UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------------
Commission File Number: 1-11692
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Ethan Allen Interiors Inc.
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(Exact name of registrant as specified in its charter)
Delaware 06-1275288
- -----------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer ID No.)
Ethan Allen Drive, Danbury, Connecticut 06811
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(Address of principal executive offices)
(203) 743-8000
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
38,670,073 at September 30, 2001
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of September 30, 2001
(unaudited) and June 30, 2001 and for the three months ended September
30, 2001 and 2000 (unaudited)
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Consolidated Statements of Shareholders' Equity 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Part II. Other Information: 15
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 16
1
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
September 30,
2001 June 30,
(unaudited) 2001
----------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 38,294 $ 48,112
Accounts receivable, less allowance of $2,314
and $2,679 at September 30, 2001 and
June 30, 2001, respectively 30,410 33,055
Inventories 173,850 176,036
Prepaid expenses and other current assets 20,405 18,085
Deferred income taxes 14,308 14,789
--------- ---------
Total current assets 277,267 290,077
Property, plant and equipment, net 275,227 268,659
Intangibles, net 59,246 52,863
Other assets 7,151 7,519
--------- ---------
Total assets $ 618,891 $ 619,118
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 133 $ 131
Accounts payable 71,703 63,788
Accrued compensation and benefits 26,063 27,766
Accrued expenses 14,190 16,169
--------- ---------
Total current liabilities 112,089 107,854
Long-term debt 9,321 9,356
Other long-term liabilities 2,274 2,712
Deferred income taxes 35,791 34,413
--------- ---------
Total liabilities 159,475 154,335
Shareholders' equity:
Class A common stock, par value $.01, 150,000,000 shares authorized, 45,151,034
and 45,138,046 shares issued at September 30, 2001 and
June 30, 2001, respectively 452 451
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding
at September 30, 2001 and June 30, 2001 -- --
Additional paid-in capital 274,645 274,645
--------- ---------
275,097 275,096
Less: Treasury stock (at cost), 6,462,964 shares
at September 30, 2001 and 5,735,284 shares at
June 30, 2001 (150,119) (129,562)
Retained earnings 334,438 319,249
--------- ---------
Total shareholders' equity 459,416 464,783
--------- ---------
Total liabilities and shareholders' equity $ 618,891 $ 619,118
========= =========
See accompanying notes to consolidated financial statements
2
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except per share data)
Three Months
Ended September 30,
2001 2000
-------- -------
Net sales $206,725 $211,231
Cost of sales 112,756 111,522
-------- --------
Gross profit 93,969 99,709
Operating expenses:
Selling 38,838 37,970
General and administrative 28,596 28,437
-------- --------
Total operating expenses 67,434 66,407
-------- --------
Operating income 26,535 33,302
Interest and other miscellaneous income, net 512 173
Interest and other related financing costs 149 196
-------- --------
Income before income taxes 26,898 33,279
Income tax expense 10,167 12,579
-------- --------
Net income $ 16,731 $ 20,700
======== ========
Per share data:
- --------------
Basic earnings per common share:
Net income per basic share $ 0.43 $ 0.53
======== ========
Basic weighted average common
shares outstanding 38,670 39,405
Diluted earnings per common share:
Net income per diluted share
$ 0.42 $ 0.52
======== ========
Diluted weighted average common
shares outstanding 40,271 40,190
See accompanying notes to consolidated financial statements.
