarter 36.81 29.38 0.04
First Quarter 33.06 26.44 0.04
As of August 20, 2001, there were approximately 443 shareholders of record
of the Company's Common Stock.
On August 3, 2001, the Company declared a $0.04 per common share dividend
for all holders of record on October 10, 2001 and payment date of October 25,
2001. The Company expects to continue to declare quarterly dividends for the
foreseeable future.
13
Item 6. Selected Financial Data
-------------------------------
The following table sets forth summary consolidated financial information
of the Company for the years and dates indicated (dollars in thousands, except
per share data):
Fiscal Years Ended June 30,
---------------------------
2001 2000 1999 1998 1997
-------- -------- ------- -------- ---------
Statement of Operations Data:
Net sales $ 904,133 $ 856,171 $ 762,233 $ 679,321 $ 571,838
Cost of sales 490,477 455,561 407,234 363,746 323,600
Selling, general and
administrative expenses 280,703 253,029 221,237 195,216 162,227
Restructuring and impairment
charge(1) 6,906 -- -- -- --
---------- --------- --------- --------- ---------
Operating income 126,047 147,581 133,762 120,359 86,011
Interest and other (income)
expense, net (2,056) 811 1,045 1,829 5,317
---------- --------- --------- --------- ---------
Income before income tax
expense and extraordinary
charge 128,103 146,770 132,717 118,530 80,694
Income tax expense 48,423 56,200 51,429 46,582 31,954
---------- --------- --------- --------- ---------
Income before extraordinary
charge 79,680 90,570 81,288 71,948 48,740
Extraordinary charge (net of tax) -- -- -- (802)(2) --
---------- --------- --------- --------- ---------
Net income $ 79,680 $ 90,570 $ 81,288 $ 71,146 $ 48,740
========== ========= ========= ========= =========
Per Share Data: (3)
Net income per basic share $ 2.02 $ 2.25 $ 1.97 $ 1.65 $ 1.13
Basic weighted average shares
outstanding 39,390 40,301 41,278 43,050 43,190
Net income per diluted share $ 1.98 $ 2.20 $ 1.92 $ 1.61 $ 1.11
Diluted weighted average
shares outstanding 40,321 41,198 42,287 44,136 43,815
Cash dividends declared $ 0.16 $ 0.16 $ 0.12 $ 0.09 $ 0.07
Other information:
Depreciation and amortization $ 20,220 $ 16,975 $ 16,344 $ 15,868 $ 16,411
Capital expenditures, including
acquisitions 48,238 54,696 47,792 29,665 23,383
Working capital $ 182,223 $ 127,519 $ 123,580 $ 114,287 $ 131,421
Current ratio 2.69 2.18 2.43 2.55 3.08
Balance Sheet Data (at end of period):
Total assets $ 619,118 $ 543,571 $ 480,622 $ 433,123 $ 427,784
Total debt including
capital lease obligations 9,487 17,907 10,676 13,375 67,885
Shareholders' equity $ 464,783 $ 390,509 $ 350,535 $ 314,320 $ 265,434
Ratio of debt to equity 2.0% 4.4% 3.0% 4.1% 20.4%
Footnotes on following page.
14
Notes to Selected Financial Data
(Dollars in thousands)
(1) During the fourth quarter of fiscal year 2001, the Company announced its
consolidation plans to close three of its manufacturing facilities
employing approximately 350 people. This consolidation plan was necessary
in order to manufacture case good products competitively and at the most
suitable plants in the United States. It is expected that these facilities
will be closed by the end of the first quarter of fiscal year 2002.
Estimated closing costs of $6.9 million have been recorded as restructuring
and impairment charges for the year ended June 30, 2001. The closing costs
primarily include severance and related payroll and benefit costs and the
write-down of long-lived assets.
(2) During fiscal 1998, the Company completed its optional early redemption of
all of its $52.4 million then-outstanding 8-3/4% Senior Notes, due on March
15, 2001, at 101.458% of par value. As a result of the early redemption, an
extraordinary charge of $0.8 million, net of tax benefit, was recorded. The
extraordinary charge included the write-off of unamortized deferred
financing costs associated with the Senior Notes and the premium related to
the early redemption.
(3) Amounts have been retroactively adjusted to reflect the two-for-one stock
split on September 2, 1997 and the three-for-two stock split on May 21,
1999.
15
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------------------
Results of Operations
---------------------
The following discussion of results of operations and financial condition
is based upon and should be read in conjunction with the Consolidated Financial
Statements of the Company and notes thereto included under Item 8 of this
Report.
Forward-Looking Statements
Management's discussion and analysis of financial condition and results of
operations and other sections of this annual 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, risks and uncertainties, including but not limited to, changes in
political and economic conditions, demand for the Company's products, acceptance
of new products, technology 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.
Basis of Presentation
The Company has no material assets other than its ownership of Ethan
Allen's capital stock and conducts all significant transactions through Ethan
Allen; therefore, substantially all of the financial information presented
herein is that of Ethan Allen.
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
15 to the Company's Consolidated Financial Statements for the year ended June
30, 2001. The components of consolidated revenues and operating income are as
follows (dollars in millions):
Fiscal Years Ended June 30,
---------------------------
2001 2000 1999
------ ----- -------
Revenue:
--------
Wholesale segment $ 705.6 $ 691.1 $ 637.0
Retail segment 419.3 372.1 294.7
Elimination of inter-segment sales (220.8) (207.0) (169.5)
------ ------ ------
Consolidated Revenue $ 904.1 $ 856.2 $ 762.2
====== ====== ======
Operating Income:
-----------------
Wholesale segment* $ 99.1 $ 131.7 $ 123.0
Retail segment 24.5 21.3 15.1
Eliminations 2.4 (5.4) (4.3)
------ ------ ------
Consolidated Operating Income $ 126.0 $ 147.6 $ 133.8
====== ====== ======
* The Wholesale segment includes a pre-tax restructuring and impairment
charge of $6.9 million recorded in fiscal year 2001.
Fiscal 2001 Compared to Fiscal 2000
Consolidated revenue for fiscal year 2001 of $904.1 million increased by
$47.9 million or 5.6% from fiscal year 2000 consolidated revenue of $856.2
million. Overall sales growth resulted from new product offerings, a selective
price increase effective February 2000, and from the growth in the retail
segment.
Total wholesale revenue for fiscal year 2001 was $705.6 million as compared
to $691.1 million in fiscal year 2000. This represents a $14.5 million or 2.1%
increase over fiscal year 2000. The increase in wholesale revenue was due to a
selective price increase effective February 2000 and from sales volume generated
from new product introductions at more affordable price points. These increases
16
were partially offset by three fewer production days in the current fiscal year
as compared to the prior year.
Total retail revenue from Ethan Allen-owned stores for fiscal year 2001
increased by $47.2 million or 12.7% to $419.3 million from $372.1 million in the
prior year. The increase in retail sales by Ethan Allen-owned stores was
attributable to a 10.0% or $34.7 million increase in comparable store sales, an
increase in sales generated by newly opened or acquired stores of $25.1 million,
partially offset by sold and closed stores, which generated $12.6 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 June 30, 2001 as compared to 82 as of
June 30, 2000. The Company acquired 1 store from an independent dealer, sold 4
to an independent dealer, relocated 1 store, and opened 5 new stores.
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 year ended June 30, 2001 were slightly lower than the
same period in the prior year by 1.4%, reflecting slower economic growth. The
prior year's increase in booked orders was 16.0%. Total orders include wholesale
orders and written business of company-owned retail stores. Wholesale orders
were down 2.5% for fiscal year 2001 and written orders for company-owned stores
were higher by 3.4%.
Gross profit for fiscal year 2001 increased $13.1 million or 3.3% to $413.7
million from $400.6 million in fiscal year 2000. The $13.1 million increase in
gross profit was mainly due to higher sales volume, a selective price increase
effective February 2000 and a higher percentage of retail sales to total sales.
These increases were offset by a decline in the gross margin to 45.8% for the
year ended June 30, 2001 from 46.8% in the prior year. The 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. Gross margins were also negatively impacted by
higher costs incurred due to 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 and improve efficiencies.
The Company recorded a pre-tax restructuring and impairment charge of $6.9
million in the fourth quarter of fiscal year 2001 relating to the consolidation
of three manufacturing facilities in the fourth quarter of fiscal year 2001.
Operating expenses, excluding the restructuring and impairment charge of
$6.9 million, increased $27.7 million to $280.7 million or 31.0% of net sales in
fiscal year 2001 from $253.0 million or 29.6% of net sales in fiscal year 2000.
This increase is primarily attributable to the expansion of the retail segment
and from increased employee benefits, energy and utility costs.
