annual report 2018
statement of operations data
Net sales
Gross profit
Operating income
Net income
2018
2017
2016
$766,784
$763,385
$794,202
$415,964
$419,723
$442,236
$48,867
$36,371
$57,950
$36,194
$89,179
$56,637
balance sheet data
Cash and securities (a)
$22,363
$65,031
$60,479
Total assets
Total debt
Total liabilities
$530,433
$568,222
$577,409
$1,680
$14,339
$41,838
$146,563
$167,326
$185,207
Shareholders’ equity
$383,731
$400,706
$391,998
Working capital
$93,165
$116,653
$124,857
key metrics
Return on equity
Return on invested capital
Current ratio
Total debt/equity
9.27
9.13
9.13
8.59
14.86
12.94
1.77 TO 1
1.92 TO 1
2.01 TO 1
0.44
3.58
10.67
Common shares outstanding
26,529,294
27,447,215
27,746,128
cash returned to shareholders
$20,031
Dividends paid
$29,509
Dividends yield
Cost of shares repurchased
Number of shares repurchased
3.10%
$22,019
950,484
2.29%
$10,246
357,363
$16,646
1.88%
$19,346
697,799
Amounts in thousands, except share data. Fiscal years end June 30. Certain reclassifications have been made to prior years
to conform to current year’s presentation of deferred financing fees as a component of debt.
(a) Includes cash and cash equivalents, marketable securities, and restricted cash and investments.
s
t
h
g
i
l
h
g
i
h
l
a
i
c
n
a
n
fi
dear fellow shareholders
Our strategic focus continues to center
Another key service focus is our white-glove
on creating an omnichannel experience
delivery service, Premier In-Home Delivery,
that “wows” the customer, and we are
offered at one national price—a major
well positioned to grow our sales and
competitive advantage.
earnings for FY 2019.
talent
During FY 2018, we continued to
combining technology
with personal service
Combining technology with personal service
strengthen our leadership in all areas,
is one of the major differentiators of great
particularly in marketing, manufacturing,
customer service. We continue to refine a
logistics, and the retail network. Today,
dynamic omnichannel experience for our clients.
we have approximately 1,500 interior
design professionals throughout
This year we introduced EA inHomeTM,
our global network of 148 company-
an augmented reality app that lets clients
operated and 148 independently owned
see Ethan Allen products in their homes.
Design Centers.
expanded offerings
& marketing
We have continued to refresh our products
We launched an all-new 3D room planner,
which our designers are using to enhance
the customer experience. We made major
enhancements to ethanallen.com and our
mobile website. Live Chat, which combines
with an attitude that is modern, but classic.
the technology of our website with personal
In the three years from Fall 2015 to Fall 2018,
service, is staffed by more than 465 of our
we will have revitalized about 70 percent
most enthusiastic interior designers.
of our product line. In FY 2018, we expanded
In FY 2018, we accelerated our
our marketing initiatives and increased
focus on many initiatives, including
advertising to 5.6 percent of sales. Mediums
strengthening our leadership in our
included national television, direct mail, print,
environmental &
social responsibility
Vertical integration makes it possible for us
vertically integrated business,
and digital. Our marketing is focused on
to establish and deliver on commitments to
undertaking major product innovation,
our core messages of interior design service,
environmental stewardship, sustainability,
continuing our retail transformation,
style, quality, and value.
health and safety, and social responsibility.
and increasing spending in advertising.
We also made infrastructure investments.
We executed all of these efforts under
the umbrella of a socially responsible
customer experience
that differentiates
Ethan Allen is uniquely positioned to provide
The continued strengthening of our vertically
integrated structure reflects the focused
efforts and accomplishments of all our
approach to business.
interior design service throughout our global
talented associates in North America and
We achieved net sales for FY 2018 of $766.8
our interior design network of about 200
as well as our clients and shareholders, for
million, operating income of $48.9 million,
Design Centers in North America and about
their continued support. We look forward to
net income of $36.4 million, and earnings
100 internationally. Twenty-one percent of our
an exciting FY 2019 and beyond.
network. We have continued to reposition
elsewhere. I would like to thank all of them,
per diluted share of $1.32. We also returned
Design Centers have been relocated within the
$51.5 million to shareholders in share
past five years, and 68 percent within the past
repurchases and dividends.
fifteen years. Our new locations average less
than 10,000 square feet and incorporate
technology to accelerate the design and
selling processes.
farooq kathwari
Chairman, President and CEO
Ethan Allen Interiors Inc.
1
2018
Ethan Allen has been a leader in the home
furnishings industry for more than 85 years,
renowned for its quality, craftsmanship, value,
and style. A longstanding reputation for
excellence and a vertically integrated business
model compose the strong foundation of
what we call the Ethan Allen experience.
2
3
WITH A GLOBAL NETWORK OF
APPROXIMATELY 1,500 DESIGNERS,
ETHAN ALLEN HAS A UNIQUE
COMPETITIVE ADVANTAGE. THE
COMPLIMENTARY DESIGN SERVICE
THEY PROVIDE DELIVERS A
VALUABLE, PERSONAL EXPERIENCE
IN DESIGN CENTERS, IN CLIENTS’
HOMES, AND ONLINE VIA LIVE CHAT.
4
talent From design and manufacturing to advertising,
accounting, and customer service, it takes all
sorts of people in every area of our company to
deliver the legendary design, quality, and service
for which Ethan Allen is so well known.
OUTSTANDING
INTERIOR DESIGNERS
Our outstanding designers are the heart
of the Ethan Allen experience. On the
sales floor, in clients’ homes, or during
online consultations, they are the primary
ambassadors for our brand.
To support their efforts, we refreshed
our online and print recruiting efforts
to better reflect a diverse workforce
and to deliver more focused messaging
about what sets Ethan Allen apart in
the marketplace. We also strengthened
our communication with our Interior
Design Affiliate (IDA) network, tapping
those vetted partners as a referral source.
In addition to recruiting new designers,
we’ve worked to boost retention by
giving current designers the best tools
in the industry, from incredibly detailed
floor planning tools they can use, both
in the Design Center and on home calls,
to training that helps them strengthen
their online portfolios.
ENTREPRENEURIAL
MANAGERS
In select markets, we deployed a new
initiative for our Design Center managers:
the entrepreneurial business unit. This
program gives our managers a greater
incentive to exceed their sales goals and
rewards them when they succeed. We
ask them to focus on four key areas: new
business, profitability, outstanding service,
and great talent.
5
EXCEPTIONAL WORKMANSHIP
Approximately 75 percent of our
products are manufactured in our
plants in Vermont, North Carolina,
New Jersey, Mexico, and Honduras.
When we seek out partnerships with
international suppliers and vendors,
we look for artisans who use traditional
methods, source local materials, and
have a reputation for being the best at
what they do.
Our manufacturing plant in Silao,
Guanajuato, Mexico, for example,
is located in an area with a rich
historical tradition of leather
craftsmanship. Our clients receive
leather furnishings custom-made
by people who’ve honed their
6
skills over a lifetime, many from
families who have passed those skills
down through the generations.
Over half of our domestic wood
furniture production happens at
our Vermont facilities, and 50
percent of the wood furniture
we manufacture domestically is
crafted from logs received in
our Beecher Falls, Vermont,
manufacturing plant and sawmill.
More than 20 percent of our Vermont
associates have invested over 30
years in their work for Ethan Allen.
Twenty-one of those associates
are from families with members
from multiple generations who’ve
worked for us.
In addition to having exceptional
woodworking skills, many of our
craftspeople harness their mathematics
and computing skills to operate modern
CNC machinery, which helps to increase
productivity within our facilities. Our
craftspeople are also on the front lines
of our efforts to manufacture products
in an environmentally sustainable way.
Many of the initiatives we’ve developed
to cut landfill waste, boost recycling,
and use electricity more efficiently were
created from the ground up by the
talented people who work in our plants.
7
style
8
To us, diversity of style is an essential characteristic of American design, which
draws on styles from around the world, continues them, and reimagines them to
create something fresh and new. Our product design teams maintain their focus on
classic designs with a modern perspective as they expand our style selections to
reach a wider audience. During FY 2018, we launched two new projections
that addressed the tastes of both our new and current clients.
PASSPORT
In Fall 2017, we introduced Passport,
composed of styles that clients can
use to easily create a collected,
well-traveled look. Drawing both on
inspiration from past and present and
from cultural influences around the
world, our designers focused on every
detail, bringing in exquisite textures,
fabrics, and patterns to create a livable
and uniquely authentic look.
Versatility and function are important
highlights in the Passport projection.
We introduced a number of home bar
cabinets, entertaining storage pieces,
and bar carts that could easily be mixed
with existing furnishings or placed in
smaller spaces. We also introduced a fully
customizable bed that allows clients to
choose everything from the height and
look of the headboard to the base design.
Blending new furnishings and décor
options with in-line favorites, Passport is
designed to bring home the feeling of
having been somewhere wonderful.
9
UPTOWN
In Spring 2018, we introduced Uptown,
a look that offers livable yet attainable
luxurious style, with Hollywood Regency
and art deco influences.
Uptown is built on the details that set
us apart: hand-tailored upholstery,
hand-applied decorative veneers and
finishes, and artisan-crafted decorative
accents. It reinterprets timeless forms
in fresh and exciting ways.
Uptown is designed for a modern
lifestyle, offering elegant essentials
like upholstered and low-profile poster
beds, sophisticated storage pieces,
comfortable seating, and dramatic
lighting. It defines attainable glamour
with beautiful, sustainably harvested
Indonesian mahogany wood furnishings,
satiny textiles, fashionable accents,
and a champagne brass finish our product
developers created exclusively for
this look.
Uptown epitomizes good taste with
just a hint of glitz. It adds refinement to
any space, at extraordinary value.
10
11
g
n
i
t
e
k
r
a
m
S P E C I A L S A V I N G S G O I N G O N N O W
S P E C I A L S A V I N G S G O I N G O N N O W
S P E C I A L S A V I N G S G O I N G O N N O W
NEW YORK GARDEN CITY HARTSDALE/WHITE PLAINS HUNTINGTON STATION MANHATTAN NANUET
NEWBURGH SETAUKET STATEN ISLAND WATER MILL NEW JERSEY BRICK EAST BRUNSWICK
PRINCETON RIVER EDGE/PARAMUS SOMERVILLE/BRIDGEWATER WATCHUNG WAYNE WHIPP ANY
Sale going on for a limited time. Exclusions apply. Ask a designer or visit ethanallen.com for details. ©2018 Ethan Allen Global, Inc.
NEW YORK GARDEN CITY HARTSDALE/WHITE PLAINS HUNTINGTON STATION MANHATTAN NANUET
NEWBURGH SETAUKET STATEN ISLAND WATER MILL NEW JERSEY BRICK EAST BRUNSWICK
PRINCETON RIVER EDGE/PARAMUS SOMERVILLE/BRIDGEWATER WATCHUNG WAYNE WHIPP ANY
NEW YORK GARDEN CITY HARTSDALE/WHITE PLAINS HUNTINGTON STATION MANHATTAN NANUET
NEWBURGH SETAUKET STATEN ISLAND WATER MILL NEW JERSEY BRICK EAST BRUNSWICK
PRINCETON RIVER EDGE/PARAMUS SOMERVILLE/BRIDGEWATER WATCHUNG WAYNE WHIPP ANY
Sale going on for a limited time. Exclusions apply. Ask a designer or visit ethanallen.com for details. ©2018 Ethan Allen Global, Inc.
Sale going on for a limited time. Exclusions apply. Ask a designer or visit ethanallen.com for details. ©2018 Ethan Allen Global, Inc.
As Ethan Allen evolves, we work to make our brand
message more consistent and cohesive: We stand for quality,
craftsmanship, service, value, and classic design with a
modern attitude. We communicate this message across all
mediums, from broadcast and digital channels to direct
mail and print.
THE ART OF MAKING HOME
In FY 2018, we launched a major
advertising campaign that successfully
differentiated our brand in the
marketplace and created excitement
among both existing clients and new
target audiences.
highlighted our designers, our
design service, and our exceptional
diversity of style and was launched via
an omnichannel advertising campaign.
We developed “The Art of Making
Home” as an overarching theme of
the campaign, capturing the distinct
style and home design experience that
sets us apart. “Every Detail Matters”
was established as a tagline relevant
to every facet of our business model:
Everything we do is done with
exceptional attention to detail, from
design to delivery. The campaign
12
Print advertising and direct
mail magazines continue to be
important mediums for our targeted
marketing efforts, as we know they
resonate with both new and existing
clients. This campaign highlighted
our design service and extraordinary
craftsmanship and promoted new
styles in a series of direct mail pieces,
as well as in local and national print
advertisements, targeting both
established and prospective clients.
“THE ART OF MAKING HOME”
CAMPAIGN WAS SEAMLESSLY
COMMUNICATED ACROSS ALL
ADVERTISING CHANNELS AND
IN DESIGN CENTERS AROUND
THE WORLD.
13
SPECIAL SAVINGS
DIGITAL MARKETING
The way people shop for their home
furnishings has changed. Online and
mobile shopping continue to thrive.
Mobile traffic to our website continues
to grow, surpassing desktop traffic.
Social media significantly influences
consumer spending.
In FY 2018, we increased our digital
advertising efforts to reach a wider
audience and strengthen our online
visibility. We also employed new
digital tools to strengthen the Ethan
Allen client experience on both
14
desktop and mobile devices, catering
to an ever-growing, digitally driven
customer base.
Our new augmented reality app,
EA inHomeTM, allows consumers to use
their smartphones to shop and place
3D images of our products in their own
homes. This powerful tool lets them
customize styles, arrange configurations,
and visualize the size, scale, and
placement of Ethan Allen furnishings.
Website enhancements, including
new payment methods, an improved
mobile interface, and the ability to
shop for products directly from online
S P E C I A L
SAVINGS
S H O P
S H O P
CLINTON
BENCH
*Exclusions apply
designer portfolios, have made our
e-commerce experience easier and
more efficient.
Live Chat is a valuable avenue
for clients to engage with our
designers online and a vital
competitive advantage for us. With
more than 465 participating
designers, Live Chat extends our
personal design service; it makes
designers available to e-commerce
clients, so they can shop online
with confidence.
EA inHOME™ DELIVERS INCREDIBLE
IMAGE RESOLUTION WHILE STILL
CREATING A SPEEDY, SEAMLESS
3D ROOM DESIGN EXPERIENCE.
15
n
o
i
t
a
r
g
e
t
n
i
l
a
c
i
t
r
e
v
Our vertically integrated business structure enables us to
offer exceptional quality at an exceptional value. Because
we design, source, and manufacture our products and
then distribute, market, and deliver them, we are able to
maintain quality, control costs, and reach new audiences in
new ways. From product design to delivery, excellence is
a part of the Ethan Allen experience at every touchpoint.
DESIGN & SOURCING
Our in-house product design team
is a strategic advantage, giving us
the flexibility to develop products that
redefine our brand even as they
complement the styles we have today.
Our designers continually work to
develop relevant styles that draw
on past and present, near and far,
created with consumer lifestyles in mind.
We also work with artisans and
makers who source locally and share
our high quality standards. Many
of our finest accents come from
studios and workshops in places
like Italy, Indonesia, India, and
Vietnam, where skills are handed
down through generations.
MANUFACTURING
As online shopping and consumer
demand for quick and easy service
continues to shape the retail
16
marketplace, we’ve worked to
adapt our production capabilities
without compromising the
superior craftsmanship and quality
that set us apart.
Many of our best-selling products
come from our Vermont and
North Carolina workshops, where
sustainable manufacturing practices
and handcrafted artistry are part
of everyday operations. When we
work with global suppliers, we expect
them to follow our Manufacturing
Code of Conduct, as verified by
third-party auditors.
DISTRIBUTION
& DELIVERY
With three national distribution centers
and 29 retail division service centers,
we ensure an outstanding experience
to the very end of the purchase cycle,
when clients receive their new Ethan Allen
furniture via our Premier In-Home
Delivery service. From quality
inspections before and after delivery,
to assembly and placement, to cleanup—
and one more inspection for good
measure—Ethan Allen products are
delivered with great care. We want our
clients to enjoy the experience as
much as they’ll enjoy having the style,
quality, and comfort of our furnishings
in their homes.
17
2%
CANADA
296 DESIGN CENTERS
148 COMPANY OPERATED
148 INDEPENDENTLY OPERATED
63%
UNITED
STATES
l
i
a
t
e
r
Our global network of approximately 300 Design Centers continues to be the
focal point of our business. Many clients research products online and then come to
a Design Center, where they can find personalized interior design solutions and
experience the full breadth of our product selection and customization options.
We continue to relocate Design Centers
in thriving markets and major lifestyle
centers, positioning Ethan Allen to
prosper in the modern retail environment.
Twenty-one percent of our Design
Centers have been relocated within
the last five years and 68 percent
within the past fifteen years. Since
2017, we have opened several new
Design Centers and relocated others
in key markets, including the Buckhead
area of Atlanta, downtown Chicago,
and Calgary, Alberta, Canada. Design
Centers in Albany, New York; Denver,
Colorado; and Rancho Mirage, California,
are currently under construction.
In FY 2019, we plan to continue
strengthening our international
presence by opening new Design
Centers around the globe. We are in
the process of opening new locations
in Cambodia, China, and Thailand.
18
35%
INTERNATIONAL
license
to chill
®
new opportunities
Vertical integration has given us the
means to build a thriving contract business
that includes projects for the U.S.
government. We have secured valuable new
partnerships with hospitality brands,
including the Margaritaville resort in Orlando
and the Latitude Margaritaville community
in Daytona Beach, Florida. Our
Ethan Allen | Disney partnership has also
flourished into new opportunities with
Disney resorts, including the
Grand Californian, the Grand Floridian,
and the Boardwalk.
Department of State
W O R L D W I D E R E S I D E N T I A L F U R N I T U R E P R O G R A M
Department of State
W O R L D W I D E R E S I D E N T I A L F U R N I T U R E P R O G R A M
Transitional Collection
Apartment Collection
©Disney
©2018 Margaritaville is a registered trademark of
Margaritaville Enterprises, LLC and is used under license.
19
social responsibility
2020
social responsibility
Carbon
Footprint
-34%
REDUCED
12 MILLION
pounds of CO2e
Electricity
Usage
-10%
REDUCED
3.6 MILLION
kW hours
Recycling
+13%
INCREASED
193,523
pounds
OUR SUSTAINABILITY
SUCCESS STORY
DOMESTIC
MANUFACTURING
CHANGES,
2010 v. 2017
Water
Usage
-21%
REDUCED
7.7 MILLION
gallons
Our clients bring a global perspective to
the way they evaluate even the most familiar
brands. They expect brands to use natural
Greenhouse
Gases
-27%
REDUCED
11 MILLION
pounds of CO2e
Landfill Waste
-15%
REDUCED
415,840
pounds
resources responsibly. They want products sourced
in ways that promote the health and well-being of
those who create them.
Ethan Allen is well positioned to meet
consumer expectations in a world where
buying decisions go well beyond the price
tag. We insist on the highest operating
safety and environmental standards, in
addition to the exceptional craftsmanship
for which we’re so well known.
Ethan Allen is always committed to
manufacturing and running our
business in a fiscally, socially, and
environmentally responsible way.
We believe that sustainable and ethical
business practices aren’t exceptional—
they’re just good business.
SUSTAINABILITY
It’s been nearly twenty years since
Ethan Allen launched its first
Environmental Health & Safety
management system, in which we
began to identify and quantify the
environmental effects of our production
and, where needed, to operate in
a more sustainable way. We focus
on conserving water, reducing
electricity usage, and increasing
recycling at all our facilities.
EFEC-TIVE CHANGE
Over the past two decades, we’ve
worked hard to reduce the effect that
our operations have on the environment.
In 2010, we took our efforts to a
new level with the help of the American
Home Furnishings Alliance (AHFA).
We set the goal of registering every
Ethan Allen facility with the AHFA’s
Enhancing Furniture’s Environmental
Culture (EFEC) program, which is
based on ISO 14000 environmental
management standards but personalized
to the home furnishings industry.
We are proud to say that since 2017,
every Ethan Allen manufacturing
plant, distribution center, service
center, and Design Center has been
EFEC registered.
After we achieved our EFEC registration
goals, we set the goal of having all
Ethan Allen facilities earn Sustainable
by Design certification. This certification
shows that in addition to implementing
certain sustainability standards at our
own facilities, we’re working with suppliers
to help them minimize their impact on
the environment.
COMPLIANCE
No matter where our products are made
and sourced, they have to meet Ethan
Allen’s quality standards. Our products
begin with detailed design specifications
and a compliance package that includes
highly specific testing procedures. We
also work with vendors to ensure fair
labor practices and to develop effective
management processes.
GIVING BACK
Ethan Allen is committed to community
service. In addition to our corporate-
initiated efforts, we encourage local
Design Centers and associates to engage
in community service activities in their
areas. Many participate in events to
support charitable organizations, with
an emphasis on those that help people
in need of shelter.
21
consolidated sales
& operating margin
Consolidated Net Sales
GAAP Operating Margin
Millions
$680
$700
$720
$740
$760
$780
$800
2018
2017
2016
2015
2014
6.4%
$766.8
7.6%
$763.4
$754.6
8.7%
$746.7
9.3%
11.2%
$794.2
0%
2%
4%
6%
8%
10%
12%
total special & regular
dividends paid
Cash Dividends Paid—Total
Dividend Yield
Millions
$0
$5
$10
$15
$20
$25
$30
2018
2017
2016
2015
2014
$29.5
3.1%
$20.0
2.3%
$16.6
1.9%
$13.3
1.9%
$11.3
1.6%
0%
.5%
1%
1.5%
2%
2.5%
3%
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10‐K
(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, 2018
OR
[]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1‐11692
Ethan Allen Interiors Inc.
(Exact name of registrant as specified in its charter)
Delaware
06‐1275288
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
25 Lake Avenue Extension, Danbury, CT
(Address of principal executive offices)
06811
(Zip Code)
Registrant's telephone number, including area code
(203) 743‐8000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $.01 par value
Name of Each Exchange On Which Registered
New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the Registrant is a well‐known seasoned issuer, as defined in Rule 405 of the Securities Act.
[ X ] Yes [ ] No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
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
[X] Yes [ ] No
been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S‐T (§232.405 of this chapter) during the preceding 12
months (or such shorter period that the registrant was required to submit and post such files).
[ ] No
[X] Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‐K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10‐K or any amendment to this Form 10‐K.
[ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‐accelerated filer, smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company”in Rule 12b‐2 of the Exchange Act:
[X]
Large accelerated filer
Non‐accelerated filer
[ ]
Emerging growth company [ ]
Accelerated filer
Smaller reporting company
[ ]
[ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‐2 of the Act).
[ ] Yes [X] No
The aggregate market value of the voting and non‐voting stock held by non‐affiliates of the registrant on December 31, 2017, the last business
day of the registrant’s most recently completed second fiscal quarter, was approximately $716,611,000. As of July 27, 2018, there were
26,529,294 shares of the registrant’s common stock, par value $.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Certain designated information contained in the registrant’s definitive Proxy Statement for the
2018 Annual Meeting of stockholders, which will be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the
Securities Exchange Act of 1934, is incorporated by reference into Part III hereof to the extent described herein.
https://ethanalleninc.sharepoint.com/sites/CorporateFinance/Shared Documents/10‐K 2018‐06‐30 rev 2.docx V: 1.35 8/3/2018 9:40 AM
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Item
Page
PART I
Item 1.
Business ................................................................................................................................................................... 3
Item 1A.
Risk Factors .............................................................................................................................................................. 9
Item 1B.
Unresolved Staff Comments .................................................................................................................................. 13
Item 2.
Properties............................................................................................................................................................... 13
Item 3.
Legal Proceedings .................................................................................................................................................. 14
Item 4.
Mine Safety Disclosures ......................................................................................................................................... 15
PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities ..................................................................................................................................................... 15
Item 6.
Selected Financial Data .......................................................................................................................................... 16
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operation .................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................................................................ 28
Item 8.
Financial Statements and Supplementary Data ..................................................................................................... 28
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................. 50
Item 9A.
