UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
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(Zip Code) |
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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. ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒
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Smaller reporting company |
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Emerging growth 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. ☐
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The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of April 19, 2023, was
ETHAN ALLEN INTERIORS INC.
FORM 10-Q THIRD QUARTER OF FISCAL 2023
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION |
|
Item 1. Financial Statements |
2 |
CONSOLIDATED BALANCE SHEETS |
2 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) |
3 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) |
4 |
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) |
5 |
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) |
6 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
32 |
Item 4. Controls and Procedures |
34 |
PART II - OTHER INFORMATION |
|
Item 1. Legal Proceedings |
35 |
Item 1A. Risk Factors |
35 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
35 |
Item 3. Defaults Upon Senior Securities |
35 |
Item 4. Mine Safety Disclosures |
35 |
Item 5. Other Information |
35 |
Item 6. Exhibits |
36 |
SIGNATURES |
37 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value)
March 31, 2023 |
June 30, 2022 |
|||||||
ASSETS |
(Unaudited) |
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Current assets | ||||||||
Cash and cash equivalents |
$ | $ | ||||||
Investments |
||||||||
Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets |
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Operating lease right-of-use assets |
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Deferred income taxes |
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Other assets |
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Total ASSETS |
$ | $ | ||||||
LIABILITIES |
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Current liabilities | ||||||||
Accounts payable and accrued expenses |
$ | $ | ||||||
Customer deposits |
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Accrued compensation and benefits |
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Current operating lease liabilities |
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Other current liabilities |
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Total current liabilities |
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Operating lease liabilities, long-term |
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Deferred income taxes |
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Other long-term liabilities |
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Total LIABILITIES |
$ | $ | ||||||
Commitments and contingencies (see Note 18) | ||||||||
SHAREHOLDERS' EQUITY |
||||||||
Preferred stock, $ |
$ | $ | ||||||
Common stock, $ |
||||||||
Additional paid-in capital |
||||||||
Treasury stock, at cost: |
( |
) | ( |
) | ||||
Retained earnings |
||||||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
Total Ethan Allen Interiors Inc. shareholders' equity |
||||||||
Noncontrolling interests |
( |
) | ( |
) | ||||
Total SHAREHOLDERS' EQUITY |
||||||||
Total LIABILITIES AND SHAREHOLDERS' EQUITY |
$ | $ |
See accompanying notes to consolidated financial statements.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(In thousands, except per share data)
Three months ended |
Nine months ended |
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March 31, |
March 31, |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Net sales |
$ | $ | $ | $ | ||||||||||||
Cost of sales |
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring and other impairment charges, net of gains |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Operating income |
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Interest and other income (expense), net |
( |
) | ( |
) | ||||||||||||
Interest expense and other financing costs |
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Income before income taxes |
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Income tax expense |
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Net income |
$ | $ | $ | $ | ||||||||||||
Per share data | ||||||||||||||||
Basic earnings per common share | ||||||||||||||||
Net income per basic share |
$ | $ | $ | $ | ||||||||||||
Basic weighted average common shares |
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Diluted earnings per common share | ||||||||||||||||
Net income per diluted share |
$ | $ | $ | $ | ||||||||||||
Diluted weighted average common shares |
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Comprehensive income | ||||||||||||||||
Net income |
$ | $ | $ | $ | ||||||||||||
Other comprehensive income (loss), net of tax | ||||||||||||||||
Foreign currency translation adjustments |
( |
) | ||||||||||||||
Other income (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
Other comprehensive income (loss), net of tax |
( |
) | ||||||||||||||
Comprehensive income |
$ | $ | $ | $ |
See accompanying notes to consolidated financial statements.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine months ended |
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March 31, |
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Cash Flows from Operating Activities |
2023 |
2022 |
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Net income |
$ | $ | |||||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||
Depreciation and amortization |
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Share-based compensation expense |
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Non-cash operating lease cost |
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Deferred income taxes |
( |
) | |||||||
Restructuring and other impairment charges, net of gains |
( |
) | ( |
) | |||||
Restructuring payments |
( |
) | ( |
) | |||||
Loss on disposal of property, plant and equipment |
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Other |
