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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2011

 

OR

 

o

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.)

 

 

 

Ethan Allen Drive, Danbury, Connecticut

 

06811

(Address of principal executive offices)

 

(Zip Code)

 

(203) 743-8000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes  o No

 

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 during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).  o Yes  o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

At April 29, 2011, there were 28,775,873 shares of Class A Common Stock,

par value $.01, outstanding.

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

Item

 

 

Page

 

 

 

 

 

Part I — Financial Information

 

 

 

 

 

 

1.

Financial Statements as of March 31, 2011 (unaudited) and June 30, 2010 and for the three and nine months ended March 31, 2011 and 2010 (unaudited)

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

2

 

 

 

 

 

Consolidated Statements of Operations

 

3

 

 

 

 

 

Consolidated Statements of Cash Flows

 

4

 

 

 

 

 

Consolidated Statements of Shareholders’ Equity

 

5

 

 

 

 

 

Notes to Consolidated Financial Statements

 

6

 

 

 

 

2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

 

 

 

 

3.

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

4.

Controls and Procedures

 

32

 

 

 

 

 

Part II - Other Information

 

 

 

 

 

 

1.

Legal Proceedings

 

33

 

 

 

 

1A.

Risk Factors

 

33

 

 

 

 

2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

 

 

 

 

3.

Defaults Upon Senior Securities

 

33

 

 

 

 

4.

[Reserved]

 

 

 

 

 

 

5.

Other Information

 

33

 

 

 

 

6.

Exhibits

 

33

 

 

 

 

 

Signatures

 

34

 

1



Table of Contents

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(In thousands, except share data)

 

 

 

March 31, 2011

 

June 30, 2010

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

70,812

 

$

73,852

 

Marketable securities (note 5)

 

12,990

 

11,075

 

Accounts receivable, less allowance for doubtful accounts of $1,051 at March 31, 2011 and $1,160 at June 30, 2010

 

20,174

 

17,105

 

Inventories (note 6)

 

131,499

 

134,040

 

Prepaid expenses and other current assets

 

20,532

 

23,620

 

Total current assets

 

256,007

 

259,692

 

 

 

 

 

 

 

Property, plant and equipment, net

 

295,433

 

305,747

 

Goodwill and other intangible assets (notes 8 and 9)

 

45,128

 

45,128

 

Restricted cash and investments (note 4)

 

16,377

 

17,318

 

Other assets

 

4,162

 

3,892

 

Total assets

 

$

617,107

 

$

631,777

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt (note 10)

 

$

3,882

 

$

3,898

 

Customer deposits

 

53,540

 

52,605

 

Accounts payable

 

22,781

 

23,952

 

Accrued compensation and benefits

 

23,969

 

28,353

 

Accrued expenses and other current liabilities (note 7)

 

33,005

 

36,934

 

Total current liabilities

 

137,177

 

145,742

 

 

 

 

 

 

 

Long-term debt (note 10)

 

172,953

 

199,369

 

Other long-term liabilities

 

19,834

 

19,123

 

Deferred income taxes

 

11,157

 

9,084

 

Total liabilities

 

341,121

 

373,318

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Class A common stock, par value $.01, 150,000,000 shares authorized; 48,346,890 shares issued at March 31, 2011 and 48,346,607 shares issued at June 30, 2010

 

483

 

483

 

Class B common stock, par value $.01, 600,000 shares authorized; no shares issued and outstanding at March 31, 2011 and June 30, 2010

 

 

 

Preferred stock, par value $.01, 1,055,000 shares authorized; no shares issued and outstanding at March 31, 2011 and June 30, 2010

 

 

 

Additional paid-in capital

 

359,420

 

358,722

 

 

 

359,903

 

359,205

 

Less: Treasury stock (at cost), 19,571,092 shares at March 31, 2011 and 19,414,746 shares at June 30, 2010

 

(582,691

)

(581,331

)

Retained earnings

 

496,755

 

479,341

 

Accumulated other comprehensive income (note 14)

 

2,019

 

1,244

 

Total shareholders’ equity

 

275,986

 

258,459

 

Total liabilities and shareholders’ equity

 

$

617,107

 

$

631,777

 

 

See accompanying notes to consolidated financial statements.

 

2



Table of Contents

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)

 

 

 

Three months ended
March 31,

 

Nine months ended
March 31,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net sales

 

$

162,822

 

$

147,258

 

$

501,008

 

$

426,750

 

Cost of sales

 

79,753

 

75,231

 

245,697

 

227,390

 

Gross profit

 

83,069

 

72,027

 

255,311

 

199,360

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Selling

 

39,147

 

37,321

 

118,542

 

109,541

 

General and administrative

 

39,056

 

37,129

 

115,758

 

112,024

 

Restructuring and impairment charge , net (note 7)

 

109

 

400

 

393

 

1,989

 

Total operating expenses

 

78,312

 

74,850

 

234,693

 

223,554

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

4,757

 

(2,823

)

20,618

 

(24,194

)

Interest and other miscellaneous income, net

 

1,128

 

894

 

5,453

 

2,711

 

Interest and other related financing costs (note 10)

 

2,773

 

2,979

 

8,649

 

8,938

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

3,112

 

