Ethan Allen Interiors Ethan Allen Interiors (ETH)(ETH)

RECOMMENDATION:

BUY

BackgroundBackground• Ethan Allen Inc. is a leading manufacturer and retailer of quality home Ethan Allen Inc. is a leading manufacturer and retailer of quality home

furnishings, offering a full range of furniture products and accessories. furnishings, offering a full range of furniture products and accessories. Ethan Allen manufactures and distributes three principal product lines: Ethan Allen manufactures and distributes three principal product lines:

• case goodscase goods (wood furnishings), consisting primarily of bedroom (wood furnishings), consisting primarily of bedroom and dining room furniture, wall units and tables and dining room furniture, wall units and tables

• upholstered productsupholstered products, consisting primarily of sofas, loveseats, , consisting primarily of sofas, loveseats, chairs, and recliners chairs, and recliners

• home accessorieshome accessories, and other, including carpeting and area rugs, , and other, including carpeting and area rugs, lighting products, clocks, wall decor, bedding ensembles, draperies, lighting products, clocks, wall decor, bedding ensembles, draperies, decorative accessories and indoor\outdoor furnishings. decorative accessories and indoor\outdoor furnishings.

• The Company's operations are classified into two main businesses: The Company's operations are classified into two main businesses: wholesale and retail home furnishings. The wholesale and retail home furnishings. The wholesale home furnishingswholesale home furnishings business business isis principally principally involved in the manufacture, sale and involved in the manufacture, sale and distributiondistribution of home furnishing products to a network of independently- of home furnishing products to a network of independently-owned and Ethan Allen-owned stores. The retail business exclusively sells owned and Ethan Allen-owned stores. The retail business exclusively sells Ethan Allen's products though a network of 309 retail stores (73 owned and Ethan Allen's products though a network of 309 retail stores (73 owned and operated by ETH, 215 independent retailers, 21 stores abroad). Ethan Allen operated by ETH, 215 independent retailers, 21 stores abroad). Ethan Allen is one of the ten largest manufacturers of household furniture in the is one of the ten largest manufacturers of household furniture in the United States. Ethan Allen United States. Ethan Allen manufactures and/or assembles manufactures and/or assembles approximately 90% of its productsapproximately 90% of its products at 21 manufacturing facilities which at 21 manufacturing facilities which includes 3 saw mills, includes 3 saw mills, thereby maintaining control over cost, quality thereby maintaining control over cost, quality and service to its consumersand service to its consumers. Ethan Allen distributes its products . Ethan Allen distributes its products primarily through eight regional distribution centers and terminals primarily through eight regional distribution centers and terminals strategically located throughout the United States. strategically located throughout the United States.

BackgroundBackground

• Ethan Allen's policy is to sell its products at the same delivered cost to Ethan Allen's policy is to sell its products at the same delivered cost to all dealers nationwide, regardless of their shipping point.all dealers nationwide, regardless of their shipping point. The adoption The adoption of of this policy has discouraged dealers from carrying significant inventory this policy has discouraged dealers from carrying significant inventory in their own warehousesin their own warehouses. As a result, Ethan Allen obtains accurate information . As a result, Ethan Allen obtains accurate information regarding sales to dealers to better plan production runs and manage inventory. regarding sales to dealers to better plan production runs and manage inventory. Having Having one national landed costone national landed cost has has permitted Ethan Allen to provide one permitted Ethan Allen to provide one national suggested retail price which, in turn, helps facilitate a national national suggested retail price which, in turn, helps facilitate a national advertising program. advertising program. Ethan Allen television advertising is aired approximately Ethan Allen television advertising is aired approximately 27 weeks per year.27 weeks per year.