Controls and Procedures ........................................................................................................................................ 50
Item 9B.
Other Information .................................................................................................................................................. 51
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ..................................................................................... 52
Item 11.
Executive Compensation ........................................................................................................................................ 52
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters .............................................................................................................................................. 52
Item 13.
Certain Relationships and Related Transactions, and Director Independence ..................................................... 52
Item 14.
Principal Accounting Fees and Services ................................................................................................................ 52
PART IV
Item 15.
Exhibits and Financial Statement Schedules .......................................................................................................... 52
Item 16.
Form 10‐K Summary .............................................................................................................................................. 56
SIGNATURES............................................................................................................................................................................... 57
2
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
PART I
Item 1. Business
Overview
Founded in 1932 and incorporated in Delaware in 1989, Ethan Allen Interiors Inc., through its wholly‐owned subsidiary, Ethan
Allen Global, Inc., and Ethan Allen Global, Inc.’s subsidiaries (collectively, "We," "Us," "Our," "Ethan Allen" or the "Company"),
is a leading interior design company and manufacturer and retailer of quality home furnishings. Today we are a leading
international home fashion brand doing business in North America, Asia, the Middle East and Europe. We are vertically
integrated from design through delivery, affording our clientele a value proposition of style, quality and price. We offer
complimentary interior design service to our clients and sell a full range of furniture products and decorative accents through
ethanallen.com and a retail network of approximately 300 design centers in the United States and abroad. The design centers
represent a mix of independent licensees and our own Company operated retail segment. We own and operate nine
manufacturing facilities including six manufacturing plants and one sawmill in the United States and one manufacturing plant
in Mexico and one in Honduras. Approximately 75% of the products sold by the Company are manufactured in our North
American plants.
Available Information
Our website is www.ethanallen.com. Information contained on our website is not part of this Annual Report on Form 10‐K.
Information that we furnish or file with the Securities and Exchange Commission (the "SEC"), including our Annual Reports
on Form 10‐K, Quarterly Reports on Form 10‐Q, Current Reports on Form 8‐K and any amendments to, or exhibits included
in, these reports are available for download, free of charge, on our website soon after such reports are filed with or furnished
to the SEC. Our SEC filings, including exhibits filed therewith, are also available on the SEC’s website at www.sec.gov. You may
obtain and copy any document we furnish or file with the SEC at the SEC’s public reference room at 100 F Street, NE, Room
1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling
the SEC at 1‐800‐SEC‐0330. You may request copies of these documents, upon payment of a duplicating fee, by writing to the
SEC at its principal office at 100 F Street, NE, Room 1580, Washington, D.C. 20549.
Operating Segments
Our two operating segments, the wholesale segment and the retail segment, represent strategic business areas of our
vertically integrated enterprise that operate separately and provide their own distinctive services. This vertical structure
enables us to offer our complete line of home furnishings and accents while controlling quality and cost more effectively. We
evaluate performance of the respective segments based upon revenues and operating income. Inter‐segment transactions
result, primarily, from the wholesale sale of inventory to the retail segment, including the related profit margin. For certain
financial information regarding our operating segments, see Note 15 to the Consolidated Financial Statements included under
Item 8 of this Annual Report and incorporated herein by reference.
As of June 30, 2018, the Company operated 148 design centers (our retail segment) and our independent retailers operated 148.
Our wholesale segment net sales include sales to our retail segment, which are eliminated in consolidation, sales to our
independent retailers and contract sales to unaffiliated third parties. Our retail segment net sales accounted for 77% of our
consolidated net sales in fiscal 2018. Our wholesale segment net sales accounted for 23%, including 15.5% of our consolidated net
sales in fiscal 2018 to ten of our largest customers, which includes the General Services Administration (“GSA”) government
contract business, and licensees operating 105 design centers.
Wholesale Segment Overview:
The wholesale segment, principally involved in the development of the Ethan Allen brand, encompasses all aspects of design,
manufacture, sourcing, marketing, sale, and distribution of our broad range of home furnishings and accents. Wholesale
revenue is generated upon the sale and shipment of our products to our retail network of independently operated design
centers, Company operated design centers and other contract customers.
Within the wholesale segment, we maintain revenue information according to each respective product line (i.e. case goods,
upholstery, and home accents and other). Case goods include items such as beds, dressers, armoires, tables, chairs, buffets,
entertainment units, home office furniture, and wooden accents. Upholstery items include sleepers, recliners and other
motion furniture, chairs, ottomans, custom pillows, sofas, loveseats, cut fabrics and leather. Skilled artisans cut, sew and
upholster custom‐designed upholstery items which are available in a variety of frame, fabric and trim options. Home accent
and other items include window treatments and drapery hardware, wall decor, florals, lighting, clocks, mattresses,
bedspreads, throws, pillows, decorative accents, area rugs, wall coverings and home and garden furnishings.
3
Wholesale net sales for each of the last three fiscal years, allocated by product line, were as follows:
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Ca s e Goods
Uphol s tered Products
Home Accents a nd Other
Fi s ca l Yea r Ended June 30,
2017
2016
32%
33%
51%
51%
17%
16%
2018
32%
51%
17%
100%
100%
100%
As of June 30, 2018, our wholesale backlog was $56.5 million (as compared to $47.4 million as of June 30, 2017) which is
anticipated to be serviced in the first quarter of fiscal 2019. This backlog fluctuates based on the timing of net orders booked,
manufacturing schedules and efficiency, the timing of sourced product receipts, the timing and volume of wholesale shipments,
and the timing of various promotional events. Because orders may be rescheduled and/or canceled and the sourcing timing may
change, the measure of backlog at a point in time is not necessarily indicative of future sales performance.
Our independent retailers are required to enter into license agreements with us, which (i) authorize the use of certain Ethan Allen
trademarks and (ii) require adherence to certain standards of operation, including a requirement to fulfill related warranty service
agreements. We are not subject to any territorial or exclusive retailer agreements in North America.
Wholesale profitability includes (i) the wholesale gross margin, which represents the difference between the wholesale net
sales price and the cost associated with manufacturing and/or sourcing the related product, and (ii) other operating costs
associated with wholesale segment activities.
Retail Segment Overview:
The retail segment sells home furnishings and accents to consumers through a network of Company operated design centers.
Retail revenue is generated upon the retail sale and delivery of our products to our retail customers through our network of
service centers. Retail profitability reflects (i) the retail gross margin, which represents the difference between the retail net
sales price and the cost of goods, purchased primarily from the wholesale segment, and (ii) other operating costs associated
with retail segment activities.
We measure the performance of our design centers based on net sales and written orders booked on a comparable period basis.
Comparable design centers are those which have been operating for at least 15 months, including relocated design centers
provided the original and relocated design center location had been operating for at least 15 months on a combined basis. During
the first three months of operations of newly opened design centers, written orders are booked but minimal net sales are achieved
through the delivery of products. Design centers we acquire from independent retailers are included in comparable design center
sales in their 13th full month of Ethan Allen‐owned operations. The frequency of our promotional events as well as the timing of
the end of those events can also affect the comparability of orders booked during a given period. During fiscal 2018, the Company
added five new design centers in the United States, including two acquired from independent retailers and one relocation, and
closed five locations, including one relocation. The geographic distribution of retail design center locations is included under Item
2 of Part I of this Annual Report.
Retail net sales for each of the last three fiscal years, allocated by product line, were as follows:
Ca s e Goods
Uphol s tered Products
Home Accents a nd Other
Products
Fi s ca l Yea r Ended June 30,
2016
2017
31%
30%
47%
48%
22%
22%
2018
30%
48%
22%
100%
100%
100%
Our strategy has been to position Ethan Allen as a preferred brand offering complimentary design service together with products
of superior style, quality and value to provide consumers with a comprehensive, one‐stop shopping solution for their home
furnishing and interior design needs. In carrying out our strategy, we continue to expand our reach to a broader consumer base
through a diverse selection of attractively priced products, designed to complement one another, reflecting current fashion trends
in home decorating. We continuously monitor changes in home fashion trends through attendance at international industry
events and fashion shows, internal market research, and regular communication with our retailers and design center design
4
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
consultants who provide valuable input on consumer trends. We believe that the observations and input gathered enable us
to incorporate appropriate style details into our products to react quickly to changing consumer tastes.
75% of our furniture is built by artisans, one piece at a time, in our North American workshops. Most upholstery frames are hand‐
assembled and stitching is guided by hand. We select international partners who are as committed to quality and social
responsibility as we are. All case goods frames are made with premium lumber and veneers. We use best‐in‐class construction
techniques, including mortise and tenon joinery and four‐corner glued dovetail joinery on drawers. We combine technology with
personal service and maintain an up‐to‐date broad range of styles and custom options in keeping with today’s home decorating
trends. These factors continue to define Ethan Allen, positioning us as a fashion leader in the home furnishing industry.
The interior of our design centers, which were substantially refreshed during the past three fiscal years, are organized to facilitate
display of our product offerings, both in room settings that project the category lifestyle and by product grouping to facilitate
comparisons of the styles and tastes of our clients. To further enhance the experience, technology is used to expand the range of
products viewed by including content from our website in applications used on large touch‐screen flat panel displays.
Product Development and Sourcing Activities
Using a combination of on staff and outsourced product designers, we design the majority of the products we sell. All our
products are branded Ethan Allen. This important facet of our vertically integrated business enables us to control the design
specifications and establish consistent levels of quality across the products in our own North American plants. In addition to
our seven U.S. manufacturing facilities, we have an upholstery manufacturing facility in Mexico and a case goods
manufacturing facility in Honduras. Approximately 75% of the products we sell are manufactured or assembled in these North
American facilities. We selectively outsource the remaining 25%, mostly from Asia. We carefully select our sourcing partners
and require them to provide products according to our specifications and quality standards. We believe that strategic investments
in our manufacturing facilities balanced with outsourcing from foreign and domestic suppliers will accommodate significant future
sales growth and allow us to maintain an appropriate degree of control over cost, quality and service to our customers.
Environmental Sustainability and Social Responsibility
We are focused on environmental and social responsibility and incorporating uniform social, environmental, health and safety
programs into our manufacturing standards.
Our “green” initiatives include but are not limited to the use of responsibly harvested Appalachian woods, water‐based
finishes and measuring our carbon footprint, greenhouse gases and recycled materials from our operations. We have
eliminated the use of heavy metals and hydrochloroflourocarbons in all packaging. Our mattresses and custom upholstery
use foam made without harmful chemicals and substances. We have implemented the Enhancing Furniture’s Environmental
Culture (EFEC) environmental management system sponsored by the American Home Furnishing Alliance (AHFA) at all our
domestic manufacturing, distribution and service center facilities, and have expanded these efforts to our retail design
centers, which have now been registered in EFEC. Our Mexico and Honduras facilities have been audited and are registered
under the AHFA's EFEC program. Our domestic manufacturing, distribution and service centers have also achieved Sustainable
by Design (SBD) registration status under the EFEC program. SBD provides a framework for home furnishings companies to
create and maintain a corporate culture of conservation and environmental stewardship by integrating socio‐economic
policies and sustainable business practices into their manufacturing operations and sourcing strategies.
The Company requires its sourcing facilities that manufacture Ethan Allen branded products to implement a labor compliance
program and meet or exceed the standards established for preventing child labor, involuntary labor, coercion & harassment,
discrimination, and restrictions to freedom of association. These facilities must also provide a safe and healthy environment
in all workspaces, compliance with all local wage and hour laws and regulations, compliance with all applicable environmental
laws and regulations, and they must authorize Ethan Allen and/or its designated agents (including third‐party auditing
companies) to engage in monitoring activities to confirm compliance.
We work to ensure our products are safe in our customers’ homes through responsible use of chemicals and manufacturing
substances.
Raw Materials and Other Suppliers
The most important raw materials we use in furniture manufacturing are lumber, veneers, plywood, hardware, glue, finishing
materials, glass, laminates, steel, fabrics, foam, and filling material. The various types of wood used in our products include
cherry, ash, oak, maple, prima vera, African mahogany, birch, rubber wood and poplar.
5
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Fabrics and other raw materials are purchased both domestically and outside the United States. We have no significant long‐term
supply contracts, and have sufficient alternate sources of supply to prevent disruption in supplying our operations. We maintain
a number of sources for our raw materials, which we believe contribute to our ability to obtain competitive pricing. Lumber prices
and availability fluctuate over time based on factors such as weather and demand. The cost of some of our raw materials such as
foam and shipping costs are dependent on petroleum cost. Higher material prices, cost of petroleum, and costs of sourced
products could have an adverse effect on margins.
Appropriate amounts of lumber and fabric inventory are typically stocked to maintain adequate production levels. We believe
that our sources of supply for these materials are sufficient and that we are not dependent on any one supplier.
We enter into standard purchase agreements with certain foreign and domestic suppliers to source selected products. The
terms of these arrangements are customary for the industry and do not contain any long‐term contractual obligations on our
behalf. We believe we maintain good relationships with our suppliers.
Distribution and Logistics
We distribute our products through three distribution centers, owned by the Company, strategically located in New Jersey,
Oklahoma, and Virginia. These distribution centers provide efficient cross‐dock operations to receive and ship product from
our manufacturing facilities and third‐party suppliers to our retail network of Company and independently operated retail
service centers. Retail service centers prepare products for delivery into clients’ homes. At June 30, 2018, the Company
operated retail design centers were supported by 14 Company operated retail service centers and 15 service centers operated
by third parties.
While we manufacture to custom order the majority of our products, we also stock selected case goods, upholstery and home
accents to provide for quick delivery of in‐stock items and to allow for more efficient production runs. We utilize independent
carriers to ship our products.
Our practice has been to sell our products at the same delivered cost to all Company and independently operated design
centers in North America, regardless of their shipping point. This policy creates pricing credibility with our wholesale
customers while providing our retail segment the opportunity to achieve more consistent margins by removing fluctuations
attributable to the cost of shipping. Further, this policy eliminates the need for our independent retailers to carry significant
amounts of inventory in their own warehouses. As a result, we obtain more accurate consumer product demand information.
Marketing Programs
Our multifaceted, multichannel marketing and advertising strategies drive traffic both to design centers and our digital
mediums. We believe these efforts give us a strong competitive advantage in the home furnishings industry while benefiting
our worldwide retail network of approximately 300 design centers as well as the independent members of our Interior Design
Affiliate program.
Our team of advertising specialists work to position Ethan Allen as an authority on design, a leader in exemplary service, and
a source of style for everyone. In our marketing campaigns, we capitalize on Ethan Allen's strong brand equity, finding creative
and compelling ways to promote our tremendous range of products, services, special programs, and custom options. We
deliver these messages in a variety of ways – locally, nationally, and globally – to connect and engage with our target audience
and drive sales.
As digital channels have taken on increasing importance, we continue to expand our digital marketing reach – supplementing
traditional advertising strategies. Our channels include digital and social media, national and local television, direct mail,
national and local newspapers, local and satellite radio, and local shelter magazines. Additionally, our robust email marketing
program delivers inspiration, sales messages, design solutions, and product information to an ever‐expanding database of
current and potential clients.
Our direct mail magazine, which emphasizes the breadth of our products and services, is one of Ethan Allen's key marketing
tools. We produce these magazines multiple times a year; in fiscal 2018, we distributed approximately 17 million copies. We
distribute them to targeted marketing segments based on data collected internally and through independent market
research. We continually refine our direct mail marketing lists to target clients and potential clients who are most likely to
purchase, which provides better returns on direct mail expenditures.
Our websites – ethanallen.com and ethanallen.ca – undergo continuous conversion optimization to boost sales as clients
shop, design, and purchase. We also have a web presence to support our international licensees – in some cases, using local
6
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
languages; in all cases, linking back to ethanallen.com. These websites position Ethan Allen in a manner consistent with our
brand yet specific to the region.
A robust and informative Extranet connects our retail network, keeping the lines of communication open among our retailers,
design professionals, merchandisers, trainers, and corporate personnel. Information about every aspect of Ethan Allen's retail
business is shared here, including advertising materials, prototype floor plan displays, and extensive product details.
Retail Design Centers
Ethan Allen design centers are typically located in busy retail settings as freestanding destinations or as part of town centers,
lifestyle centers, suburban strip malls or shopping malls, depending upon the real estate opportunities in a particular market.
Our design centers average approximately 15,000 square feet in size with 46% between 15,000 and 25,000 square feet and
50% less than or equal to 15,000 square feet and 4% greater than 25,000 square feet.
Combining technology with personal service in our design centers has allowed us to reduce the size of our design centers. As
of June 30, 2018 we operated 18 new design centers that have opened in the past three years, and these average 9,300
square feet. These smaller footprint design centers reflect our direction as we move forward in repositioning our retail design
centers. These new and relocated design centers also reflect our shift from destination and shopping mall locations to lifestyle
centers that better project our brand and offer increased traffic opportunities.
We strive to maintain consistency of presentation throughout our retail design centers through a comprehensive set of
standards and display planning assistance. These interior display design standards assist each design center in presenting a high
quality image by using focused lifestyle settings and select product category groupings to display our products and information
to facilitate design solutions and to educate consumers. We also create a consistent brand projection through our exterior
facades and signage. The establishment of these standards has helped position Ethan Allen as a leader in the home furnishings
industry.
We continue to strengthen the Ethen Allen brand with many initiatives, including the opening of new and relocating design
centers in desirable locations, updating presentations and floor plans, strengthening of the professionalism of our designers
through training and certification, and the consolidation of certain design centers and service centers.
People
At June 30, 2018 and June 30, 2017, the Company, through its subsidiaries, had approximately 5,200 employees. The majority of
our employees are employed on a fulltime basis and we believe we maintain good relationships with our employees, none of
whom are represented by unions.
Customer Service Offerings
We offer numerous customer service programs, each of which has been developed and introduced to consumers in an effort
to make their shopping experience easier and more enjoyable.
Gift Card
This program allows customers to purchase and redeem gift cards through our website or at any participating retail design
center, which can be used for any of our products or services.
Ethan Allen Consumer Credit Programs
The Ethan Allen Platinum program offers consumers (clients) a menu of custom financing options. Financing offered through this
program is administered by a third‐party financial institution and is granted to our customers on a non‐recourse basis to the
Company. Clients may apply for an Ethan Allen Platinum card at any participating design center or on‐line at ethanallen.com.
Competition
We believe the home furnishings industry competes primarily on the basis of product styling and quality, personal service,
prompt delivery, product availability and price. We further believe that we effectively compete on the basis of each of these
factors and that, more specifically, our complimentary interior design service, direct manufacturing, product presentations,
and website create a distinct competitive advantage, further supporting our mission of providing consumers with a complete
home decorating and design solution. We also believe that we differentiate ourselves further with the quality of our interior
design service through our intensive training. Our objective is to continue to develop and strengthen our retail network by (i)
expanding the Company operated retail business through the repositioning of and opening of new design centers, (ii)
obtaining and retaining independent retailers, encouraging such retailers to expand their business through the opening or
7
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
relocation of new design centers with the objective of increasing the volume of their sales, (iii) further expanding our sales
network through our IDA and realtor referral programs and (iv) further expanding our ecommerce.
The internet provides a highly competitive medium for the sale of a significant amount of home furnishings each year, and
we believe it is becoming increasingly important. Much of that product is sold through commodity oriented, low priced and
low service retailers. We believe consumers are spending more time researching on the internet and are thus better informed
when they do visit our brick and mortar facilities. At Ethan Allen our internet strategy is to drive traffic into our design centers
by combining technology with excellent personal service. Though our customers have the opportunity to buy our products
on‐line, we take the process further. With so much of our product customizable, we encourage our website customers to get
personal help from our interior design professionals either in person or by chatting on‐line with one of our qualified design
consultants. This complimentary direct contact with one of our knowledgeable interior designers creates a competitive
advantage through our excellent personal service. This enhances the online experience and regularly leads to internet
customers becoming clients of our network of interior design centers.
Trademarks
We currently hold, or have registration applications pending for, numerous trademarks, service marks and copyrights for the
Ethan Allen name, logos and designs in a broad range of classes for both products and services in the United States and in
many foreign countries. In addition, we have registered, or have applications pending for certain of our slogans utilized in
connection with promoting brand awareness, retail sales and other services and certain collection names. We view such
trademarks and service marks as valuable assets and have an ongoing program to diligently monitor and defend, through
appropriate action, against their unauthorized use.
Executive Officers of the Registrant
Set forth in the table below is a list of our executive officers, together with certain biographical information, including their
ages as of the date of this Report:
M. Farooq Kathwari, age 73
Chairman of the Board, President and Chief Executive Officer since 1988
Kathy Bliss, age 54
Senior Vice‐President, Retail since October 2017
Vice‐President, Retail since August 2013
Daniel M. Grow, age 72
Senior Vice President, Business Development since February 2015
Vice‐President, Business Development from 2009 to 2015
Eric D. Koster, age 71
Vice‐President, General Counsel and Secretary since April 2013
Private practice prior to joining the Company in April 2013
Tracy Paccione, age 52
Senior Vice‐President, Merchandising since July 2017
Vice‐President, Merchandising since June 2009
Christopher Robertson, age 49
Vice President, Logistics and Service since January 2016
Director, Operations Support since May 2011
Clifford Thorn, age 66
Vice‐President, Upholstery Manufacturing since May 2001
Corey Whitely, age 58
Executive Vice‐President, Administration, Chief Financial Officer and Treasurer since July 2014
Executive Vice‐President, Operations from October 2007 through July 2014
Michael Worth, age 51
Vice‐President, Case Goods Manufacturing since December 2016
Regional Operations Manager, Case Goods since February 2004
8
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Item 1A. Risk Factors
The following information describes certain significant risks and uncertainties inherent in our business that should be carefully
considered, along with other information contained elsewhere in this Annual Report and in other filings, when making an
investment decision with respect to us. If one or more of these risks occurs, the impact on our business, including our financial
condition, results of operations, and cash flows could be adverse.
Competition from overseas manufacturers and domestic retailers may adversely affect our business, operating results or
financial condition.
Our wholesale business segment is involved in the development of our brand, which encompasses the design, manufacture,
sourcing, sales and distribution of our home furnishings products, and competes with other U.S. and foreign manufacturers.
Our retail network sells home furnishings to consumers through a network of independently operated and Company
operated design centers, and competes against a diverse group of retailers ranging from specialty stores to traditional
furniture and department stores, any of which may operate locally, regionally, nationally or globally, as well as over the
internet. We also compete with these and other retailers for appropriate retail locations as well as for qualified design
consultants and management personnel. Such competition could adversely affect our future financial performance.
Industry globalization has led to increased competitive pressures brought about by the increasing volume of imported
finished goods and components, particularly for case good products, and the development of manufacturing capabilities in
other countries, specifically within Asia. The increase in overseas production has created over‐capacity for many
manufacturers, including us, which has led to industry‐wide plant consolidation. In addition, because many foreign
manufacturers are able to maintain substantially lower production costs, including the cost of labor and overhead, imported
product may be capable of being sold at a lower price to consumers, which, in turn, could lead to some measure of further
industry‐wide price deflation.
We cannot provide assurance that we will be able to establish or maintain relationships with sufficient or appropriate
manufacturers, whether foreign or domestic, to supply us with selected case goods, upholstery and home accent items to
enable us to maintain our competitive advantage. In addition, the emergence of foreign manufacturers has served to broaden
the competitive landscape. Some of these competitors produce furniture types not manufactured by us and may have greater
financial resources available to them or lower costs of operating. This competition could adversely affect our future financial
performance.
Failure to successfully anticipate or respond to changes in consumer tastes and trends in a timely manner could adversely
impact our business, operating results and financial condition.
Sales of our products are dependent upon consumer acceptance of our product designs, styles, quality and price. We
continuously monitor changes in home design trends through attendance at international industry events and fashion shows,
internal marketing research, and regular communication with our retailers and design consultants who provide valuable input
on consumer tendencies. However, as with all retailers, our business is susceptible to changes in consumer tastes and trends.
Such tastes and trends can change rapidly and any delay or failure to anticipate or respond to changing consumer tastes and
trends in a timely manner could adversely impact our business, operating results and financial condition.