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Change in operating assets and liabilities | |||||||||
Accounts receivable, net |
( |
) | |||||||
Inventories, net |
( |
) | |||||||
Prepaid expenses and other current assets |
( |
) | |||||||
Customer deposits |
( |
) | |||||||
Accounts payable and accrued expenses |
( |
) | |||||||
Accrued compensation and benefits |
( |
) | ( |
) | |||||
Operating lease liabilities |
( |
) | ( |
) | |||||
Other assets and liabilities |
( |
) | ( |
) | |||||
Net cash provided by operating activities |
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Cash Flows from Investing Activities |
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Proceeds from sales of property, plant and equipment |
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Capital expenditures |
( |
) | ( |
) | |||||
Purchases of investments |
( |
) | ( |
) | |||||
Proceeds from sales of investments |
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Net cash used in investing activities |
( |
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) | |||||
Cash Flows from Financing Activities |
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Payment of cash dividends |
( |
) | ( |
) | |||||
Proceeds from employee stock plans |
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Taxes paid related to net share settlement of equity awards |
( |
) | ( |
) | |||||
Payments on financing leases |
( |
) | ( |
) | |||||
Other financing costs |
( |
) | |||||||
Net cash used in financing activities |
( |
) | ( |
) | |||||
Effect of exchange rate changes on cash and cash equivalents |
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Net decrease in cash, cash equivalents and restricted cash |
( |
) | ( |
) | |||||
Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
$ | $ |
See accompanying notes to consolidated financial statements.
ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)
(In thousands)
Accumulated |
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Additional |
Other |
Non- |
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Common Stock |
Paid-in |
Treasury Stock |
Comprehensive |
Retained |
Controlling |
Total |
||||||||||||||||||||||||||||||
Shares |
Par Value |
Capital |
Shares |
Amount |
Loss |
Earnings |
Interests |
Equity |
||||||||||||||||||||||||||||
Balance at June 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Share-based compensation expense |
- | - | ||||||||||||||||||||||||||||||||||
Restricted stock vesting |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
Cash dividends declared |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
- | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||
Balance at September 30, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Common stock issued on share-based awards |
- | |||||||||||||||||||||||||||||||||||
Share-based compensation expense |
- | - | ||||||||||||||||||||||||||||||||||
Cash dividends declared |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
- | - | ||||||||||||||||||||||||||||||||||
Balance at December 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Common stock issued on share-based awards |
||||||||||||||||||||||||||||||||||||
Share-based compensation expense |
- | - | ||||||||||||||||||||||||||||||||||
Cash dividends declared |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Restricted stock vesting |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
- | - | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2023 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ |
Accumulated |
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Additional |
Other |
Non- |
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Common Stock |
Paid-in |
Treasury Stock |
Comprehensive |
Retained |
Controlling |
Total |
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Shares |
Par Value |
Capital |
Shares |
Amount |
Loss |
Earnings |
Interests |
Equity |
||||||||||||||||||||||||||||
Balance at June 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Share-based compensation expense |
- | - | ||||||||||||||||||||||||||||||||||
Restricted stock vesting |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
Cash dividends declared |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Balance at September 30, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Common stock issued on share-based awards |
||||||||||||||||||||||||||||||||||||
Share-based compensation expense |
- | - | ||||||||||||||||||||||||||||||||||
Cash dividends declared |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
- | - | ( |
) | ||||||||||||||||||||||||||||||||
Balance at December 31, 2021 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||||||||||||
Net income |
- | - | ||||||||||||||||||||||||||||||||||
Common stock issued on share-based awards |
||||||||||||||||||||||||||||||||||||
Share-based compensation expense |
- | - | ||||||||||||||||||||||||||||||||||
Cash dividends declared |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
Restricted stock vesting |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
Other comprehensive income (loss) |
- | - | ( |
) | ||||||||||||||||||||||||||||||||
Balance at March 31, 2022 |
$ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ |
See accompanying notes to consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(1) |
Organization and Nature of Business |
Organization
Founded in 1932, 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 Delaware corporation and leading interior design company, manufacturer and retailer in the home furnishings marketplace.
Nature of Business
We are a global luxury home fashion brand that is vertically integrated from product design through home delivery, which offers our customers stylish product offerings, artisanal quality and personalized service. We are known for the quality and craftsmanship of our products as well as for the exceptional personal service from design to delivery. We provide interior design service to our clients and sell a full range of home furnishings through a retail network of design centers located throughout the United States and abroad as well as online at ethanallen.com.
