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 December 31, 1996
------------------------------------------------
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; Andover Wood
Products Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1275288
(State or other jurisdiction of incorporation (I.R.S. Employer ID No.)
or organization)
Ethan Allen Drive, Danbury, Connecticut 06811
(Address of principal executive offices)
(203) 743-8000
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. [ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
14,402,367 at December 31, 1996
ETHAN ALLEN INTERIORS INC.
AND SUBSIDIARY
INDEX
PAGE
Part I. Financial Information:
Item 1. Consolidated Financial Statements as of December 31 and June 30,
1996 and for the three and six months ended December 31, 1996 and
1995 (unaudited):
Consolidated Balance Sheets 2
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Consolidated Statement of Shareholders'
Equity 6
Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12
Part II. Other Information: 17
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 6. Exhibits and reports on Form 8-K
-1-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Balance Sheets
(Dollars in thousands)
December 31,
ASSETS 1996 June 30,
(unaudited) 1996
Current assets:
Cash $ 23,238 $ 9,078
Accounts receivable, less allowances of
$2,446 and $2,564 at December 31 and
June 30, 1996, respectively 30,896 33,984
Notes receivable, current portion, less
allowances of $342 and $314 at December
31 and June 30, 1996,respectively 1,400 1,314
Inventories (note 3) 100,236 107,224
Prepaid expenses and other current assets 7,476 7,377
Deferred income taxes 8,593 9,305
------- -------
Total current assets 171,839 168,282
------- -------
Property, plant and equipment, net 163,299 159,634
Property, plant and equipment held for sale (note 4) 1,135 4,233
Notes receivable, net of current portion, less
allowance of $176 and $97 at December 31 and
June 30, 1996, respectively 2,523 2,561
Intangibles, net of amortization of $12,594 and
$11,768 at December 31 and June 30, 1996,
respectively 53,239 54,065
Deferred financing costs, net of amortization of
$1,709 and $1,426 at December 31 and June 30,
1996, respectively 1,767 1,877
Other assets 4,638 5,329
------- -------
Total assets $398,440 $395,981
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and
capital lease obligations $ 1,878 $ 2,498
Accounts payable 34,579 36,742
Accrued expenses 7,204 6,956
Accrued compensation and benefits 13,890 12,939
------- -------
Total current liabilities 57,551 59,135
------- -------
Long-term debt, less current maturities 63,857 79,929
Obligations under capital leases, less current
maturities 2,867 2,752
Other long-term liabilities, principally long-term
compensation and environmental reserves 853 1,036
Deferred income taxes 31,999 32,836
------- -------
Total liabilities 157,127 175,688
------- -------
Commitments and contingencies (note 5) - -
Shareholders' equity:
Class A common stock, par value $.01, 35,000,000 shares authorized, 14,666,781
and 14,568,731 shares
-2-
issued at December 31 and June 30, 1996 respectively 146 146
Preferred stock, par value $.01, 1,055,000 shares
authorized, no shares issued and outstanding at
December 31 and June 30, 1996, respectively - -
Additional paid-in capital 255,170 254,971
------- -------
255,316 255,117
Less: Notes receivable from officer and employees - (51)
Treasury stock (at cost) 264,414 and 256,480
shares at December 31 and June 30, 1996, (5,606) (5,371)
respectively ------- -------
249,710 249,695
Accumulated deficit ( 8,397) (29,402)
------- -------
Total shareholders' equity 241,31 220,293
------- -------
Total liabilities and shareholders' equity $398,440 $395,981
======== ========
See accompanying notes to consolidated financial statements.