Our success depends upon our brand, marketing and advertising efforts and pricing strategies. If we are not able to
maintain and enhance our brand, or if we are not successful in these other efforts, our business and operating results could
be adversely affected.
Maintaining and enhancing our brand is critical to our ability to expand our base of customers and may require us to make
substantial investments. Our advertising campaign utilizes television, direct mail, digital, newspapers, magazines and radio
to maintain and enhance our existing brand equity. We cannot provide assurance that our marketing, advertising and other
efforts to promote and maintain awareness of our brand will not require us to incur substantial costs. If these efforts are
unsuccessful or we incur substantial costs in connection with these efforts, our business, operating results and financial
condition could be adversely affected.
We face changes in global and local economic conditions that may adversely affect consumer demand and spending, our
manufacturing operations or sources of merchandise and international operations.
Historically, the home furnishings industry has been subject to cyclical variations in the general economy and to uncertainty
regarding future economic prospects. Such uncertainty, as well as other variations in global economic conditions such as
rising fuel costs, wage and benefit inflation, currency fluctuations, and increasing interest rates, may continue to cause
9
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
inconsistent and unpredictable consumer spending habits, while increasing our own input costs. These risks, as well as
industrial accidents or work stoppages, could also severely disrupt our manufacturing operations, which could have a material
adverse effect on our financial performance.
We import a portion of our merchandise from foreign countries and operate manufacturing plants in Mexico and Honduras
and operate retail design centers in Canada. As a result, our ability to obtain adequate supplies or to control our costs may
be adversely affected by events affecting international commerce and businesses located outside the United States, including
natural disasters, changes in international trade, central bank actions, changes in the relationship of the U.S. dollar versus
other currencies, labor availability and cost, and other governmental policies of the U.S. and the countries from which we
import our merchandise or in which we operate facilities. The inability to import products from certain foreign countries or
the imposition of significant tariffs could have a material adverse effect on our results of operations.
The Company’s business may be adversely affected by changes in U.S. policy related to imported merchandise.
A significant amount of the Company’s merchandise is sourced from outside of the United States. The U.S. government is
considering proposals for substantial changes to its trade and tax policies, which could include import restrictions, increased
import tariffs, changes to or withdrawal from existing trade agreements, and border‐adjustment taxes among other possible
measures. Material changes in these policies could increase the Company’s tax obligations or require the Company to increase
prices to customers, which would likely adversely affect sales. Any significant change in U.S. policy related to imported
merchandise could have a material adverse effect on the Company’s business and financial results.
An economic downturn may materially adversely affect our business.
Our business and results of operations are affected by international, national and regional economic conditions. Regional
economic conditions in the United States and in other regions of the world where we have a concentration of design centers
such as Canada or China may impact the Company greater compared to economic conditions in other parts of the world
where we have lesser concentration of design centers. An economic downturn of significance or extended duration could
adversely affect consumer demand and discretionary spending habits and, as a result, our business performance, profitability,
and cash flows.
Our business may be materially affected by changes to fiscal and tax policies. Potentially negative or unexpected tax
consequences of these policies, or the uncertainty surrounding their potential effects, could adversely affect our results of
operations and share price.
The U.S. Tax Cuts and Jobs Act of 2017 (the “TCJA”) was approved by the U.S. Congress on December 20, 2017 and signed
into law on December 22, 2017. This legislation makes significant changes to the U.S. Internal Revenue Code of 1986, as
amended (the “IRC”). Such changes include a reduction in the corporate tax rate from 35% to 21% and limitations on certain
corporate deductions and credits, among other changes. In addition, the TCJA requires complex computations to be
performed that were not previously required in U.S. tax law, significant judgments to be made in interpretation of the
provisions of the TCJA and significant estimates in calculations, and the preparation and analysis of information not previously
relevant or regularly produced.
While we have provided for the effect of the TCJA in our Consolidated Financial Statements the final impacts of the TCJA
could be materially different from our expectations. For example, adverse changes in the underlying profitability and financial
outlook of our operations or changes in tax law could lead to changes in our valuation allowances against deferred tax assets
on our consolidated balance sheets, which could materially affect our results of operations. The U.S. Treasury Department,
the Internal Revenue Service (the “IRS”), and other standard‐setting bodies could interpret or issue guidance on how
provisions of the TCJA will be applied or otherwise administered that is different from our interpretation. Finally, foreign
governments may enact tax laws in response to the TCJA that could result in further changes to global taxation and materially
affect our financial position and results of operations. The uncertainty surrounding the effect of the reforms on our financial
results and business could also weaken confidence among investors in our financial condition. This could, in turn, have a
materially adverse effect on the price of our ordinary shares.
Our number of manufacturing and logistics sites may increase our exposure to business disruptions and could result in
higher transportation costs.
We have a limited number of manufacturing sites in our case goods and upholstery operations, consolidated our distribution
network into fewer centers for both wholesale and retail segments, and operate a single home accents plant. Our upholstery
operations consist of three upholstery plants at our North Carolina campus and one plant in Mexico. The Company operates
10
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
three manufacturing plants (North Carolina, Vermont, and Honduras) and one sawmill in support of our case goods
operations. Our plants require various raw materials and commodities such as logs and lumber for our case goods plants and
foam, springs and engineered hardwood board for our upholstery plants. As a result of the consolidation of our manufacturing
operations into fewer facilities, if any of our manufacturing or logistics sites experience significant business interruption, our
ability to manufacture or deliver our products in a timely manner would likely be impacted. While we have long‐standing
relationships with multiple outside suppliers of our raw materials and commodities, there can be no assurance of their ability
to fulfill our supply needs on a timely basis. The consolidation to fewer locations has resulted in longer distances for delivery
and could result in higher costs to transport products if fuel costs increase significantly.
Fluctuations in the price, availability and quality of raw materials could result in increased costs or cause production delays
which might result in a decline in sales, either of which could adversely impact our earnings.
We use various types of wood, foam, fibers, fabrics, leathers, and other raw materials in manufacturing our furniture. Certain
of our raw materials, including fabrics, are purchased domestically and outside North America. Fluctuations in the price,
availability and quality of raw materials could result in increased costs or a delay in manufacturing our products, which in turn
could result in a delay in delivering products to our customers. For example, lumber prices fluctuate over time based on
factors such as weather and demand, which in turn, impact availability. Production delays or upward trends in raw material
prices could result in lower sales or margins, thereby adversely impacting our earnings.
In addition, certain suppliers may require extensive advance notice of our requirements in order to produce products in the
quantities we desire. This long lead time may require us to place orders far in advance of the time when certain products will
be offered for sale, thereby exposing us to risks relating to shifts in consumer demand and trends, and any significant
downturn in the U.S. economy.
Our current and former manufacturing and retail operations and products are subject to increasingly stringent
environmental, health and safety requirements.
We use and generate hazardous substances in our manufacturing and retail operations. In addition, both the manufacturing
properties on which we currently operate and those on which we have ceased operations are and have been used for
industrial purposes. Our manufacturing operations and, to a lesser extent, our retail operations involve risk of personal injury
or death. We are subject to increasingly stringent environmental, health and safety laws and regulations relating to our
products, current and former properties and our current operations. These laws and regulations provide for substantial fines
and criminal sanctions for violations and sometimes require product recalls and/or redesign, the installation of costly
pollution control or safety equipment, or costly changes in operations to limit pollution or decrease the likelihood of injuries.
In addition, we may become subject to potentially material liabilities for the investigation and cleanup of contaminated
properties and to claims alleging personal injury or property damage resulting from exposure to or releases of hazardous
substances or personal injury because of an unsafe workplace.
In addition, noncompliance with, or stricter enforcement of, existing laws and regulations, adoption of more stringent new
laws and regulations, discovery of previously unknown contamination or imposition of new or increased requirements could
require us to incur costs or become the basis of new or increased liabilities that could be material.
The Company's sales and operating results could be adversely affected by product safety concerns.
If the Company's merchandise offerings do not meet applicable safety standards or consumers' expectations regarding safety,
the Company could experience decreased sales, increased costs and/or be exposed to legal and reputational risk. Events that
give rise to actual, potential or perceived product safety concerns could expose the Company to government enforcement
action and/or private litigation. Reputational damage caused by real or perceived product safety concerns could negatively
affect the Company's business and results of operations.
The Company relies heavily on information and technology to operate its business, and any disruption to its technology
infrastructure (including cyber attacks) or the internet could harm the Company's operations.
In the current environment, there are numerous and evolving risks to cybersecurity and privacy, including criminal hackers,
hacktivists, state‐sponsored intrusions, industrial espionage, employee malfeasance and human or technological error. High‐
profile security breaches at other companies and in government agencies have increased in recent years, and security industry
experts and government officials have warned about the risks of hackers and cyberattacks targeting businesses such as ours.
Computer hackers and others routinely attempt to breach the security of technology products, services and systems, and to
fraudulently induce employees, customers, or others to disclose information or unwittingly provide access to systems or data.
We operate many aspects of our business including financial reporting, and customer relationship management through
11
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
server and web‐based technologies, and store various types of data on such servers or with third‐parties who in turn store it
on servers and in the “cloud”. Any disruption to the internet or to the Company's or its service providers' global technology
infrastructure, including malware, insecure coding, “Acts of God,” attempts to penetrate networks, data theft or loss and
human error, could have adverse effects on the Company's operations. A cyber attack of our systems or networks that impairs
our information technology systems could disrupt our business operations and result in loss of service to customers. The risk
of cyberattacks to our Company also includes attempted breaches of contractors, business partners, vendors and other third
parties. We have a comprehensive cybersecurity program designed to protect and preserve the integrity of our information
technology systems. We have experienced and expect to continue to experience actual or attempted cyber attacks of our IT
systems or networks; however, none of these actual or attempted cyber attacks had a material impact on our operations or
financial condition.
Additionally, we have access to sensitive customer information in the ordinary course of business. If a significant data breach
occurred, our reputation may be adversely affected, customer confidence may be diminished, or we may be subject to legal
claims, or legal proceedings, including regulatory investigations and actions, may have a negative impact on our reputation,
may lead to regulatory enforcement actions against us, and may materially adversely affect our business, operating results
and financial condition. The loss, disclosure or misappropriation of our business information may materially adversely affect
our business, operating results and financial condition. Further, legislative or regulatory action in these areas is evolving, and
we may be unable to adapt our IT systems or to manage the IT systems of third parties to accommodate these changes.
Finally, if a significant data breach occurred, our reputation could be materially and adversely affected, confidence among
our customers may be diminished.
While we have invested and continue to invest in information technology risk management, cybersecurity and disaster
recovery plans, these measures cannot fully insulate the Company from technology disruptions or data theft or loss and the
resulting adverse effect on the Company's operations and financial results.
Our business is sensitive to increasing labor costs, competitive labor markets, our continued ability to retain high‐quality
personnel and risks of work stoppages.
The market for qualified employees and personnel in the retail and manufacturing industries is highly competitive. Our
success depends upon our ability to attract, retain and motivate qualified artisans, professional and clerical employees and
upon the continued contributions of these individuals. We cannot provide assurance that we will be successful in attracting
and retaining qualified personnel. A shortage of qualified personnel may require us to enhance our wage and benefits package
in order to compete effectively in the hiring and retention of qualified employees. Our labor and benefit costs may continue
to increase and such increases may not be recovered. This could have a material adverse effect on our business, operating
results and financial condition.
We depend on key personnel and could be affected by the loss of their services.
The success of our business depends upon the services of certain senior executives, and in particular, the services of M.
Farooq Kathwari, Chairman of the Board, President and Chief Executive Officer, who is the only one of our senior executives
who operates under a written employment agreement. The loss of any such person or other key personnel could have a
material adverse effect on our business and results of operations.
We may be unable to obtain sufficient external funding to finance our operations and growth.
Historically, we have relied upon our cash from operations to fund our debt service, operations and growth. As we operate
and expand our business, we may rely on external funding sources, including the proceeds from the issuance of additional
debt or use of the $115 million revolving bank line of credit under our existing credit facility. The credit facility bears interest
at a floating rate and there is a risk that the rate will increase and as we are not hedging our interest rate for the credit facility,
our debt service costs could increase. Any unexpected reduction in cash flow from operations could increase our external
funding requirements to levels above those currently available. There can be no assurance that we will not experience
unexpected cash flow shortfalls in the future or that any increase in external funding required by such shortfalls will be
available on acceptable terms or at all.
Access to consumer credit could be interrupted and reduce sales and profitability.
Our ability to continue to access consumer credit for our clients could be negatively affected by conditions outside our control.
If capital market conditions have a material negative change, there is a risk that our business partner that issues our private label
credit card program may not be able to fulfill its obligations under that agreement. In addition, the tightening of credit
markets may restrict the ability and willingness of customers to make purchases.
12
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Operating losses could reduce our liquidity and impact our dividend policy.
Historically, we have relied on our cash from operations or debt issuances to fund our operations and the payment of cash
dividends. If the Company’s financial performance were to deteriorate resulting in financial losses we may not be able to fund
a shortfall from operations and would require external funding. Some financing instruments used by the Company historically
may not be available to the Company in the future. We cannot assure that additional sources of financing would be available
to the Company on commercially favorable terms should the Company's capital requirements exceed cash available from
operations and existing cash and cash equivalents. In such circumstances, the Company may reduce its quarterly dividends.
Additional impairment charges could reduce our profitability.
We have significant long‐lived tangible and intangible assets recorded on our balance sheets. If our operating results decline,
we may incur impairment charges in the future, which could have a material impact on our financial results. We evaluate the
recoverability of the carrying amount of our long‐lived tangible and intangible assets on an ongoing basis. There can be no
assurance that the outcome of such future reviews will not result in substantial impairment charges. Impairment assessment
inherently involves judgments as to assumptions about expected future cash flows and the impact of market conditions on
those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs or other
factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we use in
testing for impairment are reasonable, significant changes in any of our assumptions could produce a significantly different
result.
We may not be able to maintain our current design center locations at current costs. We may also fail to successfully select
and secure design center locations.
Our design centers are typically located in busy urban settings as freestanding destinations or as part of suburban strip malls
or shopping malls, depending upon the real estate opportunities in a particular market. Our business competes with other
retailers and as a result, our success may be affected by our ability to renew current design center leases and to select and
secure appropriate retail locations for existing and future design centers.
Our results of operations for any quarter are not necessarily indicative of our results of operations for a full year.
Sales of furniture and other home furnishing products fluctuate from quarter to quarter due to such factors as changes in
global and regional economic conditions, changes in competitive conditions, changes in production schedules in response to
seasonal changes in energy costs and weather conditions, changes in consumer order patterns, and the timing of various
promotional events. From time to time, we have experienced, and may continue to experience, volatility with respect to
demand for our home furnishing products. Accordingly, results of operations for any quarter are not necessarily indicative of
the results of operations for a full year.
Failure to protect our intellectual property could adversely affect us.
We believe that our copyrights, trademarks, service marks, trade secrets, and all of our other intellectual property are
important to our success. We rely on patent, trademark, copyright and trade secret laws, and confidentiality and restricted
use agreements, to protect our intellectual property and may seek licenses to intellectual property of others. Some of our
intellectual property is not covered by any patent, trademark, or copyright or any applications for the same. We cannot
provide assurance that agreements designed to protect our intellectual property will not be breached, that we will have
adequate remedies for any such breach, or that the efforts we take to protect our proprietary rights will be sufficient or
effective. Any significant impairment of our intellectual property rights or failure to obtain licenses of intellectual property
from third parties could harm our business or our ability to compete. Moreover, we cannot provide assurance that the use
of our technology or proprietary know‐how or information does not infringe the intellectual property rights of others. If we
have to litigate to protect or defend any of our rights, such litigation could result in significant expense.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our 144,000 sq. ft. corporate headquarters, located in Danbury, Connecticut, and adjacent Ethan Allen Hotel and Conference
Center, containing approximately 200 guestrooms, are owned by the Company. The hotel is used primarily for functions and
accommodations for the general public as well as in connection with Ethan Allen functions and training programs.
13
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
We operate nine manufacturing facilities located in the U.S., Mexico and Honduras. These facilities are owned by the
Company and include four case goods plants (including one sawmill) totaling 1,789,000 square feet, four upholstery furniture
plants totaling 1,261,000 square feet, and one home accent plant of 177,000 square feet. Our wholesale division also owns
and operates three national distribution and fulfillment centers, one of which shares a facility with our manufacturing, which
are a combined 1,001,000 square feet. Two of our case goods manufacturing facilities are located in Vermont, one is in North
Carolina and one is in Honduras. We have three upholstery manufacturing facilities at our North Carolina campus, and one in
Mexico. Our home accents plant is located in New Jersey, and our distribution facilities are located in New Jersey, Oklahoma,
and Virginia.
We own three and lease 11 retail service centers, totaling approximately 775,000 square feet. Our retail service centers are
located throughout the United States and Canada and serve to support our various retail sales districts.
The location activity and geographic distribution of our retail network for fiscal years ended June 30 are as follows:
Fiscal 2018
Fiscal 2017
Independent
retailers
Company‐
operated
Total
Independent
retailers
Company‐
operated
Total
Retail Des ign Center location activity:
Balance at beginning of period
New locations
Closures
Transfers
Balance at end of period
Relocations (in new and clos ures)
Retail Des ign Center geographic locations :
United States
Canada
China
Other As ia
Europe
Middle East
Total
155
11
(16)
(2)
148
‐
44
‐
87
9
1
7
148
148
3
(5)
2
148
1
142
6
‐
‐
‐
‐
303
14
(21)
‐
296
1
186
6
87
9
1
7
153
8
(5)
(1)
155
1
48
‐
82
12
6
7
143
6
(2)
1
148
2
296
14
(7)
‐
303
3
142
190
6
‐
‐
‐
‐
6
82
12
6
7
148
296
155
148
303
Of the 148 Company operated retail design centers, 50 of the properties are owned and 98 are leased. We own one and lease
six additional retail properties, which we lease to three independent Ethan Allen retailers, and four unaffiliated third parties.
See Note 7 to the Consolidated Financial Statements included under Item 8 of this Annual Report for more information with
respect to our operating lease obligations.
We believe that all our properties are well maintained and in good condition. We estimate that our manufacturing plants are
currently operating at approximately 54% of capacity based on their current shifts and staffing. We believe we have additional
capacity at selected facilities, which we could utilize with minimal additional capital expenditures.
Item 3. Legal Proceedings
In the ordinary course of our business, we are party to various legal proceedings and claims which we believe are incidental
to the operation of our business. Other than as described under Note 13 to our consolidated financial statements included in
Part II, Item 8 of this Annual Report on Form 10‐K, we believe the ultimate outcome of these proceedings to which we are
currently a party will not have a material adverse effect on our business, financial position, results of operations or cash flows.
14
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Regulations issued under the Clean Air Act Amendments of 1990 required the industry to reformulate certain furniture
finishes or institute process changes to reduce emissions of volatile organic compounds. Compliance with many of these
requirements has been facilitated through the introduction of high solids coating technology and alternative formulations. In
addition, we have instituted a variety of technical and procedural controls, including reformulation of finishing materials to
reduce toxicity, implementation of high velocity low pressure spray systems, development of storm water protection plans
and controls, and further development of related inspection/audit teams, all of which have served to reduce emissions per
unit of production. We remain committed to implementing new waste minimization programs and/or enhancing existing
programs with the objective of (i) reducing the total volume of waste, (ii) limiting the liability associated with waste disposal,
and (iii) continuously improving environmental and job safety programs on the factory floor which serve to minimize
emissions and safety risks for employees. To reduce the use of hazardous materials in the manufacturing process, we will
continue to evaluate the most appropriate, cost‐effective control technologies for finishing operations and production
methods. We believe that our facilities are in material compliance with all such applicable laws and regulations. Our currently
anticipated capital expenditures for environmental control facility matters are not material.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the New York Stock Exchange (“NYSE”) under ticker symbol "ETH". The following table sets
forth, for each quarterly period during the past two fiscal years, (i) the intraday high and low sales prices of our common
stock as reported on the NYSE and (ii) the dividends per share declared by us:
Fi s ca l 2018
Fi rs t Qua rter
Second Qua rter
Thi rd Qua rter
Fourth Qua rter
Fi s ca l 2017
Fi rs t Qua rter
Second Qua rter
Thi rd Qua rter
Fourth Qua rter
Ma rket Pri ce
Hi gh
Low
Di vidends
Per Sha re
$
33.12
$
27.35
32.90
29.40
25.15
26.45
22.15
21.50
$
36.77
$
30.63
38.80
37.90
32.50
29.20
27.75
26.75
0.19
0.50
0.19
0.19
0.17
0.19
0.19
0.19
As of July 26, 2018, there were 222 shareholders of record of our common stock. Management estimates there are
approximately 9,000 beneficial shareholders of the Company’s common stock. The Company’s policy is to issue quarterly
dividends, and we expect to continue to declare quarterly dividends for the foreseeable future, business conditions
permitting.
Equity Compensation Plan Information
The Equity Compensation Plan Information required by this Item will appear in the Ethan Allen Interiors Inc. proxy statement
for the 2018 Annual Meeting of Shareholders and is incorporated herein by reference in the introductory paragraph of Part
III of this Annual Report.
Issuer Purchases of Equity Securities
During the fiscal year ended June 30, 2018 the Company repurchased 950,484 shares of our common stock at an average
price of $23.17 per share. Certain information regarding purchases of our common stock made by us during the three months
ended June 30, 2018 is as follows:
15
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Numbe r of
Sha res
Purcha s e d
Avera ge
Pri ce Pa i d
Pe r Sha re
513,619
436,865
$
22.53
$
23.91
‐
$
‐
950,484
$
23.17
Peri od
Apri l 2018
Ma y 2018
June 2018
Tota l
Tota l Numbe r of
Sha res Purcha s e d
a s Pa rt of Publ i cl y
Announced
Pl a ns or Progra ms
Ma xi mum Number of
Sha re s tha t Ma y Yet
Be Purcha s ed
Under the
Pl a ns or Progra ms
513,619
436,865
‐
950,484
2,954,911
2,518,046
2,518,046
On November 21, 2002, our Board of Directors approved a share repurchase program authorizing us to repurchase up to
2,000,000 shares of our common stock, from time to time, either directly or through agents, in the open market at prices and
on terms satisfactory to us. Subsequent to that date, the Board of Directors increased the aggregate authorization under the
repurchase program on several separate occasions, the last of which was on April 24, 2018 when the Board of Directors
increased the aggregate authorization to approximately 3,000,000 shares. There is no expiration date on the repurchase
authorization and the amount and timing of future share repurchases, if any, will be determined as market and business
conditions warrant.
Comparative Company Performance
The following line graph compares the cumulative total stockholder return for the Company with the S&P 500 Index, and the
S&P Retail Select Industry Index (SPSIRE), assuming $100 was invested on June 30, 2013.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Ethan Allen Interiors Inc., the S&P 500® Index,
S&P Retail Select Industry Index (SPSIRE)
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
6/13
6/14
6/15
6/16
6/17
6/18
Ethan Allen Interiors Inc.
S&P 500®
S&P Retail Select Industry Index (SPSIRE)
*$100 invested on June 30, 2013 in stock or index, including reinvestment of dividends.
Fiscal years ending June 30.
Source: S&P Dow Jones Indices
Item 6. Selected Financial Data
The following table presents selected financial data for the fiscal years ended June 30, 2014 through 2018 that has been
derived from our consolidated financial statements. The information set forth below should be read in conjunction with
16
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and Results of Operations included under Item 7 of this Annual
Report and our Consolidated Financial Statements (including the notes thereto) included under Item 8 of this Annual Report.
Dollar amounts are in thousands except per share data.