(4,908

)

17,422

 

(30,421

)

 

 

 

 

 

 

 

 

 

 

Income tax benefit (note 3)

 

(406

)

(4,053

)

(4,653

)

(12,649

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,518

 

$

(855

)

$

22,075

 

$

(17,772

)

 

 

 

 

 

 

 

 

 

 

Per share data (note 13):

 

 

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

Net income (loss) per basic share

 

$

0.12

 

$

(0.03

)

$

0.77

 

$

(0.61

)

Basic weighted average common shares

 

28,751

 

29,016

 

28,753

 

28,953

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

Net income (loss) per diluted share

 

$

0.12

 

$

(0.03

)

$

0.76

 

$

(0.61

)

Diluted weighted average common shares

 

28,987

 

29,016

 

28,953

 

28,953

 

 

See accompanying notes to consolidated financial statements.

 

3



Table of Contents

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

March 31,

 

 

 

2011

 

2010

 

Operating activities:

 

 

 

 

 

Net income (loss)

 

$

22,075

 

$

(17,772

)

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

16,120

 

23,849

 

Compensation expense related to share-based awards

 

669

 

1,658

 

Provision (benefit) for deferred income taxes

 

15

 

(11,762

)

Restructuring and impairment charge (benefit), net

 

 

(230

)

(Gain) loss on disposal of property, plant and equipment

 

310

 

22

 

Other

 

(268

)

162

 

Change in assets and liabilities, net of the effects of acquired businesses:

 

 

 

 

 

Accounts receivable

 

(3,875

)

(2,639

)

Inventories

 

3,462

 

16,150

 

Prepaid and other current assets

 

4,854

 

6,340

 

Other assets

 

473

 

531

 

Customer deposits

 

(90

)

17,587

 

Accounts payable

 

1,418

 

1,663

 

Accrued expenses and other current liabilities

 

(5,288

)

(695

)

Other long-term liabilities

 

711

 

(1,263

)

Net cash provided by operating activities

 

40,586

 

33,601

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Proceeds from the disposal of property, plant & equipment

 

145

 

10,256

 

Capital expenditures

 

(5,731

)

(7,611

)

Change in restricted cash and investments

 

953

 

(11,300

)

Acquisitions

 

(611

)

 

Purchases of marketable securities

 

(8,214

)

(2,023

)

Sales of marketable securities

 

6,069

 

 

Other

 

(456

)

25

 

Net cash provided by (used in) investing activities

 

(7,845

)

(10,653

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Payments on long-term debt

 

(26,070

)

(31

)

Purchase and retirements of company stock

 

(5,377

)

 

Proceeds from the issuance of common stock

 

29

 

 

Payment of deferred financing costs

 

(125

)

(199

)

Payment of cash dividends

 

(4,313

)

(4,345

)

Net cash used in financing activities

 

(35,856

)

(4,575

)

Effect of exchange rate changes on cash

 

75

 

592

 

Net increase (decrease) in cash & cash equivalents

 

(3,040

)

18,965

 

Cash & cash equivalents - beginning of period

 

73,852

 

52,960

 

Cash & cash equivalents - end of period

 

$

70,812

 

$

71,925

 

 

See accompanying notes to consolidated financial statements.

 

4



Table of Contents

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

Nine Months Ended March 31, 2011

(Unaudited)

(In thousands, except share data)

 

 

 

Common
Stock

 

Additional
Paid-In
Capital

 

Treasury
Stock

 

Accumulated
Other
Comprehensive
Income

 

Retained
Earnings

 

Total

 

Balance at June 30, 2010

 

$

483

 

$

358,722

 

$

(581,331

)

$

1,244

 

$

479,341

 

$

258,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common shares upon the exercise of share-based awards

 

 

29

 

 

 

 

29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense (note 12)

 

 

669

 

 

 

 

669

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase/retirement of 204,286 shares of company stock

 

 

 

(2,787

)

 

 

(2,787

)

Issuance of treasury shares for 401k match

 

 

 

1,427

 

 

(345

)

1,082

 

Dividends declared on common stock

 

 

 

 

 

(4,316

)

(4,316

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (note 14):

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

 

 

698

 

 

698

 

Unrealized gain (loss) on investments

 

 

 

 

12

 

 

12

 

Amortization of loss on derivatives

 

 

 

 

65

 

 

65

 

Net income

 

 

 

 

 

22,075

 

22,075

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

22,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2011

 

$

483

 

$

359,420

 

$

(582,691

)

$

2,019

 

$

496,755

 

$

275,986

 

 

See accompanying notes to consolidated financial statements.

 

5



Table of Contents

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(1)    Basis of Presentation and Recent Accounting Pronouncements

 

Basis of Presentation

 

Ethan Allen Interiors Inc. (“Interiors”) is a Delaware corporation incorporated on May 25, 1989. The consolidated financial statements include the accounts of Interiors, its wholly owned subsidiary Ethan Allen Global, Inc. (“Global”), and Global’s subsidiaries (collectively “We”, “Us”, “Our”, “Ethan Allen”, or the “Company”).  All intercompany accounts and transactions have been eliminated in the consolidated financial statements.  All of Global’s capital stock is owned by Interiors, which has no assets or operating results other than those associated with its investment in Global.