-3-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
(Dollars in thousands, except per share data)
Three Months Six Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
Net sales $138,330 $127,212 $270,685 $244,153
Cost of sales 78,409 75,857 156,186 147,327
------- ------- ------- -------
Gross profit 59,921 51,355 114,499 96,826
Operating expenses:
Selling 18,875 17,857 38,035 35,626
General and administrative 19,396 18,270 38,412 36,086
------- ------- ------- -------
Operating income 21,650 15,228 38,052 25,114
------- ------- ------- -------
Interest and other miscellaneous
income, net 295 287 344 590
Interest expense 1,420 2,341 3,011 4,894
Amortization of deferred
financing costs 136 105 357 214
------- ------- ------- -------
Income before income taxes 20,389 13,069 35,028 20,596
Income tax expense 8,162 5,228 14,018 8,255
------- ------- ------- -------
Net income $ 12,227 $ 7,841 $ 21,010 $ 12,341
======= ======= ======= =======
Per share data:
Net income per common share $ 0.84 $ 0.54 $ 1.44 $ 0.85
======= ======= ======= =======
Dividend declared per
common share $ 0.04 $ - $ 0.08 $ -
======= ======= ======= =======
Weighted average common shares
outstanding (in thousands) 14,621 14,472 14,627 14,536
See accompanying notes to consolidated financial statements.
-4-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Six Months
Ended December 31,
1996 1995
Operating activities:
Net income $ 21,010 $ 12,341
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,855 8,586
Provision for deferred income taxes 544 (237)
Other non-cash charges 419 (71)
Change in:
Accounts receivable 3,196 2,044
Inventories 6,988 3,903
Prepaid and other current assets (99) (1,124)
Other assets 68 77
Accounts payable (2,163) 3,284
Accrued expenses 761 359
Other long-term liabilities (183) (31)
------- --------
Net cash provided by operating activities 39,396 29,131
------- --------
Investing activities:
Proceeds from the disposal of property, plant 110 96
and equipment
Proceeds from the disposal of plant, and equipment
held for sale 1,945 -
Capital expenditures (9,753) (6,320)
Payments received on long-term notes receivable 621 977
Disbursements made for long-term notes receivable (727) (400)
Net cash used by investing activities (7,804) (5,647)
------- --------
Financing activities:
Payments on revolving credit facility (21,500) (44,000)
Borrowings on revolving credit facility 14,500 26,500
Other long-term borrowings 440 -
Redemption of Senior Notes (9,384) -
Payments on long-term debt, including (77) (39)
current maturities
Payments under capital leases (1,039) (805)
Issuance of capital stock 611 154
Payments to acquire treasury stock (235) (2,755)
Increase in deferred financing costs (173) (99)
Payment of dividends (575) -
Net cash used by financing activities (17,432) (21,044)
-------- --------
Net increase in cash 14,160 2,440
Cash at beginning of period 9,078 7,546
-------- --------
Cash at end of period $ 23,238 $ 9,986
======== =========
See accompanying notes to consolidated financial statements.
-5-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Consolidated Statements of Shareholders' Equity
Six Months Ended December 31, 1996
(Unaudited)
(Dollars in thousands)
Additional
Common Paid-in Notes Treasury Accumulated
Stock Capital Receivable Stock Deficit Total
----- --------- ---------- -------- ----------- -----
Balance at June 30, 1996 ........................ $ 146 $ 254,971 $ (51) $(5,371) $ (29,402) $ 220,293
Issuance of capital stock ..................... 611 -- -- -- 611
Payments received on notes
receivable .................................. -- -- 51 -- -- 51
Increase in management
warrants .................................... -- 71 -- -- -- 71
Purchase of 7,934 shares
of treasury stock ........................... -- -- -- (235) -- (235)
Tax benefit associated with
the exercise of employee
options and warrants ........................ -- 669 -- -- -- 669
Dividends declared ............................ -- (1,152) -- -- -- (1,152)
Foreign currency adjustment ................... -- -- -- -- (5) (5)
Net income .................................... -- -- -- -- 21,010 21,010
---------- ---------- ------------ ---------- ---------- ----------
Balance at December 31, 1996 .................... $ 146 $ 255,170 $ -- $ (5,606) $ (8,397) $ 241,313
========= ========= =========== ========== ========== =========
See accompanying notes to consolidated financial statements.
-6-
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
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.
(2) Interim Financial Presentation
All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
In the opinion of the Company, all adjustments, consisting only of normal
recurring accruals necessary for fair presentation, have been included in
the financial statements. The results of operations for the three and six
months ended December 31, 1996 are not necessarily indicative of results
for the fiscal year.