Cons ol i da ted Opera ti ons Da ta
Net Sa l es
Cos t of Sa l es
Sel l i ng, genera l a nd
a dmi ni s tra ti ve e xpens es
Opera ti ng i ncome
Interes t a nd other expe ns e, net
Income before i ncome
ta x expe ns e
Income ta x expens e (benefi t)
Fi s ca l Yea r Ended June 30,
2018
2017
2016
2015
2014
$
766,784
$
763,385
$
794,202
$
754,600
$
746,659
350,820
343,662
351,966
343,437
340,163
367,097
361,773
353,057
345,229
336,860
48,867
(200)
49,067
12,696
57,950
955
56,995
20,801
89,179
1,223
87,956
31,319
65,934
9,251
56,683
19,541
69,636
7,234
62,402
19,471
Net i ncome
$
36,371
$
36,194
$
56,637
$
37,142
$
42,931
Per Sha re Da ta
Net i ncome per ba s i c
s ha re
Ba s i c wei ghted a vera ge s ha res
outs ta ndi ng
Net i ncome per di l uted
s ha re
Di l ute d wei ghted a ve ra ge
s ha res outs ta ndi ng
$
1.33
$
1.31
$
2.02
$
1.29
$
1.48
27,321
27,679
28,072
28,874
28,918
$
1.32
$
1.29
$
2.00
$
1.27
$
1.47
27,625
27,958
28,324
29,182
29,276
Ca s h di vi dends per s ha re
$
1.07
$
0.74
$
0.62
$
0.50
$
0.40
Other Informa ti on
Depreci a ti on a nd a morti za ti on
$
19,831
$
20,115
$
19,353
$
19,142
$
17,930
Ca pi ta l expendi ture s a nd
a cqui s i ti ons
Worki ng ca pi ta l
Current ra ti o
Effecti ve ta x ra te
$
18,773
$
18,321
$
23,132
$
21,778
$
19,305
$
93,165
$
116,653
$
124,857
$
130,012
$
169,582
1.77 to 1
1.92 to 1
2.01 to 1
1.92 to 1
2.25 to 1
25.9%
36.5%
35.6%
34.5%
31.2%
Ba l a nce Sheet Da ta (a t end of peri od)
Tota l a s s ets
$
530,433
$
568,222
$
577,409
$
605,977
$
654,434
Tota l debt, i ncl udi ng ca pi ta l
l ea s e obl i ga ti ons
$
1,680
$
14,339
$
41,838
$
76,237
$
130,912
Sha rehol ders ' equi ty
$
383,870
$
400,896
$
392,202
$
370,535
$
367,467
Debt a s a percenta ge of equi ty
Debt a s a percenta ge of ca pi ta l
0.4%
0.4%
3.6%
3.5%
10.7%
9.6%
20.6%
17.1%
35.6%
26.3%
17
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
The following discussion of financial condition and results of operations is based upon, and should be read in conjunction
with, our Consolidated Financial Statements (including the notes thereto) included under Item 8 of this Annual Report.
Forward‐Looking Statements
Management's discussion and analysis of financial condition and results of operations and other sections of this Annual
Report on Form 10‐K contain forward‐looking statements within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), which represent management’s beliefs and assumptions concerning future events based on
information currently available to us relating to our future results. Such forward‐looking statements are identified in this
Annual Report on Form 10‐K and in documents incorporated herein by reference by use of forward‐looking words such as
"anticipate", "believe", "plan", "estimate", "expect", "intend", “will”, “may”, “continue”, “project”, ”target”, “outlook”,
“forecast”, “guidance”, and similar expressions and the negatives of such forward‐looking words. These forward‐looking
statements are subject to management decisions and various assumptions about future events, and are not guarantees of
future performance. Actual results could differ materially from those anticipated in the forward‐looking statements due to a
number of risks and uncertainties including, but not limited to: competition from overseas manufacturers and domestic
retailers; our anticipating or responding to changes in consumer tastes and trends in a timely manner; our ability to maintain
and enhance our brand, marketing and advertising efforts and pricing strategies; changes in global and local economic
conditions that may adversely affect consumer demand and spending, our manufacturing operations or sources of
merchandise and international operations; changes in U.S. policy related to imported merchandise; an economic downturn;
our limited number of manufacturing and logistics sites; fluctuations in the price, availability and quality of raw materials;
environmental, health and safety requirements; product safety concerns; disruption to our technology infrastructure
(including cyber attacks); increasing labor costs, competitive labor markets and our continued ability to retain high‐quality
personnel and risks of work stoppages; loss of key personnel; our ability to obtain sufficient external funding to finance our
operations and growth; access to consumer credit; the effect of operating losses on our ability to pay cash dividends; our
ability to locate new design center sites and/or negotiate favorable lease terms for additional design centers or for the
expansion of existing design centers; the effects of terrorist attacks or conflicts or wars involving the United States or its allies
or trading partners; and those matters discussed in Items 1A and 7A of this Annual Report on Form 10‐K and in our other SEC
filings. Accordingly, actual circumstances and results could differ materially from those contemplated by the forward‐looking
statements.
Given the risks and uncertainties surrounding forward‐looking statements, you should not place undue reliance on these
statements. Many of these factors are beyond our ability to control or predict. Our forward‐looking statements speak only as
of the date of this Annual Report on Form 10‐K. Other than as required by law, we undertake no obligation to update or revise
forward‐looking statements, whether as a result of new information, future events, or otherwise.
Critical Accounting Policies
Our consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles
that require, in some cases, that certain estimates and assumptions be made that affect the amounts and disclosures reported
in those financial statements and the related accompanying notes. Estimates are based on currently known facts and
circumstances, prior experience and other reasonable assumptions. We use our best judgment in valuing these estimates
and may, as warranted, solicit external advice. Actual results could differ from these estimates, assumptions and judgments,
and these differences could be material. The following critical accounting policies, some of which are impacted significantly
by estimates, assumptions and judgments, affect our consolidated financial statements.
Inventories – Inventories (finished goods, work in process and raw materials) are stated at the lower of cost, determined on
a first‐in, first‐out basis, and net realizable value. Cost is determined based solely on those charges incurred in the acquisition
and production of the related inventory (i.e. material, labor and manufacturing overhead costs). We estimate an inventory
reserve for excess quantities and obsolete items based on specific identification and historical write‐downs, taking into
account future demand and market conditions. If actual demand or market conditions in the future are less favorable than
those estimated, additional inventory write‐downs may be required.
Revenue Recognition – Revenue is recognized when all the following have occurred: persuasive evidence of a sales
arrangement exists (e.g., a wholesale purchase order or retail sales order); the sales arrangement specifies a fixed or
determinable sales price; title and risk of ownership has passed to the customer; no specific performance obligations remain;
product is shipped or services are provided to the customer; collectability is reasonably assured. As such, revenue recognition
18
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
generally occurs upon the shipment of goods to independent retailers or, in the case of Ethan Allen operated retail design
centers, upon delivery to the customer. If a shipping charge is billed to customers, this is included in revenue. Recorded sales
provide for estimated returns and allowances. We permit our customers to return defective products and incorrect
shipments, and terms we offer are standard for the industry.
Impairment of Long‐Lived Assets and Goodwill – Goodwill and other indefinite‐lived intangible assets are evaluated for
impairment on an annual basis during the fourth quarter of each fiscal year, and between annual tests whenever events or
circumstances indicate that the carrying value of the goodwill or other intangible asset may exceed its fair value. When testing
goodwill for impairment, we may assess qualitative factors for some or all of our reporting units to determine whether it is
more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying
amount, including goodwill. Alternatively, we may bypass this qualitative assessment for some or all of our reporting units
and determine whether the carrying value exceeds the fair value using a quantitative assessment.
The recoverability of long‐lived assets is evaluated for impairment whenever events or changes in circumstances indicate that
we may not be able to recover the carrying amount of an asset or asset group. Our assessment of recoverability determines
whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of
the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an
impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. The long‐term nature of these
assets requires the estimation of cash inflows and outflows several years into the future.
The fair value of our trade name, which is the Company’s only indefinite‐lived intangible asset other than goodwill, is valued
using the relief‐from‐royalty method. Significant factors used in trade name valuation are rates for royalties, future growth,
and the discount rate. Royalty rates are determined using an average of recent comparable values. Future growth rates are
based on market participant assumptions based on the industry in which we operate, and the discount rate is determined
using the weighted average cost of capital for companies within our peer group, adjusted for specific company risk premium
factors.
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. Additional factors that we consider when
making judgments about the deferred tax valuation include tax law changes, a recent history of cumulative losses, and
variances in future projected profitability.
The Company evaluates, on a quarterly basis, uncertain tax positions taken or expected to be taken on tax returns for
recognition, measurement, presentation, and disclosure in its financial statements. If an income tax position exceeds a 50%
probability of success upon tax audit, based solely on the technical merits of the position, the Company recognizes an income
tax benefit in its financial statements. The tax benefits recognized are measured based on the largest benefit that has a
greater than 50% likelihood of being realized upon ultimate settlement. The liability associated with an unrecognized tax
benefit is classified as a long‐term liability except for the amount for which a cash payment is expected to be made or tax
positions settled within one year. We recognize interest and penalties related to income tax matters as a component of
income tax expense.
Business Insurance Reserves – We have insurance programs in place to cover workers’ compensation and property/casualty
claims. The insurance programs, which are funded through self‐insured retention, are subject to various stop‐loss limitations.
We accrue estimated losses using actuarial models and assumptions based on historical loss experience. Although we believe
that the insurance reserves are adequate, the reserve estimates are based on historical experience, which may not be
indicative of current and future losses. In addition, the actuarial calculations used to estimate insurance reserves are based
on numerous assumptions, some of which are subjective. We adjust insurance reserves, as needed, in the event that future
loss experience differs from historical loss patterns.
Other Loss Reserves – We have a number of other potential loss exposures incurred in the ordinary course of business such
as environmental claims, product liability, litigation, tax liabilities, restructuring charges, and the recoverability of deferred
income tax benefits. Establishing loss reserves for these matters requires the use of estimates and judgment with regard to
maximum risk exposure and ultimate liability or realization. As a result, these estimates are often developed with our counsel,
or other appropriate advisors, and are based on our current understanding of the underlying facts and circumstances.
19
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Because of uncertainties related to the ultimate outcome of these issues or the possibilities of changes in the underlying facts
and circumstances, additional charges related to these issues could be required in the future.
Results of Operations
In this Item 7 of this Annual Report , unless otherwise noted, all comparisons are from the fiscal year ended June 30, 2018 to
the prior fiscal year ended June 30, 2017 ($ in millions except per share amounts).
A summary of our consolidated operations for the past three fiscal years is presented in the following table.
Fi s ca l years ended June 30,
Net s a l es
Gros s profi t
SG&A
Opera ti ng i ncome
Net i ncome
Ea rni ngs per di l uted s ha re
Net ca s h provi ded by operati ng a cti vi ti es
$
$
$
2018
766.8
416.0
367.1
48.9
36.4
1.32
42.5
$
$
%
100.0%
54.2%
47.9%
6.4%
4.7%
$
$
$
2017
763.4
419.7
361.8
58.0
36.2
1.29
78.6
$
$
%
100.0%
55.0%
47.4%
7.6%
4.7%
%
100.0%
55.7%
44.5%
11.2%
7.1%
$
$
$
2016
794.2
442.2
353.1
89.2
56.6
2.00
58.4
$
$
A summary of changes from the preceding fiscal year are presented in the following table.
Net s a les
Opera ti ng i ncome
Net i ncome
Ea rni ngs per di l uted s ha re
Net ca s h provided by opera ting a ctivities
Fis ca l yea rs ended June 30,
2018
0.4%
(15.7%)
0.5%
2.3%
(46.0%)
2017
(3.9%)
(35.0%)
(36.1%)
(35.5%)
34.7%
2016
5.2%
35.3%
52.5%
57.5%
5.9%
We have completed a major transformation of our product offerings, having refreshed over 70% of our entire product line
over the past three years. During fiscal 2018 we expanded our GSA business with an award of a blanket purchase agreement
for the U. S. Department of State “Worldwide Residential Furniture Program”, and partnered with Amazon to sell products
through the Amazon marketplace. During the fall of 2017, we introduced Passport, a focused collection of unique artisan
crafted items inspired by designs from around the world, and in the spring of 2018 launched our new Uptown collection,
featuring a modern perspective on classic designs.
During the first quarter of fiscal 2018, we were negatively impacted by adverse weather affecting sales, manufacturing and
delivery of our products. Additionally, our net sales and profitability were negatively affected by first run production for both
the GSA business and floor samples for our new Passport collection. The GSA is now one of our ten largest customers. The
high order volume from the GSA business with contractually short lead‐times, together with the new product production
runs further impacted production capacity which resulted in production and shipping delays to our retail customers that
continued into the third quarter of fiscal 2018.
Beginning in March and continuing through the fourth quarter, we launched a major brand‐building marketing program
utilizing national television. This program targeted a broad demographic base beyond our core customer and we expect that
as we continue to market to this broader base, our brand awareness will increase and ultimately drive increased revenues
over time.
Gross margin was below the prior year primarily due to increased raw material costs, and a decrease in the retail sales mix
in relation to total sales. This was partly offset by an inventory write‐down of $6.4 million during the third quarter of fiscal
2017, and a 4.9% increase in wholesale sales. Operating expenses increased slightly as a percentage of sales, mostly due to
an increase in advertising expenses. Income taxes were reduced due to the U.S. Tax Cuts and Jobs Act changes enacted in
December 2017. The net result was an increase in earnings per diluted share of $0.03.
Net cash provided by operating activities along with operating cash and letters of credit under our credit facility enabled us
to repurchase $22.0 million of our common stock under our share repurchase program, pay off the remaining $13.8 million
of our term loan earlier than scheduled, and return $29.5 million in cash dividends to our shareholders. At June 30, 2018 we
had total cash and securities of $22.4 million, and working capital of $93.2 million.
The components of consolidated revenues and operating income (loss) by business segment are as follows (in millions):
20
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Fi s ca l Yea r Ended June 30,
2018
2017
2016
Revenue:
Whol es a l e s egment
Reta i l s egment
El i mi na ti on of i nter‐s egment s a l es
Cons ol i da ted revenue
Operating income (loss):
Whol es a l e s egment
Reta i l s egment
Adjus tment for i nter‐compa ny profi t (1)
$
475.7
587.5
(296.4)
766.8
$
$
453.3
603.7
(293.6)
763.4
$
$
491.5
626.5
(323.8)
794.2
$
$
$
$
48.5
(1.7)
2.1
48.9
53.5
1.2
3.3
58.0
74.4
16.5
(1.7)
89.2
Cons ol i da ted opera ti ng i ncome
$
$
$
(1) Represents the change in wholesale profit contained in Ethan Allen operated design center inventory existing at the end
of the period.
A summary by business segment of annual percentage changes from the preceding fiscal years are presented in the following
tables:
Wholesale segment
Revenue
Opera ti ng Income
Ba ckl og
Retail segment
Revenue
Compa ra bl e des i gn center revenue
Tota l wri tten orders
Compa ra bl e des i gn center wri tten orders
Opera ti ng Income
Ba ckl og
Business Results:
Fi s ca l Yea r Ended June 30,
2017
2018
2016
4.9%
(9.4%)
19.3%
(7.8%)
(28.1%)
17.6%
4.7%
11.1%
(36.8%)
Fi s ca l Yea r Ended June 30,
2018
2017
2016
(2.7%)
(3.2%)
(3.1%)
(3.8%)
(245.1%)
(2.3%)
(3.6%)
(4.6%)
(0.9%)
(2.5%)
(92.7%)
(1.0%)
8.1%
8.3%
1.7%
1.8%
853.1%
(13.1%)
Our revenues are composed of (i) wholesale sales to independently operated and Company operated retail design centers
and (ii) retail sales of Company operated design centers. See Note 15 to our Consolidated Financial Statements for the year
ended June 30, 2018 included under Item 8 of this Annual Report.
Fiscal 2018 Compared to Fiscal 2017
Consolidated revenue was $766.8 million compared to $763.4 million. There was a year‐over‐year increase in the wholesale
segment and a decrease in the retail segment. Wholesale sales increased progressively throughout fiscal 2018 as the
Company worked through production difficulties associated with the GSA contract business and first production runs
discussed previously. This had a negative impact on retail segment sales through the first three quarters of fiscal 2018. Net
sales for the fourth quarter of fiscal 2018 increased 11.4% and 1.9% for wholesale and retail respectively.
Wholesale revenue increased by $22.4 million, or 4.9%, to $475.7 million from $453.3 million. The year‐over‐year increase
was primarily attributable to higher sales from the GSA contract and our international independent design centers. There
were 296 design centers globally as of June 30, 2018, a decrease of seven. Our international net sales to independent retailers
was 7.0% of our consolidated net sales compared to 6.5%.
Retail revenue from Ethan Allen operated design centers decreased by $16.2 million, or 2.7%, to $587.5 million from $603.7
million. Comparable store revenue decreased 3.2%. Year‐over‐year, written orders for the Company operated design centers
decreased 3.1% and comparable design centers written orders decreased 3.8%. The reduction in sales is primarily a reflection
21
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
of delayed shipments to the retail segment from the wholesale segment due to the timing of wholesale shipments previously
mentioned.
Gross profit decreased to $416.0 million from $419.7 million. The $3.8 million decrease in gross profit was attributable to a
$16.2 million decrease in our retail segment sales, a lower mix of retail net sales to consolidated net sales of 76.6% compared
to the 79.1% in the prior fiscal year, and increased raw material costs of $4.7 million. These were partly offset by a fiscal 2017
write‐down of inventory of $6.4 million, and a current fiscal year increase in wholesale net sales of $22.4 million.
Operating expenses increased $5.3 million or 1.5% to $367.1 million or 47.9% of net sales in fiscal 2018 from $361.8 million
or 47.4% of net sales in fiscal 2017. The increase in fiscal year 2018 expenses in absolute dollars and as a percent of net sales
is primarily due to increased advertising costs of $3.6 million.
Operating income for the fiscal year ended June 30, 2018 totaled $48.9 million, or 6.4% of net sales, compared to $58.0
million, or 7.6% of net sales, in the prior fiscal year. Wholesale operating income for fiscal 2018 totaled $48.5 million, or
10.2% of net sales, as compared to $53.5 million, or 11.8% of net sales, in the prior year. Retail operating loss was $1.7
million, or ‐0.3% of sales, for fiscal 2018, compared to income of $1.2 million, or 0.2% of sales, for fiscal 2017, a decrease of
$2.9 million. The decrease in consolidated operating income was primarily attributable to increased costs of raw materials,
higher advertising costs due to national television advertising in the fiscal third and fourth quarters, reduced retail sales, as
well as the disruptions caused by the first production runs of the GSA contract product and new product introductions.
Interest and other related financing costs decreased $0.9 million to $0.3 million from $1.2 million in the prior fiscal year. The
decrease is primarily due to lower interest expense throughout fiscal 2018 due to paying off our term loan in the first quarter
of the current fiscal year and during late fiscal 2017 paying down $25.0 million on our revolving credit facility to reduce our
future debt carrying costs.
Income tax expense was $12.7 million for fiscal 2018 and $20.8 million for fiscal 2017. Our effective tax rate for fiscal 2018
was 25.9% compared to 36.5% in fiscal 2017. The effective tax rate for fiscal year 2018 primarily includes tax expense on the
fiscal year’s net income, the tax benefit lost on the cancelation of stock options, and also includes tax and interest expense
on uncertain tax positions, partially offset by tax benefit from the re‐measurement of deferred tax assets and liabilities and
the vesting of restricted stock units. The effective tax rate for fiscal year 2017 primarily includes tax expense on that fiscal
year’s net income, and tax and interest expense on uncertain tax positions, partially offset by the reversal and recognition of
some uncertain tax positions.
Net income for fiscal 2018 was $36.4 million as compared to $36.2 million in fiscal 2017. Net income per diluted share totaled
$1.32 in fiscal 2018 compared to $1.29 per diluted share in the prior fiscal year.
Fiscal 2017 Compared to Fiscal 2016
Consolidated revenue was $763.4 million compared to $794.2 million. There was a year‐over‐year decline in sales in both
the wholesale and retail segments.
Wholesale revenue decreased by $38.1 million, or 7.8%, to $453.3 million from $491.5 million. The year‐over‐year decrease
was attributable to lower sales to our Company operated design centers and domestic independent retailers, partly offset by
an increase to our international independent design centers, primarily in China. There were 303 design centers globally as of
June 30, 2017, an increase of seven. There was a net increase of two independently operated retail network locations, which
included a decrease of one legacy location in the U.S. and the purchase of one independently owned location by the Company,
bringing the total U.S. independent total to 48, and a net decrease of one location in China, bringing the China total to 82.
Other international dealers opened five new locations. Our international net sales to independent retailers was 6.5% of our
consolidated net sales compared to 5.4%.
Retail revenue from Ethan Allen operated design centers decreased by $22.8 million, or 3.6%, to $603.7 million from $626.5
million. Comparable store revenue decreased 4.6%. Year‐over‐year, written orders for the Company operated design centers
decreased 0.6% and comparable design centers written orders decreased 2.5%. Consumer spending patterns were disrupted
during the fiscal year, especially around the election cycle, and negatively impacted sales.
Gross profit decreased to $419.7 million from $442.2 million. The $22.5 million decrease in gross profit was attributable to
decreases in both our retail and wholesale segment net sales and a write‐down of inventory of $6.4 million in the third quarter
of fiscal 2017. This was partly offset by a slightly higher mix of retail net sales to consolidated net sales of 79.1% compared
to the 78.9% in the prior fiscal year, and a decrease in cost of goods sold due to the net release of intercompany profit
previously held in ending inventory.
22
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Operating expenses increased $8.7 million or 2.5% to $361.8 million or 47.4% of net sales in fiscal 2017 from $353.1 million
or 44.5% of net sales in fiscal 2016. The increase in fiscal year 2017 expenses in absolute dollars and as a percent of net sales
is primarily due to increased advertising costs, a loss on disposal of real estate in fiscal 2017 compared to a gain on real estate
sales in the prior fiscal year, and an increase in retail occupancy expense associated with a net increase of five design centers,
partly offset by a reduction in incentive compensation.
Operating income for the fiscal year ended June 30, 2017 totaled $58.0 million, or 7.6% of net sales, compared to $89.2
million, or 11.2% of net sales, in the prior fiscal year. Wholesale operating income for fiscal 2017 totaled $53.5 million, or
11.8% of net sales, as compared to $74.4 million, or 15.1% of net sales, in the prior year. Retail operating income was $1.2
million, or 0.2% of sales, for fiscal 2017, compared to $16.5 million, or 2.6% of sales, for fiscal 2016, a decrease of $15.3
million. The decrease in consolidated operating income was primarily attributable to decreased net sales, an inventory write‐
down at both our wholesale and retail segments due to a decision to reduce clearance and discontinued inventory by
donation, increased advertising expenses, the net impact of real estate dispositions, and an increase in retail occupancy
expense, partly offset by the net release of intercompany profit previously held in ending inventory and a reduction in
incentive compensation.
Interest and other related financing costs decreased $0.4 million to $1.2 million from $1.6 million in the prior fiscal year. The
decrease is primarily due to lower interest expense throughout fiscal 2017 due to debt repayments during fiscal 2017
including a $25.0 million paydown on our revolving credit facility to reduce our future debt carrying costs.
Income tax expense was $20.8 million for fiscal 2017 and $31.3 million for fiscal 2016. Our effective tax rate for fiscal 2017
was 36.5% compared to 35.6% in fiscal 2016. The effective tax rate for both fiscal years primarily includes tax expense on that
fiscal year’s net income, and tax and interest expense on uncertain tax positions, partially offset by the reversal and
recognition of some uncertain tax positions.
Net income for fiscal 2017 was $36.2 million as compared to $56.6 million in fiscal 2016. Net income per diluted share totaled
$1.29 in fiscal 2017 compared to $2.00 per diluted share in the prior fiscal year.
Liquidity and Capital Resources
At June 30, 2018, we held unrestricted cash and equivalents of $22.4 million and no restricted cash and investments. At June
30, 2017, we held unrestricted cash and cash equivalents of $57.7 million and restricted cash and investments of $7.3 million.
During fiscal 2018 we used cash to further pay down a portion of our debt and for common share repurchases. Our principal
sources of liquidity include cash and cash equivalents, marketable securities, cash flow from operations, amounts available
under our credit facility, and other borrowings.