Operating income, excluding the restructuring and impairment charge of $6.9
million, for fiscal year 2001 was $133.0 million or 14.7% of net sales compared
to $147.6 million or 17.2% of net sales in fiscal year 2000. This represents a
decrease of $14.6 million or 9.9% primarily attributable to a lower gross margin
noted above, higher operating expenses resulting from the growth of the retail
segment and an increase in employee benefit, energy and utility costs, partially
offset by higher sales volumes and a higher percentage of retail sales to total
sales.
Total wholesale operating income for fiscal year 2001, excluding the
restructuring and impairment charge of $6.9 million, was $106.0 million or 15.0%
of wholesale net sales compared to $131.7 million or 19.1% of wholesale net
sales in fiscal year 2000. Wholesale operating income decreased $25.7 million or
19.5% in fiscal year 2001. This decrease was attributable to three fewer
17
production days in the twelve month period ending June 30, 2001 and from a lower
gross margin noted above.
Operating income for the retail segment increased by $3.2 million or 15.0%
to $24.5 million or 5.8% of net retail sales from $21.3 million or 5.7% of net
retail sales in fiscal year 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, partially offset by higher
operating expenses related to the addition of new stores and higher compensation
costs necessary to strengthen the staffing of the retail segment.
Interest and other miscellaneous income of $2.8 million increased $2.4
million from $0.4 million in fiscal year 2000 mainly due to the gain recorded on
a real property transaction and from an increase in investment income.
Interest expense, including the amortization of deferred financing costs,
for fiscal year 2001 decreased by $0.5 million to $0.8 million, due to lower
debt balances and lower amortization of deferred financing costs.
Income tax expense of $48.4 million was recorded for the twelve months
ended June 30, 2001 as compared to $56.2 million for the twelve months ended
June 30, 2000. The Company's effective tax rate was 37.8% in fiscal year 2001
and 38.3% in fiscal year 2000. The decline in the effective income tax rate for
the year was the result of the implementation of various tax planning
strategies.
In fiscal year 2001, the Company recorded net income of $79.7 million, a
decrease of 12.0%, compared to $90.6 million in fiscal year 2000. Earnings per
diluted share of $1.98 decreased 10.0% or $0.22 per diluted share from $2.20 per
diluted share in the prior year.
Fiscal 2000 Compared to Fiscal 1999
Consolidated revenue for fiscal year 2000 of $856.2 million increased by
$94.0 million or 12.3% from fiscal year 1999 consolidated revenue of $762.2
million. Overall sales growth resulted from new product offerings, growth in the
retail segment, a selected case good price increase effective December 1, 1998
and to a lesser extent, an overall price increase effective February 25, 2000.
Total wholesale revenue for fiscal year 2000 increased $54.1 million or
8.5% to $691.1 million in fiscal year 2000 from $637.0 million in fiscal year
1999. This increase resulted from new product and fabric introductions, new
merchandising strategies and a focused marketing effort, and the benefit of a
selected price increase effective December 1998.
Total retail revenue from Ethan Allen-owned stores during fiscal year 2000
increased by $77.4 million or 26.3% to $372.1 million from $294.7 million in
fiscal year 1999. The increase in retail sales by Ethan Allen-owned stores is
attributable to a 17.2% or $48.0 million increase in comparable store sales, an
increase in sales generated by newly opened or acquired stores of $37.9 million,
partially offset by sold or closed stores, which generated $8.5 million less
sales in fiscal year 2000 as compared to fiscal year 1999. The number of Ethan
Allen-owned stores increased to 82 as of June 30, 2000 as compared to 73 as of
June 30, 1999. The Company acquired 8 stores from independent dealers, sold 1 to
an independent dealer, opened 3 new stores, relocated 1 store and closed 1
store.
Booked orders for the year ended June 30, 2000 were higher than the same
period in the prior year by 16.0%. The prior year's increase in booked orders
was 8.3%. Total orders include wholesale orders and written business of
company-owned retail stores. Wholesale orders were up 14.3% and orders for
company-owned stores were higher by 23.3% over the prior year.
Gross profit for fiscal year 2000 increased by $45.6 million or 12.8% to
$400.6 million from $355.0 million in fiscal year 1999. This increase is
attributable to higher sales volume, combined with an increase in gross margin
18
to 46.8% in fiscal 2000 from 46.6% in fiscal 1999. Gross margins were favorably
impacted by higher sales volumes, a selected case good price increase effective
December 1, 1998, a selected price increase effective February 25, 2000, and a
higher percentage of retail sales to total sales, partially offset by, higher
manufacturing costs, mainly raw materials and labor.
Operating expenses increased $31.8 million or 29.0% in fiscal year 2000 to
$253.0 million or 29.6% of net sales from $221.2 million or 29.0% of net sales
in fiscal year 1999. This increase is primarily attributable to the expansion of
the retail segment resulting in the addition of 9 net new Ethan Allen-owned
stores in fiscal year 2000.
Operating income for fiscal year 2000 was $147.6 million or 17.2% of net
sales as compared to $133.8 million or 17.5% of net sales in fiscal year 1999.
This represents an increase of $13.8 million or 10.3%, which resulted from
higher sales volume, partially offset by a lower wholesale and retail gross
margin and higher operating expenses caused by the growth in the retail segment.
Total wholesale operating income for fiscal year 2000 was $131.7 million or
19.1% of wholesale net sales compared to $123.0 million or 19.3% of wholesale
net sales in fiscal year 1999. Wholesale operating income increased $8.7 million
or 7.1% in fiscal year 2000 primarily due to higher sales volumes and the price
increase effective December 1998, partially offset by higher manufacturing
costs.
Operating income for the retail segment increased by $6.2 million or 41.1%
to $21.3 million or 5.7% of net retail sales from $15.1 million or 5.1% of net
retail sales in fiscal year 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 expenses associated
with the addition of the new stores.
Interest expense, including the amortization of deferred financing costs,
for fiscal 2000 decreased by $0.6 million to $1.3 million, due to lower debt
balances and lower amortization of deferred financing costs.
Income tax expense of $56.2 million was recorded in fiscal year 2000. The
Company's effective tax rate was 38.3% in fiscal year 2000 as compared to 38.8%
in fiscal year 1999. The decline in the effective income tax rate in 2000 as
compared to 1999 resulted from state income tax benefits realized in fiscal year
2000.
In fiscal year 2000, the Company recorded net income of $90.6 million, an
increase of 11.4%, compared to $81.3 million in fiscal year 1999. Earnings per
diluted share of $2.20 increased 14.6% or $0.28 per diluted share from $1.92 per
diluted share in the prior year.
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 $87.6 million for fiscal year 2001 as compared to
$104.9 million in fiscal year 2000 and $86.7 million in fiscal year 1999. The
decrease in net cash provided by operating activities principally resulted from
a decrease of $10.9 million in net income and more of an increase in working
capital including inventories, which increased by $19.0 million in fiscal year
2001 as compared to $9.2 million in fiscal year 2000. The $19.0 million increase
in inventory in fiscal year 2001 resulted from higher raw materials and work in
process relating to the new manufacturing facility in Dublin, higher retail
inventories from the new stores, and a build in finished goods necessary to meet
orders upon the closing of the three manufacturing facilities in the fourth
quarter of 2001. The current ratio was 2.69 to 1 in 2001 and 2.18 to 1 in 2000.
During fiscal year 2001, capital spending, exclusive of acquisitions,
totaled $38.5 million as compared to $42.1 million and $40.6 million in fiscal
2000 and 1999, respectively. The increased level of capital spending, which is
19
principally attributable to new store openings and relocations and expanding
manufacturing capacity, is expected to continue for the foreseeable future.
Capital expenditures in fiscal year 2002, exclusive of acquisitions, are
anticipated to be approximately $30.0 million. In addition, the Company expects
to incur expenditures for retail and other acquisitions during fiscal year 2002.
The Company anticipates that cash from operations will be sufficient to fund
capital expenditures and acquisitions.
Net cash used in financing activities totaled $15.0 million in fiscal year
2001 as compared to $47.0 million in fiscal year 2000 and $51.6 million in
fiscal year 1999. The decrease in net cash used in financing activities related
to lower debt borrowings and a decrease in payments to acquire treasury stock
during fiscal year 2001. Total debt outstanding at June 30, 2001 was $9.5
million. At June 30, 2001, there were no revolving loans outstanding and $16.7
million of trade and standby letters of credit outstanding under the Credit
Agreement. The Company had $108.3 million available under its revolving credit
facility at June 30, 2001.
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 also
repurchases shares of common stock from terminated or retiring employee's
accounts in the Ethan Allen Retirement Saving Plan. The Company's common stock
repurchases are recorded as treasury stock and result in a reduction of
shareholders' equity. During fiscal years 2001, 2000 and 1999, the Company
repurchased the following shares of its common stock:
2001 2000 1999
---------- ---------- ----------
Common shares repurchased 33,006 1,928,350 1,921,784
Cost to repurchase common shares $ 1,069,307 $49,605,555 $45,137,746
Average price per share $ 32.40 $ 25.72 $ 23.49
The Company funded its purchases through cash from operations and through
revolver loan borrowings under the Credit Agreement. As of June 30, 2001, the
Company had a remaining Board authorization to purchase 1.4 million shares.