• Ethan Allen's product strategy has been to expand its home furnishings Ethan Allen's product strategy has been to expand its home furnishings collections to appeal to a broader consumer base while providing good quality collections to appeal to a broader consumer base while providing good quality and value. Management believes that the two most important style categories in and value. Management believes that the two most important style categories in home furnishings today are home furnishings today are Classic (style which includes English 18Classic (style which includes English 18thth Century and 19Century and 19thth Century Neo-Classic styling) and Casual (style is based Century Neo-Classic styling) and Casual (style is based on classic contemporary design elements). Each collection includes case on classic contemporary design elements). Each collection includes case goods, upholstered products and accessoriesgoods, upholstered products and accessories, each styled with distinct , each styled with distinct design characteristics. Ethan Allen's design characteristics. Ethan Allen's store concept allows for the display store concept allows for the display of these categories in complete room settingsof these categories in complete room settings which utilize the related which utilize the related collections to project the category lifestyle.collections to project the category lifestyle.

Revenue Generation 1999 1998 1997Case Goods 57% 58% 58%Upholstered Products 28% 28% 30%Home Accessories 15% 14% 12%

100% 100% 100%

BackgroundBackgroundImportant HoldingsAll Directors except CEO 0.5%Farooq Kathwari (CEO) 11.2%

Number of Institutions 213Percent of total 77%Institutional Holdings % SHO % ChgAmerican Express Financial 7.4% 56.0%Thomson Horstmann 4.2% -1.0%Maverick Capital 3.5% -8.0%Commerce Bank MO 3.5% 25.0%Fred Alger Mgmt. 2.5% 43.0%

Purchases 5,295,840 13%Sales (3,636,862) -9%Net 1,658,978 4%

Honors / ManagementHonors / Management

• Furniture Today (a leading industry publication) published a survey of America's Top 100 Furniture Retailers for 1999. Ethan Allen was ranked No. 2 in terms of furniture, beddings and accessary sales for dealer-owned and company-owned stores and was ranked No. 1 as the largest single-source store network for home furnishings in the country.

• Worth Magazine named ETH CEO Farooq Kathwari in the top 50 for successfully reinventing the Ethan Allen Brand. In the past 7 years, he has introduced furninture with a more casual, classic style, cut prices, designed new customer friendly stores and launched a $67.5M national advertising campaign in 1998

What’s up ? (Firm)What’s up ? (Firm)• First quarter sales and EPS increased 14.1% and 18.4% respectively. EPS(Q) at 0.45 was a

4.65% surprise. This is the 17th consecutive quarter ETH has been able to report significant growth in sales and earnings.

• Approximately 90% of the Company's products have been redesigned over the last six years. This allows the Company to maintain focused lines within each style category which enhances efficiencies. In 1992, Ethan Allen instituted a new image and logo program. Additionally, Ethan Allen undertook a program to renovate the exterior of its stores. As of June 30, 1999, this renovation program has been substantially completed with 297 or 96% of all stores (including dealer-owned and Ethan Allen-owned stores) having either implemented new exteriors or are currently under renovation. The store is divided into three-stores-in-one and positions Ethan Allen as specialists in casual styles, classic designs and decorative accessory retailing. It features two fully designed show homes to inspire consumers and show them how product could look in their homes. In addition, it presents products in focused vignettes that are easy and relatively inexpensive to update each season. In the last six years 130 new stores were opened, many of them relocations. Sales to independent dealer-owned stores accounted for approximately 60% of total net sales of the Company in fiscal 1999. In fiscal year 1999, the Company's focus was on introducing the Avenue and Ethan Allen Kids lines of home furnishings. These products have recently been introduced at the retail level and revenues to date have not been significant. Also, in fiscal year 1999, the Company initiated its Internet distribution strategy, which is expected to be launched in the second quarter of fiscal year 2000.

• “We’re expanding our reach, our relationship…There’s no reason not to help decorate the client’s children’s room and garden.” (CEO)

What’s up ? (Industry 1/2)What’s up ? (Industry 1/2)• BAC (10/04): Home furnishings is $125 billion industry (accounting for 2.2% of total annual consumer

spending). Consumers spend an average of $1,215 per household per year on home furnishings of which 46% of that figure on furniture. According to BAC the industry is not as volatile as investors think with only three years of declining growth since 1970. Three areas besides furniture are housewares, accessories and textiles that are growing at a faster rate. Sector has been holding share better than most other product sectors. Growth for home furnishings segment has a rate of 8% since 1970

• BAC enumerated four ``growth drivers'' for the home furnishings industry:

Favorable Demographics -- 35-54-year-olds represent 52% of home furnishings purchases and this age group is estimated to increase 33% to 46 million people by 2010.