3
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three Months
Ended September 30,
2001 2000
-------- --------
Operating activities:
Net income $ 16,731 $ 20,700
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,679 4,570
Compensation expense related to
restricted stock award (404) (330)
Provision for deferred income taxes 1,859 (605)
Other non-cash expense (income) 34 (636)
Change in assets and liabilities, net of
the effects from acquired and divested
businesses:
Accounts receivable 580 (328)
Inventories 7,731 (4,369)
Prepaid and other current assets (1,505) (7,894)
Other assets 633 (223)
Accounts payable (1,904) 9,300
Income taxes payable 6,442 11,364
Accrued expenses (3,896) 1,322
Other liabilities (438) 27
-------- --------
Net cash provided by operating activities 30,542 32,898
-------- --------
Investing activities:
Proceeds from the disposal of property, plant
and equipment 3 2,315
Capital expenditures (8,131) (9,185)
Acquisitions (10,366) --
Other 62 120
-------- --------
Net cash used in investing activities (18,432) (6,750)
-------- --------
Financing activities:
Payments on revolving credit facilities -- (8,000)
Other payments on long-term debt and
capital leases (32) (79)
Net proceeds from issuance of common stock 232 51
Dividends paid (1,571) (1,570)
Payments to acquire treasury stock (20,557) (215)
-------- --------
Net cash used in financing activities (21,928) (9,813)
-------- --------
Net (decrease)/increase in cash and cash equivalents (9,818) 16,335
Cash and cash equivalents at beginning of period 48,112 14,024
-------- --------
Cash and cash equivalents at end of period $ 38,294 $ 30,359
======== ========
See accompanying notes to consolidated financial statements
4
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
(Dollars in thousands)
Additional
Common Paid-in Treasury Retained
Stock Capital Stock Earnings Total
----- ------- --------- -------- -------
Balance at June 30, 2001 $ 451 $ 274,645 $(129,562) $ 319,249 $ 464,783
Issuance of 12,988 shares of
common stock upon the exercise
of stock options 1 (173) -- -- (172)
Purchase of 727,680 treasury
shares -- -- (20,557) -- (20,557)
Tax benefit associated with the
exercise of employee stock
options -- 88 -- -- 88
Charge for early vesting of
stock options -- 85 -- -- 85
Dividends declared on common
stock -- -- -- (1,542) (1,542)
Net income -- -- -- 16,731 16,731
--------- --------- --------- --------- ---------
Balance at September 30, 2001 $ 452 $ 274,645 $(150,119) $ 334,438 $ 459,416
========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements.
5
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
Ethan Allen Interiors Inc. (the "Company") is a Delaware corporation
incorporated on May 25, 1989. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary Ethan Allen
Inc. ("Ethan Allen") and Ethan Allen's subsidiaries. All of Ethan Allen's
capital stock is owned by the Company. The Company has no other assets or
operating results other than those associated with its investment in Ethan
Allen.
(2) INTERIM FINANCIAL PRESENTATION
All significant intercompany accounts and transactions have been eliminated
in the consolidated financial statements. In the opinion of the Company,
all adjustments, consisting only of normal recurring accruals necessary for
fair presentation, have been included in the financial statements. The
results of operations for the three months ended September 30, 2001, are
not necessarily indicative of results for the fiscal year. It is suggested
that the interim consolidated financial statements are read in conjunction
with the consolidated financial statements and notes included in the
Company's Annual Report on Form 10-K for the year ended June 30, 2001.
Certain reclassifications have been made to prior year financial
information in order to conform to the current year's presentation. These
changes were made for disclosure purposes only and did not have an impact
on previously reported results of operations or shareholders' equity.
(3) INVENTORIES
Inventories at September 30, 2001 and June 30, 2001 are summarized as
follows (dollars in thousands):
September 30, June 30,
2001 2001
---------- ------------
Finished goods $118,114 $115,661
Work in process 17,375 19,521
Raw materials 38,361 40,854
------- -------
$173,850 $176,036
======= =======
(4) GOODWILL AND OTHER INTANGIBLE ASSETS
On July 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets". As of September 30, 2001 the Company had goodwill (net
of accumulated amortization) of $21.3 million and intangible assets (net of
accumulated amortization) of $37.9 million. Goodwill in the wholesale and
retail segments was $7.9 million and $13.4 million, respectively. The
wholesale segment includes the intangible assets of $37.9 million. These
assets include Ethan Allen trade names and product technology, which were
formerly being amortized over 40 years. The Company has re-assessed the
useful lives of goodwill and intangible assets and both were deemed to have
indefinite useful lives. Amortization of these assets ceased on July 1,
2001. No impairment losses were recorded on these intangible assets due to
the change in their estimated useful lives.
6
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(4) GOODWILL AND OTHER INTANGIBLE ASSETS (continued)
The requirements of this provision allow a six-month transitional period
from the date of adoption for the Company to assess goodwill impairment.
The Company is currently in the process of testing its reporting units for
goodwill impairment and expects its valuations to be completed by December
31, 2001.
