UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (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, 1998 ----------------------------------------------------- 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 1-11806 --------------------------------------------------------- Ethan Allen Interiors Inc.; Ethan Allen Inc.; Ethan Allen Finance Corporation; Ethan Allen Manufacturing Corporation (Exact name of registrant as specified in its charter) Delaware 06-1275288 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Ethan Allen Drive, Danbury, CT 06811 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 743-8000 -------------------------- Securities registered pursuant to Section 12(b) of the Act: 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 - -------------------------------------------------------------------------------- (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. [ ] 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 28, 1998 was approximately $1,039,610,901. As of August 28, 1998, there were 28,192,838 shares of Common Stock, par value $.01 outstanding. DOCUMENTS INCORPORATED BY REFERENCE The definitive Proxy Statement for the 1998 Annual Shareholders Meeting is incorporated by reference into Part III hereof. Item 8 to the Form 10-K, filed on September 18, 1998, is hereby amended to read in its entirety as follows: 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, 1998 and 1997, 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, 1998. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule listed in the index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 1998, in conformity with generally accepted accounting principles. 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. KPMG PEAT MARWICK LLP Stamford, Connecticut August 5, 1998 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY Consolidated Balance Sheets June 30, 1998 and 1997 (Dollars in thousands) ASSETS 1998 1997 ------ ---- ---- Current assets: Cash and cash equivalents $ 19,380 $ 21,866 Short term investments -- 17,975 Accounts receivable, less allowance of $2,022 and $1,903 at June 30, 1998 and 1997, respectively 35,640 32,232 Notes receivable, current portion, less allowance of $27 and $74 at June 30, 1998 and 1997, respectively 686 1,056 Inventories (note 2) 114,364 107,525 Prepaid expenses and other current assets 10,735 6,724 Deferred income taxes (note 9) 7,094 7,353 -------- -------- Total current assets $187,899 $194,731 -------- -------- Property, plant and equipment, net (note 3) 188,171 171,406 Property held for sale 1,129 1,135 Notes receivable, net of current portion, less allowance of $259 and $145 at June 30, 1998 and 1997, respectively 1,790 2,725 Intangibles, net (note 4) 50,773 52,419 Deferred financing costs, net of amortization of $2,280 and $1,916 at June 30, 1998 and 1997, respectively 632 1,560 Other assets 2,729 3,808 -------- -------- Total assets $433,123 $427,784 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Current maturities of long-term debt and capital lease obligations (notes 5 and 6) $ 879 $ 1,119 Accounts payable 51,135 41,172 Accrued expenses 5,863 8,036 Accrued compensation and benefits 15,735 12,983 ------- ------- Total current liabilities 73,612 63,310 ------- ------- Long-term debt, less current maturities (note 5) 11,480 64,066 Obligations under capital leases, less current maturities (note 6) 1,016 2,700 Other long-term liabilities, principally long-term compensation, environmental and legal reserves 812 815 Deferred income taxes (note 9) 31,883 31,459 --------- --------- Total liabilities $ 118,803 $ 162,350 --------- --------- Commitments and contingencies (notes 5 and 13) -- -- Shareholders' equity (notes 7 and 8): Class A common stock, par value $.01, 70,000,000 shares authorized, 29,669,470 shares issued at June 30, 1998, 29,465,400 shares issued at June 30, 1997 296 294 Preferred stock, par value $.01, 1,055,000 shares authorized, no shares issued and outstanding at June 30, 1998 and 1997 -- -- Additional paid-in capital 262,462 257,684 --------- --------- $ 262,758 257,978 Less: Treasury stock (at cost) 1,216,096 shares at June 30, 1998 and 700,032 shares at June 30, 1997 (33,750) (10,440) --------- --------- 229,008 247,538 Retained earnings 85,312 17,896 --------- --------- Total shareholders' equity 314,320 265,434 Total liabilities and shareholders' equity $ 433,123 $ 427,784 ========= ========= See accompanying notes to consolidated financial statements. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY Consolidated Statements of Operations Years ended June 30, 1998, 1997, and 1996 (Dollars in thousands, except per share data) 1998 1997 1996 ---- ---- ---- Net sales $ 679,321 $ 571,838 $ 509,776 Cost of sales 363,746 323,600 304,650 --------- --------- --------- Gross profit 315,575 248,238 205,126 Operating expenses: Selling 110,240 85,927 74,582 General and administrative 85,645 76,462 74,977 --------- --------- --------- Operating income 119,690 85,849 55,567 --------- --------- --------- Interest and other miscellaneous income, net 3,449 1,272 1,039 Interest and related expense: Interest 4,245 5,864 8,882 Amortization of deferred financing costs 364 563 734 --------- --------- --------- 4,609 6,427 9,616 --------- --------- --------- Income before income taxes and extraordinary charge 118,530 80,694 46,990 Income tax expense (note 9) 46,582 31,954 18,845 --------- --------- --------- Income before extraordinary charge 71,948 48,740 28,145 Extraordinary charge from early retirement of debt, net of income tax benefit of $527 (note 5) 802 -- -- --------- --------- --------- Net income $ 71,146 $ 48,740 $ 28,145 ========= ========= ========= Per share data (notes 1 and 7): Net income per basic share before extraordinary charge $ 2.51 $ 1.69 $ 0.98 Extraordinary charge (note 5) (0.03) -- -- --------- --------- --------- Net income per basic share $ 2.48 $ 1.69 $ 0.98 ========= ========= ========= Net income per diluted share before extraordinary charge $ 2.45 $ 1.67 $ 0.97 Extraordinary charge (note 5) (0.03) -- $ -- --------- --------- --------- Net income per diluted share $ 2.42 $ 1.67 $ 0.97 ========= ========= ========= Dividends declared per common share $ 0.14 $ 0.10 $ 0.04 ========= ========= ========= See accompanying notes to consolidated financial statements. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY Consolidated Statements of Cash Flows Years ended June 30, 1998, 1997 and 1996 (Dollars in thousands)
1998 1997 1996 ---------- ---------- ---------- Operating activities: Net income $ 71,146 $ 48,740 $ 28,145 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 15,868 16,411 17,495 Compensation expense related to restricted stock award 2,136 891 180 Provision for deferred income taxes 683 575 622 Extraordinary charge 802 - - Other non-cash benefit (charges) 77 498 (64) Change in: Accounts receivable (3,340) 1,822 1,407 Inventories (6,839) 2,726 6,891 Prepaid and other current assets (4,011) 653 745 Other assets (891) 137 (271) Accounts payable 11,576 5,099 4,333 Accrued expenses 414 973 1,621 Other long-term liabilities (3) (221) (36) ------- ------- ------- Net cash provided by operating activities 87,618 78,304 61,068 ------- ------- ------- Investing activities: Proceeds from the disposal of property, plant, and equipment 827 110 1,216 Proceeds from the disposal of property held for sale - 1,945 - Capital expenditures (29,665) (23,383) (13,314) Payments received on long-term notes receivable 1,538 1,152 2,559 Disbursements made for long-term notes receivable (302) (1,077) (935) Redemption of short term securities 30,270 - - Investments in short term securities (12,295) (17,975) - ------- ------- ------- Net cash used in investing activities ( 9,627) (39,228) (10,474) ------- ------- ------- Financing activities: Borrowings on revolving credit facilities - 14,500 56,500 Payments on revolving credit facilities - (21,500) (95,500) Redemption of Senior Notes (52,543) (9,457) (6,000) Premium paid on Senior Note redemption (461) - - Other payments on long-term debt and capital leases (2,079) (2,134) (1,823) Other borrowings on long-term debt 111 794 500 Payments to acquire treasury stock (23,310) (7,249) (3,895) Net proceeds from issuance of common stock 1,255 1,235 1,294 Increase in deferred financing costs -- (173) (138) Dividends paid (3,450) (2,304) -- -------- -------- -------- Net cash used in financing activities (80,477) (26,288) (49,062) -------- -------- -------- Net (decrease)/increase in cash and cash equivalents (2,486) 12,788 1,532 Cash and cash equivalents at beginning of year 21,866 9,078 7,546 -------- -------- -------- Cash and cash equivalents at end of year $ 19,380 $ 21,866 $ 9,078 ======== ======== ======== Supplemental disclosure: Cash payments for: Income taxes $ 45,382 $ 28,116 $ 12,515 Interest 5,585 6,138 9,073 Non cash transactions: Additions to obligations under capitalized leases -- 504 1,107 Acquisition of stores with treasury stock -- 3,327 --
See accompanying notes to consolidated financial statements. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY Consolidated Statements of Shareholders' Equity Years ended June 30, 1998, 1997 and 1996 (Dollars in thousands)
Retained Additional Earnings/ Common Paid-in Notes Treasury (Accumulated Stock Capital Receivable Stock Deficit) Total ----- ------- ---------- ----- -------- ----- Balance at June 30, 1995 288 252,425 (592) (1,476) (57,547) 193,098 Issuance of common stock 4 1,470 -- -- -- 1,474 Payments received on notes receivable -- -- 541 -- -- 541 Increase in vested management warrants (note 8) -- 304 -- -- -- 304 Purchase of 358,564 shares of treasury stock -- -- -- (3,895) -- (3,895) Dividend declared -- (574) -- -- -- (574) Tax benefit associated with the exercise of employee stock options and warrants -- 1,200 -- -- -- 1,200 Net income -- -- -- -- 28,145 28,145 --------- --------- --------- --------- --------- --------- Balance at June 30, 1996 $ 292 $ 254,825 $ (51) $ (5,371) $ (29,402) $ 220,293 Issuance of common stock 2 2,124 -- -- -- 2,126 Payments received on notes receivable -- -- 51 -- -- 51 Increase in vested management warrants (note 8) -- 71 -- -- -- 71 Purchase of 333,296 shares of treasury stock -- -- -- (7,249) -- (7,249) Shares issued in connection with acquisition -- 1,147 -- 2,180 -- 3,327 Dividends declared -- (1,152) -- -- (1,442) (2,594) Tax benefit associated with the exercise of employee stock options and warrants -- 669 -- -- -- 669 Net income -- -- -- -- 48,740 48,740 --------- --------- --------- --------- --------- --------- Balance at June 30, 1997 $ 294 $ 257,684 $ -- $ (10,440) $ 17,896 $ 265,434 Issuance of common stock 2 3,389 -- -- -- 3,391 Purchase of 516,064 shares of treasury stock -- -- -- (23,310) -- (23,310) Dividends declared -- -- -- -- (3,730) (3,730) Tax benefit associated with the exercise of employee stock options and warrants -- 1,389 -- -- -- 1,389 Net income -- -- -- -- 71,146 71,146 --------- --------- --------- --------- --------- --------- Balance at June 30, 1998 $ 296 $ 262,462 $ -- $ (33,750) $ 85,312 $ 314,320 ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 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 310 retail stores, of which 67 are Ethan Allen-owned and 243 are independently owned. Retail stores are primarily located in North America, with 20 located abroad. Ethan Allen has 21 manufacturing facilities and 3 sawmills throughout the United States. Cash Equivalents ---------------- Cash equivalents of $4,999,000 and $9,754,000 at June 30, 1998, and 1997, respectively, consist of overnight repurchase agreements and commercial paper with an initial term of less than three months. For the purposes of the statements of cash flows, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. Short Term Investments ---------------------- Short term investments consist primarily of certificates of deposits and debt securities and have been classified as held-to-maturity, having maturities of one year or less. Because of the short maturity of the short term investments, the carrying amount approximates fair value. 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. Property Held for Sale ---------------------- Property held for sale is recorded at net realizable values. The Company continues to actively market the properties. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Intangible Assets ----------------- Intangible assets primarily represent goodwill, trademarks and product technology which will be amortized on a straight-line basis over forty years. Goodwill represents the excess of cost of the Company over the fair value of net identifiable assets acquired. 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 of projected discounted future results. Notes Receivable ---------------- Notes receivable represent financing arrangements under which Ethan Allen has made loans to certain of its dealers. These loans primarily have terms ranging from five to eight years and are generally secured by the assets of the borrower. Interest is charged on outstanding balances at a rate which generally approximates the prime rate plus an additional rate which may be adjustable over the loan term. Financial Instruments --------------------- The carrying value of the Company's financial instruments approximates fair market value. Deferred Financing Costs ------------------------ Debt financing costs are deferred and amortized, using the straight-line method, over the term of the related debt. 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 when goods are shipped to dealers, with the exception of shipments under Ethan Allen's Home Delivery Service Center Program. These sales are recognized as revenue when goods are shipped to the Home Delivery Service Centers, at which point title has passed to the dealers. Ethan Allen, through its Home Delivery Service Centers, provides preparation and delivery services for its dealers for a fee which is recognized as revenue upon delivery of goods to the retail customer. Sales made through Ethan Allen-owned stores are recognized when delivery is made to the customer. Advertising Costs ----------------- Advertising costs are expensed when first aired or distributed. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Advertising costs for the fiscal years 1998, 1997, and 1996 were $40,035,000, $27,712,000 and $21,289,000, respectively. Prepaid advertising costs for the fiscal years 1998 and 1997 were $3,021,000, and $1,497,000. Pre-opening Expenses -------------------- All costs incurred prior to the opening of a new Ethan Allen-owned store are deferred and amortized over the respective store's first twelve months of operations. 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 ------------------ Effective December 1997, the Company adopted Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per Share". The statement sets forth guidance on the presentation of earnings per share and requires dual presentation of basic and diluted earnings per share on the face of the statement of operations. Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if all dilutive potential common shares were exercised. All earnings per share amounts have been restated to reflect this new standard. Stock Options ------------- In fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock Based Compensation". As permitted by SFAS 123, the Company will continue to follow 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. Use of Estimates ---------------- The preparation of financial statements in conformity with generally accepted accounting principles 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. (2) Inventories ----------- Inventories at June 30 are summarized as follows (dollars in thousands): 1998 1997 ---- ---- Retail Merchandise $ 38,329 $ 34,478 Finished products 28,931 32,665 Work in process 15,707 13,333 Raw materials 31,397 27,049 ------- ------- $114,364 $107,525 ======== ======== ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (3) Property, Plant and Equipment Property, plant and equipment at June 30 are summarized as follows (dollars in thousands): 1998 1997 ---- ---- Land and improvements $ 26,941 22,624 Buildings and improvements 182,437 168,990 Machinery and equipment 80,294 70,288 -------- ------- 289,672 261,902 Less accumulated depreciation (101,501) (90,496) -------- ------- $ 188,171 $171,406 ======== ======= (4) Intangibles Intangibles at June 30 are summarized as follows (dollars in thousands): 1998 1997 ---- ---- Product technology $ 25,950 $ 25,950 Trademarks 28,200 28,200 Goodwill 11,333 11,333 Other 350 350 -------- -------- 65,833 65,833 Less