 

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.  Due to 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 for property, plant and equipment and 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.

 

Revenue recognition

 

Revenue is recognized when all of the following have occurred: persuasive evidence of a sales arrangement exists (e.g. a wholesale purchase order or retail sales invoice); the sales arrangement specifies a fixed or determinable sales price; product is shipped or services are provided to the customer; and collectability is reasonably assured.  As such, revenue recognition 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.

 

During the third quarter of fiscal 2011, as a result of the growth of our independent retailer in China, and at their request, a separate section of an existing Ethan Allen warehouse was established by us to hold sold product on their behalf.  At March 31, 2011, $5.2 million of sold product was held in the warehouse, and are part of our net sales.  Under this arrangement, after a fixed commitment by the customer is made, the Company recognizes revenue when the sales price is fixed, collectability is reasonably assured, title and risk of ownership has passed to the customer, no specific performance obligations remain, and a fixed schedule of delivery is agreed upon and in place.  The substantial business purpose for the customer request was to provide additional warehouse space to support their business expansion plans and to reduce delivery lead times.

 

Recently Adopted Accounting Pronouncements

 

In June 2009, the Financial Accountings Standards Board (“FASB”) released additional guidance on Accounting Standards Codification Topic (“ASC”) 810, “Consolidation” which revised previous guidance applicable to variable interest entities (“VIEs”). ASC 810 requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, as opposed to reconsideration only when specific events occurred, as under former rules. The new guidance also replaced the quantitative approach previously required for determining the primary beneficiary of a VIE with a qualitative approach, and changes some disclosure requirements. We have adopted these provisions effective July 1, 2010, and there was no significant impact on our financial statements and results of operations.

 

(2)         Interim Financial Presentation

 

In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for fair presentation, have been included in the consolidated financial statements. The results of operations for the three and nine months

 

6



Table of Contents

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

ended March 31, 2011 are not necessarily indicative of results that may be expected for the entire fiscal year. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended June 30, 2010. Certain prior period amounts have been reclassified in order for them to conform to the current year’s presentation.

 

(3)         Income Taxes

 

The Company reviews its expected annual effective income tax rates and makes changes on a quarterly basis as necessary based on certain factors such as changes in forecasted annual operating income; changes to actual or forecasted permanent book to tax differences; impacts from future tax audits with state, federal or foreign tax authorities; impacts from tax law changes; or change in judgment as to the realizability of deferred tax assets.  The Company identifies items which are not normal and are non-recurring in nature and treats these as discrete events. The tax effect of discrete items is recorded in the quarter in which the discrete events occur. Due to the volatility of these factors, the Company’s consolidated effective income tax rate can change significantly on a quarterly basis.

 

The Company’s consolidated effective tax rate was a negative 13.0% and a positive 82.6% for the three months ended March 31, 2011 and 2010 respectively, and a negative 26.7% and a positive 41.6% for the nine months ended March 31, 2011 and 2010 respectively. The current quarter effective tax rate includes tax expense on the current quarter’s net income more than offset by a tax benefit from the reduction in valuation allowance due to a decrease in deferred tax assets which were subject to a full valuation allowance. The current rate was also impacted by a net tax benefit from the expiration of certain federal statutes of limitation largely offset by additional state tax contingency reserves for various states where the Company is currently under audit.

 

The nine month year to date effective tax rate includes tax expense on the nine month year to date net income offset by a larger tax benefit from the reduction in valuation allowance due to a decrease in deferred tax assets which were subject to a full valuation allowance. The rate was also impacted by a net tax benefit from the expiration of certain federal statutes of limitation largely offset by additional state tax contingency reserves for various states where the Company is currently under audit. The significant decrease in the valuation allowance recorded was due primarily to a change in tax accounting methods applied in the Company’s U.S. federal tax filing for the fiscal year ended June 30, 2010 which accelerated tax expenses for depreciation, inventory and professional fees that were previously treated as deferred tax assets. This change resulted in an increase in the U.S. federal and state net operating losses (“NOL”) reported for the fiscal year ended June 30, 2010. The federal NOL was carried back to fiscal year ended June 30, 2008 and other current assets have been adjusted to record a receivable for the additional expected cash refund which has been increased to approximately $17.3 million. The cash refund was received in the quarter ended March 31, 2011.

 

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, and Mexico. As of March 31, 2011, certain subsidiaries of the Company are currently under U.S. audit from 2001 through 2008. It is reasonably possible that some of these audits may be completed during the next twelve months.  It is reasonable to expect that various issues relating to uncertain tax benefits will be resolved within the next twelve months as exams are completed or as statutes expire and will impact the effective tax rate.

 

A full valuation allowance was established as of June 30, 2010 since the Company had a three year cumulative loss. As of March 31, 2011, the Company remains in a three year cumulative loss and the full valuation allowance remains in place, though at a reduced level after recording the impact of the changes in tax accounting methods made in the prior quarter ended December 31, 2010.  The valuation allowance at March 31, 2011 was $23.5 million vs. $36.2

 

7



Table of Contents

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

million at June 30, 2010, and $10.2 million of the decrease is related to tax accounting method changes reported in the fiscal year ended 2010 tax returns.