As of June 30, 2001, aggregate scheduled maturities of long-term debt for
each of the next five fiscal years are $0.1 million, and $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.
Impact of Inflation
The Company does not believe that inflation has had a material impact on
its profitability during the last three fiscal years. In the past, the Company
has generally been able to increase prices to offset increases in operating
costs and effectively manage its working capital.
Income Taxes
At June 30, 2001, the Company has approximately $14.6 million of net
operating loss carryovers ("NOL's") for federal income tax purposes. The
Recapitalization in 1993 triggered an "ownership change" of the Company, as
defined in Section 382 of the Internal Revenue Code of 1986, as amended,
resulting in an annual limitation on the utilization of the NOL's by the Company
of approximately $3.9 million.
New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses the
accounting and reporting for business combinations and supercedes APB Opinion
No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." The new pronouncement requires that all
20
business combinations be accounted for under the purchase method. The Company
will adopt this standard for all business combinations initiated after June 30,
2001.
Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". This pronouncement provides guidance on financial accounting
and reporting for acquired goodwill and other intangible assets. This statement
supercedes APB Opinion No. 17, "Intangible Assets". The provisions of this
statement are required to be applied for fiscal years beginning after December
15, 2001. The Company plans to adopt this pronouncement for its first quarter
ended September 30, 2001, which will positively impact annual pre-tax earnings
by approximately $1.8 million.
21
Item 7A. 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 rollover 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 June 30, 2001, the Company had $0.1 million of short term debt
outstanding and $9.4 million of total long term debt outstanding.
The Company has one 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 outstanding in 2001, a one-percentage
point increase in the variable interest rate would not have had a significant
impact on the Company's 2001 interest expense.
The Company is not currently exposed to foreign currency exchange,
commodity price, or other relevant market rate or price risks. Ethan Allen does
not enter into financial instrument transactions for trading or other
speculative purposes or to manage interest rate exposure.
22
Item 8. Financial Statements and Supplementary Data
---------------------------------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
Ethan Allen Interiors Inc.:
We have audited the accompanying consolidated balance sheets of Ethan Allen
Interiors Inc. and Subsidiary (the "Company") as of June 30, 2001 and 2000, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period ended June 30, 2001.
In connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule listed in the index under Item No.
14. The consolidated financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ethan Allen
Interiors Inc. and Subsidiary as of June 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
Stamford, Connecticut
August 2, 2001
23
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
June 30, 2001 and 2000
(Dollars in thousands)
2001 2000
-------- ---------
ASSETS
------
Current assets:
Cash and cash equivalents $ 48,112 $ 14,024
Accounts receivable, less allowance of
$2,679 and $2,751 at June 30, 2001 and
2000, respectively 33,055 34,336
Inventories 176,036 159,006
Prepaid expenses and other current assets 18,085 17,670
Deferred income taxes 14,789 10,751
--------- ---------
Total current assets 290,077 235,787
Property, plant and equipment, net 268,659 247,738
Intangibles, net 52,863 54,770
Other assets 7,519 5,276
--------- ---------
Total assets $ 619,118 $ 543,571
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 131 $ 8,420
Accounts payable 63,788 65,879
Accrued compensation and benefits 27,766 22,966
Accrued expenses 16,169 11,003
--------- ---------
Total current liabilities 107,854 108,268
Long-term debt 9,356 9,487
Other long-term liabilities 2,712 1,593
Deferred income taxes 34,413 33,714
--------- ---------
Total liabilities 154,335 153,062
Shareholders' equity:
Class A common stock, par value $.01, 150,000,000
shares authorized, 45,138,046 shares issued at
June 30, 2001, 45,081,384 shares issued
at June 30, 2000 451 451
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding
at June 30, 2001 and 2000 -- --
Additional paid-in capital 274,645 272,710
--------- ---------
275,096 273,161
Less:
Treasury stock (at cost), 5,735,284 shares
at June 30, 2001 and 5,674,278 shares at
June 30, 2000 (129,562) (128,493)
Retained earnings 319,249 245,841
--------- ---------
Total shareholders' equity 464,783 390,509
--------- ---------
Total liabilities and shareholders' equity $ 619,118 $ 543,571
========= =========
See accompanying notes to consolidated financial statements.
24
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the years ended June 30, 2001, 2000 and 1999
(Dollars in thousands, except per share data)
2001 2000 1999
-------- -------- --------
Net sales $904,133 $856,171 $762,233
Cost of sales 490,477 455,561 407,234
-------- -------- --------
Gross profit 413,656 400,610 354,999
Operating expenses:
Selling 161,808 145,684 127,269
General and administrative 118,895 107,345 93,968
Restructuring and impairment charge 6,906 -- --
-------- -------- --------
Total operating expenses 287,609 253,029 221,237
-------- -------- --------
Operating income 126,047 147,581 133,762
Interest and other miscellaneous
income, net 2,814 443 837
Interest and other related financing
costs 758 1,254 1,882
-------- -------- --------
Income before income taxes 128,103 146,770 132,717
Income tax expense 48,423 56,200 51,429
-------- -------- --------
Net income $ 79,680 $ 90,570 $ 81,288
======== ======== ========
Per share data:
Net income per basic share $ 2.02 $ 2.25 $ 1.97
======== ======== ========
Basic weighted average common shares 39,390 40,301 41,278
Net income per diluted share $ 1.98 $ 2.20 $ 1.92
======== ======== ========
Diluted weighted average common shares 40,321 41,198 42,287
Dividends declared per common share $ 0.16 $ 0.16 $ 0.12
======== ======== ========
See accompanying notes to consolidated financial statements.
25
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the years ended June 30, 2001, 2000 and 1999
(Dollars in thousands)
2001 2000 1999
-------- -------- ---------
Operating activities:
Net income $ 79,680 $ 90,570 $ 81,288
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 20,220 16,975 16,344
Restructuring and impairment charge 6,356 -- --
Compensation expense related to
restricted stock award 552 898 1,819
Provision for deferred
income taxes (3,339) (1,806) (20)
Other non-cash (benefit) charge (2,289) (424) 251
Change in assets and liabilities, net of
the effects from acquired and divested
businesses:
Accounts receivable 1,334 (783) 1,222
Inventories (18,964) (9,243) (25,040)
Prepaid and other current assets (1,665) (3,181) (3,353)
Other assets (1,528) (973) (1,064)
Income taxes and accounts payable (972) 5,455 10,652
Accrued expenses 7,083 7,140 4,023
Other liabilities 1,119 223 558
--------- --------- ---------
Net cash provided by operating
activities 87,587 104,851 86,680
--------- --------- ---------
Investing activities:
Proceeds from the disposal of property,
plant, and equipment 9,214 1,112 1,721
Capital expenditures (38,516) (42,065) (40,628)
Acquisitions (9,722) (12,631) (7,164)
Other 532 805 544
--------- --------- ---------
Net cash used in investing activities (38,492) (52,779) (45,527)
--------- --------- ---------
Financing activities:
Borrowings on revolving credit facility 1,500 78,000 81,500
Payments on revolving credit facility (9,500) (70,000) (81,500)
Other payments on long-term debt and
capital leases (420) (768) (2,717)
Other borrowings on long-term debt -- -- 18
Payments to acquire treasury stock (1,069) (49,606) (45,137)
Net proceeds from issuance of common stock 759 2,351 747
Increase in deferred financing costs -- (524) (55)
Dividends paid (6,277) (6,469) (4,421)
--------- --------- ---------
Net cash used in financing activities (15,007) (47,016) (51,565)
--------- --------- ---------
Net (decrease)/increase in cash and cash
equivalents 34,088 5,056 (10,412)
Cash and cash equivalents
at beginning of year 14,024 8,968 19,380
--------- --------- ---------
Cash and cash equivalents at end of year $ 48,112 $ 14,024 $ 8,968
========= ========= =========
Supplemental disclosure:
Cash payments for:
Income taxes $ 50,365 $ 61,319 $ 50,331
Interest 618 980 1,637
See accompanying notes to consolidated financial statements.