Under an agreement with the Company’s private label consumer credit card provider (the “Lender”), at the end of each fiscal
quarter we are required to maintain a minimum level of working capital. Due to market opportunities during the fourth
quarter of fiscal 2018, the Company used $22 million of its working capital to repurchase shares under our share repurchase
program. This caused working capital to fall below this minimum at June 30, 2018, creating a Level 1 Collateral Event as
defined in our agreement with the Lender. At any time during any Collateral Period, the Lender may require the Company to
deliver within fifteen days of Lender’s written request, either an Eligible Letter of Credit or Substitute Collateral. The Lender
has not exercised this right but retains the ability to do so.
For a detailed discussion of our debt obligations and timing of our related cash payments see Note 6 to the Consolidated
Financial Statements included under Item 8 of this Annual Report.A summary of net cash provided by (used in) operating,
investing, and financing activities for each of the last three fiscal years is provided below (in millions):
23
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Ca s h provi ded by (us ed i n) opera ti ng a cti vi ti es
Net i ncome pl us depreci a ti on a nd a morti za ti on
Worki ng ca pi ta l i tems
Other opera ti ng a cti vi ti es
Fi s ca l Yea rs Ended June 30,
2018
2016
2017
$
56.2
(13.0)
(0.7)
$
56.3
14.5
7.8
$
76.0
(19.3)
1.7
Tota l provided by opera ti ng a ctivi ti es
$
42.5
$
78.6
$
58.4
Ca s h provi ded by (us ed i n) i nves ti ng a cti vi ti es
Ca pi ta l expendi tures & a cqui s i ti ons
Net s a l es of ma rketa bl e s ecuri ti es
Other i nves ti ng a cti viti es
Tota l us ed i n i nves ti ng a ctivi ti es
$
(18.8)
‐
7.9
$
(18.3)
‐
1.9
$
(23.1)
2.2
8.4
$
(10.9)
$
(16.4)
$
(12.5)
Ca s h provi ded by (us ed i n) fi na nci ng a cti vi ti es
Pa yments of l ong‐term debt a nd ca pi ta l l ea s e obli ga tions
Borrowi ngs from revol vi ng credi t a nd term l oa n fa ci l i ti es
Purcha s es a nd reti rements of compa ny s tock
Pa yment of ca s h di vi dends
Other fi na nci ng a cti vi ti es
Tota l us ed i n fina nci ng a cti vi ti es
$
(14.5)
‐
$
(23.1)
(29.5)
0.2
$
(28.4)
‐
$
(10.2)
(20.0)
1.3
$
(34.8)
‐
$
(19.3)
(16.6)
1.6
$
(66.9)
$
(57.3)
$
(69.1)
Cash Provided By (Used in) Operating Activities
In fiscal 2018 cash of $42.5 million was provided by operating activities, a decrease of $36.1 million from $78.6 million in the
prior year comparable period. Working capital items were a $13.0 million use of cash in the current year and a $14.5 million
source of cash in the prior year, with a net difference of $27.5 million. Most of the working capital difference was due to an
inventory increase of $11.9 million in the current year compared to a $13.5 million source of cash in the prior year. Much of
the prior year inventory decrease was due to a $6.4 million write‐down of inventory discussed previously in Business Results.
Net income plus depreciation and amortization decreased $0.1 million. Working capital items consist of current assets
(accounts receivable, inventories, prepaid and other current assets) less current liabilities (customer deposits, payables, and
accrued expenses and other current liabilities).
Cash Provided By (Used in) Investing Activities
In fiscal 2018, cash of $10.9 million was used in investing activities, a decrease in cash used of $5.5 million from $16.4 million
which was used during the prior year comparable period. This was due primarily to $7.3 million of previously restricted cash
being released and moved into the Company’s operating accounts in exchange for a letter of credit. This was offset by less
proceeds from the sale of real estate in fiscal 2018 than in the prior fiscal year. We anticipate that cash from operations will
be sufficient to fund future capital expenditures in the near and longer term.
Cash Provided By (Used in) Financing Activities
In fiscal 2018, $66.9 million was used in financing activities, a decrease of $9.6 million from $57.3 million in the prior year
comparable period. During fiscal 2018 we paid $13.8 million to pay off our term loan and utilized $22.0 million to repurchase
950,484 shares at a weighted average cost of $23.17 per share. At June 30, 2018 we have remaining Board authorization to
repurchase 2.5 million shares. During fiscal 2018 we paid dividends of $29.5 million, including a special dividend, an increase
of 47.3% from the prior year. Cash dividends have been paid every quarter since July 1996. The following chart shows our
dividend history by payment date from July 2013 to the present.
24
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Regular Dividends Per Share
$0.20
$0.16
$0.12
$0.08
$0.04
$0.00
Jul
2014
Oct
2014
Jan
2015
Apr
2015
Jul
2015
Oct
2015
Jan
2016
Apr
2016
Jul
2016
Oct
2016
Jan
2017
Apr
2017
Jul
2017
Oct
2017
Jan
2018
Apr
2018
Jul
2018
We expect to continue to declare regular quarterly dividends for the foreseeable future, business conditions permitting.
The following table summarizes, as of June 30, 2018, the timing of cash payments related to our outstanding contractual
obligations (in millions):
Long‐term debt obl i gati ons :
Debt ma turi ti es
Contractual i nteres t
Opera ti ng l ea s e obl i ga ti ons
Letters of credi t
Purchas e obl i ga ti ons (1)
Other l ong‐term l i a bi l i ti es
Les s
than 1
Yea r
Tota l
1‐3
Yea rs
4‐5
Yea rs
More
tha n 5
Yea rs
$
1.7
$
0.6
$
1.0
$
0.1
$
‐
0.1
176.0
6.2
‐
0.2
0.1
34.4
6.2
‐
‐
0.1
55.4
‐
‐
‐
‐
39.2
‐
‐
‐
‐
47.0
‐
‐
0.2
Total contra ctua l obl i ga ti ons
$
184.2
$
41.3
$
56.4
$
39.3
$
47.2
(1) For purposes of this table, purchase obligations are defined as agreements that are enforceable and legally binding and that specify all significant
terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
While we are not a party to any significant long‐term supply contracts or purchase commitments, we do, in the normal course of business, regularly
initiate purchase orders for the procurement of (i) selected finished goods sourced from third‐party suppliers, (ii) lumber, fabric, leather and other raw
materials used in production, and (iii) certain outsourced services. All purchase orders are based on current needs and are fulfilled by suppliers within
short time periods. At June 30, 2018, our open purchase orders with respect to such goods and services totaled approximately $40 million.
Further discussion of our contractual obligations associated with outstanding debt and lease arrangements can be found in
Notes 6 and 7, respectively, to the Consolidated Financial Statements included under Item 8 of this Annual Report.
We believe that our cash flow from operations, together with our other available sources of liquidity, will be adequate to
make all required payments of principal and interest on our debt, to permit anticipated capital expenditures, and to fund
working capital and other cash requirements. As of June 30, 2018, we had working capital of $93.2 million compared to $116.7
25
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
million at June 30, 2017, a decrease of $23.5 million and a current ratio of 1.77 to 1 at June 30, 2018 and 1.92 to 1 at June 30,
2017. In addition to using available cash to fund changes in working capital, necessary capital expenditures, acquisition
activity, the repayment of debt, and the payment of dividends, the Company has been authorized by our board of directors
to repurchase our common stock, from time to time, either directly or through agents, in the open market at prices and on
terms satisfactory to us.
Off‐Balance Sheet Arrangements and Other Commitments, Contingencies and Contractual Obligations
Except as indicated below, we do not utilize or employ any off‐balance sheet arrangements, including special‐purpose
entities, in operating our business. As such, we do not maintain any (i) retained or contingent interests, (ii) derivative
instruments, or (iii) variable interests which could serve as a source of potential risk to our future liquidity, capital resources
and results of operations.
We may, from time to time in the ordinary course of business, provide guarantees on behalf of selected affiliated entities or
become contractually obligated to perform in accordance with the terms and conditions of certain business agreements. The
nature and extent of these guarantees and obligations may vary based on our underlying relationship with the benefiting
party and the business purpose for which the guarantee or obligation is being provided. The only such program in place at
both June 30, 2018 and June 30, 2017 was for our consumer credit program described below.
Ethan Allen Consumer Credit Program
The terms and conditions of our consumer credit program, which is financed and administered by a third‐party financial
institution on a non‐recourse basis to Ethan Allen, are set forth in an agreement between the Company and that financial
service provider (the “Program Agreement”) which was last amended effective January 2014. Any independent retailer
choosing to participate in the consumer credit program is required to enter into a separate agreement with that same third‐
party financial institution which sets forth the terms and conditions under which the retailer is to perform in connection with
its offering of consumer credit to its customers (the “Retailer Agreement”). We have obligated ourselves on behalf of any
independent retailer choosing to participate in our consumer credit program by agreeing, in the event of default, breach, or
failure of the independent retailer to perform under such Retailer Agreement, to take on certain responsibilities of the
independent retailer, including, but not limited to, delivery of goods and reimbursement of customer deposits. Customer
receivables originated by independent retailers remain non‐recourse to Ethan Allen. The Program Agreement will terminate
on July 31, 2019, but includes a provision for automatic one‐year renewals unless either party gives notice of termination.
While the maximum potential amount of future payments (undiscounted) that we could be required to make under this
obligation is indeterminable, recourse provisions exist that would enable us to recover, from the independent retailer, any
amount paid or incurred by us related to our performance. Based on the underlying creditworthiness of our independent
retailers, including their historical ability to perform satisfactorily in connection with the terms of our consumer credit
program, we believe this obligation will expire without requiring funding by us. To ensure funding for delivery of products
sold, the terms of the Program Agreement also contain a right for the financial services provider to demand from the Company
collateral at a variable rate based on the volume of program sales if the Company does not meet certain covenants, including
a minimum working capital requirement. At June 30 of 2018, we were below this minimum capital requirement, defined in
the agreement as a Level 1 Collateral Event. At any time the lender may require the Company to deliver within fifteen days
of lenders request, either an Eligible Letter of Credit, or Substitute Collateral for approximately $4 million. The lender has not
made a demand for collateral as of the date of this Annual Report on Form 10‐K, but if they were to do so, we have adequate
borrowing capacity under our Facility to satisfy this demand.
Product Warranties
Our products, including our case goods, upholstery and home accents, generally carry explicit product warranties that extend
up to seven years and are provided based on terms that are generally accepted in the industry. All our domestic independent
retailers are required to enter into, and perform in accordance with the terms and conditions of, a warranty service
agreement. We record provisions for estimated warranty and other related costs at time of sale based on historical warranty
loss experience and make periodic adjustments to those provisions to reflect actual experience. On rare occasion, certain
warranty and other related claims involve matters of dispute that ultimately are resolved by negotiation, arbitration or
litigation. In certain cases, a material warranty issue may arise which is beyond the scope of our historical experience. We
provide for such warranty issues as they become known and are deemed to be both probable and estimable. It is reasonably
possible that, from time to time, additional warranty and other related claims could arise from disputes or other matters
beyond the scope of our historical experience. As of June 30, 2018 and 2017, the Company’s product warranty liability totaled
$1.5 million and $1.3 million, respectively.
26
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Impact of Inflation
We believe inflation had an impact on our business the last three fiscal years but we have generally been able to create
operational efficiencies, seek lower cost alternatives, or raise selling prices to offset increases in product and operating costs.
It is possible in the future that we will not be successful in our efforts to offset the impacts from inflation.
Business Outlook
We continue to strengthen our vertically integrated structure from concept of idea, to engineering, to manufacturing, to
retail and logistics. We intend to maintain strong manufacturing capabilities in North America, which we believe is a long‐
term competitive advantage that will allow us to advance our objectives of maintaining fast order delivery, exceptional quality
and improving capacity to ship stocked and custom made‐to‐order items more quickly, which in turn will allow us to grow
our business. In December 2017, the Tax Act substantially reduced our effective tax rate. We expect our effective tax rate to
be approximately 24% to 25% for fiscal 2019.
Our network of professionally trained interior design professionals differentiates us significantly from our competitors. We
continue to strengthen the level of service, professionalism, and interior design competence, as well as to improve the
efficiency of our retail operations. We believe that over time, we will continue to benefit from (i) continuous repositioning of
our retail network, (ii) frequent new product introductions, (iii) new and innovative marketing promotions and effective use
of targeted advertising media, and (iv) continued use of the latest technology combined with personal service from our
interior design professionals.
We have completed a major transformation of our product offerings, which refreshed over 70% of our entire line of products.
During the third quarter of fiscal 2017 we expanded the reach of our Ethan Allen | Disney product program by selling a curated
selection on Disneystore.com, we expanded our contract sales with the GSA and other contract customers and entered into
an agreement with Amazon to sell products through the Amazon marketplace. Now that we have completed this major
transformation, we believe that we are well positioned to leverage all the actions we have taken.
We expect the home furnishings industry to remain extremely competitive with respect to both the sourcing of products and
the wholesale and retail sale of those products for the foreseeable future. Domestic manufacturers continue to face pricing
pressures because of the lower manufacturing costs on imports, particularly from Asia. While we also utilize overseas sourcing
for approximately one quarter of our products, we choose to differentiate ourselves by maintaining a substantial North
American manufacturing base, the majority of which is located in the United States. This structure enables us to leverage our
vertically integrated structure to our advantage. We continue to believe that a balanced approach to product sourcing, which
includes our own North American manufacturing of about 75% of our product offerings coupled with the import of other
selected products, provides the greatest degree of flexibility and shorter lead times and is the most effective approach to
ensuring that acceptable levels of quality, service and value are attained.
We therefore remain cautiously optimistic about our performance due to the many strong programs already in place and
others we currently plan to introduce in the coming months. Our retail strategy involves (i) a continued focus on providing
relevant product offerings, a wide array of product solutions, and superior interior design solutions through our large staff of
interior design professionals, (ii) continuing strong advertising and marketing campaigns to get our message across and to
continue broadening our customer base, (iii) the opening of new or relocated design centers in more prominent locations,
and encouraging independent retailers to do the same, (iv) leveraging the use of technology and personal service within our
retail network and online through www.ethanallen.com, and (v) further expansion internationally. We believe this strategy
provides an opportunity to grow our business. Further discussion of the home furnishings industry has been included under
Item 1 of this Annual Report.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014‐09, Revenue from Contracts with
Customers. This ASU provides a framework for revenue recognition that replaces most existing GAAP revenue recognition
guidance when it becomes effective. The core principle of the ASU is that a company will recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The standard also requires expanded disclosures about the nature,
amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. We will adopt the new
standard effective July 1, 2018, and plan on using the modified retrospective approach and will record the cumulative effect
of applying this standard to opening retained earnings. We have substantially completed a comprehensive review of our
revenue streams and contracts as they relate to this guidance and based on the work performed to date, we do not expect
27
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
that the adoption will have a material impact on the amount or timing of revenue recognized on an ongoing basis. Upon
adoption we will recognize an asset related to product returns and a corresponding liability for estimated returns and
allowances.
In February 2016, the FASB issued ASU 2016‐02, Leases. This guidance requires an entity to recognize lease liabilities and a
right‐of‐use asset for all leases on the balance sheet and to disclose key information about the entity's leasing arrangements.
ASU 2016‐02 is effective for the Company on July 1, 2019, and early adoption is permitted. ASU 2016‐02 is required to be
adopted using a modified retrospective approach for all leases existing at, or entered into after the date of initial adoption,
with an option to elect to use certain transition relief. The Company is currently evaluating the impact of this new standard
on its consolidated financial statements and related disclosures, but expects that it will result in a significant increase in the
assets and liabilities recorded on the consolidated balance sheet upon adoption.
In November 2016, the FASB issued ASU 2016‐18, Statement of Cash Flows (Topic 230): Restricted Cash. It is intended to
reduce diversity in the presentation of restricted cash and restricted cash equivalents in the statement. The statement
requires that restricted cash and restricted cash equivalents be included as components of total cash and cash equivalents as
presented on the statement of cash flows. The Company currently does not include restricted cash as a component of cash
and equivalents as presented on the statement of cash flows. The new guidance is effective for the Company on July 1, 2018,
with early adoption permitted. The Company is currently evaluating the impact on our consolidated financial statements. We
plan on adopting effective July 1, 2018.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks relating to fluctuations in interest rates and foreign currency exchange rates.
Interest rate risk exists primarily through our borrowing activities. We utilize United States dollar denominated borrowings
to fund substantially all our working capital and investment needs. Short‐term debt, if required, is used to meet working
capital requirements and long‐term debt is generally used to finance long‐term investments. There is inherent rollover risk
for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or
predictable because of the variability of future interest rates and our future financing requirements.
For floating‐rate obligations, interest rate changes do not affect the fair value of the underlying financial instrument but
would impact future earnings and cash flows, assuming other factors are held constant. Conversely, for fixed‐rate obligations,
interest rate changes affect the fair value of the underlying financial instrument but would not impact earnings or cash flows.
At June 30, 2018, we did not have any floating‐rate debt obligations outstanding under our Facility. We currently do not
engage in any interest rate hedging activity and we have no intention of doing so in the foreseeable future. Based on the
average interest rate of the loans under the Facility during the quarter ended June 30, 2018, and to the extent that borrowings
were outstanding, a 10% change in the interest rate would not have a material effect on our consolidated results of operations
and financial condition.
Foreign currency exchange risk is primarily limited to our operation of Ethan Allen operated retail design centers located in
Canada and our plants in Mexico and Honduras, as substantially all purchases of imported parts and finished goods are
denominated in United States dollars. As such, gains or losses resulting from market changes in the value of foreign currencies
have not had, nor are they expected to have, a material effect on our consolidated results of operations. A decrease in the
value of foreign currencies (in particular Asian) relative to the United States dollar may affect the profitability of our vendors
but as we employ a balanced sourcing strategy, we believe any impact would be moderate relative to peers in the industry.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and Supplementary Data are listed in Item 15 of this Annual Report.
28
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Ethan Allen Interiors Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Ethan Allen Interiors Inc. and subsidiaries (the
“Company”) as of June 30, 2018 and 2017, the related consolidated statements of comprehensive income, shareholders’
equity, and cash flows for each of the years in the three‐year period ended June 30, 2018, and the related notes (collectively,
the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of
June 30, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of June 30, 2018 and 2017, and the results of its operations and its cash flows for each of the
years in the three‐year period ended June 30, 2018, in conformity with U.S. generally accepted accounting principles. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June
30, 2018, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control
over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained
in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our
audit of internal control over financial reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
29
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
We have served as the Company’s auditor since 1989.
Stamford, Connecticut
August 2, 2018
30
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2018 and 2017
(In thousands, except share data)
ASSETS
Current a s s ets :
Ca s h a nd ca s h equi va l ents
Accounts recei va bl e, net
Inventori es
Prepa i d expens es a nd other current a s s ets
Tota l current a s s ets
Property, pl a nt a nd equi pment, net
Goodwi l l a nd other i nta ngi bl e a s s ets
Res tri cted ca s h a nd i nves tments
Other a s s ets
2018
2017
$
22,363
12,364
163,012
16,686
$
57,701
12,293
149,483
23,621
214,425
267,903
45,128
‐
2,977
243,098
270,198
45,128
7,330
2,468
Tota l a s s ets
$
530,433
$
568,222
LIABILITIES AND SHAREHOLDERS' EQUITY
Current l i a bi l i ti es :
Current ma turi ti es of l ong‐term debt
Cus tomer depos i ts
Accounts pa ya bl e
Accrued compens a ti on a nd benefi ts
Accrued expens es a nd other current l i a bi l i ti es
Tota l current l i a bi l i ti es
Long‐term debt
Other l ong‐term l i a bi l i ti es
Tota l l i a bi l i ti es
Sha rehol ders ' equi ty:
Common s tock, pa r va l ue $0.01; 150,000,000 s ha res
a uthori zed; 48,989,060 s ha res i s s ued a t June 30, 2018 a nd
48,979,994 s ha res i s s ued a t June 30, 2017
Preferred s tock, pa r va l ue $0.01; 1,055,000 s ha res a uthori zed;
none i s s ued
$
584
61,248
18,768
18,926
21,734
$
2,731
62,960
16,961
20,352
23,441
121,260
1,096
24,207
146,563
490
‐
126,445
11,608
29,273
167,326
490
‐
Addi ti ona l pa i d‐i n‐ca pi ta l
376,950
377,550
Les s : Trea s ury s tock (a t cos t), 22,459,766 s ha res a t June 30, 2018
a nd 21,532,779 s ha res a t June 30, 2017
Reta i ned ea rni ngs
Accumul a ted other comprehens i ve i ncome (l os s )
Tota l Etha n Al l en Interi ors Inc. s ha rehol ders ' equi ty
Noncontrol l i ng i nteres ts
Tota l s ha rehol ders ' equi ty
(656,551)
669,013
(6,171)
383,731
139
383,870
(635,179)
661,976
(4,131)
400,706
190
400,896
Tota l l i a bi l i ti es a nd s ha rehol ders ' equi ty
$
530,433
$
568,222
See a ccompa nyi ng notes to cons ol i da ted fi na nci a l s ta tements .
31
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For Years Ended June 30, 2018, 2017, and 2016
(In thousands, except share data)
Net s a l es
Cos t of s a l es
Gros s profi t
Sel l i ng, genera l a nd a dmi ni s tra ti ve expens es
Opera ti ng i ncome
Interes t a nd other i ncome (expens e)
Interes t a nd other rel a ted fi na nci ng cos ts
Income before i ncome ta xes
Income ta x expens e
Net i ncome
Per s ha re da ta :
2018
2017
2016
$
766,784
350,820
415,964
367,097
48,867
525
325
49,067
12,696
$
763,385
343,662
419,723
361,773
57,950
268
1,223
56,995
20,801
$
794,202
351,966
442,236
353,057
89,179
395
1,618
87,956
31,319
$
36,371
$
36,194
$
56,637
Net i ncome per ba s i c s ha re
$
1.33
$
1.31
$
2.02
Ba s i c wei ghted a vera ge common s ha res
27,321
27,679
28,072
Net i ncome per di l uted s ha re
$
1.32
$
1.29
$
2.00
Di l uted wei ghted a vera ge common s ha res
27,625
27,958
28,324
Di vi dends decl a red per common s ha re
$
1.07
$
0.74
$
0.62
Comprehens i ve i ncome:
Net i ncome
Other comprehens i ve i ncome
Curency tra ns l a ti on a djus tment
Other
Other comprehens i ve i ncome (l os s ) net of ta x
$
36,371
$
36,194
$
56,637
(2,040)
(51)
(2,091)
715
(14)
701
(2,208)
27
(2,181)
Comprehens i ve i ncome
$
34,280
$
36,895
$
54,456
See a ccompa nyi ng notes to cons ol i da ted fi na nci a l s ta tements .