 

Due to the economic times and recent losses and after considering both positive and negative evidence, management’s assessment is that realization of tax assets is not reasonably assured due to a lack of available objective evidence. Management will continue to assess the realizability of the tax assets based on actual and forecasted operating results on a quarterly basis, which will likely cause volatility in the effective tax rate of the Company.

 

(4)         Restricted Cash and Investments

 

At March 31, 2011, we held $16.4 million of restricted cash and investments in lieu of providing letters of credit for the benefit of the provider of our workmen’s compensation and other insurance and for the benefit of the issuer of our private label credit card. These funds can be invested in high quality money market mutual funds, U.S. Treasuries and U.S. Government agency fixed income instruments, and cannot be withdrawn without the prior written consent of the secured party.  These assets are carried at cost, which approximates market value and are classified as long-term assets because they are not expected to be used within one year to fund operations.  See also Note 15, “Financial Instruments”.

 

(5)         Marketable Securities

 

At March 31, 2011, the Company held marketable securities of $13.0 million classified as current assets, consisting of U.S. municipal bonds with maturities ranging from less than one year to less than two years, which were rated A+/A1 or better by the rating services Standard & Poors (“S&P”) and Moodys Investors Service (“Moodys”) respectively. There have been no material realized or unrealized gains or losses for the nine months ended March 31, 2011. We do not believe there are any impairments considered to be other than temporary at March 31, 2011.  Also see Note 4, “Restricted Cash and Investments” and Note 15, “Financial Instruments”.

 

(6)         Inventories

 

Inventories at March 31, 2011 and June 30, 2010 are summarized as follows (in thousands):

 

 

 

March 31,
2011

 

June 30,
2010

 

 

 

 

 

 

 

Finished goods

 

$

100,406

 

$

104,782

 

Work in process

 

9,115

 

8,421

 

Raw materials

 

21,978

 

20,837

 

 

 

$

131,499

 

$

134,040

 

 

Inventories are presented net of a related valuation allowance of $1.6 million at March 31, 2011 and $2.1 million at June 30, 2010.

 

(7)         Restructuring and Impairment Charges

 

In recent years, we have announced and executed plans to consolidate our operations as part of an overall strategy to maximize production efficiencies and maintain our competitive advantage. Plans announced in fiscal 2008 and 2009 had no material impact on fiscal 2011 financial statements and the balance of reserves for these actions, primarily for non-cancellable lease obligations with expirations up to 23 years, totaled $2.0 million at March 31, 2011.

 

8



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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(8)         Business Acquisitions

 

From time to time the Company acquires from its independent retailers design centers in arms length transactions.  During the nine months ended March 31, 2011, the Company acquired in separate transactions four Ethan Allen retail design centers with no material impact from transactions.  There were no acquisitions completed during the nine months ended March 31, 2010.

 

(9)         Goodwill, Other Intangible Assets and Goodwill Impairment

 

There were no changes to our goodwill, other intangible assets or goodwill impairment during the nine months ended March 31, 2011.

 

(10)            Borrowings

 

Total debt obligations at March 31, 2011 and June 30, 2010 consist of the following (in thousands):

 

 

 

March 31,

 

June 30,

 

 

 

2011

 

2010

 

5.375% Senior Notes due 2015

 

$

172,759

 

$

199,158

 

Industrial revenue bonds

 

3,855

 

3,855

 

Other debt

 

221

 

254

 

Total debt

 

176,835

 

203,267

 

Less current maturities

 

3,882

 

3,898

 

Total long-term debt

 

$

172,953

 

$

199,369

 

 

In September 2005, we issued $200.0 million in ten-year senior unsecured notes due 2015 (the “Senior Notes”). The Senior Notes were issued by Global, bearing an annual coupon rate of 5.375% with interest payable semi-annually in arrears on April 1 and October 1.  We have used the net proceeds of $198.4 million to improve our retail network, invest in our manufacturing and logistics operations, and for other general corporate purposes.  During the current fiscal year, the Company repurchased $26.6 million of the Senior Notes in several unsolicited transactions.

 

In March 2011, the Company amended its $60 million senior secured, asset-based, revolving credit facility which was due to expire in fiscal 2012.  As amended, this facility (the “Amended Facility”) provides revolving credit financing of up to $50 million, subject to borrowing base availability, and includes a right for the Company to increase the total facility to $100 million either with existing or additional lenders subject to certain conditions.  The Amended Facility was extended by approximately four years to March 25, 2016, or to June 26, 2015 if the Company’s 5.375% long term bonds have not been refinanced. At the Company’s option, revolving loans under the Amended Facility bear interest at an annual rate of either:

 

(a)                   London Interbank Offered rate (“LIBOR”) plus 2.0% to 2.5%, based on the average availability, or

(b)                  The higher of (i) a prime rate, (ii) the federal funds effective rate plus 0.50%, or (iii) LIBOR plus 1.0% plus, in each case, an additional 1.0% to 1.5%, based on average availability.