26
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
For the years ended June 30, 2001, 2000 and 1999
(Dollars in thousands, except share data)
Additional
Common Paid-in Treasury Retained
Stock Capital Stock Earnings Total
----- ------- ------ -------- -----
Balance at June 30, 1998 $ 445 $ 262,313 $ (33,750) $ 85,312 $ 314,320
Issuance of 164,584 shares of
common stock upon the exercise
of stock options and restricted
stock award compensation 2 2,564 -- -- 2,566
Purchase of 1,921,784 shares of
treasury stock -- -- (45,137) -- (45,137)
Dividends declared on common stock -- -- -- (4,911) (4,911)
Tax benefit associated with the
exercise of employee stock
options and warrants -- 2,409 -- -- 2,409
Net income -- -- -- 81,288 81,288
--------- --------- --------- --------- ---------
Balance at June 30, 1999 447 267,286 (78,887) 161,689 350,535
Issuance of 444,593 shares of
common stock upon the exercise
of stock options and restricted
stock award compensation 4 3,245 -- -- 3,249
Purchase of 1,928,350 shares of
treasury stock -- -- (49,606) -- (49,606)
Dividends declared on common stock -- -- -- (6,418) (6,418)
Tax benefit associated with the
exercise of employee stock
options and warrants -- 2,179 -- -- 2,179
Net income -- -- -- 90,570 90,570
--------- --------- --------- --------- ---------
Balance at June 30, 2000 451 272,710 (128,493) 245,841 390,509
Issuance of 75,284 shares of
common stock upon the exercise
of stock options and restricted
stock award compensation -- 1,311 -- -- 1,311
Purchase of 33,006 treasury shares
relating to employee benefit
and compensation plans -- -- (1,069) -- (1,069)
Dividends declared on common stock -- -- -- (6,272) (6,272)
Tax benefit associated with the
exercise of employee stock
options and warrants -- 624 -- -- 624
Net income -- -- -- 79,680 79,680
--------- --------- --------- --------- ---------
Balance at June 30, 2001 $ 451 $ 274,645 $(129,562) $ 319,249 $ 464,783
========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
27
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
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 intercompany
accounts and transactions have been eliminated in the consolidated
financial statements. 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.
Nature of Operations
--------------------
The Company, through its wholly-owned subsidiary, is a leading manufacturer
and retailer of quality home furnishings and sells a full range of
furniture products and decorative accessories through an exclusive network
of 312 retail stores, of which 84 are Ethan Allen-owned and 228 are
independently owned. The Company's retail stores are primarily located in
North America, with 28 located abroad. Ethan Allen has 18 manufacturing
facilities and 3 sawmills throughout the United States.
Use of Estimates
----------------
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Reclassifications
-----------------
Certain reclassifications have been made to prior years' financial
statements to conform with the current year's presentation. These changes
did not have a material impact on previously reported results of operations
or shareholders' equity.
Cash Equivalents
----------------
The Company considers all highly liquid cash investments with original
maturities of three months or less to be cash equivalents.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Property, Plant and Equipment
-----------------------------
Property, plant and equipment are stated at cost. Depreciation of plant and
equipment is provided over the estimated useful lives of the respective
assets on a straight-line basis. Estimated useful lives of the respective
assets generally range from twenty to forty years for buildings and
improvements and from three to twenty years for machinery and equipment.
28
(1) Summary of Significant Accounting Policies (continued)
Intangible Assets
-----------------
Intangible assets primarily represent goodwill, trademarks and product
technology and are amortized on a straight-line basis over forty years.
Goodwill represents the excess cost of acquired businesses. The Company
continuously assesses the recoverability of these intangible assets by
evaluating whether the amortization of the intangible asset balances over
the remaining lives can be recovered through expected future results.
Expected future results are based on projected undiscounted operating
results before the effects of intangible amortization. Product technology
is measured based upon wholesale operating income, while goodwill and
trademarks are assessed based upon total wholesale and retail operating
income. The amount of impairment, if any, is measured based on the fair
value or projected discounted future results.
Financial Instruments
---------------------
The carrying value of the Company's financial instruments approximates fair
market value.
Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Revenue Recognition
-------------------
Sales are recorded to dealers when goods are shipped, at which point title
has passed. Sales made through Ethan Allen-owned stores are recognized when
delivery is made to the customer.
Shipping and Handling Costs
---------------------------
Ethan Allen's policy is to sell its products at the same delivered cost to
all retailers nationwide, regardless of their shipping point. Costs
incurred to deliver finished goods to the consumer are expensed and
recorded in selling, general and administrative expenses. Shipping and
handling costs were $59.2 million, $53.9 million, and $45.9 million for
fiscal year 2001, 2000, and 1999, respectively.
Advertising Costs
-----------------
Advertising costs are expensed when first aired or distributed. Advertising
costs for the fiscal years 2001, 2000 and 1999, were $45.9 million, $44.4
million, and $43.2 million, respectively. Prepaid advertising costs at June
30, 2001 and 2000 were $4.3 million and $2.3 million, respectively.
29
(1) Summary of Significant Accounting Policies (continued)
Closed Store Expenses
---------------------
Future expenses, such as rent and real estate taxes, net of expected lease
or sublease recovery, which will be incurred subsequent to vacating a
closed Ethan Allen-owned store, are charged to operations upon a formal
decision to close the store.
Earnings Per Share
------------------
The Company computes basic earnings per share by dividing net income by the
weighted average number of common shares outstanding for the period.
Diluted earnings per share reflect the potential dilution that could occur
if all potentially dilutive common shares were exercised.
Stock Compensation
------------------
As permitted by SFAS No. 123 "Accounting for Stock Based Compensation", the
Company follows the provisions of APB No. 25, "Accounting for Stock Issued
to Employees" and related interpretations in accounting for compensation
expense related to the issuance of stock options.
Comprehensive Income
--------------------
The Company does not have any components of comprehensive income as defined
under SFAS No. 130, "Reporting Comprehensive Income".
Derivative Instruments
----------------------
The Company adopted SFAS No. 133, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" and SFAS No. 138, which later
amended this pronouncement, in fiscal year 2001. Upon review of the
Company's current contracts, the Company has no derivative instruments as
defined under these standards.
New Accounting Standards
------------------------
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141
addresses the accounting and reporting for business combinations and
supercedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38,
"Accounting for Preacquisition Contingencies of Purchased Enterprises." The
new pronouncement requires that all business combinations be accounted for
under the purchase method. The Company will adopt this standard for all
business combinations initiated after June 30, 2001.
Also in June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets". This pronouncement provides guidance on financial
accounting and reporting for acquired goodwill and other intangible assets.
This statement supercedes APB Opinion No. 17, "Intangible Assets". The
provisions of this statement are required to be applied for fiscal years
beginning after December 15, 2001. The Company plans to adopt this
pronouncement for its first quarter ended September 30, 2001, which will
positively impact annual pre-tax earnings by approximately $1.8 million.
30
(2) Restructuring and Impairment Charge
During fiscal year 2001, the Company developed a plan to consolidate its
manufacturing operations as part of an overall strategy to maximize
production efficiencies and maintain our competitive advantage. In the
fourth quarter, the Company initiated its consolidation plan by announcing
the closure of three of its manufacturing facilities and the elimination of
approximately 350 employees effective August 6, 2001. A pre-tax
restructuring and impairment charge of $6.9 million was recorded in the
fourth quarter for costs associated with the plant closings, of which $3.3
million principally relates to employee severance and benefits costs and
plant exit costs, and $3.6 million relates to a fixed asset impairment
charge primarily for properties and machinery and equipment of the closed
facilities.
As of June 30, 2001, the restructuring reserve of $2.8 million was included
in the Consolidated Balance Sheets as an accrued expense in current
liabilities and the impairment charge of $3.6 million was recorded to
reduce certain property, plant and equipment to net realizable value.