accumulated amortization (15,060) (13,414) -------- -------- $ 50,773 $ 52,419 ======== ======== (5) Borrowings Long-term debt at June 30 consists of the following (dollars in thousands): 1998 1997 ---- ---- 8.75% Senior Notes due 2001 $ -- $52,543 Other Debt: 9.75% mortgage note payable in monthly installments through 2015 collateralized by Ethan Allen Inn 1,552 1,589 Industrial Revenue Bonds, 4.0% - 8.0%, maturing at various dates through 2011 8,455 8,455 Other 1,627 1,626 ------- ------- Total debt 11,634 64,213 Less current maturities 154 147 ------- ------- $11,480 $64,066 ======= ======= During fiscal year 1998, the Company completed its optional early redemption of all of its then-outstanding $52.4 million 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 $.8 million or $0.03 a share, 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. During fiscal 1998, 1997, and 1996, $.1 million, $9.5 million, and $6.0 million, respectively, of Senior Notes were repurchased at 102.19%, 101.48%, and 101.25% of face value, respectively. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) During 1995, the Company had completed a five year financing arrangement to provide up to $110.0 million of senior secured debt under a revolving credit facility pursuant to a Credit Agreement with Chase Manhattan Bank, as agent, proceeds of which were used to repay existing senior secured debt. The revolving credit facility includes a $40.0 million sub-facility for trade and standby letters of credit availability and a $3.0 million swingline loan sub-facility. Loans under the revolving credit facility bear interest at Chase Manhattan Bank's Alternative Base Rate, or adjusted LIBOR plus .5%, which is subject to adjustment arising from changes in the credit rating of Ethan Allen's senior secured debt. For fiscal years ended June 30, 1998, 1997 and 1996 the weighted-average interest rates were 8.13%, 7.37% and 6.81%, respectively. There are no minimum repayments required during the term of the facility. During 1997, the Company amended its Credit Agreement which it had originally entered into during 1995, with Chase Manhattan Bank as agent. Amendments to the Credit Agreement include: (1) the reduction of the commitment of senior secured debt under a revolving credit facility to $100.0 million; (2) reduction of the Eurodollar spread used in determining adjusted LIBOR which is subject to adjustment arising from changes in the credit rating of Ethan Allen's senior secured debt or Fixed Charge Ratio; (3) elimination of a lien on certain fixed assets as collateral and (4) amendment of certain additional debt and restricted payment limitations. At June 30, 1998 and 1997, there were no outstanding revolving loans under the Credit Agreement. The Credit Agreement is secured by a first lien in respect of Ethan Allen's accounts receivable, inventory, trademarks, patents and the Company's shares of Ethan Allen's capital stock. 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 Credit Agreement contains covenants requiring the maintenance of certain defined tests and ratios and limit the ability of Ethan Allen and the Company to incur debt, engage in mergers and consolidations, make restricted payments, make asset sales, make investments and issue stock. The Credit Agreement contains various customary events of default. Ethan Allen satisfied the requirements of the covenants in the Credit Agreement at June 30, 1998. In June 1996, the Company closed on loan commitments in the aggregate amount of approximately $1.4 million related to the modernization of its Beecher Falls manufacturing facility. Loans made pursuant to these commitments bear interest at rates of 3% to 8% and have maturities of 7 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 a 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, 1998, are as follows (dollars in thousands): 1999 . . . . . . . . . . . $ 154 2000 . . . . . . . . . . . 411 2001 . . . . . . . . . . . 168 2002 . . . . . . . . . . . 180 2003 . . . . . . . . . . . 195 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (6) Leases Ethan Allen leases real property and equipment under various operating and capital 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. Property, plant and equipment include the following amounts for leases which have been capitalized at June 30 (dollars in thousands): 1998 1997 ---- ---- Land and improvements $ 103 $ 103 Buildings and improvements 911 911 Machinery and equipment 11,131 11,131 -------- -------- 12,145 12,145 Less accumulated depreciation (11,744) (10,732) -------- -------- $ 401 $ 1,413 ======== ======== Future minimum payments by year and in the aggregate, under the capital leases and non-cancelable operating leases, with initial or remaining terms of one year or more consisted of the following at June 30, 1998 (dollars in thousands): Capital Operating Fiscal Year Ending June 30: Leases Leases --------------------------- ------ ------ 1999 $ 841 $10,036 2000 635 9,332 2001 425 8,256 2002 33 7,922 2003 12 7,464 Subsequent to 2003 9 24,928 ------- ------- Total minimum lease payments 1,955 $67,938 ======= Amounts representing interest 214 Present value of future minimum ------- lease payments 1,741 Less amounts due in one year 725 ------- Long-term obligations under capital leases $ 1,016 ======= The above amounts will be offset by minimum future rentals from subleases of $13,000,129 on operating leases. Total rent expense for the fiscal years ended June 30 was as follows (dollars in thousands): 1998 1997 1996 -------- -------- -------- Basic rentals under operating leases $ 14,997 $ 14,578 $14,419 Contingent rentals under operating leases 977 1,028 1,082 -------- ------- ------ 15,974 15,606 15,501 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Less sublease rent 2,173 1,923 1,782 -------- -------- -------- $ 13,801 $ 13,683 $ 13,719 ======== ======== ======== 35 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (7) Shareholders' Equity On August 6, 1997, the Company declared a two-for-one stock split to be distributed on September 2, 1997 to shareholders of record on August 18, 1997. All related amounts have been retroactively adjusted to reflect the stock split. During fiscal 1997, the Company acquired a number of retail stores and used 146,224 treasury shares with a fair value of $3.3 million as part of the consideration of the transaction. 