Home Ownership - home ownership is at record levels in the U.S., up 67% since 1970. And, homes are larger these days, requires more furnishing.

Influence of Media - a dramatic increase in home magazine readership (up 13% since 1995) illustrates a growing consumer interest. Home furnishings television programming has also gained enthusiasts.

Renovations are at an all-time high, having totaled $164 billion in 1998. In the last seven years, home renovation spending has increased 74%. Increase in renovation has come about particularly as more Americans begin to work from home offices. Last year, 3.6 million Americans were paid to work at home - 89% more than in 1991.

What’s up ? (Industry 2/2)What’s up ? (Industry 2/2)

• Finally, Hale (BAC) outlined some of the trends that will continue to characterize the home furnishings industry, including: the polarization of spending; a focus on value at the low-end; increased dominance of brands at the high-end; new retail concepts from national players; and ``do-it-for-me'' one-stop redecorating resources offered by companies like The Home Depot and Sears.

• AG Edwards (10/04): believes that the broad economic environment has been quite conductive to solid growth and profitability in the home furnishings arena…we expect those trends to continue…at a somewhat slower more sustainable pace over the next year or two. Virtually all of the economic variables necessary to drive growth in this segment are positive – house activity, interest rates, consumer confidence, employment levels and demographic trends such as the middle aging of the baby boomers

• Brand names (including Ethan Allen as one of five mentioned) are key to expansion in the retail industry.

BalancBalance e SheetSheet

ETHAN ALLEN INTERIORS INCBalance Sheet

Period End: Jun 30, 1999 RMADate Filed: Sep 22, 1999 Wood

06/30/98 06/30/99 Furniture Furniture Household

ASSETS Home Stores Furn(upholstered)Current assets:Cash and cash equivalents $19,380 $8,968 4.5% 1.9% 14.2% 12.7% 5.1%Accounts receivable 35,640 34,302 8.2% 7.1% 20.4% 18.5% 24.1%Notes receivable 686 640 0.2% 0.1% 60.0% 80.0%Inventories 114,364 144,045 26.4% 30.0% 39.1% 44.4% 29.3%Prepaid expenses and other current assets 10,735 14,088 2.5% 2.9%Deferred income taxes 7,094 7,783 1.6% 1.6%Total current assets $187,899 $209,826 43.4% 43.7% 78.1% 80.3% 62.0%Property, plant and equipment, net 188,171 214,492 43.4% 44.6% 17.0% 15.0%Property held for sale 1,129 484 0.3% 0.1%Notes receivable 1,790 1,407 0.4% 0.3%Intangibles, net 50,773 51,598 11.7% 10.7%Deferred financing costs, net of amortization 632 444 0.1% 0.1%Other assets 2,729 2,371 0.6% 0.5%Total assets $433,123 $480,622 100.0% 100.0%LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:Current maturities of long-term debt and $879 $757 0.2% 0.2% 30.0% 30.0%Accounts payable 51,135 59,378 11.8% 12.4% 15.1% 12.3% 16.4%Accrued expenses 5,863 9,174 1.4% 1.9%Accrued compensation and benefits 15,735 16,937 3.6% 3.5%Total current liabilities 73,612 86,246 17.0% 17.9% 35.0% 31.6%Long-term debt, less current maturities 11,480 9,611 2.7% 2.0% 11.5% 11.1% 12.8%Obligations under capital leases, less current 1,016 308 0.2% 0.1%Other long-term liabilities 812 1,370 0.2% 0.3%Deferred income taxes 31,883 32,552 7.4% 6.8%Total liabilities $118,803 $130,087 27.4% 27.1%Commitments and contingencies -- --Shareholders' equity:Class A common stock, par value $.01, 445 447 0.1% 0.1%Preferred stock, par value $.01, 1,055,000 -- --Additional paid-in capital 262,313 267,286 60.6% 55.6%

262,758 267,733 60.7% 55.7%Less:Treasury stock (at cost) 3,745,928 shares at June 30, 1998 (33,750) (78,887) -16.4% -7.8%