Activity in the Company's restructuring reserve is summarized as follows
(dollars in thousands):
Original Cash Non-cash
Charges Payments Utilized Total
------- -------- -------- -----
Employee severance and
other related payroll
and benefit costs $ 2,974 $ (550) $ -- $ 2,424
Plant exit costs and other 332 -- -- 332
Write-down of long-term
assets 3,600 -- (3,600) --
------- ------- ------- -------
Balance as of June 30, 2001 $ 6,906 $ (550) $(3,600) $ 2,756
======= ======= ======= =======
(3) Inventories
Inventories at June 30 are summarized as follows (dollars in thousands):
2001 2000
-------- --------
Finished Goods $115,661 $103,787
Work in process 19,521 19,233
Raw materials 40,854 35,986
-------- --------
$176,036 $159,006
======== ========
(4) Property, Plant and Equipment
Property, plant and equipment at June 30 are summarized as follows (dollars
in thousands):
2001 2000
-------- ---------
Land and improvements $ 41,382 $ 40,839
Buildings and improvements 214,972 192,256
Machinery and equipment 146,193 138,458
--------- ---------
402,547 371,553
Less: Accumulated depreciation (133,888) (123,815)
--------- ---------
$ 268,659 $ 247,738
========= =========
31
(5) Intangibles
Intangibles at June 30 are summarized as follows (dollars in thousands):
2001 2000
------- --------
Product technology $ 25,950 $ 25,950
Trademarks 28,200 28,200
Goodwill 18,714 18,795
Other 350 350
-------- --------
73,214 73,295
Less accumulated amortization (20,351) (18,525)
-------- --------
$ 52,863 $ 54,770
======== ========
(6) Borrowings
Total debt obligations at June 30 consists of the following (dollars in
thousands):
2001 2000
-------- ----------
Revolving Credit Facility $ -- $ 8,000
Industrial Revenue Bonds, 2.45% -
7.50%, maturing at various dates
through 2011 8,455 8,455
Other 1,032 1,452
------- -------
Total debt 9,487 17,907
Less current maturities and short
term capital lease obligations 131 8,420
------- -------
Long-term debt $ 9,356 $ 9,487
======= =======
The Company has a $125.0 million unsecured Revolving Credit Facility (the
"Credit Agreement") with J. P. Morgan Chase & Co. as administrative agent
and Fleet Bank, NA and Wachovia Bank, NA as co-documentation agents. The
Credit Agreement includes sub-facilities for trade and standby letters of
credit of $25.0 million and swingline loans of $3.0 million. Revolving
loans under the Credit Agreement bear interest at J. P. Morgan Chase &
Co.'s Alternative Base Rate ("ABR"), or adjusted LIBOR plus 0.625%, which
is subject to adjustment arising from changes in the credit rating of Ethan
Allen's senior unsecured debt. The Credit Agreement provides for the
payment of a commitment fee equal to 0.15% per annum on the average daily
unused amount of the revolving credit commitment. The Company is also
required to pay a fee equal to 0.75% per annum on the average daily letters
of credit outstanding. As of June 30, 2001, the Company had no revolving
loans outstanding. Letters of credit outstanding totaled $16.7 million with
an unused Revolver balance of $108.3 million. For fiscal years ended June
30, 2001, 2000 and 1999 the weighted-average interest rates were 5.55%,
6.22%, and 6.17%, respectively.
The Credit Agreement matures in August of 2004 and there are no minimum
repayments required during the term of the facility. The revolving loans
may be borrowed, repaid and reborrowed over the term of the facility until
final maturity.
The Credit Agreement contains various covenants which limit the ability of
the Company and its subsidiaries to incur debt, engage in mergers and
consolidations, make restricted payments, make asset sales, make
investments and issue stock. The Company is required to meet certain
financial covenants including consolidated net worth, fixed charge coverage
and leverage ratios.
32
(6) Borrowings (continued)
The Company has loan commitments in the aggregate amount of approximately
$1.0 million related to the modernization of its Beecher Falls, Vermont
manufacturing facility. Loans made pursuant to these commitments bear
interest at rates ranging from 3.0% to 5.5% and have maturities of 10 to 30
years. The loans have a first and second lien in respect of equipment
financed by such loans and a first and second mortgage interest in respect
of the building, the construction of which was financed by such loans.
Aggregate scheduled maturities of long-term debt for each of the five
fiscal years subsequent to June 30, 2001, and thereafter are as follows
(dollars in thousands):
2002 ................................................$ 131
2003 ................................................ 141
2004 ................................................ 61
2005 ................................................ 4,662
2006 ............................................... 64
Subsequent to 2006 .................................... 4,428
(7) Leases
Ethan Allen leases real property and equipment under various operating
lease agreements expiring through the year 2028. Leases covering retail
outlets and equipment generally require, in addition to stated minimums,
contingent rentals based on retail sales and equipment usage. Generally,
the leases provide for renewal for various periods at stipulated rates.
Future minimum payments by year and in the aggregate under non-cancelable
operating leases consisted of the following at June 30, 2001 (dollars in
thousands):
Fiscal Year Ending June 30:
---------------------------
2002 $ 17,993
2003 16,844
2004 15,502
2005 14,305
2006 12,069
Subsequent to 2006 43,952
---------
Total minimum lease payments $ 120,665
=========
The above amounts will be offset in the aggregate by minimum future rentals
from subleases of $18.2 million.
Total rent expense for the fiscal years ended June 30 was as follows
(dollars in thousands):
2001 2000 1999
------- ------- -------
Basic rentals under operating
leases $18,496 $16,102 $16,761
Contingent rentals under
operating leases 895 1,972 1,509
------- ------- -------
19,391 18,074 18,270
Less: sublease rent 3,084 3,314 2,812
------- ------- -------
$16,307 $14,760 $15,458
======= ======= =======
33
(8) Shareholders' Equity
The Company's authorized capital stock consists of (a) 150,000,000 shares
of Common Stock, par value $.01 per share, (b) 600,000 shares of Class B
Common Stock, par value $.01 per share, (c) 1,055,000 shares of Preferred
Stock, par value $.01 per share of which (i) 30,000 shares have been
designated Series A Redeemable Convertible Preferred Stock, (ii) 30,000
shares have been designated Series B Redeemable Convertible Preferred
Stock, (iii) 155,010 shares have been designated as Series C Junior
Participating Preferred Stock, and (iv) the remaining 839,990 shares may be
designated by the Board of Directors with such rights and preferences as
they determine (all such preferred stock, collectively, the "Preferred
Stock"). As of June 30, 2001 and 2000, there were no shares of Preferred
Stock or shares of Class B Common Stock issued or outstanding.
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
also repurchases shares of common stock from terminated or retiring
employee's accounts in the Ethan Allen Retirement Saving Plan. The
Company's common stock repurchases are recorded as treasury stock and
result in a reduction of shareholders' equity. During fiscal years 2001,
2000 and 1999, the Company repurchased the following shares of its common
stock:
2001 2000 1999
---------- ---------- ----------
Common shares repurchased 33,006 1,928,350 1,921,784
Cost to repurchase common shares $ 1,069,307 $49,605,555 $45,137,746
Average price per share $ 32.40 $ 25.72 $ 23.49
The Company funded its purchases through cash from operations and through
revolver loan borrowings under the Credit Agreement. As of June 30, 2001,
the Company had a remaining Board authorization to purchase 1.4 million
shares.
On May 20, 1996, the Board of Directors adopted a Stockholder Rights Plan
and declared a dividend of one Right for each outstanding share of common
stock as of July 10, 1996. Each Right entitles its holder, under certain
circumstances, to purchase one one-hundredth of a share of the Company's
Series C Junior Participating Preferred Stock at a price of $41.67 on a
post split basis. The Rights may not be exercised until 10 days after a
person or group acquires 15% or more of the Company's common stock, or 15
days after the commencement or the announcement of the intent to commence a
tender offer which, if consummated, would result in a 15% or more ownership
of the Company's common stock. Until then, separate Rights certificates
will not be issued, nor will the Rights be traded separately from the
stock. Should an acquirer become the beneficial owner of 15% of the
Company's common stock, and under certain additional circumstances, the
Company's stockholders (other than the acquirer) would have the right to
receive in lieu of the Series C Junior Participating Preferred Stock, a
number of shares of the Company's common stock, or in stock of the
surviving enterprise if the Company is acquired, having a market value
equal to two times the purchase price per share.
The Rights will expire on May 31, 2006, unless redeemed prior to that date.
The redemption price is $0.01 per Right. The Board of Directors may redeem
the Rights at its option any time prior to the announcement that a person
or group has acquired 15% or more of the Company's common stock.
34
(9) Earnings per Share
The following table sets forth the calculation of weighted average shares
for the fiscal years ended June 30 (shares in thousands):
2001 2000 1999
------- ------ -------
Weighted average common shares
outstanding for basic
calculation 39,390 40,301 41,278
Add: Effect of stock options
and warrants 931 897 1,009
------ ------ ------
Weighted average common shares
outstanding, adjusted for
diluted calculation 40,321 41,198 42,287
====== ====== ======
Stock options to purchase 986,600 shares of common stock had an exercise
price in excess of the average market price in fiscal year 2000. These
options have been excluded from the diluted earnings per share calculation
since their impact is anti-dilutive.
(10) Employee Stock Plans
The Company has reserved 7,419,699 shares of Common Stock for issuance
pursuant to the Company's stock option and warrant plans as follows:
1992 Stock Option Plan
----------------------
The 1992 stock Option Plan provides for the grant of options to employees
and non-employee directors to purchase shares of Common Stock that are
either qualified or non-qualified under Section 422 of the Internal Revenue
Code, as well as stock appreciation rights on such options. The awarding of
such options is determined by the Compensation Committee of the Board of
Directors after consideration of recommendations proposed by the Chief
Executive Officer. The options awarded to employees vest 25% per year over
a four-year period and are exercisable at the market value of the Common
Stock at the date of grant. The maximum number of shares of Common Stock
reserved for issuance under the 1992 Stock Option Plan is 5,490,597 shares.
Incentive Stock Option Plan
---------------------------
In 1991, pursuant to the Incentive Stock Option Plan, the Company granted
to members of management options to purchase 829,542 shares of Common Stock
at an exercise price of $5.50 per share. Such options vest twenty percent
per year over a five year period.