 

The Company will pay a commitment fee of 0.25% per annum on the unused portion of the Amended Facility and participation fees on issued letters of credit at an annual rate of 1.0% to 2.5%, based on the average availability and the letter of credit type.  If the average monthly availability is less than the greater of (i) 12.5% of the aggregate commitment and (ii) $6.3 million, the Company’s fixed charge coverage ratio may not be less than 1 to 1 for any period of four consecutive fiscal quarters. Certain payments are restricted if the availability of the collateral supporting the facility falls below $10 million or 20% of the facility size.

 

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

The Amended Facility is secured by all property owned, leased or operated by the Company in the United States excluding any 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); sell certain assets; and make investments.  At March 31, 2011, we had no revolving loans and $0.7 million of standby and trade letters of credit outstanding under the Amended Facility. Remaining availability under the facility totaled $49.3 million subject to limitations set forth in the agreement and as a result, the coverage charge ratio, and other restricted payment limitations did not apply.

 

As of March 31, 2011, we are in compliance with all covenants of the Amended Facility and our Senior Notes.

 

(11)    Litigation

 

Environmental Matters

 

We and our subsidiaries are subject to various environmental laws and regulations. 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.

 

During fiscal 2009, three locations where we and/or our subsidiaries had been named as a Potentially Responsible Party (“PRP”) were resolved. In each case, we were not a major contributor based on the very small volume of waste generated by us in relation to total volume at those sites and were able to take part in de minimus settlement arrangements.  One additional site in Carroll, New York continued to be evaluated as of March 31, 2011. We believe that we are not a major contributor. Liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended may be joint and several. As such, to the extent certain named PRPs are unable, or unwilling, to accept responsibility and pay their apportioned costs, we could be required to pay in excess of our pro rata share of incurred remediation costs. Our understanding of the financial strength of other PRPs has been considered, where appropriate, in the determination of our estimated liability.  As of March 31, 2011, we believe that established reserves related to these environmental contingencies are adequate to cover probable and reasonably estimable costs associated with the remediation and restoration of these sites.  We believe our currently anticipated capital expenditures for environmental control facility matters are not material.

 

We are subject to other 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. We believe that our facilities are in material compliance with all such applicable laws and regulations.

 

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. We will continue to evaluate the most appropriate, cost effective, control technologies for finishing operations and design production methods to reduce the use of hazardous materials in the manufacturing process.

 

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(12)    Share-Based Compensation

 

On July 20, 2010, in recognition of his extraordinary efforts during these challenging times for the Company, the Compensation Committee of the Company’s board of directors awarded M. Farooq Kathwari, our President and Chief Executive Officer 11,000 service-based restricted shares which vest in two equal annual installments on the grant date anniversary.  No other significant share based awards have been issued in fiscal 2011 to date.

 

(13)            Earnings Per Share

 

Basic and diluted earnings per share are calculated using the following weighted average share data (in thousands):

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2011

 

2010

 

2011

 

2010

 

Weighted average common shares outstanding for basic calculation

 

28,751

 

29,016

 

28,753

 

28,953

 

Effect of dilutive stock options and other share-based awards

 

236

 

 

200

 

 

Weighted average common shares outstanding adjusted for dilution calculation

 

28,987

 

29,016

 

28,953

 

28,953

 

 

As of March 31, 2011 and 2010, stock options to purchase 1,711,771 and 2,056,264 common shares, respectively, were excluded from the respective diluted earnings per share calculation because their impact was anti-dilutive.

 

(14)            Comprehensive Income

 

Our accumulated other comprehensive income, comprised of losses on certain derivative instruments and accumulated foreign currency translation adjustments, totaled $2.0 million at March 31, 2011 and $1.2 million at June 30, 2010.  Foreign currency translation adjustments are the result of changes in foreign currency exchange rates related to our operations in Canada and Mexico. Foreign currency translation adjustments exclude income tax expense (benefit) given that the earnings of non-U.S. subsidiaries are deemed to be reinvested for an indefinite period of time.

 

(15)            Financial Instruments

 

We determine fair value as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value is calculated based on assumptions that market participants use in pricing the asset or liability, and not on assumptions specific to the Company. In addition, the fair value of liabilities include consideration of non-performance risk including our own credit risk. Each fair value measurement is reported in one of three levels, determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

 

Level 1                    Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

 

Level 2                    Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

Level 3                    Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

 

The following section describes the valuation methodologies we use to measure different financial assets and liabilities at fair value.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis

 

The following table presents our assets and liabilities measured at fair value on a recurring basis at March 31, 2011 (in thousands):

 

 

 

Level 1

 

Level 2

 

Level 3

 

Balance

 

Cash equivalents

 

$

77,151

 

$

 

$

 

$

77,151

 

Available-for-sale securities

 

 

23,028

 

 

23,028

 

Total

 

$

77,151

 

$

23,028

 

$

 

$

100,179

 

 

Cash equivalents consist of money market accounts and mutual funds in U.S. government and agency fixed income securities.  We use quoted prices in active markets for identical assets or liabilities to determine fair value.  At March 31, 2011, $6.3 million of the cash equivalents were restricted, and classified as a long-term asset.