(3) Inventories
Inventories at December 31 and June 30, 1996 are summarized as follows
(dollars in thousands):
December 31, June 30,
1996 1996
Retail merchandise $ 27,540 $ 28,695
Finished products 31,765 39,146
Work in process 13,306 12,803
Raw materials 27,625 26,580
------- -------
$100,236 $107,224
(4) Plant, Property Equipment Held for Sale
Property and plants held for resale are recorded at the lower of cost or
net realizable values. As of July 1, 1996, the Company adopted FAS 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
To Be Disposed Of". The adoption of this standard did not have a material
impact on the Company's financial position or its results of operations.
-7-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(5) Contingencies
The Company has been named as a potentially responsible party ("PRP") for
the cleanup of 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, and 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. 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. For three of the
sites, the site assessment is at a very early stage and there has been no
allocation of responsibility among the parties. Environmental assessment
activity with respect to these sites is expected to continue over the next
few years. With respect to the fourth site, final allocation is in the
process of being negotiated.
(6) Wholly-Owned Subsidiary
The Company owns all of the outstanding stock of Ethan Allen, has no
material assets other than its ownership of Ethan Allen stock, and
conducts all significant operating transactions through Ethan Allen. The
Company has guaranteed Ethan Allen's obligations under the Credit
Agreement and Senior Notes and has pledged all the outstanding capital
stock of Ethan Allen to secure its guarantee under its Credit Agreement.
-8-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
The condensed balance sheets of Ethan Allen as of December 31 and June 30,
1996 are as follows (dollars in thousands):
December 31, June 30,
1996 1996
Assets
Current assets $171,794 $168,261
Non-current assets 231,187 231,163
------- -------
Total assets $402,981 $399,424
======= =======
Liabilities
Current liabilities $ 56,926 $ 58,517
Non-current liabilities 99,576 116,553
------- -------
Total liabilities $156,502 $175,070
A summary of Ethan Allen's operating activity for the three and six months
ended December 31, 1996 and 1995, is as follows (dollars in thousands):
Three Months Six Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
-------- -------- -------- ------
Net sales $138,330 $127,212 $270,685 $244,153
Gross profit 59,921 51,355 114,499 96,826
Operating income 21,668 15,256 38,088 25,171
Interest expense 1,420 2,341 3,011 4,894
Amortization of deferred
financing costs 136 105 357 214
Income before income
tax expense 20,407 13,096 35,063 20,650
Net income 12,245 7,868 21,045 12,395
-9-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
7) Business Reorganization
The Company implemented a business reorganization ("Reorganization")
effective July 1, 1995, which permitted the separation of manufacturing
operations from distribution and store operations. This has given the
Company additional flexibility to permit it to reduce its aggregate state
corporate income tax liability by allocating income to the operations
responsible for generating such income thereby reducing the Company's
effective tax rate. The Company believes that the separation of
manufacturing operations from distribution and store operations will also
provide 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
newly formed, wholly-owned subsidiary of Ethan Allen (ii) the execution of
operating lease arrangements between EAMC and 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 newly formed, 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 8-3/4% Senior
Notes due 2001 by each of EAMC and EAFC and Andover Wood Products Inc.
("Andover", the existing wholly-owned subsidiary of the Company)
(collectively, "Guarantor Subsidiaries"), (v) the amendment of the
Company's existing guarantee of Ethan Allen's obligations under the Senior
Notes and the Indenture 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
and a trademark licensing agreement between EAMC and EAFC, (vii) the
execution of a management agreement between Ethan Allen 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 Ethan
Allen-owned retail operations and Ethan Allen's distribution, service and
home delivery operations.
-10-
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
The summarized historical combined balance sheet information for EAMC,
EAFC, and Andover (the "Guarantor Subsidiaries") at December 31 and June
30, 1996 is as follows (dollars in thousands):
December 31, June 30,
Assets 1996 1996
------ ------------ ------
Current assets $ 61,533 $ 46,394
Non-current assets 165,418 164,602
------- -------
Total assets $226,951 $210,996
======= =======
Liabilities
Current liabilities $ 22,188 $ 21,346
Non-current liabilities 17,917 17,939
------- -------
Total liabilities $ 40,105 $ 39,285
======= =======
Summarized historical combined operating activity for the three and six
months ended December 31, 1996 and 1995 is as follows (dollars in
thousands):
Three Months Six Months
Ended Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
Net Sales $ 84,769 $ 79,629 $162,182 $147,594
Gross Profit 16,176 14,450 31,856 25,206
Operating income 11,519 10,264 22,808 17,127
Income before
income taxes 12,630 11,356 25,017 19,239
Net income 7,641 6,871 15,135 11,640
The summarized historical financial information for the Guarantor
Subsidiaries above, has been derived from the financial statements of the
Company.