Management Warrants
-------------------
Warrants to purchase 699,560 shares of Common Stock were granted to certain
key members of management during fiscal years 1991 and 1992. The warrants
have been fully earned and were exercisable at $1.23 per share.
35
(10) Employee Stock Plans (continued)
Restricted Stock Award
----------------------
As of July 1, 1994 and for each successive year through July 1, 1998, an
annual award of 30,000 shares of restricted stock was granted to Mr.
Kathwari, the President and Chief Executive Officer, with the vesting based
on performance of the Company's stock price during the three year period
after grant as compared to the Standard and Poors 500 index. Under the
discretion of the Compensation Commmittee, Mr. Kathwari has been deemed
vested in 92,000 shares as of June 30, 2001.
Stock Unit Award
----------------
During fiscal year 1998, the Company established a book account for Mr.
Kathwari, which will be credited with 21,000 Stock Units as of July 1 of
each year, commencing July 1, 1997, for a total of up to 105,000 Stock
Units, over the term of Mr. Kathwari's employment agreement, with an
additional 21,000 Stock Units to be credited in connection with each of the
two one-year extensions. Following the termination of Mr. Kathwari's
employment, Mr. Kathwari will receive shares of Common Stock equal to the
number of Stock Units credited to the account.
Stock option and warrant activity during fiscal years 2001, 2000 and 1999
was as follows:
Number of
Shares
------------------------------------------
92 Stock Incentive Management
Option Plan Options Warrants
----------- --------- ----------
Options Outstanding
at June 30, 1998 3,102,570 328,106 84,545
Granted in 1999 104,700 -- --
Exercised in 1999 (64,034) (32,247) (37,756)
Canceled in 1999 (33,761) (2) (2,101)
---------- ---------- ----------
Options Outstanding
at June 30, 1999 3,109,475 295,857 44,688
Granted in 2000 395,290 -- --
Exercised in 2000 (88,063) (281,850) (44,680)
Canceled in 2000 (33,112) (7) (8)
---------- ---------- ----------
Options Outstanding
at June 30, 2000 3,383,590 14,000 --
Granted in 2001 35,225 -- --
Exercised in 2001 (67,882) (6,000) --
Canceled in 2001 (55,658) -- --
---------- ---------- ----------
Options Outstanding
at June 30, 2001 3,295,275 8,000 --
========== ========== ==========
The following table summarizes the stock awards outstanding at June 30, 2001:
Weighted Weighted
Average Average
Range of Number Remaining Exercise
Prices Outstanding Life Price
--------------- ----------- ---------- --------
1992 Stock Option Plan $ 6.00 to $ 6.50 1,123,600 3.7 yrs $ 6.36
$14.50 to $18.21 130,425 5.7 yrs $15.16
$21.17 to $25.00 1,032,825 6.9 yrs $22.12
$26.25 to $28.31 871,150 6.5 yrs $27.41
$30.75 to $33.78 137,275 8.1 yrs $31.58
---------
3,295,275
=========
Incentive Options $ 5.50 8,000 0.5 yrs $ 5.50
=========
36
(10) Employee Stock Plans (continued)
The following table summarizes the number of shares exercisable at June 30,
2001:
Weighted
Number of Average
Range of Shares Exercise
Prices Exercisable Price
--------------- ----------- --------
1992 Stock Option Plan $ 6.00 to $ 6.50 892,170 $ 6.37
$14.50 to $18.21 124,327 $15.01
$21.17 to $25.00 836,790 $21.45
$26.25 to $28.31 813,350 $27.46
$30.75 to $33.78 46,470 $31.80
---------
2,713,107
=========
Incentive Options $ 5.50 8,000 $ 5.50
=========
Had compensation costs related to the issuance of stock options under the
Company's 1992 Stock Option Plan been determined based on the estimated
fair value at the grant dates for awards under SFAS No. 123, the Company's
net income end earnings per share for the fiscal years ended June 30, 2001,
2000 and 1999 would have been reduced to the proforma amounts listed below,
(dollars in thousands, except per share data):
2001 2000 1999
-------- -------- -------
Net Income
----------
As reported $79,680 $90,570 $81,288
Proforma 78,517 86,630 77,840
Net Income per Basic Share
--------------------------
As reported $ 2.02 $ 2.25 $ 1.97
Proforma 1.99 2.15 1.89
Net Income per Diluted Share
----------------------------
As reported $ 1.98 $ 2.20 $ 1.92
Proforma 1.95 2.10 1.84
The per share weighted average fair value of stock options granted during
fiscal 2001, 2000 and 1999 was $13.60, $12.24, and $11.98, respectively.
The fair value of each stock option grant was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: weighted average risk-free interest rates of 5.39%, 6.22%, and
5.15% for fiscal 2001, 2000 and 1999, respectively; dividend yield of
0.53%, 0.61%, and 0.60% for fiscal 2001, 2000 and 1999, respectively;
expected volatility of 45.0%, 45.9%, and 46.8% in fiscal 2001, 2000 and
1999, respectively; and expected lives of five years for each.
(11) Income Taxes
Total income taxes were allocated as follows (dollars in thousands):
2001 2000 1999
------- ------- -------
Income from operations $ 48,423 $ 56,200 $ 51,429
Stockholders' equity (624) (2,179) (2,409)
------- ------- -------
$ 47,799 $ 54,021 $ 49,020
======= ======= =======
37
(11) Income Taxes (continued)
The income taxes credited to stockholders' equity relate to the tax benefit
arising from the exercise of employee stock options.
Income tax expense attributable to income from operations consists of the
following for the fiscal years ended June 30 (dollars in thousands):
2001 2000 1999
-------- -------- --------
Current:
Federal $ 46,513 $ 49,934 $ 44,478
State 5,249 8,072 6,971
-------- -------- --------
Total current 51,762 58,006 51,449
-------- -------- --------
Deferred:
Federal (3,157) (1,650) (17)
State (182) (156) (3)
-------- -------- --------
Total deferred (3,339) (1,806) (20)
-------- -------- --------
Income tax expense on income $ 48,423 $ 56,200 $ 51,429
======== ======== ========
The following is a reconciliation of expected income taxes (computed by
applying the Federal statutory rate to income before taxes) to actual
income tax expense (dollars in thousands):
2001 2000 1999
------- ------- -------
Computed "expected" income
tax expense $ 44,836 $ 51,370 $ 46,451
State income taxes, net of
federal income tax benefit 3,162 5,247 4,529
Goodwill amortization 265 143 117
Other, net 160 (560) 332
------- -------- -------
Income tax expense on income $ 48,423 $ 56,200 $ 51,429
======= ======= =======
The significant components of the deferred tax expense (benefit) are as
follows (dollars in thousands):
2001 2000 1999
------- ------- --------
Deferred tax (benefit) $ (4,795) $ (3,309) $ (1,503)
Utilization of net operating
loss carryforwards 1,456 1,503 1,483
------- ------- -------
$ (3,339) $ (1,806) $ (20)
======= ======= =======
The components of the net deferred tax liability as of June 30 are as
follows (dollars in thousands):
2001 2000
------- -------
Deferred tax assets:
Accounts receivable $ 1,194 $ 1,220
Inventories 3,154 3,478
Other liabilities and reserves 10,441 6,049
Net operating loss carryforwards 5,533 7,234
------- -------
Total deferred tax asset 20,322 17,981
------- -------
Deferred tax liabilities:
Property, plant and equipment 24,202 24,380
Intangible assets other
than goodwill 13,327 14,199
Miscellaneous 2,417 2,365
------- -------
Total deferred tax liability 39,946 40,944
------- -------
Net deferred tax liability $19,624 $22,963
======= =======
38
(11) Income Taxes (continued)
The Company has tax operating loss carryforwards of approximately $14.6
million at June 30, 2001, of which $4.0 million expires in 2007 and $10.6
million expires in 2008. Pursuant to Section 382 of the Internal Revenue
Code, the Company's utilization of the net operating loss carryforwards are
subject to an annual limitation of approximately $3.9 million.
Management believes that the results of future operations will generate
sufficient taxable income to realize the deferred tax assets.
(12) Employee Retirement Programs
The Ethan Allen Retirement Savings Plan
---------------------------------------
The Ethan Allen Retirement Savings Plan (the "Plan") is a defined
contribution plan which is offered to substantially all employees of the
Company who have completed three consecutive months of service regardless
of hours worked.
Ethan Allen may, at its discretion, make a matching contribution to the
401(k) portion of the Plan on behalf of each participant, provided the
contribution does not exceed the lesser of 50% of the participant's
contribution or $1,000 per participant per Plan year. Total profit sharing
and 401(k) company match expense was $5.5 million in 2001, $3.2 million in
2000, and $2.6 million in 1999.