Ethan Allen design centers represent a mix of locations operated by independent licensees and Company-operated locations. As of March 31, 2023, the Company operated 139 retail design centers with 135 located in the United States and four in Canada. Our independently operated design centers are located in the United States, Asia, the Middle East and Europe. We also own and operate ten manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and one kiln dry lumberyard in the United States, two manufacturing plants in Mexico and one manufacturing plant in Honduras. Approximately
(2) |
Interim Basis of Presentation |
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Our consolidated financial statements also include the accounts of an entity in which we are a majority shareholder with the power to direct the activities that most significantly impact the entity’s performance. Noncontrolling interest amounts in the entity are immaterial and included in the consolidated statements of comprehensive income within Interest and other income (expense), net.
All intercompany activity and balances, including any related profit on intercompany sales, have been eliminated from the consolidated financial statements. 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 ended March 31, 2023 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 fiscal year ended June 30, 2022 (the “2022 Annual Report on Form 10-K”). We derived the June 30, 2022 consolidated balance sheet from our audited financial statements included in our 2022 Annual Report on Form 10-K.
Use of Estimates
We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), 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 net sales 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, goodwill and indefinite-lived intangible asset impairment analyses, recoverability and useful lives for property, plant and equipment, inventory obsolescence, tax valuation allowances and the evaluation of uncertain tax positions and business insurance reserves.
Restricted Cash
We present restricted cash as a component of total cash and cash equivalents on our consolidated statement of cash flows and within Other Assets on our consolidated balance sheets. As of March 31, 2023 and June 30, 2022, we held $
We have evaluated subsequent events through the date of issuance of the financial statements included in this Quarterly Report on Form 10-Q.
(3) |
Recent Accounting Pronouncements |
(4) |
Revenue Recognition |
Our reported revenue (net sales) consists substantially of product sales. We report product sales net of discounts and recognize them at the point in time when control transfers to the customer. For sales to our customers in our wholesale segment, control typically transfers when the product is shipped. The majority of our shipping agreements are freight-on-board shipping point and risk of loss transfers to our wholesale customer once the product is out of our control. Accordingly, revenue is recognized for product shipments on third-party carriers at the point in time that our product is loaded onto the third-party container or truck. For sales in our retail segment, control generally transfers upon delivery to the customer.
Shipping and Handling. Our practice has been to sell our products at the same delivered cost to all retailers and customers nationwide, regardless of shipping point. Costs incurred by the Company to deliver finished goods are expensed and recorded in selling, general and administrative (“SG&A”) expenses. We recognize shipping and handling expense as fulfillment activities (rather than as a promised good or service) when the activities are performed even if those activities are performed after the control of the good has been transferred. Accordingly, we record the expenses for shipping and handling activities at the same time we recognize net sales.
Sales Taxes. We exclude from the measurement of the transaction price all taxes imposed on and concurrent with a specific revenue-producing transaction and collected by the entity from a customer, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes). Sales tax collected is not recognized as revenue but is included in Accounts payable and accrued expenses on the consolidated balance sheets as it is ultimately remitted to governmental authorities.
Returns and Allowances. Estimated refunds for returns and allowances are based on our historical return patterns. We record these estimated sales refunds on a gross basis rather than on a net basis and have recorded an asset for product we expect to receive back from customers in Prepaid expenses and other current assets and a corresponding refund liability in Other current liabilities on our consolidated balance sheets. At March 31, 2023 and June 30, 2022, these amounts were immaterial.
Allowance for Doubtful Accounts. Accounts receivable arise from the sale of products on trade credit terms and is presented net of allowance for doubtful accounts. We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis. At March 31, 2023 and June 30, 2022, the allowance for doubtful accounts was immaterial.
Commissions. We capitalize commission fees paid to our associates as contract assets within Prepaid expenses and other current assets on our consolidated balance sheets. These prepaid commissions are subsequently recognized as a selling expense upon delivery (when we have transferred control of our product to our customer). At March 31, 2023, we had prepaid commissions of $
Customer Deposits. In most cases we collect deposits from customers on a portion of the total purchase price at the time a written order is placed, but before we have transferred control of our product to our customers, resulting in contract liabilities. These customer deposits are reported as a current liability in Customer deposits on our consolidated balance sheets. As of March 31, 2023, we had customer deposits of $
We recognize the promised amount of consideration without adjusting for the effects of a significant financing component if the contract has a duration of one year or less. As our contracts are typically less than one year in length and do not have significant financing components, we have not adjusted consideration.