-11-
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Ethan Allen's revenues are comprised of wholesale sales to dealer-owned
stores and retail sales of Ethan Allen-owned stores as follows (dollars in
millions):
Three Months Six Months
Ended Ended
December 31, December 31,
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Net wholesale sales to
dealer-owned stores $ 88.4 $ 80.2 $174.5 $158.0
Net retail sales of Ethan
Allen-owned stores 44.2 41.5 84.4 76.3
Other revenues 5.7 5.5 11.8 9.8
----- ----- ----- -----
Total $138.3 $127.2 $270.7 $244.1
===== ===== ===== =====
Three Months Ended December 31, 1996 Compared to Three Months Ended December
31, 1995
Sales for the three months ended December 31, 1996 increased by $11.1
million, or 8.7%, over the corresponding period in the prior year to $138.3
million. Net sales by Ethan Allen-owned stores increased $2.7 million or 6.5% to
$44.2 million and net sales to dealer-owned stores increased $8.2 million or
10.2% to $88.4 million. The increase in sales to dealer-owned stores has
resulted from increased distribution through relocated stores, improved
effectiveness of existing stores, newer product offerings, a coordinated
advertising program, and growth in international sales. At December 31, 1996,
there were 290 total stores, of which 232 were dealer-owned, as compared to 298
total stores, of which 238 were dealer-owned at December 31, 1995. The net
decrease in the number of stores is primarily due to the closing of 14 smaller,
under-performing stores in Japan, which were replaced by 3 larger, high-volume
stores in fiscal 1996.
The increase in retail sales by Ethan Allen-owned stores is attributable
to a 7.5%, or $3.0 million, increase in comparable store sales, and sales
generated by newly opened or acquired stores of $1.5 million, partially offset
by closed stores, which generated $1.8 million less in sales in the three months
ended December 31, 1996, as compared to the three months ended December 31,
1995.
Comparable stores are stores that, if newly opened, have been open for at
least 15 months. Ethan Allen's retail business is principally special order and
minimal net sales are generated during the first three months of operations of
newly opened stores. Stores acquired from dealers by Ethan
-12-
Allen are included in comparable store sales in their thirteenth full month of
Ethan Allen-owned operations.
Gross profit for the three months ended December 31, 1996 increased by
$8.5 million, or 16.7% from the three months ended December 31, 1995 to $59.9
million. This increase is attributable to higher sales volume, combined with an
increase in gross margin from 40.4% in the three months ended December 31, 1995
to 43.3% in the three months ended December 31, 1996. Gross margins have been
favorably impacted by increased sales volume, greater manufacturing
efficiencies, improvements in manufacturing technology, full benefit of the
recent price increases, and higher retail gross margins. These factors are
partially offset by higher medical and employee benefit costs as well as an
increase in the price of certain raw materials.
Selling, general and administrative expenses increased $2.1 million from
$36.1 million, or 28.4% of net sales, in the three months ended December 31,
1995 to $38.3 million, or 27.7% of net sales, in the three months ended December
31, 1996. This increase is principally attributable to an increase in the
operating expenses of Ethan Allen-owned stores of $.6 million due to higher
sales volumes. The remaining increase can be attributed to expenses associated
with the higher wholesale sales.
Operating income for the three months ended December 31, 1996 was $21.7
million (15.7% of sales), an increase of $6.5 million as compared to the three
months ended December 31, 1995. Wholesale operating income was $19.1 million for
the three months ended December 31, 1996, reflecting an increase of $5.0 million
as compared to the prior year period. The improvement in wholesale operating
income is primarily due to a $12.1 million increase in wholesale sales combined
with a 2.1% improvement in wholesale gross margin to 34.4%. Retail operating
income was $2.9 million for the three months ended December 31, 1996, an
increase of $1.0 million from the prior year. The higher retail sales volumes
and improved gross margin were partially offset by higher operating expenses due
to the higher sales volumes.