Other Retirement Plans and Benefits
-----------------------------------
Ethan Allen provides additional benefits to selected members of senior and
middle management in the form of previously entered deferred compensation
arrangements and a management incentive program. The total cost of these
benefits was $5.0 million, $4.4 million, and $3.8 million in 2001, 2000 and
1999, respectively.
(13) Wholly-Owned Subsidiary
The Company owns all of the outstanding stock of Ethan Allen and 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 obligation under the Credit Agreement and has
pledged all the outstanding capital stock of Ethan Allen to secure its
guarantee.
The condensed balance sheets of Ethan Allen as of June 30 are as follows
(dollars in thousands):
2001 2000
--------- ---------
Assets
------
Current assets $289,979 $235,782
Non-current assets 476,154 448,059
-------- --------
Total assets $766,133 $683,841
======== ========
Liabilities
-----------
Current liabilities $106,194 $106,595
Non-current liabilities 46,481 44,794
-------- --------
Total liabilities $152,675 $151,389
======== ========
39
(13) Wholly-Owned Subsidiary (continued)
A summary of Ethan Allen's operating activity for each of the years in the
three-year period ended June 30, 2001, is as follows:
2001 2000 1999
--------- --------- ---------
Net sales $904,133 $856,171 $762,233
Gross profit 413,656 400,610 354,999
Operating income 126,197 147,722 133,930
Interest expense 758 990 1,639
Income before income
taxes and extraordinary
charge 128,253 146,911 132,885
Net income $ 79,830 $ 90,711 $ 81,456
(14) Litigation
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"). The Company
has resolved its liability at one of the sites by completing remedial
action activities. The Company has resolved its liability at another site
through legal settlement and in regard to the third site the Company does
not anticipate incurring significant cost. 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.
(15) 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
segments.
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.
40
(15) Segment Information (continued)
During the third quarter of 2001, the Company re-evaluated its operating
segments and as a result changed its segment 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 in the
Company's retail business. The following table presents segment information
for the fiscal years ended June 30, 2001, 2000, and 1999 (dollars in
thousands):
2001 2000 1999
-------- -------- -------
Net Sales:
----------
Wholesale segment $ 705,651 $ 691,076 $ 637,036
Retail segment 419,322 372,058 294,701
Elimination of intercompany
sales (220,840) (206,963) (169,504)
---------- --------- --------
Consolidated Total $ 904,133 $ 856,171 $ 762,233
========= ========= =========
Operating Income:
-----------------
Wholesale segment(1) $ 99,122 $ 131,753 $ 122,968
Retail segment 24,523 21,257 15,146
Elimination(2) 2,402 (5,429) (4,352)
--------- --------- ---------
Consolidated Total $ 126,047 $ 147,581 $ 133,762
========= ========= =========
Capital Expenditures:
---------------------
Wholesale segment $ 22,147 $ 22,393 $ 24,795
Retail segment 16,369 19,672 15,833
Acquisitions(3) 9,722 12,631 7,164
--------- --------- ---------
Consolidated Total $ 48,238 $ 54,696 $ 47,792
========= ========= =========
Total Assets:
-------------
Wholesale segment $ 460,477 $ 392,506 $ 366,895
Retail segment 183,240 179,075 137,256
Inventory profit elimination(4) (24,599) (28,010) (23,529)
--------- --------- ---------
Consolidated Total $ 619,118 $ 543,571 $ 480,622
========= ========= =========
(1) Operating income for the wholesale segment includes a pre-tax
restructuring and impairment charge of $6.9 million recorded in the
fourth quarter of fiscal year 2001.
(2) The adjustment reflects the change in the elimination entry for profit
in ending inventory.
(3) Acquisitions for the year ended June 30, 2001 include the purchase of
a manufacturing facility in Dublin, Virginia in October of 2000.
(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.
There are 28 independent retail stores located outside the United States.
Approximately 2.4% of the Company's net sales are derived from sales to
these retail stores.
41
(16) Selected Quarterly Financial Data (Unaudited)
Tabulated below are certain data for each quarter of the fiscal years ended
June 30, 2001, 2000, and 1999 (dollar amounts in thousands, except per
share data):
Quarter Ended
---------------------------------------------------
September 30 December 31 March 31 June 30
------------ ----------- -------- -------
2001 Quarters:
--------------
Net sales $211,231 $232,667 $233,791 $226,444
Gross profit 99,709 107,737 103,511 102,699
Net income 20,700 23,107 20,030 15,843
Net income
per basic
share 0.53 0.59 0.51 0.40
Net income per diluted
share 0.52 0.58 0.50 0.39
Dividend declared per
common share 0.04 0.04 0.04 0.04
2000 Quarters:
--------------
Net sales $189,592 $217,486 $220,300 $228,793
Gross profit 88,521 103,899 103,148 105,042
Net income 18,733 24,833 23,171 23,833
Net income per basic
share 0.46 0.61 0.58 0.60
Net income per diluted
share 0.45 0.59 0.57 0.59
Dividend declared per
common share 0.04 0.04 0.04 0.04
1999 Quarters:
--------------
Net sales $166,226 $193,674 $194,571 $207,762
Gross profit 77,004 89,756 91,064 97,175
Net income 16,209 21,186 21,174 22,719
Net income per basic
share 0.39 0.51 0.52 0.56
Net income per diluted
share 0.38 0.50 0.50 0.54
Dividend declared per
common share 0.02 0.03 0.03 0.04
42
Item 9. Changes in and Disagreements with Accountants on Accounting and
--------------------------------------------------------------------------------
Financial Disclosures
---------------------
No changes in or disagreements with accountants on accounting or financial
disclosure occurred in fiscal years 2001, 2000 and 1999.
43
PART III
Part III is omitted as the Company intends to file with the Commission within
120 days after the end of the Company's fiscal year a definitive proxy statement
pursuant to Regulation 14A which will involve the election of directors.
ITEM 10. Directors and Executive Officers of the Registrant
-----------------------------------------------------------
See reference to definitive proxy statement under Part III.
ITEM 11. Executive Compensation
-------------------------------
See reference to definitive proxy statement under Part III.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
-----------------------------------------------------------------------
See reference to definitive proxy statement under Part III.
ITEM 13. Certain Relationships and Related Transactions
-------------------------------------------------------
See reference to definitive proxy statement under Part III.
44
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
------------------------------------------------------------------------
I. Listing of Documents
(1) Financial Statements. The Company's Consolidated Financial Statements
included in Item 8 hereof, as required at June 30, 2001 and 2000, and
for the years ended June 30, 2001, 2000 and 1999, consist of the
following:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule. Financial Statement Schedule of the
Company appended hereto, as required for the years ended June 30,
2001, 2000 and 1999, consist of the following:
Valuation and Qualifying Accounts
The schedules listed in Reg. 210.5-04, except those listed
above, have been omitted because they are not applicable or
the required information is shown in the financial statements
or notes thereto.
(3) The following Exhibits are filed as part of this report on Form 10-K:
Exhibit
Number Exhibit
----------------------------------------------------------------------
*2(a) Agreement and Plan of Merger, dated May 20, 1989 among the
Company, Green Mountain Acquisition Corporation ("Merger
Sub"), INTERCO Incorporated, Interco Subsidiary, Inc. and
Ethan Allen
*2(b) Restructuring Agreement, dated as March 1, 1991, among Green
Mountain Holding Corporation, Ethan Allen, Chemical Bank,
General Electric Capital Corporation, Smith Barney Inc. and
the stockholder's name on the signature page thereof
*2(c) Purchase and Sale Agreement, dated March 28, 1997, between
the Company and Carriage House Interiors of Colorado, Inc.