32
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Years Ended June 30, 2018, 2017, and 2016
(In thousands)
Operating activities:
Net i ncome
Adjus tments to reconci l e net i ncome to net
ca s h provi ded by opera ti ng a cti vi ti es :
Depreci a ti on a nd a morti za ti on
Compens a ti on expens e rel a ted to s ha re‐ba s ed pa yment a wa rds
Provi s i on (benefi t) for deferred i ncome ta xes
Los s (ga i n) on di s pos a l of property, pl a nt a nd equi pment
Other
Cha nge i n opera ti ng a s s ets a nd l i a bi l i ti es , net of
effects of a cqui red bus i nes s es :
Accounts recei va bl e
Inventori es
Prepa i d a nd other current a s s ets
Cus tomer depos i ts
Accounts pa ya bl e
Accrued expens es a nd other current l i a bi l i ti es
Other a s s ets a nd l i a bi l i ti es
Net ca s h provi ded by opera ti ng a cti vi ti es
Investing activities:
Proceeds from the di s pos a l of property, pl a nt & equi pment
Cha nge i n res tri cted ca s h a nd i nves tments
Ca pi ta l expendi tures a nd a cqui s i ti ons
Sa l es of ma rketa bl e s ecuri ti es
Other i nves ti ng a cti vi ti es
Net ca s h us ed i n i nves ti ng a cti vi ti es
Financing activities:
Pa yments on l ong‐term debt a nd ca pi ta l l ea s e obl i ga ti ons
Purcha s es a nd reti rements of compa ny s tock
Pa yment of ca s h di vi dends
Other fi na nci ng a cti vi ti es
Net ca s h us ed i n fi na nci ng a cti vi ti es
Effect of excha nge ra te cha nges on ca s h
Net i ncrea s e (decrea s e) i n ca s h & ca s h equi va l ents
Ca s h & ca s h equi va l ents ‐ begi nni ng of yea r
2018
2017
2016
$
36,371
$
36,194
$
56,637
19,831
954
(106)
201
(250)
(682)
(11,876)
3,274
(2,444)
1,807
(3,058)
(1,525)
42,497
327
7,330
(18,773)
‐
204
(10,912)
(14,456)
(23,120)
(29,509)
194
(66,891)
(32)
(35,338)
57,701
20,115
1,259
3,507
1,033
(6)
(2,826)
13,507
1,010
1,883
1,524
(547)
1,980
78,633
1,273
490
(18,321)
‐
175
(16,383)
(28,401)
(10,246)
(20,031)
1,335
(57,343)
135
5,042
52,659
19,353
2,356
671
(2,267)
(1,295)
2,926
(9,982)
5,113
(7,275)
(3,509)
(6,550)
2,191
58,369
8,073
190
(23,132)
2,150
193
(12,526)
(34,840)
(19,346)
(16,646)
1,718
(69,114)
(252)
(23,523)
76,182
Ca s h & ca s h equi va l ents ‐ end of yea r
$
22,363
$
57,701
$
52,659
Suppl ementa l ca s h fl ow i nforma ti on:
Income ta xes pa i d
Interes t pa i d
Non‐ca s h ca pi ta l l ea s e obl i ga ti ons i ncurred
See a ccompa nyi ng notes to cons ol i da ted fi na nci a l s ta tements .
$
$
$
14,305
177
1,442
$
$
$
15,074
936
613
$
29,003
$
1,352
$
‐
33
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For Years Ended June 30, 2018, 2017, and 2016
(In thousands, except share data)
Common
Stock
Addi ti ona l
Pa i d‐i n
Ca pi ta l
Trea s ury
Stock
Accumul a ted
Other
Comprehens i ve
Income
Reta i ned
Ea rni ngs
Non‐
Control l i ng
Interes ts
Tota l
Ba l a nce a t June 30, 2015
489
370,914
(605,586)
(2,638)
607,079
277
370,535
Stock i s s ued on s ha re‐ba s ed a wa rds
Compens a ti on expens e a s s oci a ted
wi th s ha re‐ba s ed a wa rds
Ta x benefi t a s s oci a ted wi th exerci s e of
s ha re ba s ed a wa rds
Purcha s e/reti rement of compa ny s tock
‐
734
‐
2,356
‐
‐
968
‐
Di vi dends decl a red on common s tock
‐
‐
Ca pi ta l di s tri buti on
Comprehens i ve i ncome (l os s )
Ba l a nce a t June 30, 2016
‐
‐
‐
‐
489
374,972
(624,932)
Stock i s s ued on s ha re‐ba s ed a wa rds
Compens a ti on expens e a s s oci a ted
wi th s ha re‐ba s ed a wa rds
Ta x benefi t a s s oci a ted wi th exerci s e of
s ha re ba s ed a wa rds
Purcha s e/reti rement of compa ny s tock
1
1,199
‐
1,259
‐
‐
120
‐
Di vi dends decl a red on common s tock
‐
‐
Ca pi ta l di s tri buti on
Comprehens i ve i ncome (l os s )
Ba l a nce a t June 30, 2017
Stock i s s ued on s ha re‐ba s ed a wa rds
Compens a ti on expens e a s s oci a ted
wi th s ha re‐ba s ed a wa rds
Ta x benefi t a s s oci a ted wi th exerci s e of
s ha re ba s ed a wa rds
Purcha s e/reti rement of compa ny s tock
Ca pi ta l di s tri buti on
Comprehens i ve i ncome (l os s )
Ba l a nce a t June 30, 2018
‐
‐
‐
‐
$
‐
$
193
‐
‐
‐
954
‐
‐
‐
‐
‐
Di vi dends decl a red on common s tock
‐
‐
(1,747)
(21,372)
‐
‐
‐
(19,346)
‐
‐
‐
‐
‐
‐
(10,247)
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
‐
(17,401)
‐
(2,208)
(4,846)
‐
‐
‐
‐
‐
56,637
646,315
‐
‐
‐
‐
‐
(20,533)
‐
715
‐
‐
‐
‐
‐
36,194
661,976
‐
‐
‐
‐
‐
‐
‐
‐
‐
(100)
27
204
‐
‐
‐
‐
‐
‐
(14)
190
734
2,356
968
(19,346)
(17,401)
(100)
54,456
392,202
1,200
1,259
120
(10,247)
(20,533)
‐
36,895
400,896
$
‐
$
193
‐
‐
‐
‐
‐
954
‐
(23,119)
(29,334)
‐
‐
(29,334)
‐
‐
(2,040)
36,371
(51)
34,280
$
490
$
376,950
$
(656,551)
$
(6,171)
$
669,013
$
139
$
383,870
490
377,550
(635,179)
(4,131)
See a ccompa nyi ng notes to cons ol i da ted fi na nci a l s ta tements .
34
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
June 30, 2018, 2017 and 2016
(1)
Summary of Significant Accounting Policies
Basis of Presentation
The following is a summary of significant accounting policies of Ethan Allen Interiors Inc., and its wholly‐owned subsidiaries
(collectively "We," "Us," "Our," "Ethan Allen" or the "Company"). All significant intercompany accounts and transactions have
been eliminated in the consolidated financial statements. Our consolidated financial statements also include the accounts of an
entity in which we are a majority shareholder with the power to direct the activites that most significantly impact the entity’s
performance. Noncontrolling interest amounts in the entity are immaterial and included in the Consolidated Statement of
Comprehensive Income within interest and other income, net.
Nature of Operations
We are a leading manufacturer and retailer of quality home furnishings and accents, offering complimentary interior design
service to our clients and sell a full range of furniture products and decorative accents. We sell our products through one of
the country’s largest home furnishing retail networks and at June 30, 2018 there were a total of 296 design centers in our retail
network, of which 148 are Company operated and 148 are independently operated. Nearly all our Company operated retail design
centers are located in the United States, with the remaining Company operated design centers located in Canada. The majority of
the independently operated design centers are in Asia, with the remaining independently operated design centers located
throughout the United States, the Middle East and Europe. We own and operate nine manufacturing facilities including six
manufacturing plants and one sawmill in the United States and one manufacturing plant in Mexico and one in Honduras.
Use of Estimates
We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United
States, which 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 consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Because of the inherent uncertainty involved in
making those estimates, actual results could differ from those estimates. Areas in which significant estimates have been made
include, but are not limited to, revenue recognition, the allowance for doubtful accounts receivable, inventory obsolescence,
tax valuation allowances, useful lives and impairment analyses for property, plant and equipment and definite lived intangible
assets, goodwill and indefinite lived intangible asset impairment analyses, the evaluation of uncertain tax positions and the
fair value of assets acquired and liabilities assumed in business combinations.
Reclassifications
Certain reclassifications have been made to prior years’ financial statements to conform to the current year’s presentation.
These changes were made for disclosure purposes only and did not have any impact on previously reported results.
Cash and Cash Equivalents
Cash and short‐term, highly liquid investments with original maturities of three months or less are considered cash and cash
equivalents. We invest excess cash in money market accounts, short‐term commercial paper, and U.S. Treasury Bills.
Inventories
Inventories are stated at the lower of cost (first‐in, first‐out) and net realizable value. Cost is determined based solely on
those charges incurred in the acquisition and production of the related inventory (i.e. material, labor and manufacturing
overhead costs).
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation of property,
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 typically range from twenty to forty years for buildings and improvements and from three to twenty
years for machinery and equipment. Leasehold improvements are amortized over the shorter of the underlying lease term or the
estimated useful life.
35
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Operating Leases
We record expense for operating leases on a straight‐line basis, beginning on the date that we take possession or control of
the property. Several of our operating lease agreements contain provisions for tenant improvement allowances, rent
holidays, rent concessions, and/or rent escalations.
Incentive payments received from landlords are recorded as deferred lease incentives and are amortized over the underlying
lease term on a straight‐line basis as a reduction of rent expense. When the terms of an operating lease provide for periods
of free rent, rent concessions, and/or rent escalations, we establish a deferred rent liability for the difference between the
scheduled rent payment and the straight‐line rent expense recognized. This deferred rent liability is also amortized over the
underlying lease term on a straight‐line basis as a reduction of rent expense.
Goodwill and Other Intangible Assets
Our intangible assets are comprised primarily of goodwill, which represents the excess of cost over the fair value of net assets
acquired, and trademarks. We determined these assets have indefinite useful lives, and are therefore not amortized.
Impairment of Long‐Lived Assets and Goodwill
Goodwill and other indefinite‐lived intangible assets are evaluated for impairment on an annual basis during the fourth
quarter of each fiscal year, and between annual tests whenever events or circumstances indicate that the carrying value of
the goodwill or other intangible asset may exceed its fair value. When testing goodwill for impairment, we may assess
qualitative factors for some or all of our reporting units to determine whether it is more likely than not (that is, a likelihood
of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount, including goodwill.
Alternatively, we may bypass this qualitative assessment for some or all of our reporting units and determine whether the
carrying value exceeds the fair value using a quantitative assessment, as described below.
The recoverability of long‐lived assets is evaluated for impairment whenever events or changes in circumstances indicate that
we may not be able to recover the carrying amount of an asset or asset group. Our assessment of recoverability determines
whether the carrying value will be recovered through the expected undiscounted future cash flows resulting from the use of
the asset. In the event the sum of the expected undiscounted future cash flows is less than the carrying value of the asset, an
impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.
The fair value of our trade name, which is the Company’s only indefinite‐lived intangible asset other than goodwill, is valued
using the relief‐from‐royalty method. Significant factors used in trade name valuation are rates for royalties, future growth,
and a discount factor. Royalty rates are determined using an average of recent comparable values. Future growth rates are
based on the Company’s perception of the long‐term values in the market in which we compete, and the discount rate is
determined using the weighted average cost of capital for companies within our peer group, adjusted for specific company
risk premium factors.
Financial Instruments
Because of their short‐term nature, the carrying value of our cash and cash equivalents, receivables and payables, short‐term
debt and customer deposit liabilities approximates fair value. At June 30, 2018 our debt consists entirely of capital leases,
and at June 30,2017 it consisted of our term loan and capital leases. The estimated fair value is equal to the carrying value on
those dates.
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. A valuation allowance must
be established for deferred tax assets when it is more likely than not that the assets will not be realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the technical merits of the position. Most of the unrecognized
tax benefits, if recognized, would be recorded as a benefit to income tax expense.
36
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
The liability associated with an unrecognized tax benefit is classified as a long‐term liability except for the amount for which
a cash payment is expected to be made or tax positions settled within one year. We recognize interest and penalties related
to income tax matters as a component of income tax expense.
Revenue Recognition
Revenue is recognized when all the following have occurred: persuasive evidence of a sales arrangement exists (e.g. a
wholesale purchase order or retail sales order); the sales arrangement specifies a fixed or determinable sales price; title and
risk of ownership has passed to the customer; no specific performance obligations remain; product is shipped or services are
provided to the customer; collectability is reasonably assured. As such, revenue recognition generally occurs upon the
shipment of goods to independent retailers or, in the case of Ethan Allen operated retail design centers, upon delivery to the
customer. If shipping is billed to customers, this is included in revenue. Recorded sales provide for estimated returns and
allowances. We permit our customers to return defective products and incorrect shipments, and terms we offer are standard
for the industry.
Shipping and Handling Costs
Our practice has been to sell our products at the same delivered cost to all retailers nationwide, regardless of shipping point.
Costs incurred by the Company to deliver finished goods are expensed and recorded in selling, general and administrative
expenses. Shipping and handling costs amounted to $73.6 million in fiscal year 2018, $71.3 million for fiscal 2017 and $71.7
million in fiscal 2016.
Advertising Costs
Advertising costs are expensed when first aired or distributed. Our total advertising costs were $43.3 million in fiscal year
2018, $39.7 million in fiscal year 2017 and $34.1 million in fiscal year 2016. These amounts include advertising media
expenses, outside and inside agency expenses, certain website related fees and photo and video production. Prepaid
advertising costs at June 30, 2018 totaled $1.1 million compared to $1.5 million at June 30, 2017.
Earnings Per Share
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding
during the period. Diluted earnings per share is calculated similarly, except that the weighted average outstanding shares are
adjusted to include the effects of converting all potentially dilutive share‐based awards issued under our employee stock
plans (see Notes 9 and 10).
Share‐Based Compensation
We estimate, as of the date of grant, the fair value of stock options awarded using the Black‐Scholes option pricing model.
Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including
anticipated changes in the underlying stock price (i.e. expected volatility) and option exercise activity (i.e. expected life).
Expected volatility is based on the historical volatility of our stock and other contributing factors. The expected life of options
granted, which represents the period of time that the options are expected to be outstanding, is based, primarily, on historical
data. We estimate, as of the date of grant, the fair value of restricted stock units awarded using a discounted cash flow model
which requires management to make certain assumptions with respect to model inputs including anticipated future dividends
not paid during the restriction period, and a discount for lack of marketability for a one‐year holding period after vesting.
Share‐based compensation expense is included within selling, general and administrative expenses. Tax benefits associated
with our share‐based compensation arrangements are included within income tax expense.
All shares of our common stock received in connection with the exercise of share‐based awards have been recorded as
treasury stock and result in a reduction in shareholders’ equity.
Foreign Currency Translation
The functional currency of each Company operated foreign location is the respective local currency. Assets and liabilities are
translated into United States dollars using the current period‐end exchange rate and income and expense amounts are
translated using the average exchange rate for the period in which the transaction occurred. Resulting translation
adjustments are reported as a component of accumulated other comprehensive income within shareholders’ equity.
37
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Recently Adopted Accounting Pronouncements
In July 2015, the FASB issued ASU 2015‐11, “Inventory (Topic 330): Simplifying the Measurement of Inventory,” which states
that inventory should be measured at the lower of cost and net realizable value. Net realizable value is defined as estimated
selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.
We adopted effective July 1, 2017, and the new guidance is being applied prospectively. The adoption did not have a material
impact on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015‐17, Balance Sheet Classification of Deferred Taxes, which requires the Company
to present all deferred tax assets and liabilities as noncurrent. We adopted this ASU on July 1, 2017 on a prospective basis.
At June 30, 2017 we had net current deferred tax assets of $3.9 million which would have been classified as noncurrent under
the new standard.
In March 2016, the FASB issued ASU 2016‐09, Improvements to Employee Share‐Based Payment Accounting, which amends
ASC Topic 718, Stock Compensation. The objective of this amendment is part of the FASB’s Simplification Initiative as it applies
to several aspects of the accounting for share‐based payment transactions, including the income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted effective
July 1, 2017. For the fiscal year ended June 30, 2018, the Company recorded a net tax expense of $0.6 million due to adoption
of this ASU. For the fiscal year ended June 30, 2017, the Company recorded a credit to additional paid in capital of $0.1 million,
that under the new standard would have been recognized in income.
(2)
Business Acquisitions
From time to time the Company acquires design centers from its independent retailers in arms length transactions. There
were no material acquisitions completed during the three fiscal years ended June 30, 2018, 2017 and 2016, respectively.
(3)
Inventories
Inventories at June 30 are summarized as follows (in thousands):
Fi ni s hed goods
Work i n proces s
Ra w ma teri a l s
Va l ua ti on a l l owa nce
Inventori es
2018
2017
$
124,640
12,057
27,947
(1,632)
$
117,388
10,638
26,269
(4,812)
$
163,012
$
149,483
(4)
Property, Plant and Equipment
Property, plant and equipment at June 30 are summarized as follows (in thousands):
La nd a nd i mprovements
Bui l di ng a nd i mprovements
Machi nery a nd equi pment
Property, pl ant a nd equi pment, gros s
2018
2017
$
82,899
404,522
123,606
611,027
$
79,200
400,246
125,773
605,219
Les s : a ccumul ated depreci ati on and amorti za ti o (343,124)
(335,021)
Property, pl ant a nd equi pment, net
$
267,903
$
270,198
(5)
Goodwill and Other Intangible Assets
At both June 30, 2018 and 2017, we had $25.4 million of goodwill, and $19.7 million of other indefinite‐lived intangible assets
consisting of Ethan Allen trade names, all of which is in our wholesale segment.
In the fourth quarter of fiscal years 2018, 2017, and 2016, the Company performed qualitative assessments of the fair value
of the wholesale reporting unit and concluded it is more likely than not that the fair value of its goodwill exceeded its carrying
value. The fair value of the trade name exceeded its carrying value by a substantial margin in fiscal years 2018, 2017 and
2016. To calculate fair value of these assets, management relies on estimates and assumptions which by their nature have
varying degrees of uncertainty. Management therefore looks for third party transactions to provide the best possible support
38
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
for the assumptions incorporated. Management considers several factors to be significant when estimating fair value
including expected financial outlook of the business, changes in the Company’s stock price, the impact of changing market
conditions on financial performance and expected future cash flows, and other factors. Deterioration in any of these factors
may result in a lower fair value assessment, which could lead to impairment of the long‐lived assets and goodwill of the
Company.
(6)
Debt
Total debt obligations at June 30 consist of the following (in thousands):
Term Loa n due 10/21/2019
Ca pi ta l l ea s es
Tota l debt obl i ga ti ons
Una morti zed debt i s s ua nce cos ts
Tota l debt
Les s current ma turi ti es
Tota l l ong‐term
2018
2017
‐
$
1,680
$
13,833
1,085
1,680
‐
1,680
584
14,918
(579)
14,339
2,731
$
1,096
$
11,608
The Company entered into a five year, $150 million senior secured revolving credit and term loan facility on October 21, 2014,
as amended (the “Facility”). The Company intends to use the Facility for working capital and general corporate purposes,
including dividend payments and share repurchases. The Facility, which expires on October 21, 2019, provided a term loan
of up to $35 million and a revolving credit line of up to $115 million, subject to borrowing base availability. We incurred
financing costs of $1.5 million under the Facility, which are being amortized by the interest method, over the remaining life
of the Facility.
At the Company’s option, revolving loans under the Facility bear interest, based on the average availability, at an annual rate
of either (a) the London Interbank Offered rate (“LIBOR”) plus 1.5% to 1.75%, or (b) the higher of (i) the prime rate, (ii) the
federal funds effective rate plus 0.50%, or (iii) LIBOR plus 1.0% plus in each case 0.5% to 0.75%.
The Company pays a commitment fee of 0.15% to 0.25% per annum on the unused portion of the Facility, and fees on issued
letters of credit at an annual rate of 1.5% to 1.75% based on the average availability. Certain payments are restricted if the
availability under the revolving credit line falls below 20% of the total revolving credit line, and the Company is subject to pro
forma compliance with the fixed charge coverage ratio if applicable.
In fiscal 2018 the Company repaid the remaining balance of $13.8 million on the term loan with excess operating cash. In
fiscal 2017 we repaid $25.0 million of the revolving credit facility with excess operating cash.
The Facility is secured by all property owned, leased or operated by the Company in the United States and includes certain
real property owned by the Company and contains customary covenants which may limit the Company’s ability to incur debt;
engage in mergers and consolidations; make restricted payments (including dividends and share repurchases); sell certain
assets; and make investments.
The Facility includes a covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.1 to 1.0
at all times unless the outstanding term loans are less than $17.5 million and the fixed charge coverage ratio equals or exceeds
1.25 to 1.0, in which case the fixed charge coverage ratio ceases to apply and thereafter is only triggered if average monthly
availability is less than 15% of the amount of the revolving credit line. The Company has met the exemption conditions and
is currently exempt from the fixed charge coverage ratio covenant.
At June 30, 2018 and June 30, 2017, there was $6.2 million and $0.1 million respectively, of standby letters of credit
outstanding under the Facility. In fiscal 2018 we issued a $5.9 million letter of credit for our workmen’s compensation
obligation in lieu of restricted cash, resulting in reclassification of this restricted cash to cash and cash equivalents. Total
availability under the Facility was $108.8 million at June 30, 2018 and $114.9 million at June 30, 2017.
At both June 30, 2018 and June 30, 2017, we were in compliance with all covenants under the Facility.
39
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
The weighted‐average interest rate applicable under our outstanding debt obligations for each of the last three fiscal years
were as follows:
Wei ghted‐a vera ge i nteres t ra te
Fi s ca l Yea r Ended June 30,
2018
3.3%
2017
2.4%
2016
2.0%
Aggregate scheduled maturities of our debt obligations for each of the five fiscal years subsequent to June 30, 2018, and
thereafter are as follows (in thousands):
Fisca l Yea r Ended June 30
2019
2020
2021
2022
2023
Subsequent to 2023
584
557
444
67
28
‐
Tota l s cheduled debt pa yments
$
1,680
(7)
Leases
We lease real property and equipment under various operating lease agreements expiring at various times through 2039.
Leases covering retail design center locations and equipment may require, in addition to stated minimums, contingent rentals
based on retail sales or equipment usage. Generally, the leases provide for renewal for various periods at stipulated rates.
Future minimum lease payments under non‐cancelable operating leases for each of the five fiscal years subsequent to June
30, 2018, and thereafter are shown in the table below. Also shown are minimum future rentals from subleases, which will
partially offset lease payments in the aggregate (in thousands):
Fi s ca l Yea r Ended June 30,
2019
2020
2021
2022
2023
Subs equent to 2023
Tota l
Future Mi ni mum
Lea s e Pa yments
Future Mi ni mum
Subl ea s e Renta l s
$
34,391
$
2,313
29,231
$
1,800
26,120
22,332
16,866
47,046
1,611
1,505
1,077
1,124
$
175,986
$
9,430
Total rent expense for each of the past three fiscal years ended June 30 was as follows (in thousands):
2018
2017
2016
Ba s i c renta l s under opera ti ng l ea s es
$
33,734
$
33,033
$
31,692
Conti ngent renta l s under opera ti ng l ea s es
Ba s i c a nd conti ngent renta l s
Les s : s ubl ea s e rent
Tota l rent expens e
133
33,867
(1,853)
142
33,175
(1,824)
180
31,872
(1,964)
$
32,014
$
31,351
$
29,908
Deferred rent credits and deferred lease incentives are reflected in the Consolidated Balance Sheets under the caption other
long‐term liabilities, and are amortized over the respective underlying lease terms on a straight‐line basis as a reduction of
rent expense. Amounts recorded are as follows:
40
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
June 30,
2018
13,157
4,532
$
$
2017
13,876
5,238
$
$
Deferred rent credits
Deferred l eas e i ncenti ves
(8)
Shareholders' Equity
Our authorized capital stock consists of 150,000,000 shares of Common Stock, par value $.01 per share, and 1,055,000 shares
of Preferred Stock, par value $.01 per share. The Board of Directors may provide for the issuance of all or any shares of
Preferred Stock in one or more classes or series, and to fix for each such class or series such voting powers, full or limited, or
no voting powers, and such distinctive designations, preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such class or series and as may be permitted by the General
Corporation Law of the State of Delaware. As of June 30, 2018 and 2017, there were no shares of Preferred Stock issued or
outstanding.
Share Repurchase Program
On November 21, 2002, our Board of Directors approved a share repurchase program authorizing us to repurchase up to 2.0
million shares of our common stock, from time to time, either directly or through agents, in the open market at prices and
on terms satisfactory to us. After that date, the Board of Directors increased the aggregate authorization under the
repurchase program on several separate occasions, the last of which was on April 24, 2018 when the Board of Directors
increased the aggregate authorization to approximately 3.0 million shares. There is no expiration date on the repurchase
authorization and the amount and timing of future share repurchases, if any, will be determined as market and business
conditions warrant. As of June 30, 2018 we had a remaining Board authorization to repurchase 2.5 million shares.