The following table reconciles the Company's reported net income and
earnings per share with pro forma balances adjusted to exclude goodwill
amortization, which is no longer recorded under SFAS No. 142. The current
quarter's net income and earnings per share are presented for comparative
purposes only.
Three Months
Ended September 30,
2001 2000
------ -------
Net Income:
Reported net income $ 16,731 $ 20,700
Add back: Goodwill amortization after-tax -- 72
Add back: Intangible asset amortization after-tax -- 211
---------- ----------
Adjusted Net Income $ 16,731 $ 20,983
========== ==========
Basic Earnings per Share:
Reported earnings per share $ 0.43$ 0.52
Goodwill amortization -- --
Intangible asset amortization -- 0.01
---------- ----------
Adjusted Earnings per Share $ 0.43$ 0.53
========== ==========
Diluted Earnings per Share:
Reported earnings per share $ 0.42$ 0.51
Goodwill amortization -- --
Intangible asset amortization -- 0.01
---------- ----------
Adjusted Earnings per Share $ 0.42$ 0.52
========== ==========
(5) RESTRUCTURING AND IMPAIRMENT CHARGE
In the fourth quarter of fiscal year 2001, the Company announced 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 September 30, 2001, the remaining restructuring reserve
of $0.5 million was included in the Consolidated Balance Sheets as an
accrued expense in current liabilities.
7
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(5) RESTRUCTURING AND IMPAIRMENT CHARGE (continued)
Activity in the Company's restructuring reserve is summarized as follows
(dollars in thousands):
Employee severance and other related payroll and benefit costs
Original Cash Non-cash
Charges Payments Utilized Total
Employee severance and
other elated payroll
and benefit costs $2,974 $(2,603) $ - $ 371
Plant exit costs and other 332 (202) - 130
Write-down of long-term
assets 3,600 - (3,600) -
------ ----- ------ -----
Balance as of September 30, 2001 $ 6,906 $(2,805) $(3,600) $ 501
====== ====== ====== =====
(6) CONTINGENCIES
The Company has been named as a Potentially Responsible Party ("PRP") for
the cleanup of four 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 two of these sites by completing remedial
action activities or through legal settlement. With regards to the third
site, the Company does not anticipate incurring significant cost. The
Company believes it is not a major contributor based on the very small
volume of waste generated by the Company in relation to total volume at the
site; however, liability under CERCLA may be joint and several. In relation
to the fourth site, the Company has been notified that it may be a
potentially responsible party for a disposal site to which waste material
was sent. The extent of any financial impact upon the Company cannot be
reasonably estimated at this time.
(7) EARNINGS PER SHARE
Basic and diluted earnings per share are calculated using the following
share data (amounts in thousands):
Three Months Ended
September 30,
2001 2000
------ ------
Weighted average common
shares outstanding for
basic calculation 38,670 39,390
Add: Effect of stock options
and warrants 1,601 800
------ ------
Weighted average common
shares outstanding for
diluted calculation 40,271 40,190
====== ======
As of September 30, 2001 and 2000, stock options to purchase 19,000 shares
and 895,000 shares of common stock, respectively, had an exercise price in
excess of the average market price. These options have been excluded from
the diluted earnings per share calculation since their effect is
anti-dilutive.
8
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(8) SEGMENT INFORMATION
The Company's reportable segments are strategic business areas that are
managed separately and offer different products and services. The Company's
operations are classified into two main segments: wholesale and retail home
furnishings.
The wholesale home furnishings segment is principally involved in the
manufacture, sale and distribution of home furnishing products to a network
of independently owned and Ethan Allen-owned stores. Wholesale
profitability includes the wholesale gross margin, which is earned on
wholesale sales to all retail stores, including Ethan Allen-owned stores.
The retail home furnishings segment sells home furnishing products through
a network of Ethan Allen-owned stores. Retail profitability includes the
retail gross margin, which is earned based on purchases from the wholesale
segment.
The operating segments follow the same accounting policies. The Company
evaluates performance of the respective segments based upon revenues and
operating income. Inter-segment eliminations primarily comprise the
wholesale sales and profit on the transfer of inventory between segments.
Inter-segment eliminations also include items not allocated to reportable
segments.