*3(a) Restated Certificate of Incorporation for Green Mountain
Holding Corporation
*3(b) Restated and Amended By-Laws of Green Mountain Holding
Corporation
*3(c) Restated Certificate of Incorporation of the Company
*3(c)-1 Certificate of Designation relating to the Series C Junior
Participating Preferred Stock
*3(c)-2 Certificate of Amendment to Restated Certificate of
Incorporation as of August 5, 1997
*3(c)-3 Second Certificate of Amendment to Restated Certificate of
Incorporation as of March 27, 1998
*3(c)-4 Third Certificate of Amendment to Restated Certificate of
Incorporation as of April 28, 1999
*3(d) Amended and Restated By-laws of the Company
*3(e) Certificate of Designation relating to the New Convertible
Preferred Stock
*3(e)-1 Certificate of Designation relating to the Series C Junior
Participating Preferred Stock
*3(f) Certificate of Incorporation of Ethan Allen Finance
Corporation
*3(g) By-Laws of Ethan Allen Finance Corporation
*3(h) Certificate of Incorporation of Ethan Allen Manufacturing
Corporation
*3(i) By-Laws of Ethan Allen Manufacturing Corporation
45
Exhibit
Number Exhibit
------ ------------------------------------------------------------
*4(a) First Amendment to Management Non-Qualified Stock Option
Plan
*4(b) Second Amendment to Management Non-Qualified Stock Option
Plan
*4(c) 1992 Stock Option Plan
*4(c)-1 First Amendment to 1992 Stock Option Plan
*4(c)-2 Amended and Restated 1992 Stock Option Plan
*4(c)-3 First Amendment to Amended and Restated 1992 Stock Option
Plan
*4(c)-4 Second Amendment to Amended and Restated 1992 Stock Option
Plan
*4(d) Management Letter Agreement among the Management Investors
and the Company
*4(e) Management Warrant, issued by the Company to members of the
Management of Ethan Allen
*4(f) Form of Dealer Letter Agreement among Dealer Investors and
the Company
*4(g) Form of Kathwari Warrant, dated June 28, 1989
*4(j) Form of Indenture relating to the Senior Notes
*4(j)-1 First Supplemental Indenture dated as of March 23, 1995
between Ethan Allen and the First National Bank of Boston
for $75,000,000 8-3/4% Senior Notes due 2007
*4(k) Credit Agreement among the Company, Ethan Allen and Bankers
Trust Company
*4(k)-1 Amended Credit Agreement among the Company, Ethan Allen and
Bankers Trust Company
*4(k)-2 110,000,000 Senior Secured Revolving Credit Facility dated
March 10, 1995 between Ethan Allen and J. P. Morgan Chase &
Co.
*4(k)-3 Amended and Restated Credit Agreement as of December 4, 1996
between Ethan Allen Inc. and the J. P. Morgan Chase & Co.
*4(k)-4 First Amendment to Amended and Restated Credit Agreement as
of August 27, 1997 between Ethan Allen Inc. and the J. P.
Morgan Chase & Co.
*4(k)-5 Second Amendment to Amended and Restated Credit Agreement as
of October 20, 1998 between Ethan Allen Inc. and the J. P.
Morgan Chase & Co.
*4(l) Catawba County Industrial Facilities Revenue Bond
*4(l)-1 Trust Indenture dated as of October 1, 1994 securing
$4,600,000 Industrial Development Revenue Refunding Bonds,
Ethan Allen Inc. Series 1994 of the Catawba County
Industrial Facilities and Pollution Control Financing
Authority
*4(m) Lease for 2700 Sepulveda Boulevard Torrance, California
*4(n) Amended and Restated Warrant Agreement, dated March 1, 1991,
among Green Mountain Holding Corporation and First Trust
National Association
*4(o) Exchange Notes Warrant Transfer Agreement
*4(p) Warrant (Earned) to purchase shares of the Company's Common
Stock dated March 24, 1993
*4(q) Warrant (Earned-In) to purchase shares of the Company's
Common Stock, dated March 23, 1993
*4(r) Recapitalization Agreement among the Company, General
Electric Capital Corporation, Smith Barney Inc., Chemical
Fund Investments, Inc., Legend Capital Group, Inc., Legend
Capital International Ltd., Castle Harlan, Inc., M. Farooq
Kathwari, the Ethan Allen Retirement Program and other
stockholders named on the signature pages thereto, dated as
of March 24, 1993
*4(s) Preferred Stock and Common Stock Subscription Agreement,
dated March 24, 1993, among the Company, General Electric
Capital Corporation, and Smith Barney Inc.
*4(t) Security Agreement, dated as of March 10, 1995, between
Ethan Allen Inc. and J. P. Morgan Chase & Co.
*4(u) Rights Agreement, dated as of July 26, 1996, between the
Company and Harris Trust and Savings Bank
*4(v) Registration Rights Agreement, dated March 28, 1997, between
the Company and Carriage House Interiors of Colorado, Inc.
*4(w) Credit Agreement as of August 24, 1999 by and among Ethan
Allen Inc., Ethan Allen Interiors Inc., the J. P. Morgan
Chase & Co., Fleet Bank, N.A. and Wachovia Bank, N.A.
46
Exhibit
Number Exhibit
------ ------------------------------------------------------------
*10(b) Employment Agreement, dated June 29, 1989, among Mr.
Kathwari, the Company and Ethan Allen
*10(c) Employment Agreement dated July 27, 1994 among Mr. Kathwari,
the Company and Ethan Allen
*10(d) Restated Directors Indemnification Agreement dated March
1993, among the Company and Ethan Allen and their Directors
*10(e) Registration Rights Agreement, dated March 1993, by and
among Ethan Allen, General Electric Capital Corporation and
Smith Barney Inc.
*10(f) Form of Management Bonus Plan, dated October 30, 1991
*10(g) Ethan Allen Profit Sharing and 401(k) Retirement Plan
*10(h) General Electric Capital Corporation Credit Card Program
Agreement dated August 25, 1995
*10(h)-1 First Amendment to Credit Card Program Agreement dated
February 22, 2000
*10(i) Employment Agreement dated October 28, 1997 between Mr.
Kathwari and Ethan Allen Interiors, Inc.
*10(j) Sales Finance Agreement dated June 25, 1999, between the
Company and MBNA America Bank, N.A.
*10(k) Amended and Restated Consumer Credit Card Program Agreement
dated February 22, 2000, by and among the Company and
Monogram Credit Card Bank of Georgia
*21 List of wholly-owned subsidiaries of the Company
23 Consent of KPMG LLP
* Incorporated by reference to the exhibits filed with the
Registration Statement on Form S-1 of the Company and Ethan Allen
Inc. filed with the Security Exchange Commission (the "SEC") on
March 16, 1993 (Commission File No. 33-57216), the Registration
Statement on Form S-3 of the Company filed with the SEC on May
21, 1997 (Commission File No. 333-37545), the Annual Report on
Form 10-K of the Company and Ethan Allen Inc. filed with the SEC
on September 24, 1993 (Commission File No. 1-11806), the Current
Report on Form 8-K of the Company and Ethan Allen Inc. filed with
the SEC on July 3, 1996 (Commission File No. 1-11806), the
Quarterly Report on Form 10-Q of the Company and Ethan Allen Inc.
filed with the SEC on February 13, 1997 (Commission File No.
1-11806), the Quarterly Report on Form 10-Q of the Company and
Ethan Allen Inc. filed with the SEC on November 14, 1997
(Commission File No. 1-11806), the Quarterly Report on Form 10-Q
of the Company and Ethan Allen Inc. filed with the SEC on
February 12, 1999 (Commission File No. 1-11806), the Quarterly
Report on Form 10-Q of the Company and Ethan Allen Inc. filed
with the SEC on May 13, 1999 (Commission File No. 1-11806), the
Quarterly Report on Form 10-Q of the Company and Ethan Allen Inc.
filed with the SEC on February 14, 2000 (Commission File No.
1-11806), the Annual Report on Form 10-K of the Company and Ethan
Allen Inc. filed with the SEC on September 13, 2000, and the
Registration Statement on Form S-3 of the Company, Ethan Allen,
Ethan Allen Manufacturing Corporation, Ethan Allen Finance
Corporation and Andover Wood Products Inc. filed with the SEC on
October 23, 1994 (Commission File No. 33-85578-01) and all
supplements thereto.
47
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
As of and for the Fiscal Years Ended June 30, 2001, 2000 and 1999
(Dollars in thousands)
Balance at Additions Adjustments Balance at
Beginning Charged to and/or End of
of Period Income Deductions Adjustments
--------- ------ ---------- -----------
Accounts Receivable
Sales discounts, sales returns and
allowance for doubtful accounts:
June 30, 2001 $2,751 $ (22) $ (50) $2,679
June 30, 2000 $2,460 $ 439 $ (148) $2,751
June 30, 1999 $1,961 $ 622 $ (123) $2,460
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By /s/ M. Farooq Kathwari
----------------------------------------
Chairman, Chief Executive Officer and
Director
ETHAN ALLEN INC.
(Registrant)
By /s/ M. Farooq Kathwari
----------------------------------------
Chairman, Chief Executive Officer and
Director
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ M. Farooq Kathwari Chairman, Chief Executive
------------------------------------------- Officer and Director
(M. Farooq Kathwari)
/s/ Clinton A. Clark Director
-------------------------------------------
(Clinton A. Clark)
/s/ Kristin Gamble Director
-------------------------------------------
(Kristin Gamble)
/s/ Horace McDonell Director
-------------------------------------------
(Horace McDonell)
/s/ Edward H. Meyer Director
-------------------------------------------
(Edward H. Meyer)
/s/ William W. Sprague Director
-------------------------------------------
(William W. Sprague)
/s/ Frank G. Wisner Director
-------------------------------------------
(Frank G. Wisner)
/s/ Edward D. Teplitz Vice President, Finance
-------------------------------------------
(Edward D. Teplitz)
/s/ Michele Bateson Corporate Controller, Principal
------------------------------------------- Accounting Officer
(Michele Bateson)