 

Available-for-sale securities consist of U.S. agency bonds with a maturity of five years, and U.S. municipal bonds with maturities of less than two years.  The agency bonds are rated AAA/Aaa by S&P/Moody’s, and the municipal bonds are rated A+/A1 or better by S&P/Moodys respectively. At March 31, 2011, $10.0 million of the available-for-sale securities were restricted and classified as a long-term asset.  We obtain fair value based upon quoted prices for similar instruments in active markets.  As of March 31, 2011, there were no material gross unrealized gains or losses on available-for-sale securities.

 

As of March 31, 2011, the contractual maturities of our available-for-sale investments were as follows:

 

 

 

Cost

 

Estimated Fair Value

 

Due in one year or less

 

$

6,005

 

$

6,085

 

Due after one year through five years

 

$

16,824

 

$

16,943

 

 

No investments have been in a continuous loss position for more than one year, and no other-than-temporary impairments were recognized.  Also see note 4, “Restricted Cash and Investments”, and note 5, “Marketable Securities”.

 

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

 

We measure certain assets at fair value on a non-recurring basis. These assets are recognized at fair value when they are deemed to be other-than-temporarily impaired. During the nine months ended March 31, 2011, we did not record any other-than-temporary impairments on those assets required to be measured at fair value on a non-recurring basis.

 

(16)            Segment Information

 

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

 

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

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 is reasonably similar to that of the wholesale segment.  A breakdown of wholesale sales by these product lines for the three and nine months ended March 31, 2011 and 2010 is provided as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2011

 

2010

 

2011

 

2010

 

Case Goods

 

43

%

40

%

40

%

40

%

Upholstered Products

 

41

%

46

%

45

%

45

%

Home Accessories and Other

 

16

%

14

%

15

%

15

%

 

 

100

%

100

%

100

%

100

%

 

Segment information for the three and nine months ended March 31, 2011 and 2010 is provided below (in thousands):

 

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

March 31,

 

March 31,

 

 

 

2011

 

2010

 

2011

 

2010

 

Net sales:

 

 

 

 

 

 

 

 

 

Wholesale segment

 

$

104,119

 

$

96,594

 

$

312,467

 

$

262,374

 

Retail segment

 

117,029

 

107,113

 

369,066

 

317,386

 

Elimination of inter-company sales

 

(58,326

)

(56,449

)

(180,525

)

(153,010

)

Consolidated Total

 

$

162,822

 

$

147,258

 

$

501,008

 

$

426,750

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss):

 

 

 

 

 

 

 

 

 

Wholesale segment (1)

 

$

13,253

 

$

6,737

 

$

35,076

 

$

3,099

 

Retail segment (2)(3)

 

(7,271

)

(10,366

)

(12,767

)

(31,507

)

Adjustment of inter-company profit (4)

 

(1,225

)

806

 

(1,691

)

4,214

 

Consolidated Total

 

$

4,757

 

$

(2,823

)

$

20,618

 

$

(24,194

)

 

 

 

 

 

 

 

 

 

 

Capital expenditures:

 

 

 

 

 

 

 

 

 

Wholesale segment

 

$

1,450

 

$

1,319

 

$

4,136

 

$

2,955

 

Retail segment

 

309

 

977

 

1,595

 

4,656

 

Acquisitions (5)(6)

 

426

 

 

611

 

 

Consolidated Total

 

$

2,185

 

$

2,296

 

$

6,342

 

$

7,611

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

June 30,

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

Total assets

 

 

 

 

 

 

 

 

 

Wholesale segment

 

$

302,983

 

$

296,363

 

 

 

 

 

Retail segment

 

341,064

 

360,413

 

 

 

 

 

Inventory profit elimination (7)

 

(26,940

)

(24,999

)

 

 

 

 

Consolidated Total

 

$

617,107

 

$

631,777

 

 

 

 

 

 


(1)

Operating income (loss) for the wholesale segment for the nine months ended March 31, 2010 includes a pre-tax restructuring and impairment net recovery of $0.2 million.

(2)

Operating income (loss) for the retail segment for the three months ended March 31, 2011 and 2010 includes pre-tax restructuring and impairment charges of $0.1 million and $0.4 million, respectively.

(3)

Operating income (loss) for the retail segment for the nine months ended March 31, 2011 and 2010 includes pre-tax restructuring and impairment charges of $0.4 million and $2.2 million, respectively.

(4)

Represents the change in wholesale profit contained in Ethan Allen operated design center inventory at the end of the period.

(5)

Acquisitions for the three months ended March 31, 2011 include the purchase of two retail design centers.

(6)

Acquisitions for the nine months ended March 31, 2011 include the purchase of four retail design centers.

(7)

Represents the wholesale profit contained in Ethan Allen operated design center inventory that has not yet been realized. These profits are realized when the related inventory is sold.

 

At March 31, 2011, there were 64 independent retail design centers located outside the United States compared with 50 at March 31, 2010.  Approximately 7.0% of our net sales during the current nine months were derived from sales to these retail design centers compared with less than five percent in the prior year.

 

(17)            Subsequent Events

 

Ethan Allen’s Board of Directors on April 27, 2011 declared a quarterly cash dividend of $0.07 per share, which will be payable to shareholders of record as of July 11, 2011 and paid on July 25, 2011.