229,008 188,846 39.3% 52.9%Retained earnings 85,312 161,689 33.6% 19.7%Total shareholders' equity 314,320 350,535 72.9% 72.6% 35.6% 37.8% 48.5%Total liabilities and shareholders' equity $433,123 $480,622 100.0% 100.0%

Dun & Bradstreet

BV per sh•1999: 8.58•1998: 7.28•1997: 6.05•1996: 5.15•1995: 4.49

Cash Cash Flow Flow StatemeStatementnt

1999 1998 1997

Operating activities:Net income $81,288 $71,146 $48,740 Adjustments to reconcile net income to net cashDepreciation and amortization 16,344 15,868 16,411 Compensation expense related to restricted stock 1,819 2,136 891 Provision for deferred income taxes (20) 683 575 Extraordinary charge -- 802 --Other non-cash benefit 251 77 498 Change in assets and liabilities:Accounts receivable 1,222 (3,340) 1,822 Inventories (25,040) (6,839) 2,726 Prepaid and other current assets (3,353) (4,011) 653 Other assets (1,065) (891) 137 Accounts payable 10,652 11,576 5,099 Accrued expenses 4,023 414 973 Other long-term liabilities 558 (3) (221)Net cash provided by operating activities 86,680 87,618 78,304 Investing activities:Proceeds from the disposal of property, plant, and 1,721 827 110 Proceeds from the disposal of property held for sale -- -- 1,945 Capital expenditures (40,628) (29,665) (23,383)Acquisition of businesses (7,164) -- --Payments received on long-term notes receivable 799 1,538 1,152 Disbursements made for long-term notes receivable (255) (302) (1,077)Redemption of short term securities -- 30,270 --Investments in short term securities -- (12,295) (17,975)Net cash used in investing activities (45,527) (9,627) (39,228)Financing activities:Borrowings on revolving credit facilities 81,500 -- 14,500 Payments on revolving credit facilities (81,500) -- (21,500)Redemption of Senior Notes -- (52,543) (9,457)Premium paid on Senior Note redemption -- (461) --Other payments on long-term debt and capital (2,717) (2,079) (2,134)Other borrowings on long-term debt 18 111 794 Payments to acquire treasury stock (45,137) (23,310) (7,249)Net proceeds from issuance of common stock 747 1,255 1,235 Increase in deferred financing costs (55) -- (173)Dividends paid (4,421) (3,450) (2,304)Net cash used in financing activities (51,565) (80,477) (26,288)Net (decrease)/increase in cash and cash (10,412) (2,486) 12,788 Cash and cash equivalents at beginning of year 19,380 21,866 9,078 Cash and cash equivalents at end of year $8,968 $19,380 $21,866

Capital expenditures have increased due to new store openings and expanding manufacturing capacity.

Financing flows include buying back of stock (due to stock options given to management) so that earnings are not diluted.

Income Income StatementStatement

• Fantastic Margins !!!!Fantastic Margins !!!!

• Margins that are greater than any competitor’s and the industry’sMargins that are greater than any competitor’s and the industry’s

ETHAN ALLEN INTERIORS INCIncome Statement

Period End: Jun 30, 19996/30/97 6/30/98 6/30/99

Net sales $571,838 $679,321 $762,233 Cost of sales 323,600 363,746 407,234 Gross profit 248,238 315,575 354,999 Operating expenses:Selling 85,927 110,240 123,742 General and administrative 76,462 85,645 98,365 Operating income 85,849 119,690 132,892 Interest and other miscellaneous income, net 1,272 3,449 1,707 Interest and other related financing costs:Interest expense (5,864) (4,245) (1,639)Amortization of deferred financing costs 563 364 243 Total interest and other related financing costs 6,427 4,609 1,882 Income before income taxes and extraordinary 80,694 118,530 132,717 Income tax expense 31,954 46,582 51,429 Income before extraordinary charge 48,740 71,948 81,288 Extraordinary charge from early retirement of -- 802 --Net income $48,740 $71,146 $81,288 EPS before extraordinary charge $1.13 $1.67 $1.97 Extraordinary charge -- (0.02) --EPS per basic share $1.13 $1.65 $1.97 EPS diluted before extraordinary charge $1.11 $1.63 $1.92 Extraordinary charge -- (0.02) --EPS per diluted share $1.11 $1.61 $1.92 Dividends declared per common share $0.07 $0.09 $0.12