During the past three fiscal years, we repurchased the following shares of our common stock (trade date basis):
Common s ha res repurcha s ed
950,484
357,363
697,799
Cos t to repurcha s e common s ha res
$
22,019,381
$
10,246,302
$
19,346,104
Avera ge pri ce per s ha re
$
23.17
$
28.67
$
27.72
2018
2017
2016
For the fiscal years presented above, we funded our purchases of treasury stock with existing cash on hand, cash generated
through current period operations, and our credit facility. All our common stock repurchases are recorded as treasury stock
and result in a reduction of shareholders’ equity.
(9)
Earnings per Share (in thousands)
The following table sets forth the calculation of weighted average shares for the fiscal years ended June 30:
Wei ghted a vera ge s ha res of common s tock
outs ta ndi ng for ba s i c ca l cul a ti on
Effect of di l uti ve s tock opti ons a nd other
2018
2017
2016
27,321
27,679
28,072
s ha re‐ba s ed a wa rds
304
279
252
Wei ghted a vera ge s ha res of common s tock
outs ta ndi ng a djus ted for di l uti on ca l cul a ti on
27,625
27,958
28,324
In 2018, 2017 and 2016, stock options and share based awards of 195, 379 and 460 respectively, were excluded from earnings
per share calculation because their impact is anti‐dilutive.
(10)
Share‐Based Compensation
For the twelve months ended June 30, 2018, 2017, and 2016, share‐based compensation expense totaled $1.0 million, $1.3
million, and $2.4 million respectively. These amounts have been included in the Consolidated Statements of Comprehensive
Income within selling, general and administrative expenses. During the twelve months ended June 30, 2018, 2017, and 2016,
we recognized related tax benefits associated with our share‐based compensation arrangements totaling $0.5 million, $0.5
million and $0.8 million, respectively (before valuation allowances). Such amounts have been included in the Consolidated
41
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Statements of Comprehensive Income within income tax expense.
At June 30, 2018, we had 1,447,639 shares of common stock available for future issuance pursuant to the 1992 Stock Option
Plan (the “Plan”). The maximum number of shares of common stock reserved for issuance under the Plan is 6,487,867 shares.
The Plan provides for the grant of non‐compensatory stock options to eligible employees and non‐employee directors. Stock
options under the Plan are non‐qualified under section 422 of the Internal Revenue Code and allow for the purchase of shares
of our common stock. The Plan also provides for the issuance of stock appreciation rights ("SARs") on issued options, however
no SARs have been issued to date. 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. Options are generally granted
with an exercise price equal to the market price of our common stock at the date of grant, vest ratably over a specified service
period, and have a contractual term of 10 years. Equity awards can also include performance vesting conditions. Company
policy further requires an additional one year holding period beyond the service vest date for certain executives. Beginning
January 31, 2014, grants to employees include both company performance and service vesting conditions (as further
described below). Grants to independent directors have a 3‐year service vesting condition. Following is a description of grants
made under the Plan.
Stock Option Awards
We estimate, as of the date of grant, the fair value of stock options awarded using the Black‐Scholes option pricing model.
Use of a valuation model requires management to make certain assumptions with respect to selected model inputs, including
anticipated changes in the underlying stock price (i.e. expected volatility) and option exercise activity (i.e. expected life).
Expected volatility is based on the historical volatility of our stock. The risk‐free rate of return is based on the U.S. Treasury
bill rate extrapolated to the term matching the expected life of the grant. The dividend yield is based on the annualized
dividend rate at the grant date relative to the grant date stock price. The expected life of options granted, which represents
the period of time that the options are expected to be outstanding, is based, primarily, on historical data. The weighted
average assumptions used for fiscal years ended June 30 are noted in the following table:
Volatility
Risk‐free rate of return
Dividend yield
Expected average life (years )
2018
31.5%
1.76%
2.47%
4.6
2017
36.8%
1.03%
1.96%
5.0
2016
48.1%
1.93%
1.95%
6.3
Options granted to employees beginning January 1, 2014 vest provided certain performance and service conditions are met
(“Performance Options”). The performance conditions allow the potential vesting in three equal tranches, provided
attainment of a minimum annual 5% growth in operating income (as defined in the agreement) for each of the ensuing three
fiscal years. If the minimum annual growth is not achieved in any fiscal year, that tranche is forfeited, except that if a
cumulative compound growth rate of 5% is achieved at the end of the three fiscal years, performance conditions for all three
tranches will have been met. Service conditions require an additional period after performance conditions are met.
Consequently, assuming both performance and service conditions are met, shares become exercisable between 3 and 5 years
from grant date. At June 30, 2017, 196,000 Performance Options achieved the performance conditions, and consequently
will vest ratably in three equal tranches on the grant date anniversary in years three, four and five provided service conditions
are also met. The remaining 130,000 Performance Options did not achieve the respective performance conditions so the
amortization to date was reversed at June 30, 2017, and the options were cancelled during fiscal 2018. The Performance
Options are reflected in the options tables presented below. All options were issued at the closing stock price on each grant
date, and have a contractual term of 10 years. A summary of stock option activity occurring during the fiscal year ended June
30, 2018 is presented below.
42
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Opti ons
Sha res
Wei ghted
Avera ge
Exerci s e
Pri ce
Wei ghted
Avera ge
Rema i ni ng
Contra ctua l
Term (yrs )
Aggrega te
Intri ns i c Va l ue
Outs ta ndi ng ‐ June 30, 2017
836,020
$
24.41
Gra nted
Exerci s ed
Ca ncel ed (forfei ted/expi red)
Outs ta ndi ng ‐ June 30, 2018
19,482
(9,066)
(284,841)
561,595
30.80
21.37
30.28
21.70
Exerci s a bl e ‐ June 30, 2018
453,423
$
20.25
3.7
2.9
$
2,205,554
$
2,205,554
The weighted average grant‐date fair value of options granted during fiscal 2018, 2017 and 2016 was $6.93, $8.30 and $11.53
respectively. The total intrinsic value of options exercised during fiscal 2018, 2017 and 2016 was $0.1 million, $0.8 million,
and $0.3 million, respectively. As of June 30, 2018, there was $0.3 million of total unrecognized compensation cost related to
nonvested options granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.4
years. A summary of the nonvested shares as of June 30, 2018 and changes during the year then ended is presented below.
Opti ons
Sha res
Wei ghted Avera ge
Gra nt Da te Fa i r Va l ue
Nonves ted June 30, 2017
285,284
$
11.18
Gra nted
Ves ted
Ca ncel ed (forfei ted/expi red)
Nonves ted a t June 30, 2018
Stock Unit Awards
19,482
(69,219)
(127,375)
6.93
10.99
11.40
108,172
$
10.27
We account for stock unit awards as equity‐based awards because upon vesting, they will be settled in common shares. These
awards, which contain time and other vesting conditions, may also contain performance conditions providing recipients a
contingent right to receive shares of the Company's common stock ("Performance Units"), conditioned upon the Company's
achievement of certain performance targets and goals, and subject to the terms of the agreements. For Performance Units,
we expense as compensation cost the fair value of the shares as of the grant date, and amortize expense ratably over the
total performance and time vest period, taking into account the probability that we will satisfy the performance goals. We
estimate, as of the date of grant, the fair value of Performance Units with a discounted cash flow model, using as model
inputs the risk‐free rate of return as the discount rate, dividend yield for dividends not paid during the restriction period, and
a discount for lack of marketability for a one‐year post‐vest holding period. The lack of marketability discount used is the
present value of a future put option using Monte‐Carlo and Black‐Scholes pricing models. The weighted average assumptions
used for the fiscal years ended June 30 are noted in the table following. No Performance based restricted stock unit awards
were granted under the Plan prior to December 1, 2015.
Volatility
Risk‐free rate of return
Dividend yield
Expected average life (years )
2018
2017
32.9%
1.41%
2.47%
1.91
30.8%
0.92%
1.97%
2.04
For each grant of Performance Units, the amount of the grant that will be earned and paid will be determined by reference
to the achievement of certain performance goals applicable to such grant. Equity‐based compensation expenses related to
performance‐based shares recognized in our consolidated statements of comprehensive income are presented in the
following table for the fiscal years ended June 30 (in thousands).
43
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Gra nted wi thi n fi s ca l yea rs endi ng June 30,
2018
2017
2016
2017
2018
Total expens e
$
92
$
794
(12)
457
12
‐
$
537
$
806
A summary of stock unit activity occurring during the fiscal year ended June 30, 2018 is presented below.
Nonves ted June 30, 2017
Gra nted
Ves ted
Ca ncel ed (forfei ted/expi red)
Wei ghted
Avera ge
Gra nt Da te
Fa i r Va l ue
$
25.92
25.18
23.96
24.94
Uni ts
308,330
162,500
(59,211)
(81,250)
Nonves ted a t June 30, 2018
330,369
$
26.15
As of June 30, 2018, there was $0.6 million of total unrecognized compensation cost related to nonvested units granted under
the Plan based on our probability estimates. That cost is expected to be recognized over a weighted average period of 1 year.
Restricted Stock Awards
A summary of stock unit activity occurring during the fiscal year ended June 30, 2018 is presented below.
Wei ghted
Avera ge
Gra nt Da te
Fa i r Va l ue
Uni ts
Nonves ted June 30, 2017
‐
$
‐
Gra nted
Ves ted
Ca ncel ed (forfei ted/expi red)
Nonves ted a t June 30, 2018
16,234
‐
(16,234)
25.62
‐
(25.62)
‐
$
‐
During fiscal 2018 16,234 restricted stock awards were granted and then subsequently voided. There was no unrecognized
compensation cost related to restricted shares granted under the Plan for fiscal 2018.
44
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
(11)
Income Taxes
Income tax expense attributable to income from operations consists of the following for the fiscal years ended June 30
(in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
2018
2017
2016
$
10,289
1,689
824
12,802
$
15,265
1,585
445
17,295
$
27,660
2,898
88
30,646
174
(124)
(156)
(106)
3,413
85
8
3,506
(237)
207
703
673
Income Tax Expense (Benefit)
$
12,696
$
20,801
$
31,319
The following is a reconciliation of expected income tax expense (benefit) (computed by applying the federal statutory income
tax rate to income before taxes) to actual income tax expense (benefit) (in thousands):
2018
2017
2016
Expected Income Ta x Expens e
$
13,739
28.0%
$
19,947
35.0%
$
30,785
35.0%
Sta te i ncome ta xes , net of federa l i ncome ta x
Va l ua ti on a l l owa nce
Re‐mea s urement of deferred ta xes
Secti on 199 Qua l i fi ed Producti on Acti vi ti es deducti on
Unrecogni zed ta x expens e (benefi t)
Stock compens a ti on ‐ Ca ncel a ti ons & exerci s es
Other, net
1,263
42
(2,651)
(678)
55
570
356
2.6%
0.1%
‐5.4%
‐1.4%
0.1%
1.2%
0.7%
1,403
329
‐
(999)
(48)
‐
169
2.5%
0.6%
‐
‐1.8%
‐0.1%
‐
0.3%
2,514
339
‐
(1,513)
(479)
‐
2.9%
0.4%
‐
‐1.7%
‐0.5%
‐
(327)
‐0.4%
Actua l i ncome ta x expens e (benefi t)
$
12,696
25.9%
$
20,801
36.5%
$
31,319
35.6%
The deferred income tax asset and liability balances at June 30 (in thousands) include:
Deferred tax assets:
Employee compensation accruals
Stock based compensation
Deferred rent credits
Net operating loss carryforwards
Inventories
Goodwill
Other, net
Total deferred tax assets
Less: Valuation allowance
Net deferred tax assets
2018
2017
2,729
933
4,407
3,959
62
328
1,645
14,063
(2,527)
4,395
2,878
7,290
3,687
1,254
953
2,396
22,853
(2,485)
$
11,536
$
20,368
45
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Deferred ta x l i a bi l i ti es :
Property, pl a nt a nd equi pment
Inta ngi bl e a s s ets other tha n goodwi l l
Commi s s i ons
Tota l deferred ta x l i a bi l i ty
2018
2017
2,827
8,951
2,230
14,008
5,360
14,166
3,420
22,946
Tota l net deferred ta x a s s et (l i a bi l i ty)
$
(2,472)
$
(2,578)
The deferred tax balances are classified in the Consolidated Balance Sheets as follows at June 30 (in thousands):
Current a s s ets
Non‐current a s s ets
Current l i a bi l i ti es
Non‐current l i a bi l i ti es
2018
2017
‐
$
1,688
‐
4,160
$
3,916
1,167
‐
7,661
Tota l net deferred ta x a s s et (l i a bi l i ty)
$
(2,472)
$
(2,578)
Commencing with fiscal 2018 the Company is prospectively reporting its deferred tax assets and liabilities as non‐current in
conformance with ASU 2015‐17 “Balance Sheet Classification of Deferred Tax Assets. For fiscal 2017, current deferred tax
assets and liabilities and non‐current deferred tax assets and liabilities have been presented net in the Consolidated Balance
Sheets.
We evaluate our deferred taxes to determine if the “more likely than not” standard of evidence has not been met thereby
supporting the need for a valuation allowance. A valuation allowance must be established for deferred tax assets when it is
less than 50% likely that assets will be realized. At June 30 of 2018 and 2017, such an allowance was in place against the
Belgian foreign tax assets, and at June 30, 2018 this valuation allowance was approximately $2.6 million.
The Company’s deferred income tax assets at June 30, 2018 with respect to the net operating losses expire as follows (in
thousands):
Deferred
Income
Ta x As s ets
Net Opera ti ng
Los s
Ca rryforwa rds
Uni ted Sta tes (Sta te), expi ring between
2025 a nd 2032
$
1,340
$
23,831
Foreign, expi ri ng between 2034 a nd 2038
2,619
7,745
Deferred U.S. federal income taxes were previously not provided for unremitted foreign earnings of our foreign subsidiaries
because we expected those earnings to be permanently reinvested. As part of the Tax Act the Company must report The
Deemed Repatriation Transition Tax (the “Transition Tax”) on previously untaxed accumulated earnings and profits (“E&P”)
of certain of our foreign subsidiaries. To determine the amount of the Transition Tax, we must determine, in addition to other
factors, the amount of post‐1986 E&P of the relevant subsidiaries, as well as the amount of non‐U.S. income taxes paid on
such earnings. We are able to make a reasonable estimate and recorded a provisional Transition Tax obligation of $125K.
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. Among the
significant changes to the U.S. Internal Revenue Code, the Tax Act lowers the U.S. federal corporate income tax rate (“Federal
Tax Rate”) from 35% to 21% effective January 1, 2018, introduces a limitation on the deduction of certain interest expenses,
introduces a deduction for certain business capital expenditures and introduces a system of taxing foreign‐sourced income
from multinational corporations. The Company will compute its income tax expense for the June 30, 2018 fiscal year using a
blended Federal Tax Rate of 28%. The 21% Federal Tax Rate will apply to fiscal years ending June 30, 2019 and each year
thereafter.
The Company must re‐measure its net deferred tax assets and liabilities using the Federal Tax Rate that will apply when these
amounts are expected to reverse. As of June 30, 2018, the Company can determine a reasonable estimate for the effects of
tax reform. The re‐measurement of the deferred tax assets and liabilities resulted in a discrete tax benefit $2.7 million at June
30, 2017 which lowered the effective tax rate by 5.4% for the fiscal year.
46
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Uncertain Tax Positions
We recognize interest and penalties related to income tax matters as a component of income tax expense. If the $2.2 million
of unrecognized tax benefits and related interest and penalties as of June 30, 2018 were recognized, approximately $1.7
million would be recorded as a benefit to income tax expense. A reconciliation of the beginning and ending amount of
unrecognized tax benefits including related interest and penalties as of June 30, 2018 and 2017 is as follows (in thousands):
2018
2017
Beginning balance
Additions for tax positions taken
Reductions for tax positions taken in prior years
Settlements
Ending balance
$
2,106
467
(386)
$
2,187
$
$
2,170
646
(694)
(16)
2,106
It is reasonably possible that various issues relating to approximately $0.3 million of the total gross unrecognized tax benefits
as of June 30, 2018 will be resolved within the next twelve months as exams are completed or statutes expire. If recognized,
approximately $0.1 million of unrecognized tax benefits would reduce our tax expense in the period realized. However, actual
results could differ from those currently anticipated.
The Company conducts business globally and, as a result, the Company or one or more of its subsidiaries files income tax
returns in the U.S., various state, and foreign jurisdictions. In the normal course of business, the Company is subject to
examination by the taxing authorities in such major jurisdictions as the U.S. Canada, Mexico, Belgium and Honduras. As of
June 30, 2018, the Company and certain subsidiaries are currently under audit from 2015 through 2016 in the U.S. While the
amount of uncertain tax benefits with respect to the entities and years under audit may change within the next twelve
months, it is not anticipated that any of the changes will be significant.
(12)
Employee Retirement Programs
The Ethan Allen Retirement Savings Plan
The Ethan Allen Retirement Savings Plan (the "Savings Plan") is a defined contribution plan, which is offered to substantially
all our employees who have completed three consecutive months of service regardless of hours worked. We may, at our
discretion, make a matching contribution to the 401(k) portion of the Savings Plan on behalf of each participant. Total 401(k)
Company match expense amounted to $3.4 million in 2018, $3.5 million in 2017, and $3.4 million in 2016.
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 cash bonus and other incentive programs. The total cost
of these benefits was $0.1 million, $1.0 million, and $3.6 million in 2018, 2017 and 2016, respectively.
(13)
Litigation
We are routinely party to various legal proceedings, including investigations or as a defendant in litigation, in the ordinary
course of business. We are also subject to various federal, state and local environmental protection laws and regulations and
are involved, from time to time, in investigations and proceedings regarding environmental matters. Such investigations and
proceedings typically concern air emissions, water discharges, and/or management of solid and hazardous wastes. Under
these laws, we and/or our subsidiaries are, or may be, required to remove or mitigate the effects on the environment of the
disposal or release of certain hazardous materials.
Regulations issued under the Clean Air Act Amendments of 1990 required the industry to reformulate certain furniture
finishes or institute process changes to reduce emissions of volatile organic compounds. Compliance with many of these
requirements has been facilitated through the introduction of high solids coating technology and alternative formulations. In
addition, we have instituted a variety of technical and procedural controls, including reformulation of finishing materials to
reduce toxicity, implementation of high velocity low pressure spray systems, development of storm water protection plans
and controls, and further development of related inspection/audit teams, all of which have served to reduce emissions per
unit of production. We remain committed to implementing new waste minimization programs and/or enhancing existing
programs with the objective of (i) reducing the total volume of waste, (ii) limiting the liability associated with waste disposal,
and (iii) continuously improving environmental and job safety programs on the factory floor which serve to minimize
emissions and safety risks for employees. To reduce the use of hazardous materials in the manufacturing process, we will
47
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
continue to evaluate the most appropriate, cost‐effective control technologies for finishing operations and production
methods. We believe that our facilities are in material compliance with all such applicable laws and regulations. Our currently
anticipated capital expenditures for environmental control facility matters are not material.
On a quarterly basis, we review our litigation activities and determine if an unfavorable outcome to us is considered “remote”,
“reasonably possible” or “probable” as defined by ASC 450 – Contingencies. Where we determine an unfavorable outcome is
probable and is reasonably estimable, we accrue for potential litigation losses. The liability we may ultimately incur with
respect to such litigation matters, in the event of a negative outcome, may be in excess of amounts currently accrued, if any;
however, we do not expect that the reasonably possible outcome of these litigation matters would, individually or in the
aggregate, have a material adverse effect on our financial condition, results of operations or cash flows. Where we determine
an unfavorable outcome is not probable or reasonably estimable, we do not accrue for any potential litigation loss.
Although the outcome of the various claims and proceedings against us cannot be predicted with certainty, management
believes that the likelihood is remote that any existing claims or proceedings, individually or in the aggregate, will have a
material adverse effect on our financial position, results of operations or cash flows.
(14)
Accumulated Other Comprehensive Income (Loss)
The following table sets forth the activity in accumulated other comprehensive income (loss) for the fiscal years ended June
30 (in thousands):
Yea rs ended June 30,
2017
2018
Begi nni ng ba l a nce
$
(4,131)
$
(4,846)
Cha nges before recl a s s i fi ca ti ons
Amounts recl a s s i fi ed from a ccumul a ted
other comprehens i ve i ncome
(2,040)
‐
Current peri od other comprehens i ve i ncome (l os s )
(2,040)
715
‐
715
Endi ng ba l a nce
$
(6,171)
$
(4,131)
Foreign currency translation adjustments are the result of changes in foreign currency exchange rates related to our
operations in Canada, Belgium, Honduras and Mexico, and exclude income taxes given that the earnings of non‐U.S.
subsidiaries are deemed to be reinvested for an indefinite period.
(15)
Segment Information
Our wholesale and retail operating segments represent strategic business areas of our vertically integrated enterprise that
operate separately and provide their own distinctive services. This vertical structure enables us to offer our complete line of
home furnishings and accents more effectively while controlling quality and cost. We evaluate performance of the respective
segments based upon revenues and operating income. Inter‐segment transactions result, primarily, from the wholesale sale
of inventory to the retail segment, including the related profit margin.
As of June 30, 2018, the Company operated 148 design centers (our retail segment) and our independent retailers operated 148
design centers. Our wholesale segment net sales include sales to our retail segment, which are eliminated in consolidation,
and sales to our independent retailers. Our retail segment net sales accounted for 77% of our consolidated net sales in fiscal
2018. Our wholesale segment net sales to independent retailers and other third parties accounted for 23%, including
approximately 15.5% of our consolidated net sales in fiscal 2018 to our ten largest customers, including the GSA and nine
independent retailers who operate 105 design centers. Information for each of the last three fiscal years ended June 30 is
provided below (in thousands):
48
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Net s a les :
Whol es a le s egment
Reta i l s egment
El imi na ti on of inter‐compa ny s a les
Cons oli da ted Tota l
2018
2017
2016
$
475,731
587,502
(296,449)
$
453,326
603,677
(293,618)
$
491,467
626,511
(323,776)
$
766,784
$
763,385
$
794,202
Opera ti ng i ncome (los s ):
Whol es a le s egment
Reta i l s egment
Adjus tment of inter‐compa ny profit (1)
Cons oli da ted Tota l
$
48,499
(1,738)
2,106
$
53,505
1,198
3,247
$
74,412
16,450
(1,683)
$
48,867
$
57,950
$
89,179
Depreci a ti on & Amorti za ti on:
Whol es a le s egment
Reta i l s egment
Cons oli da ted Tota l
Ca pi ta l expendi tures :
Whol es a le s egment
Reta i l s egment
Cons oli da ted Tota l
Tota l As s ets :
Whol es a le s egment
Reta i l s egment
Inventory profi t el imi na ti on (2)
$
7,752
12,079
$
7,550
12,565
$
7,587
11,766
$
19,831
$
20,115
$
19,353
$
4,286
14,487
$
8,589
9,732
$
12,446
10,686
$
18,773
$
18,321
$
23,132
June 30,
2018
June 30,
2017
June 30,
2016
$
241,616
317,590
(28,773)
$
279,364
319,341
(30,483)
$
271,116
339,942
(33,649)
Cons oli da ted Tota l
$
530,433
$
568,222
$
577,409
(1)
(2)
Represents the change in wholesale profit contained in Ethan Allen design center inventory at the end of the period.
The wholesale profit contained in the retail segment inventory that has not yet been realized. These profits are realized when the
related inventory is sold.
Our international net sales are comprised of our wholesale segment sales to independent retailers and our retail segment
sales to consumers through the Company operated design centers. The number of international design centers, and the
related net sales as a percent of our consolidated net sales is shown in the following table.