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 $62.50 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. 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. The Company's authorized capital stock consists of (a) 70,000,000 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, 1998, no shares of Preferred Stock or shares of Class B Common Stock were issued or outstanding. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Basic and diluted earnings per share are calculated based upon the provisions of SFAS 128, using the following share data (in thousands): 1998 1997 1996 ---- ---- ---- Weighted average common shares outstanding for basic calculation 28,700 28,793 28,624 Add: Effect of stock options 724 417 504 ------ ------ ------ Weighted average common shares outstanding, adjusted for diluted calculation 29,424 29,210 29,128 ====== ====== ====== (8) Employee Stock Plans The Company has reserved 4,946,466 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 key 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 3,660,398 shares. Through June 30, 1997, options covering 68,000 shares, which are exercisable at prices ranging from $9.00 to $9.75, were awarded to independent directors and will vest 50% on each of the first two anniversary dates of the grant. During fiscal 1998, options to purchase 24,000 shares at an exercise price of $31.75 per share were granted to the independent directors. Options to purchase 120,000 shares were awarded to Mr. Kathwari, Chairman of the Board, Chief Executive Officer, and President of Ethan Allen Interiors Inc., during fiscal year 1995 and an additional 480,000 options to purchase shares were awarded to Mr. Kathwari during 1996. These options are exercisable at $9.75 and $9.50 per share, respectively and will vest over seven years commencing with the first vesting date of July 27, 1994, and each of the next six years. During fiscal 1998, Mr. Kathwari was awarded options to purchase 500,000 shares at an exercise price of $31.75 and options to purchase 500,000 shares at an exercise price of $41.28. These options will vest over three years from the date of grant. Through June 30, 1997, options to purchase 537,300 shares were issued to other employees with exercise prices ranging from $9.50 to $21.75 per share and options to purchase 49,600 shares were issued to certain key employees in fiscal 1998 and are exercisable at prices ranging from $27.31 to $49.00 per share. Incentive Stock Option Plan --------------------------- Pursuant to the Incentive Stock Option Plan, the Company has granted to members of management options to purchase 553,028 shares of Common Stock at an exercise price of $8.25 per share. Such options vest twenty percent per year over a five-year period. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Management Warrants ------------------- Warrants to purchase 466,374 shares of Common Stock were granted to certain key members of management during fiscal 1991 and 1992. The warrants are currently exercisable at $1.838 per share. Earn-In Warrants ---------------- Earn-In Warrants have been fully earned and 266,666 shares have been allocated to Ethan Allen's managers and employees. Earn-In warrants were exercisable at $.188 per share. Restricted Stock Award ---------------------- Commencing in 1994 and for each of the four subsequent years, annual awards of 20,000 shares of restricted stock were granted to Mr. Kathwari 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. Stock Unit Award ---------------- During fiscal 1998, pursuant to his New Employment Agreement, the Company has established a book account for Mr. Kathwari, which will be credited with 14,000 Stock Units as of July 1 of each year, commencing July 1, 1997, for a total of up to 70,000 Stock Units over the term of the New Employment Agreement, with an additional 14,000 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 1998, 1997 and 1996 is as follows:
Number of shares ---------------------------------------------------- 1992 Stock Incentive Management Earn-In Option Plan Options Warrants Warrants ---------- ---------- ---------- ---------- Outstanding at June 30, 1995 453,400 479,968 241,558 240,902 ---------- ---------- ---------- ---------- Granted in 1996 591,400 -- -- -- Exercised in 1996 (5,900) (134,700) (60,638) (87,992) Canceled in 1996 (25,450) (21,750) (6,234) (11,932) ---------- ---------- ---------- ---------- Outstanding at June 30, 1996 1,013,450 323,518 174,686 140,978 Granted in 1997 139,900 -- -- -- Exercised in 1997 (61,108) (65,734) (46,118) (134,978) Canceled in 1997 (17,776) (2,230) (12) (6,000) ---------- ---------- ---------- ---------- Outstanding at June 30, 1997 1,074,466 255,554 128,556 -- Granted in 1998 1,073,600 -- -- -- Exercised in 1998 (75,086) (36,807) (72,183) -- Canceled in 1998 (4,600) (10) (10) -- ---------- ---------- ---------- ---------- Outstanding at June 30, 1998 2,068,380 218,737 56,363 -- ========== ========== ========== ==========