The following table presents segment information for the three months ended
September 30, 2001 and 2000 (dollars in thousands):
Three Months Ended
September 30,
2001 2000
-------- --------
Net Sales:
----------
Wholesale segment $ 154,884 $ 161,955
Retail segment 98,840 98,526
Elimination of inter-company
sales (46,999) (49,250)
--------- ---------
Consolidated Total $ 206,725 $ 211,231
========= =========
Operating Income:
-----------------
Wholesale segment $ 23,264 $ 26,234
Retail segment 3,002 6,035
Elimination (1) 269 1,033
--------- ---------
Consolidated Total $ 26,535 $ 33,302
========= =========
Capital Expenditures:
---------------------
Wholesale segment $ 4,254 $ 5,728
Retail segment 3,877 3,457
Acquisition of retail
businesses 10,366 --
--------- ---------
Consolidated Total $ 18,497 $ 9,185
========= =========
Total Assets:
Wholesale segment $ 437,218 $ 417,679
Retail segment 206,313 184,256
Inventory profit
elimination(2) (24,640) (26,486)
--------- ---------
Consolidated Total $ 618,891 $ 575,449
========= =========
9
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(8) SEGMENT INFORMATION (CONTINUED)
(1) The adjustment reflects the change in the elimination entry for profit in
ending inventory.
(2) Inventory profit elimination reflects the embedded wholesale profit in the
Company-owned store inventory that has not been realized. These profits
will be recorded when shipped to the retail customer.
There are 29 independent retail stores located outside the United States.
Approximately 2.4% of the Company's net sales for the three months ended
September 30, 2001 and 2000 are derived from sales to these retail stores.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussions set forth in this form 10-Q should be read in conjunction with
the financial information included herein and the Company's Annual Report on
Form 10-K for the year ended June 30, 2001. Management's discussion and analysis
of financial condition and results of operations and other sections of this
report contain forward-looking statements relating to future results of the
Company. Such forward-looking statements are identified by use of
forward-looking words such as "anticipates", "believes", "plans", "estimates",
"expects", and "intends" or words or phrases of similar expression. These
forward-looking statements are subject to various assumptions, risk and
uncertainties, including but not limited to, changes in political and economic
conditions, demand for the Company's products, acceptance of new products,
conditions in the various geographical markets where the Company does business,
developments affecting the Company's products and to those discussed in the
Company's filings with the Securities and Exchange Commission. Accordingly,
actual results could differ materially from those contemplated by the
forward-looking statements.
RESULTS OF OPERATIONS:
Ethan Allen's revenues are comprised of wholesale sales to dealer-owned and
company-owned retail stores and retail sales of company-owned stores. See Note 8
to the Company's Consolidated Financial Statements for the three months ended
September 30, 2001 and 2000. The components of consolidated revenues and
operating income are as follows (dollars in millions):
Three Months Ended
September 30,
2001 2000
------ ------
Revenue:
Wholesale segment $ 154.9 $ 161.9
Retail segment 98.8 98.5
Elimination of inter-segment sales (47.0) (49.2)
------ ------
Consolidated Revenue $ 206.7 $ 211.2
====== ======
Operating Income:
Wholesale segment $ 23.2 $ 26.2
Retail segment 3.0 6.1
Eliminations 0.3 1.0
------ ------
Consolidated Operating Income $ 26.5 $ 33.3
====== ======
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
Consolidated revenue for the three months ended September 30, 2001
decreased by $4.5 million or 2.1% to $206.7 million from $211.2 million for the
three months ended September 30, 2000. Sales have been negatively impacted this
quarter due to slowing demand caused by a weaker economy.
Total wholesale revenue for the first quarter of fiscal year 2002 decreased
by $7.0 million or 4.3% to $154.9 million from $161.9 million in the first
quarter of fiscal year 2001 due to softening demand.
