Annual report pursuant to Section 13 and 15(d)

Note 16 - Segment Information

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Note 16 - Segment Information
 12 Months Ended
Jun. 30, 2012
Segment Reporting Disclosure [Text Block]
(16)           Segment Information

Our operations are classified into two operating segments: wholesale and retail. These operating segments represent strategic business areas which, although they operate separately and provide their own distinctive services, enable us to more effectively offer our complete line of home furnishings and accessories.

The wholesale segment is principally involved in the development of the Ethan Allen brand, which encompasses the design, manufacture, domestic and offshore sourcing, sale and distribution of a full range of home furnishings and accessories to a network of independently operated and Ethan Allen operated design centers as well as related marketing and brand awareness efforts. Wholesale revenue is generated upon the wholesale sale and shipment of our product to all retail design centers, including those operated by Ethan Allen. Wholesale profitability includes (i) the wholesale gross margin, which represents the difference between the wholesale sales price and the cost associated with manufacturing and/or sourcing the related product, and (ii) other operating costs associated with wholesale segment activities.

The retail segment sells home furnishings and accessories to consumers through a network of Company operated design centers. Retail revenue is generated upon the retail sale and delivery of our product to our customers. Retail profitability includes (i) the retail gross margin, which represents the difference between the retail sales price and the cost of goods purchased from the wholesale segment, and (ii) other operating costs associated with retail segment activities.

Inter-segment eliminations result, primarily, from the wholesale sale of inventory to the retail segment, including the related profit margin.

We evaluate performance of the respective segments based upon revenues and operating income. While the manner in which our home furnishings and accessories are marketed and sold is consistent, the nature of the underlying recorded sales (i.e. wholesale versus retail) and the specific services that each operating segment provides (i.e. wholesale manufacturing, sourcing, and distribution versus retail selling) are different. Within the wholesale segment, we maintain revenue information according to each respective product line (i.e. case goods, upholstery, or home accessories and other). The allocation of retail sales by product line generally follows that of the wholesale segment (see the product line table below). A breakdown of wholesale sales by product line for each of the last three fiscal years ended June 30 is provided below:

   
Fiscal Year Ended June 30,
 
   
2012
   
2011
   
2010
 
Case Goods
    38 %     39 %     40 %
Upholstered Products
    44 %     46 %     46 %
Home Accessories and Other
    18 %     15 %     14 %
      100 %     100 %     100 %

Information for each of the last three fiscal years ended June 30 is provided below (in thousands):

   
2012
   
2011
   
2010
 
Net sales:
                 
Wholesale segment
  $ 456,915     $ 422,946     $ 362,468  
Retail segment
    559,417       505,910       438,539  
Elimination of inter-company sales
    (286,959 )     (249,896 )     (210,953 )
Consolidated Total
  $ 729,373     $ 678,960     $ 590,054  
                         
Operating income (loss):
                       
Wholesale segment  (1)
  $ 64,436     $ 49,898     $ 14,201  
Retail segment (2)
    (11,522 )     (15,344 )     (28,764 )
Adjustment of inter-company profit (3)
    (3,217 )     (2,621 )     2,828  
Consolidated Total
  $ 49,697     $ 31,933     $ (11,735 )
                         
Depreciation & Amortization:
                       
Wholesale segment
  $ 7,525     $ 9,199     $ 16,574  
Retail segment
    11,056       11,617       12,824  
Consolidated Total
  $ 18,581     $ 20,816     $ 29,398  
                         
Capital expenditures:
                       
Wholesale segment
  $ 12,168     $ 6,604     $ 4,553  
Retail segment
    10,716       2,490       5,369  
Acquisitions (4)
    520       2,957       50  
Consolidated Total
  $ 23,404     $ 12,051     $ 9,972  

   
June 30
2012
   
June 30
2011
   
June 30
2010
 
Total Assets:
                 
Wholesale segment
  $ 309,573     $ 309,081     $ 296,363  
Retail segment
    366,594       347,044       360,413  
Inventory profit elimination (5)
    (31,379 )     (27,800 )     (24,999 )
Consolidated Total
  $ 644,788     $ 628,325     $ 631,777  

(1)Operating income for the wholesale segment for the twelve months ended June 30, 2010 includes a pre-tax restructuring and impairment benefit of $0.2 million.

(2)Operating income for the retail segment for the twelve months ended June 30, 2012, 2011 and 2010 includes pre-tax restructuring and impairment charges (benefit)of ($0.1) million, $1.1 million and $2.7 million respectively.

(3)Represents the change in wholesale profit contained in the retail segment inventory at the end of the period.

(4)Acquisitions include the purchase of three retail design centers in 2012, six retail design centers in 2011and one retail design center in 2010. See Note 3.

(5)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.

There are 87 independent retail design centers located outside the United States. Net sales to these independent retailers was 6.6% of our consolidated net sales.