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The following tables summarize information about stock awards outstanding at June 30, 1998:
Options Outstanding Weighted Weighted Average Average Range of Number Remaining Exercise Prices Outstanding Life Prices --------------- ------------ --------- -------- 1992 Stock Option Plan $9.50 to 9.75 866,180 6.2 yrs. $9.53 $21.75 to 31.75 673,600 9.1 yrs. $29.70 $41.28 to 49.00 528,600 9.2 yrs. $41.69 ------- 2,068,380 Incentive Options $8.25 218,737 1.5 yrs. $8.25 Management Warrants $1.838 56,363 1.5 yrs. $1.838
Options Exercisable Weighted Number of Average Range of Shares Exercise Prices Exercisable Prices --------------- ------------ --------- 1992 Stock Option Plan $9.50 to 9.75 465,548 $9.54 $21.75 to 31.75 23,675 $21.75 ------- 489,223 Incentive Options $8.25 218,737 $8.25 Management Warrants $1.838 56,363 $1.838
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 123, the Company's net income end earnings per share for the fiscal years ended June 30, 1998, 1997 and 1996 would have been reduced to the proforma amounts listed below, (dollars in thousands, except per share data): 1998 1997 1996 ------- ------- -------- Net Income ---------- As reported $ 71,146 $ 48,740 $ 28,145 Proforma 67,945 48,350 27,925 Basic Earnings Per Share ------------------------ As reported $ 2.48 $ 1.69 $ 0.98 Proforma 2.37 1.68 0.97 Diluted Earning Per Share ------------------------- As reported $ 2.42 $ 1.67 $ 0.97 Proforma 2.31 1.66 0.96 The per share weighted average fair value of stock options granted during fiscal 1998, 1997 and 1996 was $13.14, $8.90, and $3.78, 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 5.99%, 6.35% and 6.09% for fiscal 1998, 1997 and 1996, respectively, dividend yield of .5%, 1%, and 1% for fiscal 1998, 1997 and 1996, ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) respectively, expected volatility of 43.3%, 39.8% and 38.7% in fiscal 1998, 1997 and 1996, respectively, and expected lives of five years for each. (9) Income Taxes Total income taxes were allocated as follows (dollars in thousands): 1998 1997 1996 -------- -------- ------- Income from operations $46,582 $31,954 $18,845 Extraordinary charge (527) - - Stockholders' equity (1,389) (669) (1,200) ------- ------- ------- $44,666 $31,285 $17,645 ======= ======= ======= 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): 1998 1997 1996 -------- -------- -------- Current: Federal $ 37,205 $ 25,434 $ 14,445 State 8,694 5,945 3,778 ------ ------- ------- Total current 45,899 31,379 18,223 ------ ------- ------- Deferred: Federal 625 595 517 State 58 (20) 105 ------ ------- ------- Total deferred 683 575 622 ------ ------- ------- Income tax expense on income before extraordinary charge $ 46,582 $ 31,954 $ 18,845 ======= ======= ======= The following is a reconciliation of expected income taxes (computed by applying the Federal statutory rate to income before taxes and extraordinary charge) to actual income tax expense (dollars in thousands): 1998 1997 1996 -------- -------- -------- Computed "expected" income tax expense $ 41,486 $ 28,243 $ 16,447 State income taxes, net of federal income tax benefit 4,786 3,163 2,016 Goodwill amortization 99 99 99 Other, net 211 449 283 ------- ------- ------ Income tax expense on income before extraordinary charge $ 46,582 $ 31,954 $ 18,845 ======= ======= ======= ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The significant components of the deferred tax expense (benefit) are as follows (dollars in thousands): 1998 1997 1996 -------- -------- -------- Deferred tax (benefit) exclusive of the component below $ (825) $ (933) $ (885) Utilization of net operating loss carryforwards 1,508 1,508 1,507 -------- ------- ------- $ 683 $ 575 $ 622 ======== ======= ======= The components of the net deferred tax liability as of June 30 are as follows (dollars in thousands): 1998 1997 -------- ------ Deferred tax assets: Accounts receivable $ 901 $ 853 Inventories 2,483 2,774 Other liabilities and reserves 3,710 3,726 Net operating loss carryforwards 10,243 11,750 ------ ------ Total deferred tax asset 17,337 19,103 ------ ------ Deferred tax liabilities: Property, plant and equipment 25,423 26,811 Intangible assets other than goodwill 15,186 15,681 Miscellaneous 1,517 717 ------- ------- Total deferred tax liability 42,126 43,209 ------- ------- Net deferred tax liability $24,789 $24,106 ======= ======= The Company has tax operating loss carryforwards of approximately $26.0 million at June 30, 1998, of which $4.1 million expires in 2006, $11.3 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. During fiscal 1997, Ethan Allen received a $5.2 million investment tax credit from the State of Vermont. The credit may be utilized to offset 80% of current and future years tax liability and may be carried forward up to 10 years. Ethan Allen does not expect to be able to utilize the entire credit. The estimated net realizable credit of $2 million is being accounted for under the deferral method, with amortization over the average life of the related assets. Management believes that the results of future operations will generate sufficient taxable income to realize the deferred tax assets. (10) Retirement Programs - Employee Benefits The Ethan Allen Profit Sharing and 401(k) Retirement Plan --------------------------------------------------------- The Ethan Allen Profit Sharing and 401(k) Retirement Plan (the "Plan") was formed effectively July 1, 1994 with the merger of the Retirement Program of Ethan Allen Inc. ("Retirement Program") into the Ethan Allen 401(k) Employee Savings Plan. As a result of the merger on July 1, 1994, all participant investments in the Retirement Program (except for the Ethan Allen Restricted stock which was transferred directly) were liquidated and the proceeds were transferred into the Plan and allocated to participant accounts at each participant's request. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The Plan is offered to substantially all employees of the Company who have completed both one year and 1,000 hours of service during the Plan year. 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. Contributions to the profit sharing portion of the Plan are made at the discretion of management. Total profit sharing and 401(k) company match expense was $2,287,549 in 1998, $1,595,099 in 1997, and $2,866,000 in 1996. 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 $3,105,000, $1,567,000, and $2,047,000 in 1998, 1997 and 1996, respectively. (11) 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): Assets 1998 1997 ------ -------- -------- Current assets $187,677 $194,704 Non-current assets 282,874 244,880 -------- -------- Total assets $470,551 $439,584 ======== ======== Liabilities Current liabilities $ 72,380 $ 62,398 Non-current liabilities 45,191 99,040 -------- ------- Total liabilities $117,571 $161,438 ======== ======= A summary of Ethan Allen's operating activity for each of the years in the three-year period ended June 30, 1998, is as follows: 1998 1997 1996 -------- -------- -------- Net sales $679,321 $571,838 $509,776 Gross profit 315,575 248,238 205,126 Operating income 119,845 85,943 55,677 Interest expense 4,245 5,864 8,882 Amortization of deferred financing costs 364 563 734 Income before income taxes and extraordinary charge 118,685 80,787 47,095 Net income $ 71,301 $ 48,833 $ 28,250 ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (12) Business Reorganization The Company implemented a business reorganization ("Reorganization") effective July 1, 1995, which permitted a separation of manufacturing operations from distribution and store operations. The Company believes that the separation of manufacturing operations from distribution and store operations provides for improved measures of performance including profitability of operations and return on assets, by allowing the Company to more easily allocate income, expenses and assets to the separate operations of the Company's business. The Reorganization consisted principally of the following elements: (i) the contribution of Ethan Allen's manufacturing equipment to Ethan Allen Manufacturing Corporation ("EAMC"), which is a wholly owned subsidiary of Ethan Allen (ii) EAMC entered into operating lease arrangements with Ethan Allen for real property used in manufacturing operations (iii) the contribution by Ethan Allen of certain of Ethan Allen's trademarks and service marks, design patents and related assets to Ethan Allen Finance Corporation ("EAFC") which is a wholly owned subsidiary of Ethan Allen, (iv) the full and unconditional guarantee on a senior unsecured basis of Ethan Allen's obligations under Ethan Allen's Credit Agreement and Senior Notes by each of EAMC and EAFC and Andover Woods Products Inc. ("Andover"), a wholly owned subsidiary of Ethan Allen (v) the amendment of the Company's existing guarantee of Ethan Allen's obligations under the Senior Notes which were repurchased in March 1998 (refer to Note 5) to include a guarantee of each Guarantor Subsidiary's obligations under its Subsidiary Guarantee, (vi) the execution of a management agreement and a service mark licensing agreement between Ethan Allen and EAFC (vii) the execution of a management agreement and a trademark licensing agreement between EAMC and EAFC and (viii) the execution of a manufacturing agreement between Ethan Allen and EAMC. Ethan Allen continues to own its headquarters building in Danbury, Connecticut, the real property associated with EAMC's manufacturing operations and the assets and liabilities associated with the current Ethan Allen-owned retail operations and Ethan Allen's distribution, service and home delivery operations. The summarized historical combined balance sheet information for EAMC, EAFC, and Andover (the "Guarantor Subsidiaries") at June 30, 1998 and 1997 is as follows (dollars in thousands): Assets 1998 1997 ------ --------- -------- Current assets $ 134,188 $ 85,355 Non-current assets 174,427 168,540 -------- -------- Total assets $ 308,615 $ 253,895 ======== ======== Liabilities ----------- Current liabilities $ 37,040 $ 28,160 Non-current liabilities 16,316 16,893 -------- -------- Total liabilities $ 53,356 $ 45,053 ======== ======== ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) Summarized historical combined operating activity of the Guarantor Subsidiaries for each of the years in the three-year period ended June 30, 1998 is as follows (dollars in thousands): 1998 1997 1996 ---- ---- ---- Net sales $ 408,884 $ 357,470 $ 317,563 Gross profit 91,596 75,278 57,227 Operating income 72,537 57,113 39,324 Income before income taxes 76,871 61,475 43,636 Net income $ 43,430 $ 37,131 $ 26,400 The summarized historical financial information for the Guarantor Subsidiaries above has been derived from the financial statements of the