Interest expense, including the amortization of deferred financing costs,
for the three months ended December 31, 1996 decreased by $0.9 million to $1.5
million from $2.4 million in the three months ended December 31, 1995. The lower
expense reflects the lower debt balances outstanding.
Income tax expense of $8.2 million or an effective tax rate of 40.0% was
recorded for the three months ended December 31, 1996, as compared to $5.2
million or an effective tax rate of 40.0% in the prior year quarter.
For the three months ended December 31, 1996, the Company recorded net
income of $12.2 million, compared to net income for the three months ended
December 31, 1995 of $7.8 million.
-13-
Six Months Ended December 31, 1996 Compared to Six Months Ended December 31,
1995
Sales for the six months ended December 31, 1996 increased by $26.5
million, or 10.9%, over the six months ended December 31, 1995 to $270.6
million. Net retail sales by Ethan Allen-owned stores increased by 10.6% to
$84.4 million and sales to dealer-owned stores increased by 10.4% to $174.5
million. The increase in sales to dealer-owned stores has resulted from
increased distribution through relocated stores, improved effectiveness of
existing stores, newer product offerings, and growth in international sales.
The increase in retail sales by Ethan Allen-owned stores is attributable
to a 10.0% or $7.1 million increase in comparable store sales, and an increase
in sales generated by newly opened or acquired stores of $3.5 million, partially
offset by closed stores which generated $2.5 million less in sales in the six
months ended December 31, 1996 as compared to the six months ended December 31,
1995.
Gross profit for the six months ended December 31, 1996 increased by $17.7
million from the six months ended December 31, 1995 to $114.5 million. This
increase is attributable to higher sales volume and an improvement in gross
margin from 39.7% in the six months ended December 31, 1995 to 42.3% in the six
months ended December 31, 1995. The gross margin percentage improved due to
greater manufacturing efficiencies, improvements in manufacturing technology,
and the full benefit of recent price increases, partially offset by higher
medical and employee benefit costs as well as an increase in the price of
certain raw materials. Additionally, the prior year margin was negatively
impacted by $.8 million of costs related to extended plant shutdowns.
Selling, general and administrative expenses increased $4.7 million from
$71.7 million or 29.4% of net sales, in the fiscal 1996 period to $76.4 million,
or 28.2% of net sales, in the fiscal 1997 period. This increase is attributable
principally to an increase in operating expenses in the Company's retail
division of $1.9 million due to higher sales volumes. The remaining increase is
attributable to the increase in wholesale shipments combined with higher
employee medical and benefit costs.
Operating income for the six months ended December 31, 1996 was $38.1
million (14.1% of sales), an increase of $13.0 million, as compared to the six
months ended December 31, 1995. Wholesale operating income was $34.4 million for
the six months ended December 31, 1996, an increase of $10.7 million as compared
to the six months ended December 31, 1995. This increase is attributable to
higher sales volumes and an improved gross margin. Retail operating income was $
4.2 million for the six months ended December 31, 1996. This represents a $2.4
million increase from the six months ended December 31, 1995. This increase is
attributable to higher sales volumes and an improved gross margin partially
offset by higher operating expenses due to the higher sales volumes.
-14-
Interest expense, including the amortization of deferred financing costs,
for the six months ended December 31, 1996 decreased by $1.7 million to $3.4
million, from $5.1 million in the fiscal 1996 period, due to lower debt balances
outstanding.
Income tax expense of $14.0 million or an effective tax rate of 40.0%, was
recorded for the six months ended December 31, 1996, as compared to $8.3 million
or an effective rate of 40.0% in the prior year period.
For the six months ended December 31, 1996, the Company recorded net
income of $21.0 million, compared to net income for the six months ended
December 31, 1995 of $12.3 million.
Financial Condition and Liquidity
Principal sources of liquidity are cash flow from operations and
additional borrowing capacity under the revolving credit facility. Net cash
provided by operating activities totaled $39.4 million for the six months ended
December 31, 1996, as compared to $29.1 million in the six months ended December
31, 1995. The increase is due principally to higher net income of $8.7 million.