1997 1998 1999 Average RMA

100.00% 100.00% 100.00% 100.00%56.59% 53.55% 53.43% 54.52%43.41% 46.45% 46.57% 45.48% 22%

15.03% 16.23% 16.23% 15.83%13.37% 12.61% 12.90% 12.96%15.01% 17.62% 17.43% 16.69% 5%0.22% 0.51% 0.22% 0.32%

-1.03% -0.62% -0.22% -0.62%0.10% 0.05% 0.03% 0.06%1.12% 0.68% 0.25% 0.68%

14.11% 17.45% 17.41% 16.32% 5%39.60% 39.30% 38.75% 39.22%8.52% 10.59% 10.66% 9.93%

8.52% 10.47% 10.66% 9.89%

Growth/Assumptions for Growth/Assumptions for modelmodel

Revenue - Quarterly Results 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

FY (6/99) 166.2 193.7 194.6 207.7 762.2FY (6/98) 152.5 172.7 171.4 182.6 679.2FY (6/97) 132.4 138.3 144.7 156.4 571.8Revenue - Growth 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

FY (6/99) 9.0% 12.2% 13.5% 13.7% 12.2%FY (6/98) 15.2% 24.9% 18.5% 16.8% 18.8%

EPS - Quarterly Results 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

FY (6/99) 0.38 0.5 0.5 0.54 1.92FY (6/98) 0.32 0.43 0.41 0.47 1.63FY (6/97) 0.2 0.28 0.29 0.34 1.11EPS - Growth 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

FY (6/99) 18.8% 16.3% 22.0% 14.9% 17.8%FY (6/98) 60.0% 53.6% 41.4% 38.2% 46.8%

Expected EPS Gwth Rates FY2000 FY2001

Next 5yrs 00 P/E

Money Central 13.00% 14.00% 17.20% 13.8Robertson Stephens(10/1) 15.00% 15.00% 15.00%

Raymond James (08/06) 12.00% 12.00% 12.00%First Union Cap (07/01) 15.00%First Call 15.00%Average 13.75% 13.67% 14.73%

5yr Annual Growth RateRevenue 0.12NI 0.35

Proforma Income Proforma Income StatementStatement

7% 12% 14.73%

6/30/00 6/30/01 6/30/02 6/30/00 6/30/01 6/30/02 6/30/00 6/30/01 6/30/02$815,589 $872,681 $933,768 $853,701 $956,145 $1,070,882 $874,510 $1,003,325 ########$444,663 $475,790 $509,095 $465,442 $521,295 $583,850 $476,787 $547,018 $627,593 $370,926 $396,891 $424,673 $388,259 $434,850 $487,032 $397,723 $456,308 $523,522

$129,104 $138,141 $147,811 $135,137 $151,353 $169,516 $138,431 $158,822 $182,216 $105,710 $113,110 $121,027 $110,650 $123,928 $138,799 $113,347 $130,043 $149,198 $136,112 $145,640 $155,835 $142,473 $159,569 $178,718 $145,945 $167,443 $192,107

$2,594

(1,639) (1,639) (1,639) (1,639) (1,639) (1,639) (1,639) (1,639) (1,639)243 243 243 243 243 243 243 243 243

1,882 1,882 1,882 1,882 1,882 1,882 1,882 1,882 1,882 $134,942 $141,876 $152,071 $138,709 $155,805 $174,954 $142,181 $163,679 $188,343 $52,920 $55,639 $59,637 $54,397 $61,101 $68,611 $55,759 $64,189 $73,862 $82,022 $86,237 $92,434 $84,312 $94,704 $106,343 $86,423 $99,490 $114,482

$82,022 $86,237 $92,434 $84,312 $94,704 $106,343 $86,423 $99,490 $114,482 $2.00 $2.10 $2.25 $2.06 $2.31 $2.59 $2.11 $2.43 $2.79