 

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(18)            Recently Issued Accounting Pronouncements

 

There have been no recently issued accounting pronouncements during the nine months ended March 31, 2011 or impending accounting changes that are expected to have a material effect on the Company’s financial statements.

 

(19)            Financial Information About the Parent, the Issuer and the Guarantors

 

On September 27, 2005, Global (the “Issuer”) issued $200 million aggregate principal amount of Senior Notes which have been guaranteed on a senior basis by Interiors (the “Parent”), and other wholly owned domestic subsidiaries of the Issuer and the Parent, including Ethan Allen Retail, Inc., Ethan Allen Operations, Inc., Ethan Allen Realty, LLC, Lake Avenue Associates, Inc. and Manor House, Inc. The subsidiary guarantors (other than the Parent) are collectively called the “Guarantors”.  The guarantees of the Guarantors are unsecured.  All of the guarantees are full, unconditional and joint and several and the Issuer and each of the Guarantors are 100% owned by the Parent.  Our other subsidiaries which are not guarantors are called the “Non-Guarantors”.

 

The following tables set forth the condensed consolidating balance sheets as of March 31, 2011 and June 30, 2010, the condensed consolidating statements of operations for the three and nine months ended March 31, 2011 and 2010, and the condensed consolidating statements of cash flows for the nine months ended March 31, 2011 and 2010 of the Parent, the Issuer, the Guarantors and the Non-Guarantors.

 

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands)

March 31, 2011

 

 

 

Parent

 

Issuer

 

Guarantors

 

Non-Guarantors

 

Eliminations

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

64,516

 

$

5,346

 

$

950

 

$

 

$

70,812

 

Marketable securities

 

 

12,990

 

 

 

 

12,990

 

Accounts receivable, net

 

 

19,048

 

335

 

791

 

 

20,174

 

Inventories

 

 

 

153,750

 

4,689

 

(26,940

)

131,499

 

Prepaid expenses and other current assets

 

 

5,172

 

14,697

 

663

 

 

20,532

 

Intercompany receivables

 

 

781,394

 

247,638

 

(7,112

)

(1,021,920

)

 

Total current assets

 

 

883,120

 

421,766

 

(19

)

(1,048,860

)

256,007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

8,371

 

277,684

 

9,378

 

 

295,433

 

Goodwill and other intangible assets

 

 

37,905

 

7,223

 

 

 

45,128

 

Restricted cash and investments

 

 

16,377

 

 

 

 

16,377

 

Other assets

 

 

3,409

 

753

 

 

 

4,162

 

Investment in affiliated companies

 

594,977

 

(90,239

)

 

 

(504,738

)

 

Total assets

 

$

594,977

 

$

858,943

 

$

707,426

 

$

9,359

 

$

(1,553,598

)

$

617,107

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

 

$

 

$

3,882

 

$

 

$

 

$

3,882

 

Customer deposits

 

 

 

51,043

 

2,497

 

 

53,540

 

Accounts payable

 

 

8,115

 

14,409

 

257

 

 

22,781

 

Accrued expenses and other current liabilities

 

1,579

 

40,118

 

14,713

 

564

 

 

56,974

 

Intercompany payables

 

317,412

 

597

 

700,116

 

3,795

 

(1,021,920

)

 

Total current liabilities

 

318,991

 

48,830

 

784,163

 

7,113

 

(1,021,920

)

137,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

172,759

 

194

 

 

 

172,953

 

Other long-term liabilities

 

 

5,909

 

13,809

 

116

 

 

19,834

 

Deferred income taxes

 

 

11,157

 

 

 

 

11,157

 

Total liabilities

 

318,991

 

238,655

 

798,166

 

7,229

 

(1,021,920

)

341,121

 

Shareholders’ equity

 

275,986

 

620,288

 

(90,740

)

2,130

 

(531,678

)

275,986

 

Total liabilities and shareholders’ equity

 

$

594,977

 

$

858,943

 

$

707,426

 

$

9,359

 

$

(1,553,598

)

$

617,107

 

 

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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands)

June 30, 2010

 

 

 

Parent

 

Issuer

 

Guarantors

 

Non-Guarantors

 

Eliminations

 

Consolidated

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

67,269

 

$

5,720

 

$

863

 

$

 

$

73,852

 

Marketable securities

 

 

11,075

 

 

 

 

11,075

 

Accounts receivable, net

 

 

16,385

 

274

 

446

 

 

17,105

 

Inventories

 

 

 

154,621

 

4,418

 

(24,999

)

134,040

 

Prepaid expenses and other current assets

 

 

11,018

 

12,011

 

591

 

 

23,620

 

Intercompany receivables

 

 

756,998

 

233,887

 

(4,815

)

(986,070

)

 

Total current assets

 

 

862,745

 

406,513

 

1,503

 

(1,011,069

)

259,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

9,659

 

289,031

 

7,057

 

 

305,747

 

Goodwill and other intangible assets

 

 

37,905

 

7,223

 

 

 

45,128

 

Restricted cash and investments

 

 

17,318

 

 

 

 

17,318

 

Other assets

 

 

3,179

 

709

 

4

 

 

3,892

 

Investment in affiliated companies

 

571,323

 

(69,963

)

 

 

(501,360

)