Fiscal Year Ended June 30,
2017
2018
2016
Independent design centers
Company operated design centers
Total international design centers
104
6
110
107
6
113
103
6
109
Percentage of consolidated net sales
10.2%
10.0%
9.2%
49
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
(16)
Selected Quarterly Financial Data (Unaudited)
Tabulated below is selected financial data for each quarter of the fiscal years ended June 30, 2018, 2017, and 2016
(in thousands, except per share data):
Fi s ca l 2018:
Net Sa l es
Gros s profi t
Net i ncome
Ea rni ngs per bas i c s ha re
Ea rni ngs per di l uted s ha re
Di vi dends decl a red per common s ha re
Fi s ca l 2017:
Net Sa l es
Gros s profi t
Net i ncome
Ea rni ngs per bas i c s ha re
Ea rni ngs per di l uted s ha re
Di vi dends decl a red per common s ha re
Fi s ca l 2016:
Net Sa l es
Gros s profi t
Net i ncome
Ea rni ngs per bas i c s ha re
Ea rni ngs per di l uted s ha re
Di vi dends decl a red per common s ha re
(17)
Financial Instruments
September 30
December 31
Ma rch 31
June 30
Qua rter Ended
$
181,302
$
198,481
$
181,419
$
205,582
100,323
7,415
0.27
0.27
0.19
107,791
14,862
0.54
0.54
0.50
96,708
2,616
0.10
0.09
0.19
111,142
11,478
0.43
0.42
0.19
$
193,287
$
194,672
$
180,501
$
194,925
108,467
11,529
0.42
0.41
0.17
108,124
10,700
0.39
0.38
0.19
94,735
2,282
0.08
0.08
0.19
108,397
11,683
0.42
0.42
0.19
$
190,391
$
207,535
$
190,583
$
205,693
104,673
13,147
0.46
0.46
0.14
116,058
16,534
0.58
0.58
0.14
105,717
10,178
0.37
0.36
0.17
115,788
16,778
0.60
0.60
0.17
At June 30, 2017, $7.3 million of cash equivalents were restricted and classified as a long‐term asset. We did not hold any
restricted cash equivalents at June 30, 2018. We did not hold any available‐for‐sale securities at June 30 2018 and June 30,
2017.
We measure certain assets, including our cost and equity method investments, at fair value on a nonrecurring basis. These
assets are recognized at fair value when they are deemed to be other‐than‐temporarily impaired. During the year ended June
30, 2018 we did not record any other‐than‐temporary impairments on those assets required to be measured at fair value on
a non‐recurring basis.
(18)
Restricted Cash and Investments
At June 30, 2017 we held $7.3 million of cash and investments in lieu of providing letters of credit for the benefit of the
provider of our workmen’s compensation and other insurance liabilities. By June 30, 2018, this obligation had been reduced
to $5.9 million, which was then exchanged for a letter of credit for the benefit of this provider, and the restrictions were
removed. See also Note 17, “Financial Instruments”.
(19)
Subsequent Events
None.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
50
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our
Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms, and that such information is accumulated and communicated to our management, including our Chairman of the
Board and Chief Executive Officer ("CEO") and Executive Vice President Administration and Chief Financial Officer("CFO"),
as appropriate, to allow timely decisions regarding required financial disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including the CEO and
the CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined
in Rules 13a‐15(e) and 15d‐15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end
of the period covered by this report. Based on such evaluation, the CEO and CFO have concluded that, as of June 30, 2018,
our disclosure controls and procedures were effective in ensuring that material information relating to us (including our
consolidated subsidiaries), which is required to be disclosed by us in our periodic reports filed or submitted to the SEC is (i)
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (ii)
accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such
term is defined in Exchange Act Rule 13a‐15(f) and 15d‐15(f)). Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with U.S. GAAP.
Our internal control over financial reporting includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in
accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on our financial statements.
Management has assessed the effectiveness of our internal control over financial reporting based on the framework in
Internal Control ‐ Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework). Based on that evaluation, management concluded that our internal control over financial reporting was
effective as of June 30, 2018 to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external reporting purposes in accordance with U.S. GAAP.
KPMG LLP, the independent registered public accounting firm that audited the consolidated financial statements included in
this Annual Report on Form 10‐K, has also audited the effectiveness of our internal control over financial reporting as of June
30, 2018, as stated in their report included under Item 8 of this Annual Report.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a‐15(f) and
15d‐15(f) under the Exchange Act) during the fiscal quarter ended June 30, 2018 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Except as set forth below, the information required by Items 10, 11, 12, 13 and 14 is incorporated by reference to Ethan Allen
Interiors Inc. proxy statement for the Annual Meeting of Shareholders scheduled to be held on November 14, 2018 (the
"Proxy Statement") to be filed with the SEC pursuant to Regulation 14A within 120 days after the end of our 2018 fiscal year.
PART III
51
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Item 10. Directors, Executive Officers and Corporate Governance
Code of Ethics
We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions. Our code of ethics can be accessed via our website
at www.ethanallen.com/governance.
We intend to disclose any amendment of our Code of Ethics, or any waiver of any provision thereof, applicable to our principal
executive officer and/or principal financial officer, or persons performing similar functions, directors and other executive
officers on our website within 4 days of the date of such amendment or waiver. In the case of a waiver, the nature of the
waiver, the name of the person to whom the waiver was granted, and the date of the waiver will also be disclosed.
Information contained on, or connected to, our website is not incorporated by reference into this Form 10‐K and should not
be considered part of this or any other report that we file with, or furnish to, the SEC.
Identification of Executive Officers
The information set forth under the heading “Executive Officers of the Registrant” in Part I, Item 1 of this form 10‐K is also
incorporated by reference in this section.
Audit Committee Financial Expert
Our Board of Directors has determined that we have three "audit committee financial experts", as defined under Item
407(d)(5)(ii) of Regulation S‐K of the Securities Exchange Act of 1934, currently serving on our Audit Committee. Those
members of our Audit Committee who are deemed to be audit committee financial experts are as follows:
James B. Carlson
Domenick J. Esposito
James W. Schmotter
All persons identified as audit committee financial experts are independent from management as defined by the applicable
listing standards of the New York Stock Exchange.
The remaining information required by this Item will be included in and is incorporated herein by reference from our 2018
Proxy Statement.
Item 11.Executive Compensation
The information required by this Item will be included in and is incorporated herein by reference from our 2018 Proxy
Statement.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information required by this Item is incorporated by reference to the sections entitled ["Equity Compensation Plan
Information"] and ["Security Ownership of Common Stock of Certain Owners and Management"] in the 2018 Proxy
Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference to the section entitled ["Certain Relationships and Related
Party Transactions"] and ["Corporate Governance —Director Independence "] in the 2018 Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference to the sections entitled ["Audit Fees"] and ["Audit and
Non‐Audit Engagement Pre‐Approval Policy "] in the 2018 Proxy Statement.
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a)(1)
Financial Statements. Our Consolidated Financial Statements, included under Item 8 hereof, as required at
June 30, 2018 and 2017, and for the years ended June 30, 2018, 2017 and 2016 consist of the following:
Consolidated Balance Sheets
Consolidated Statements of Comprehensive Income
52
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Consolidated Statements of Shareholders' Equity
Notes to the Consolidated Financial Statements
(a)(2)
Financial Statement Schedules. None.
(b)
The following Exhibits are filed as part of this report on Form 10‐K:
Exhibit
Number
3 (a)
3 (b)
3 (c)
3 (d)
3 (e)
3 (f)
3 (g)
3 (g)‐1
3 (h)
3 (i)
3 (i)‐1
3 (j)
3 (k)
Exhibit
Amended and Restated Certificate of Incorporation of the Company dated as of November 16, 2016
(incorporated by reference to Exhibit 3.(A) to the Current Report on Form 8‐K of the Company filed with
the SEC on November 18, 2016)
Certificate of Designations relating to the New Convertible Preferred Stock dated as of March 23, 1993
(incorporated by reference to Exhibit 3(b) to the Annual Report on Form 10‐K of the Company filed with
the SEC on August 12, 2015)
Certificate of Designations of Series C Junior Participating Preferred Stock dated as of July 3, 1996, and
Certificate of Amendment of Certificate of Designations of Series C Junior Participating Preferred Stock
dated as of December 27, 2004 (incorporated by reference to Exhibit 3(c) to the Annual Report on Form
10‐K of the Company filed with the SEC on August 12, 2015)
Amended and Restated By‐laws of the Company (incorporated by reference to Exhibit 3.(D) to the
Current Report on Form 8‐K of the Company filed with the SEC on November 18, 2016)
Certificate of Incorporation of Ethan Allen Global, Inc. (incorporated by reference to Exhibit 3(e) to the
Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
By‐laws of Ethan Allen Global, Inc. (incorporated by reference to Exhibit 3(f) to the Registration
Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
Restated Certificate of Incorporation of Ethan Allen Inc. (now known as, Ethan Allen Retail, Inc.)
(incorporated by reference to Exhibit 3(g) to the Registration Statement on Form S‐4 of Ethan Allen
Global, Inc. filed with the SEC on February 3, 2006)
Certificate of Amendment of Restated Certificate of Incorporation of Ethan Allen Inc. (now known as
Ethan Allen Retail, Inc.) as of June 29, 2005 (incorporated by reference to Exhibit 3(g)‐1 to the
Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
Amended and Restated By‐laws of Ethan Allen Inc. (now known as Ethan Allen Retail, Inc.) (incorporated
by reference to Exhibit 3(h) to the Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed
with the SEC on February 3, 2006)
Certificate of Incorporation of Ethan Allen Manufacturing Corporation (now known as Ethan Allen
Operations, Inc.) (incorporated by reference to Exhibit 3(i) to the Registration Statement on Form S‐4
of Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
Certificate of Amendment of Certificate of Incorporation of Ethan Allen Manufacturing Corporation
(now known as, Ethan Allen Operations, Inc.) as of June 29, 2005 (incorporated by reference to Exhibit
3(i)‐1 to the Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on
February 3, 2006)
By‐laws of Ethan Allen Manufacturing Corporation (now known as, Ethan Allen Operations, Inc.)
(incorporated by reference to Exhibit 3(j) to the Registration Statement on Form S‐4 of Ethan Allen
Global, Inc. filed with the SEC on February 3, 2006)
Certificate of Formation of Ethan Allen Realty, LLC (incorporated by reference to Exhibit 3(k) to the
Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
53
3 (l)
3 (l)‐1
3 (m)
3 (n)
3 (o)
3 (p)
10 (a)
10 (b)
10 (c)
10 (d)
10 (d)‐1
10 (d)‐2
10 (d)‐3
10 (d)‐4
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Limited Liability Company Operating Agreement of Ethan Allen Realty, LLC (incorporated by reference
to Exhibit 3(l) to the Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC
on February 3, 2006)
Amendment No. 1 to Operating Agreement of Ethan Allen Realty, LLC as of June 30, 2005 (incorporated
by reference to Exhibit 3(l)‐1 to the Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed
with the SEC on February 3, 2006)
Certificate of Incorporation of Lake Avenue Associates, Inc. (incorporated by reference to Exhibit 3(m)
to the Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on February 3,
2006)
By‐laws of Lake Avenue Associates, Inc. (incorporated by reference to Exhibit 3(n) to the Registration
Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
Certificate of Incorporation of Manor House, Inc. (incorporated by reference to Exhibit 3(o) to the
Registration Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
Restated By‐laws of Manor House, Inc. (incorporated by reference to Exhibit 3(p) to the Registration
Statement on Form S‐4 of Ethan Allen Global, Inc. filed with the SEC on February 3, 2006)
Restated Directors Indemnification Agreement dated March 1993, among the Company and Ethan Allen
and their Directors (incorporated by reference to Exhibit 10(c) to the Registration Statement on Form
S‐1 of the Company filed with the SEC on March 16, 1993)
The Ethan Allen Retirement Savings Plan as Amended and Restated, effective January 1, 2006
(incorporated by reference to Exhibit 10(b)‐7 to the Quarterly Report on Form 10‐Q of the Company
filed with the SEC on November 5, 2007 †
Sales Finance Agreement, dated June 25, 1999, between the Company and MBNA America Bank, N.A.
(incorporated by reference to Exhibit 10(j) to the Annual Report on Form 10‐K of the Company filed
with the SEC on September 13, 2000)
Second Amended and Restated Private Label Consumer Credit Card Program Agreement, dated as of
July 23, 2007, by and between Ethan Allen Global, Inc., Ethan Allen Retail, Inc. and GE Money Bank
(incorporated by reference to Exhibit 10(e)‐3 to the Quarterly Report on Form 10‐Q of the Company
filed with the SEC on November 5, 2007)(confidential treatment granted under Rule 24b‐2 as to certain
portions which are omitted and filed separately with the SEC)
First Amendment to Second Amended and Restated Private Label Consumer Credit Card Program
Agreement, dated as of July 25, 2008, by and between Ethan Allen Global, Inc., Ethan Allen Retail, Inc.
and GE Money Bank (incorporated by reference as Exhibit 10(e)‐1 to the Quarterly Report on Form 10‐
Q of the Company filed with the SEC on May 10, 2010)
Second Amendment to Second Amended and Restated Private Label Consumer Credit Card Program
Agreement, dated as of February 16, 2010, by and between Ethan Allen Global, Inc., Ethan Allen Retail,
Inc. and GE Money Bank (incorporated by reference as Exhibit 10(e)‐2 to the Quarterly Report on Form
10‐Q of the Company filed with the SEC on May 10, 2010) (confidential treatment granted under Rule
24b‐2 as to certain portions which are omitted and filed separately with the SEC)
Third Amendment to Second Amended and Restated Private Label Consumer Credit Card Program
Agreement, dated as of June 30, 2011, by and between Ethan Allen Global, Inc., Ethan Allen Retail, Inc.
and GE Money Bank (incorporated by reference to Exhibit 10(e)‐3 to the Quarterly Report on Form 10‐
Q of the Company filed with the SEC on November 3, 2010) (confidential treatment under Rule 24b‐2
requested as to certain portions which are omitted and filed separately with the SEC)
Fourth Amendment to Second Amended and Restated Private Label Consumer Credit Card Program
Agreement dated as of January 1, 2014, by and between Ethan Allen Global, Inc., Ethan Allen Retail,
Inc., and GE Capital Retail Bank (incorporated by reference to Exhibit 10(d)‐4 to the Quarterly Report
on Form 10‐Q of the Company filed with the SEC on January 31, 2014) (confidential treatment
requested under Rule 24b‐2 as to certain portions which are omitted and filed separately with the SEC)
54
10 (d)‐5
10 (e)
10 (e)‐1
10 (e)‐2
10 (f)‐1
10 (f)‐2
10 (f)‐3
10 (f)‐4
10 (f)‐5
10 (f)‐6
10 (g)
10 (g)‐1
10 (g)‐2
10 (g)‐3
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
Fifth Amendment to Second Amended and Restated Private Label Consumer Credit Card Program
Agreement effective as of July 1, 2015, by and between Ethan Allen Global, Inc., Ethan Allen Retail, Inc.,
and Synchrony Bank (incorporated by reference to Exhibit 10.(D)‐5 to the Annual Report on Form 10‐K
of the Company filed with the SEC on August 12, 2015) (confidential treatment requested under Rule
24b‐2 as to certain portions which are omitted and filed separately with the SEC)
Employment Agreement between the Company and M. Farooq Kathwari dated October 1, 2015
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8‐K filed with the
SEC on October 2, 2015) †
Form of Performance‐Based Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the
Company’s Current Report on Form 8‐K filed with the SEC on October 2, 2015) †
Change in Control Severance Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current
Report on Form 8‐K filed with the SEC on October 2, 2015) †
Credit Agreement, dated as of May 29, 2009, among Ethan Allen Global, Inc., Ethan Allen Interiors Inc.,
J.P. Morgan Chase Bank, N.A., and Capital One Leverage Finance Corp (confidential treatment
requested as to certain portions (Incorporated by reference to Exhibit 10(g)‐2 to the Annual Report on
Form 10‐K of the Company filed with the SEC on August 24, 2009)
Amendment No. 1, dated as of October 23, 2009 to the Credit Agreement dated May 29, 2009, among
Ethan Allen Global, Inc., Ethan Allen Interiors Inc., J.P.Morgan Chase Bank, N.A., and the lenders
thereunder (incorporated by reference to Exhibit 10(g)‐3 to the Quarterly Report on Form 10‐Q of the
Company filed with the SEC on November 9, 2009).
Amendment No. 2, dated as of March 25, 2011, to the Credit Agreement dated May 29, 2009, among
Ethan Allen Global, Inc., Ethan Allen Interiors Inc., J.P.Morgan Chase Bank, N.A., and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 10(g)‐3to the Quarterly Report on Form 10‐
Q of the Company filed with the SEC on May 5, 2011)
Amended and Restated Credit Agreement, dated October 21, 2014, among Ethan Allen Global, Inc.,
Ethan Allen Interiors Inc., J.P. Morgan Chase Bank, N.A., and Capital One, National Association
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8‐K of the Company filed with
the SEC on October 22, 2014)
Amendment No. 2 Dated as of September 10, 2015 to Amended and restated credit agreement dated
as of October 21, 2014 among Ethan Allen Global, Inc., and J.P. Morgan Chase Bank, N.A. as
Administrative Agent and Syndication Agent, and Capital One, National Association as Documentation
Agent dated as of October 21, 2014 (incorporated by reference to Exhibit 10.1 to the Company’s
Quarterly Report on Form 8‐K filed with the SEC on September 11, 2015)
Amendment No. 3, dated as of January 22, 2016, to the Amended and Restated Credit Agreement dated
as of October 21, 2014 among Ethan Allen Global, Inc., Ethan Allen Interiors Inc., J.P.Morgan Chase
Bank, N.A. and Capital One, National Association (incorporated by reference to the Company’s
Quarterly Report on Form 10‐Q filed with the SEC on January 27, 2016).
Amended and Restated 1992 Stock Option Plan (incorporated by reference to Exhibit 10(f) to the
Current Report on Form 8‐K of the Company filed with the SEC on November 19, 2007) †
Form of Option Agreement for Grants to Independent Directors (incorporated by reference to Exhibit
10(h)‐4 to the Annual Report on Form 10‐K of the Company filed with the SEC on September 13, 2005)
†
Form of Option Agreement for Grants to Employees (incorporated by reference to Exhibit 10(h)‐5 to
the Annual Report on Form 10‐K of the Company filed with the SEC on September 13, 2005 †
Form of Restricted Stock Agreement for Executives (incorporated by reference to Exhibit 10(f)‐1 to the
Current Report on Form 8‐K of the Company filed with the SEC on November 19, 2007) †
55
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
10 (g)‐4
10 (g)‐5
21
23
31.1
31.2
32.1
32.2
*
*
Form of Restricted Stock Agreement for Directors (incorporated by reference to Exhibit 10(f)‐2 to the
Current Report on Form 8‐K of the Company filed with the SEC on November 19, 2007) †
Form of performance condition option agreement for employees (incorporated by reference to Exhibit
10(g)‐5 to the Quarterly Report on Form 10‐Q of the Company filed with the SEC on May 1, 2014) †
List of wholly‐owned subsidiaries of the Company (incorporated by reference to Exhibit 21 to the
Annual Report on Form 10‐K of the Company filed with the SEC on August 2, 2017)
Consent of KPMG LLP
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes‐Oxley Act of 2002
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes‐Oxley Act of 2002
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes‐Oxley Act of 2002
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes‐Oxley Act of 2002
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Labels Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
* Furnished herewith.
† Management contract or compensatory plan, contract or arrangement.
Item 16. Form 10‐K Summary
None.
56
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
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.
DATE: August 2, 2018
DATE: August 2, 2018
ETHAN ALLEN INTERIORS INC.
(Registrant)
By/s/ M. Farooq Kathwari
(M. Farooq Kathwari)
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
By/s/ Corey Whitely
(Corey Whitely)
Executive Vice President, Administration, Chief Financial Officer and Treasurer
(Principal Financial Officer)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears below hereby constitutes and appoints M. Farooq Kathwari and Corey
Whitely, and each of them individually, his or her true and lawful agent, proxy and attorney‐in‐fact, with full power of substitution and resubstitution, for
him or her and in his or her name, place and stead, in any and all capacities, to (i) act on, sign and file with the Securities and Exchange Commission any and
all amendments to this Report together with all schedules and exhibits thereto, (ii) act on, sign and file with the Securities and Exchange Commission any
and all exhibits to this Report and any and all exhibits and schedules thereto, (iii) act on, sign and file any and all such certificates, notices, communications,
reports, instruments, agreements and other documents as may be necessary or appropriate in connection therewith and (iv) take any and all such actions
which may be necessary or appropriate in connection therewith, granting unto such agents, proxies and attorneys‐in‐fact, and each of them individually, full
power and authority to do and perform each and every act and thing necessary or appropriate to be done, as fully for all intents and purposes as he or she
might or could do in person, and hereby approving, ratifying and confirming all that such agents, proxies and attorneys‐in‐fact, any of them or any of his,
her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
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
(M. Farooq Kathwari)
/s/ Corey Whitely
(Corey Whitely)
/s/ John S. Bedford
(John S. Bedford)
/s/ James B. Carlson
(James B. Carlson)
/s/ John J. Dooner Jr.
(John J. Dooner Jr.)
/s/ Domenick J. Esposito
(Domenick J. Esposito)
/s/ Mary Garrett
(Mary Garrett)
/s/ James W. Schmotter
(James W. Schmotter)
/s/ Tara I. Stacom
(Tara I. Stacom)
Date: August 2, 2018
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Executive Vice President, Administration,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Vice President, Corporate Controller
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
57
T H I S PA G E I N T E N T I O N A L LY L E F T B L A N K
a
t
a
d
e
t
a
r
o
p
r
o
c
Corporate Headquarters
Ethan Allen Interiors Inc.
25 Lake Avenue Ext.
Danbury, CT 06811
203.743.8000
ethanallen.com
Independent Registered
Public Accounting Firm
KPMG LLP
3001 Summer Street
Stamford, CT 06905
203.356.9800
Investor Relations
Corey Whitely
Executive Vice President,
Administration, Chief Financial
Officer and Treasurer
IR@ethanallen.com
Stock Exchange Listing
New York Stock Exchange
Ethan Allen Interiors Inc.
Trading Symbol: ETH
Transfer Agent
Computershare Investor
Services, LLC
211 Quality Circle, Suite 210
College Station, TX 77845
computershare.com/Investor
Design: Ethan Allen Global, Inc.
DIRECTORS
AS OF AUGUST 31, 2018
OFFICERS
AS OF AUGUST 31, 2018
Farooq Kathwari
Chairman of the Board,
President and
Chief Executive Officer
James B. Carlson
Partner, Mayer Brown, LLP
John J. Dooner Jr.
Chairman, The Dooner Group
Domenick J. Esposito, CPA
CEO, Esposito CEO2CEO
Mary Garrett
Retired, Former Vice President,
Marketing and Communications
IBM Global Sales and
Distribution
James W. Schmotter
President Emeritus,
Western Connecticut State
University
Tara I. Stacom
Executive Vice Chairman
Cushman & Wakefield
Farooq Kathwari
Chairman of the Board,
President and Chief
Executive Officer
Mike Abdullah*
Vice President, Retailer Relations
John S. Bedford II
Vice President,
Corporate Controller
Pamela Bemus**
Vice President, Retail Division
Cynthia Bero**
Vice President, Retail Division
Kathy Bliss**
Senior Vice President,
Retail Division
James DeBernardo*
Vice President, Style
Bridget DePasquale*
Vice President,
Marketing Services
Douglas H. Diefenbach**
Vice President,
Design Center Development
Amy Franks**
Vice President, Retail Division
Daniel M. Grow
Senior Vice President,
Business Development
H. Kemper Johnson*
Vice President,
Creative Director
Eric D. Koster
Vice President,
General Counsel and Secretary
Tracy Paccione
Senior Vice President,
Merchandising
Christopher H. Robertson*
Vice President, Logistics
Craig Stout*
Vice President,
Product Development
Clifford Thorn***
Vice President,
Upholstery Manufacturing
Robin van Puyenbroeck*
Vice President,
Business Development
Corey Whitely
Executive Vice President,
Administration, Chief Financial
Officer and Treasurer
Michael Worth***
Vice President,
Case Goods Manufacturing
*Ethan Allen Global, Inc.
**Ethan Allen Retail, Inc.
***Ethan Allen Operations, Inc.
ethanallen.com ©2018 Ethan Allen Global, Inc.