Estimates•First Call: ‘00 2.17 ‘01 2.47•Schwab: ‘00 2.17 ‘01 2.47•Value Line: ‘00 2.20 ‘04 2.80•Zacks: ‘00 mean 2.18 ‘01 mean 2.47

2000 2001 2002 2000 2001 2002 2000 2001 2002EPS $2.00 $2.10 $2.25 $2.06 $2.31 $2.59 $2.11 $2.43 $2.79 P/E high 36.93P/E low 17.60P/E mid average 27.27P/E Industry 15.75Stock Price (mid) $54.55 $57.35 $61.47 $56.07 $62.98 $70.72 $57.47 $66.16 $76.13 Stock Price (high) $73.89 $77.68 $83.27 $75.95 $85.31 $95.80 $77.85 $89.62 $103.13 Stock Price (low) $35.21 $37.02 $39.68 $36.19 $40.65 $45.65 $37.10 $42.71 $49.14 Stock Price (industry) $31.51 $33.13 $35.51 $32.39 $36.38 $40.85 $33.20 $38.22 $43.98 Average $48.79 $51.30 $54.98 $50.15 $56.33 $63.25 $51.41 $59.18 $68.10 Value Line 1993 1994 1995 1996 1997 1998 1999E AverageP/E high 10.5 10.7 8.3 13 28.6 44.4 37.8 36.93P/E low 5.4 6.5 5.8 6.5 12.3 15.8 24.7 17.6Mid 20.45 30.1 31.25 27.27

Scenario1 2.00 2.10 2.25Scenario2 2.06 2.31 2.59Scenario3 2.11 2.43 2.79Average 2.05 2.28 2.55Average P/E above 24.39Industry 15.75 Average MidStock Price $ 50.11 $ 55.60 $ 62.11 $ 55.94 46.04 High 50Stock Price (industry) $ 32.37 $ 35.91 $ 40.11 $ 36.13 Low 35Analysts High 2.21 2.58 Mid 42.5Analysts Low 2.11 2.38Stock Price Analysts High 53.90 62.92 58.41 46.88 $50 targetStock Price Analysts Low 33.23 37.49 35.36 $40 target

ROI 2002Bought @ 31Stock Price 2002 @ 46 48.4%Market rate @ 9% 29.5%Premium return over market 164.0%

Value Line 2002-2004

First Union Cap Banc of America based on '99 '00 est

Stock Price EstimateStock Price Estimate

DuPont AnalysisDuPont Analysis

• Profit Margin increasing Profit Margin increasing

• More sales generated from assetsMore sales generated from assets

• Less leverageLess leverage

YEAR ROE NI/Pretax Pretax/Sales Sales/Assets Assets/Equity ROA1998 23.2% 61.3% 0.1741 1.59 1.37 16.9%1997 22.7% 60.0% 0.1745 1.57 1.38 16.4%1996 18.4% 60.4% 0.1411 1.34 1.61 11.4%

Firm Ratios and Firm Ratios and ComparisonsComparisons

La-Z-Boy Ethan Allen FurnBrandsInt. Haverty IndustryP/E 14 15.7 9.17 15.78 15.75P/Rev 0.77 1.62 0.5 0.61 1.4P/Bk 2.4 3.52 2.14 1.64 3.2P/E/Growth 0.47 1.2 1.16 1.20 1.471yr Rev Gr 15.1 12.2 7.89 13.11 10.695yr Rev Gr 9.42 11.96 14.86 10.85 13.81yr Earnings Gr 30.1 13.1 46.26 57.76 15.115yr Earnings Gr 14.2 35.33 34.4 9.68 19.33Gross Margin 26.72 46.57 28.35 47.21 34.1Oper Mar 8.7 17.4 9.84 6.22 12.86Profit Mar 5.1 10.7 5.42 3.91 8.12Curr Ratio 3.2 2.4 3.98 3.8 2.08Debt/Equity 0.15 0.03 1.2 0.86 0.55ROA 11.74 17.65 8.46 5.88 10.14ROE 17.98 23.2 26.73 14.35 20.96Mrkt Val 992 1229 974.5 272Revenue 1340.40 762.20 1960.00 441.88NI 71.51 81.00 98.00 17.33EPS 1.37 1.92 1.82 0.99