Total retail revenue from Ethan Allen-owned stores for the three months
ended September 30, 2001 increased by $0.3 million or 0.3% to $98.8 million from
$98.5 million for the three months ended September 30, 2000. The increase in
retail sales by Ethan Allen owned stores was attributable to an increase in
sales generated by newly opened or acquired stores of $5.7 million, partially
offset by a decrease in comparable store sales of $3.8 million, or 4.0%, and by
a decrease from closed stores, which generated $0.7 million less sales in fiscal
year 2002 as compared to fiscal year 2001. The prior year quarter also included
a gain of $0.9 million on the sale of a company-owned retail store to an
independent dealer. The number of Ethan Allen-owned stores increased to 93 as of
September 30, 2001 as compared to 80 as of September 30, 2000. The Company
acquired 11 stores from independent dealers, sold 1 company-owed store
11
to an independent dealer, relocated 2 stores, closed 1 store, and opened 4 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.
Of the 10 stores acquired during the quarter, 6 stores were purchased from Mr.
Edward D. Teplitz, who subsequently joined the Company as Vice President of
Finance (see Part II, Item 5).
Booked orders for the quarter were lower than the prior year quarter by
7.7% due to a weaker economy. Total orders include wholesale orders and written
business of company-owned retail stores. Wholesale orders were down 8.1% and
company-owned stores were down 6.4%. Comparable company-owned store sales were
down 11.9% from last year's first quarter.
Gross profit decreased during the quarter to $94.0 million from $99.7
million in the first quarter of the prior year. The $5.7 million decrease in
gross profit was mainly due to lower sales volume and a decline in the wholesale
gross margin. Consolidated gross margin decreased to 45.5% in the first quarter
of fiscal year 2002 from 47.2% in the prior year first quarter principally from
a lower wholesale gross margin resulting from the production of more affordably
priced products manufactured at lower margins and from costs associated with
manufacturing improvements and process initiatives at various facilities,
including the case goods plants in Dublin, Virginia and Andover, Maine.
Operating expenses increased $1.0 million or 1.5% to $67.4 million or 32.6%
of net sales in the current quarter as compared to $66.4 million or 31.4% of net
sales for the first quarter of fiscal year 2001. This increase was due to the
expansion of the retail segment with the addition of 13 net new Ethan
Allen-owned stores since September 2000. As a result, the retail segment
incurred higher occupancy and warehousing costs this quarter.
Operating income for the three months ended September 30, 2001 was $26.5
million or 12.8% of net sales compared to $33.3 million or 15.8% of net sales
for the three months ended September 30, 2000. Operating income decreased $6.8
million or 20.4% primarily due to a lower wholesale gross margin as noted above,
and greater operating expenses resulting from the growth of the retail segment.
Total wholesale operating income for the first quarter of fiscal year 2002
was $23.2 million or 15.0% of net sales compared to $26.2 million or 16.2% of
net sales in the first quarter of fiscal year 2001. Wholesale operating income
decreased $3.0 million or 11.5% this quarter primarily attributable to lower
sales volume caused by softening demand.
Operating income for the retail segment decreased by $3.1 million for the
three months ended September 30, 2001 to $3.0 million or 3.0% of net sales from
$6.1 million or 6.1% of net sales for the three months ended September 30, 2000.
The decrease in retail operating income was primarily attributable to higher
operating expenses related to the addition of 13 net new stores since September
2000.
Interest and other miscellaneous income of $0.5 million increased $0.3
million over the prior year first quarter due to an increase in interest income
from cash investments.
Income tax expense of $10.1 million was recorded for the three months ended
September 30, 2001 as compared to $12.6 million for the same period in the prior
year. The Company's effective tax rate was 37.8% in the current year and prior
year first quarter.
For the three months ended September 30, 2001, the Company recorded net
income of $16.7 million, a decrease of 19.3%, compared to $20.7 million for the
three months ended
12
September 30, 2000. Earnings per diluted share of $0.42 decreased 19.2% or $0.10
per diluted share in the quarter from $0.52 per diluted share in the prior year
quarter.
FINANCIAL CONDITION AND LIQUIDITY
The Company's principal sources of liquidity are cash flow from operations
and borrowing capacity under a revolving credit facility. Net cash provided by
operating activities totaled $30.5 million for the three months ended September
30, 2001 as compared to $32.9 million for the three months ended September 30,
2000. The decrease of $2.4 million in net cash provided by operating activities
principally resulted from lower earnings and from changes in working capital
requirements for the three months ended September 30, 2001 as compared to the
same period in the prior year. Net cash used in investing activities increased
$11.7 million to $18.4 million resulting from the retail store acquisitions made
this quarter.