Company. (13) Litigation 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"). Numerous other parties have been identified as PRP's at these sites. The Company believes its share of waste contributed to these sites is small in relation to the total; however, liability under CERCLA may be joint and several. The Company has total reserves of $500,000 applicable to these sites, which the Company believes would be sufficient to cover any resulting liability. With respect to all of these sites, the Company believes that it is not a major contributor based on the very small volume of waste generated by the Company in relation to total volume at the site. The Company has concluded its involvement with one site and settled as a de-minimis party. For two of the sites, the remedial investigation is ongoing. A volume based allocation of responsibility among the parties has been prepared. With respect to the fourth site, a consent decree to finally resolve the matter with the EPA has been signed. (14) Segment Information The Company's operations are classified into two 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 stores. The retail home furnishings segment sells home furnishing products through a network of Ethan Allen-owned stores. These products consist of case goods (wood furniture), upholstered products, home accessories and indoor/outdoor furniture. Wholesale profitability includes the wholesale gross margin which is earned on wholesale sales to all retail stores, including Ethan Allen-owned stores. Retail profitability includes the retail gross margin which is earned based on purchases from the wholesale business. Inter-segment eliminations primarily comprise the wholesale sales and profit on the transfer of inventory between segments. Operating earnings by business segment are defined as sales less operating costs and expenses. Income and expense items, such as corporate operating expenses, are included in the applicable segment. Identifiable assets are those assets used exclusively in the operations of each business segment. Corporate assets principally comprise cash, deferred financing costs, and deferred income taxes. ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) The following table shows sales, operating earnings and other financial information by respective business segment for the fiscal years ended June 30, 1998, 1997, and 1996 (dollars in thousands):
Inter-Segment 1998 Wholesale Retail Eliminations Consolidated ---- --------- ------ ------------ ------------ Net sales $575,867 $235,230 $(131,776) $679,321 Operating income 109,714 13,747 (3,771) 119,690 Interest and other income 3,159 290 - 3,449 Interest expense - - ( 4,609) ------- Income before income tax expense and extraordinary charge 118,530 Depreciation and amortization 13,753 1,751 - 15,504 Identifiable assets 336,210 69,807 - 406,017 Cash 19,380 Deferred income taxes 7,094 Deferred financing costs 632 ------- Total assets 433,123 Capital expenditures 14,895 14,770 - 29,665 Inter-Segment 1997 Wholesale Retail Eliminations Consolidated ---- --------- ------ ------------ ------------ Net sales $495,001 $175,825 $ (98,988) $571,838 Operating income 84,034 7,419 (5,604) 85,849 Interest and other income 974 298 - 1,272 Interest expense - - - (6,427) ------- Income before income tax expense 80,694 Depreciation and amortization 14,235 1,613 - 15,848 Identifiable assets 335,260 61,745 - 397,005 Cash 21,866 Deferred income taxes 7,353 Deferred financing costs 1,560 ------- Total assets 427,784 Capital expenditures 9,990 13,393 - 23,383 Inter-Segment 1996 Wholesale Retail Eliminations Consolidated ---- --------- ------ ------------ ------------ Net sales $433,886 $155,601 $(79,711) $509,776 Operating income 53,745 4,059 (2,237) 55,567 Interest and other income 663 376 - 1,039 Interest expense - - - (9,616) ------- Income before income tax expense and extraordinary charge 46,990 Depreciation and amortization 15,199 1,562 - 16,761 Identifiable assets 327,371 48,350 - 375,721 Cash 9,078 Deferred income taxes 9,305 Deferred financing costs 1,877 ------- Total assets 395,981 Capital expenditures 7,421 5,893 - 13,314
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued) (15) Selected Quarterly Financial Data (Unaudited) Tabulated below are certain data for each quarter of the fiscal years ended June 30, 1998 and 1997 (dollar amounts in thousands, except per share data). Quarter Ended ---------------------------------------------- September 30 December 31 March 31 June 30 ------------ ----------- -------- ------- 1998 Quarters: Net Sales $152,494 $172,743 $171,434 $182,650 Gross Profit 70,766 80,713 80,404 83,692 Income before extraordinary charge $ 14,034 $ 19,091 $ 18,793 $ 20,030 Net income $ 14,034 $ 19,091 $ 17,991 $ 20,030 Net income per basic share $ 0.49 $ 0.66 $ 0.62 $ 0.70 Net income per diluted share $ 0.48 $ 0.65 $ 0.61 $ 0.68 Dividend declared per common share $ 0.03 $ 0.03 $ 0.04 $ 0.04 1997 Quarters: Net sales $132,355 $138,330 $144,719 $156,434 Gross profit 54,578 59,921 63,308 70,431 Net income $ 8,783 12,227 12,849 14,881 Net income per basic share $ 0.31 $ 0.42 $ 0.45 $ 0.52 Net income per diluted share $ 0.30 $ 0.42 $ 0.44 $ 0.51 Dividend declared per common share $ 0.02 $ 0.02 $ 0.03 $ 0.03 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 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/ Gerardo Burdo Vice President & - ---------------------------------- Corporate Controller (Gerardo Burdo) /s/ Mary Beth Walsh Assistant Corporate - ---------------------------------- Controller (Mary Beth Walsh)