Firm Ratios and Firm Ratios and ComparisonsComparisons

FBN Quaterly

0

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March J un Sep Dec

ETH Quaterly

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ETH Annual EPS

-1.5

-1

-0.5

0

0.5

1

1.5

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2.5

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1991

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FBN Annual EPS

0

0.5

1

1.5

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Firm Ratios and Firm Ratios and ComparisonsComparisons

Ethan Allen FurnBrandsInt Ethan Industry Home Furn Furn StoresP/E 15.7 9.17 15.7 15.75P/Rev 1.62 0.5 1.62 1.4P/Bk 3.52 2.14 3.52 3.2P/E/Grow 1.2 1.16 1.2 1.471yr Rev 12.2 7.89 12.2 10.695yr Rev 11.96 14.86 11.96 13.81yr 13.1 46.26 13.1 15.115yr 35.33 34.4 35.33 19.33Gross 46.57 28.35 46.57 34.1Oper Mar 17.4 9.84 17.4 12.86Profit Mar 10.7 5.42 10.7 8.12 3.1 3.1Curr Ratio 2.4 3.98 2.4 2.08 2.4 2.8Debt/Equi 0.03 1.2 0.03 0.55 72.2 61.7ROA 17.65 8.46 17.65 10.14 7.3 5.9ROE 23.2 26.73 23.2 20.96 14.7 10.7Mrkt Val 1229 974.5Revenue 762.20 1960.00NI 81.00 98.00EPS 1.92 1.82Rec 22.25 6.02 22.25 7.52Inventory 3.09 4.84 3.09 8.5Asset 1.66 1.56 1.66 1.31

MED

Why ETH? (as opposed to Why ETH? (as opposed to FBN)FBN)

• Significantly better marginsSignificantly better margins

• Vertically integrated company taking Vertically integrated company taking advantage of cost savings and advantage of cost savings and advantageous margins. Also lower risk.advantageous margins. Also lower risk.

• Initiation of Internet presenceInitiation of Internet presence

• Proven managementProven management

Determining the Value of Determining the Value of ETH based on Free Cash ETH based on Free Cash FlowFlow

NI $84,311.88 $94,703.85 $106,342.86 Depre $16,000.00 $16,000.00 $16,000.00 Cap Exp $50,000.00 $50,000.00 $50,000.00 WCCF $20,000.00 $20,000.00 $20,000.00 FCF $30,311.88 $40,703.85 $52,342.86 WACC 22.63%PVFCF $24,717.74 $27,066.20 $28,382.13 TV $4,089,220.05 PV TV $2,217,318.55 g 21.79%Value $2,297,484.62 Share Price $54.70

• FCF = NI+Depreciation-Capital Exp-WCCFFCF = NI+Depreciation-Capital Exp-WCCF

• TV = FCF3 * (1+g) / (WACC - g)TV = FCF3 * (1+g) / (WACC - g)

• Value = PVFCF (=FCF/1+WACC) + PV TVValue = PVFCF (=FCF/1+WACC) + PV TV

• Share Price = Value / 42MShare Price = Value / 42M

SummarySummary• Increase in EPS since 1991 (17 consecutive quarters Increase in EPS since 1991 (17 consecutive quarters

with significant increase in sales and eps)with significant increase in sales and eps)

• Overall performing better than industry and peers with Overall performing better than industry and peers with higher profit marginshigher profit margins

• Proven management that has revived the firmProven management that has revived the firm

• Firm is adaptive to current market trends and takes Firm is adaptive to current market trends and takes advantage of themadvantage of them

• Attractive stock price (P/E to EPS growth ~ 1.2, broke Attractive stock price (P/E to EPS growth ~ 1.2, broke through 50,100,150 moving day average, below P/E through 50,100,150 moving day average, below P/E high of 27 with current P/E at 17) high of 27 with current P/E at 17)

• Future looks stable with growth potential and Future looks stable with growth potential and sustainability in the long termsustainability in the long term

RECOMMENDATION:

BUY