At December 31, 1996, the Company had working capital of $114.3 million and a
current ratio of 2.99 to 1.
During the six months ended December 31, 1996, capital spending totaled
$9.8 million as compared to $6.3 million in the six months ended December 31,
1995. Capital expenditures in fiscal 1997 are anticipated to be approximately
$18.0 million. The Company anticipates that cash from operations will be
sufficient to fund this level of capital expenditures. The current level of
anticipated capital spending, which is attributable primarily to manufacturing
efficiency improvements and new store openings, is expected to continue for the
foreseeable future.
Total debt outstanding at December 31, 1996 is $68.6 million. At December
31, 1996 there are no outstanding revolving loans under the Credit Agreement.
Trade and standby letters of credit of $14.3 million were outstanding as of
December 31, 1996. During the quarter ended December 31, 1996, the Company
amended its Credit Agreement 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 interest rates to adjusted LIBOR plus .45% 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. In connection with the Amended and Restated Credit Agreement,
$173,000 in additional deferred financing fees were incurred. These charges will
be amortized over the remaining life of the credit agreement.
Other debt includes $52.6 million of outstanding Senior Notes which have a
final maturity in 2001, with no scheduled amortization prior to final maturity.
The Senior Notes may not be redeemed at the option of the Company
-15-
until March 15, 1998. Therefore, the Company does not anticipate that any Senior
Notes will be repaid until this date; however, the Company may from time to
time, either directly or through agents, repurchase its Senior Notes in the open
market, through negotiated purchases or otherwise, at prices and on terms
satisfactory to the Company. During the six months ended December 31, 1996, $9.4
million principal amount was repurchased. The Company may also, from time to
time, either directly or through agents, repurchase its common stock in the open
market through negotiated purchases or otherwise, at prices and on terms
satisfactory to the Company. Depending on market prices and other conditions
relevant to the Company, such purchases may be discontinued at any time. During
the six months ended December 31, 1996, the Company purchased 7,934 shares of
its stock on the open market at an average price of $29.62 per share.
As of December 31, 1996, aggregate scheduled maturities of long-term debt
for each of the next five fiscal years are $.1 million, $.1 million, $.4
million, $.2 million and $52.8 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.
-16-
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings
There has been no change to matters discussed in Business-Legal Proceedings in
Company's Form 10-K as filed with the Securities and Exchange Commission on
September 27, 1996.
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 27, 1996, except that pursuant to the November
4, 1996 Annual Meeting, the shareholders approved an Amendment to the 1992 Stock
Option Plan to increase by 600,000 the authorized shares reserved for use in
connection with the Stock Option Plan.
Item 6. - Exhibits and Reports on Form 8-K
4(k)-3 Amended and Restated Senior Secured Revolving Credit Facility
dated as of March 10, 1995, as amended and restated as of December
4, 1996, between Ethan Allen Inc. and the Chase Manhattan Bank
4(t) Security Agreement, dated as of March 10, 1995, between Ethan
Allen Inc. and the Chase Manhattan Bank
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule
-17-
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: 2/13/97 BY: /s/ M. Farooq Kathwari
----------------------
M. Farooq Kathwari
Chairman of the Board
President and Chief
Executive Officer
(Principal Executive Officer)
DATE: 2/13/97 BY: /s/ Edward P. Schade
----------------------
Edward P. Schade
Vice President &
Treasurer
(Principal Financial Officer)
DATE: 2/13/97 BY: /s/ Gerardo Burdo
----------------------
Gerardo Burdo
Corporate Controller
(Principal Accounting Officer)
-18-
INDEX TO EXHIBITS
4(k)-3 Amended and Restated Senior Secured Revolving Credit
Facility dated as of March 10, 1995, as amended and restated
as of December 4, 1996, between Ethan Allen Inc. and the
Chase Manhattan Bank.
4(t) Security Agreement, dated as of March 10, 1995, between
Ethan Allen Inc. and the Chase Manhattan Bank.
11 Statement Re: Computation of Per Share Earnings
27 Financial Data Schedule