 

Total assets

 

$

571,323

 

$

860,843

 

$

703,476

 

$

8,564

 

$

(1,512,429

)

$

631,777

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

 

$

 

$

3,898

 

$

 

$

 

$

3,898

 

Customer deposits

 

 

 

49,990

 

2,615

 

 

52,605

 

Accounts payable

 

2,589

 

7,059

 

14,117

 

187

 

 

23,952

 

Accrued expenses and other current liabilities

 

1,559

 

44,642

 

18,540

 

546

 

 

65,287

 

Intercompany payables

 

308,716

 

597

 

672,644

 

4,113

 

(986,070

)

 

Total current liabilities

 

312,864

 

52,298

 

759,189

 

7,461

 

(986,070

)

145,742

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

 

199,158

 

211

 

 

 

199,369

 

Other long-term liabilities

 

 

4,912

 

14,084

 

127

 

 

19,123

 

Deferred income taxes

 

 

9,084

 

 

 

 

9,084

 

Total liabilities

 

312,864

 

265,452

 

773,484

 

7,588

 

(986,070

)

373,318

 

Shareholders’ equity

 

258,459

 

595,391

 

(70,008

)

976

 

(526,359

)

258,459

 

Total liabilities and shareholders’ equity

 

$

571,323

 

$

860,843

 

$

703,476

 

$

8,564

 

$

(1,512,429

)

$

631,777

 

 

17



Table of Contents

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(In thousands)

Three Months Ended March 31, 2011

 

 

 

Parent

 

Issuer

 

Guarantors

 

Non-Guarantors

 

Eliminations

 

Consolidated

 

Net sales

 

$

 

$

104,481

 

$

167,548

 

$

6,692

 

$

(115,899

)

$

162,822

 

Cost of sales

 

 

78,061

 

112,671

 

3,641

 

(114,620

)

79,753

 

Gross profit

 

 

26,420

 

54,877

 

3,051

 

(1,279

)

83,069

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

45

 

10,330

 

64,404

 

3,424

 

 

78,203

 

Restructuring and impairment charge, (credit) net

 

 

 

109

 

 

 

109

 

Total operating expenses

 

45

 

10,330

 

64,513

 

3,424

 

 

78,312

 

Operating income (loss)

 

(45

)

16,090

 

(9,636

)

(373

)

(1,279

)

4,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other miscellaneous income, net

 

3,563

 

(8,956

)

(1

)

(1

)

6,523

 

1,128

 

Interest and other related financing costs

 

 

2,698

 

75

 

 

 

2,773

 

Income (loss) before income tax expense

 

3,518

 

4,436

 

(9,712

)

(374

)

5,244

 

3,112

 

Income tax expense

 

 

(406

)

 

 

 

(406

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

3,518

 

$

4,842

 

$

(9,712

)

$

(374

)

$

5,244

 

$

3,518

 

 

Three Months Ended March 31, 2010

 

 

 

Parent

 

Issuer

 

Guarantors

 

Non-Guarantors

 

Eliminations

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

96,955

 

$

152,446

 

$

5,630

 

$

(107,773

)

$

147,258

 

Cost of sales

 

 

74,425

 

106,339

 

3,033

 

(108,566

)

75,231

 

Gross profit

 

 

22,530

 

46,107

 

2,597

 

793

 

72,027

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

67

 

9,732

 

61,953

 

2,698

 

 

74,450

 

Restructuring and impairment charge, (credit) net

 

 

 

400

 

 

 

400

 

Total operating expenses

 

67

 

9,732

 

62,353

 

2,698

 

 

74,850

 

Operating income (loss)

 

(67

)

12,798

 

(16,246

)

(101

)

793

 

(2,823

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other miscellaneous income, net

 

(788

)

(15,519

)

12

 

 

17,189

 

894

 

Interest and other related financing costs

 

 

2,903

 

76

 

 

 

2,979

 

Income (loss) before income tax expense

 

(855

)

(5,624

)

(16,310

)

(101

)

17,982

 

(4,908

)

Income tax expense

 

 

(4,053

)

 

 

 

(4,053

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(855

)

$

(1,571

)

$

(16,310

)

$

(101

)

$

17,982

 

$

(855

)

 

18



Table of Contents

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

(In thousands)

Nine Months Ended March 31, 2011

 

 

 

Parent

 

Issuer

 

Guarantors

 

Non-Guarantors

 

Eliminations

 

Consolidated

 

Net sales

 

$

 

$

312,979

 

$

525,023

 

$

21,504

 

$

(358,498

)

$

501,008

 

Cost of sales

 

 

237,882

 

352,821

 

11,551

 

(356,557

)

245,697

 

Gross profit

 

 

75,097

 

172,202

 

9,953

 

(1,941

)

255,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

135

 

32,381

 

192,283

 

9,501

 

 

234,300

 

Restructuring and impairment charge, (credit) net

 

 

 

393

 

 

 

393

 

Total operating expenses

 

135

 

32,381

 

192,676

 

9,501

 

 

234,693

 

Operating income (loss)

 

(135

)

42,716

 

(20,474

)

452

 

(1,941

)

20,618

 

 

 

 

 

 

 

 

 

</