During the three months ended September 30, 2001, capital spending,
exclusive of acquisitions, totaled $8.1 million as compared to $9.2 million for
the three months ended September 30, 2000. Capital expenditures made during the
quarter primarily include (i) new retail store construction and store interior
redesigns, (ii) manufacturing capital equipment purchases and upgrades, and
(iii) a plant expansion project in Andover, Maine. Capital expenditures for
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 this level of capital
expenditures and acquisitions.
Net cash used in financing activities of $21.9 million increased by $12.1
million due to the repurchase of the Company's common stock during the quarter.
Total debt outstanding at September 30, 2001 was $9.5 million. At September 30,
2001, there were no revolving loans outstanding. The Company had $19.2 million
of trade and standby letters of credit outstanding, leaving $105.8 million
available under its revolving credit facility at September 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 the first quarter of fiscal year 2002 and 2001, the
Company repurchased the following shares of its common stock:
First Quarter
2001 2000
---------- ----------
Common shares repurchased 727,680 7,919
Cost to repurchase common shares $20,556,471 $215,983
Average price per share $ 28.25 $ 27.27
The Company funded its common stock repurchases through available cash and
cash from operations. As of September 30, 2001, the Company had a remaining
Board authorization to purchase 0.7 million shares.
As of September 30, 2001, aggregate scheduled maturities of long-term debt
for each of the next five fiscal years are $0.1 million, $0.1 million, $4.7
million, $0.1 million and $0.1 million, respectively. Management believes that
its cash flow from operations, together with its other available sources of
liquidity, will be adequate to make all required payments of principal and
interest on its debt, to permit anticipated capital expenditures and to fund
working capital and other cash requirements over the next twelve months. As of
September 30, 2001, the Company had working capital of $165.2 million and a
current ratio of 2.47 to 1.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- ------------------------------------------------------------------
The Company is exposed to interest rate risk primarily through its
borrowing activities. The Company's policy has been to utilize United States
dollar denominated borrowings to fund its working capital and investment needs.
Short-term debt, if required, is used to meet working capital requirements and
long-term debt is generally used to finance long-term investments. There is
inherent 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. Although the Company did not have any revolving loans outstanding
under the Credit Agreement as of September 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 long-term debt instrument outstanding with a variable
interest rate. This debt instrument has a principal balance of $4.6 million,
which matures in 2004. Based on the principal balance outstanding, a one
percentage point increase in the variable interest rate would not have had a
significant impact on the Company's interest expense.
The Company is not currently exposed to foreign currency exchange,
commodity price, 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.
14
PART II. OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
There has been no change to matters discussed in Business-Legal Proceedings
in the Company's Form 10-K as filed with the Securities and Exchange Commission
on September 17, 2001.
ITEM 2. - CHANGES IN SECURITIES
There has been no change to matters discussed in Description and Ownership
of Capital Stock in the Company's Form 10-K as filed with the Securities and
Exchange Commission on September 17, 2001.
ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. - OTHER INFORMATION
On August 31, 2001, the Company acquired certain assets associated with
the retail operations of 6 Ethan Allen Home Interiors stores in the Pittsburgh
and Cleveland metropolitan areas from two entities owned and controlled by
Mr. Edward Teplitz. The total purchase price for the assets was $10.1 million,
net of the assumption of certain liabilities and subject to post-closing
adjustments. Approximately $3.5 million of the purchase price was allocated to
the two real estate properties acquired in the transaction with the remaining
$6.6 million allocated to other assets. The purchase price was determined by
mutual negotiation and was based upon the latest balance sheets of the two
selling entities. Subsequent to the closing, Mr. Teplitz joined the Company as
Vice President of Finance.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
None.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ETHAN ALLEN INTERIORS INC.
(Registrant)
DATE: 11/15/01 BY: /s/ M. Farooq Kathwari
------------------ -------------------------------------
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: 11/15/01 BY: /s/ Edward D. Teplitz
----------------- -------------------------------------
Edward D. Teplitz
Vice President, Finance
(Principal Financial Officer)
DATE: 11/15/01 BY: /s/ Michele Bateson
------------------ --------------------------------------
Michele Bateson
Corporate Controller
(Principal Accounting Officer)
16