The following table disaggregates our net sales by product category by segment (in thousands):
Three months ended March 31, 2023 |
Three months ended March 31, 2022 |
|||||||||||||||||||||||||||||||
Wholesale |
Retail |
Eliminations(1) |
Total |
Wholesale |
Retail |
Eliminations(1) |
Total |
|||||||||||||||||||||||||
Upholstery(2) |
$ | $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||
Case goods(3) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Accents(4) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Other(5) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Total |
$ | $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | $ |
Nine months ended March 31, 2023 |
Nine months ended March 31, 2022 |
|||||||||||||||||||||||||||||||
Wholesale |
Retail |
Eliminations(1) |
Total |
Wholesale |
Retail |
Eliminations(1) |
Total |
|||||||||||||||||||||||||
Upholstery(2) |
$ | $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||
Case goods(3) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Accents(4) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Other(5) |
( |
) | ( |
) | ||||||||||||||||||||||||||||
Total |
$ | $ | $ | ( |
) | $ | $ | $ | $ | ( |
) | $ |
(1) |
The “Eliminations” column in the tables above represents the elimination of all intercompany wholesale segment sales to the retail segment in each period presented. |
(2) |
|
(3) |
Case goods includes items such as beds, dressers, armoires, tables, chairs, buffets, entertainment units, home office furniture and wooden accents. |
(4) |
Accents includes items such as window treatments and drapery hardware, wall décor, florals, lighting, clocks, mattresses, bedspreads, throws, pillows, decorative accents, area rugs, flooring, wall coverings and home and garden furnishings. |
(5) |
Other includes product delivery sales, the Ethan Allen Hotel revenues, sales of third-party furniture protection plans and other miscellaneous product sales less prompt payment discounts, sales allowances and other incentives. |
(5) |
Fair Value Measurements |
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income and cost approaches is permissible. We consider the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.
Fair Value Hierarchy. The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.
We have categorized our cash equivalents and investments within the fair value hierarchy as follows:
Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets include our corporate money market funds that are classified as cash equivalents. We have categorized our cash equivalents as Level 1 assets as there are quoted prices in active markets for identical assets or liabilities.
Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. At March 31, 2023 and June 30, 2022, we have categorized our investments as Level 2 assets.
Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities as of March 31, 2023 or June 30, 2022.
Assets and Liabilities Measured at Fair Value on a Recurring Basis. The following tables show, by level within the fair value hierarchy, our assets and liabilities that are measured at fair value on a recurring basis at March 31, 2023 and June 30, 2022. We did not have any transfers between levels of fair value measurements during the periods presented.
Fair Value Measurements at March 31, 2023 |
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Assets |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
Corporate money market funds (1) |
$ | $ | $ | $ | ||||||||||||
Investments (2) |
||||||||||||||||
Total |
$ | $ | $ | $ |
Fair Value Measurements at June 30, 2022 |
||||||||||||||||
Assets |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
Corporate money market funds (1) |
$ | $ | $ | $ | ||||||||||||
Investments (2) |
||||||||||||||||
Total |
$ | $ | $ | $ |
(1) |
We invest excess cash in money market accounts and short-term investments. Our corporate money market funds are readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine its fair value. Our corporate money market funds are classified as Level 1 assets and are included in Cash and cash equivalents within the consolidated balance sheets. |
(2) |
Our investments as of March 31, 2023 consisted solely of U.S. Treasury Bills with maturities of less than one year. Previously held investments included fixed income securities including municipal bonds, commercial paper and certificates of deposits with maturities of less than one year. We classify our investments as available-for-sale debt investments. The fair value of our underlying investments is based on observable inputs. Our investments are classified as Level 2 and are included in Investments (short-term) within the consolidated balance sheets. All unrealized gains and losses were included in Accumulated Other Comprehensive Loss within the consolidated balance sheets. There were material gross unrealized gains or losses on the investments at March 31, 2023 or June 30, 2022. |
There were no investments that have been in a continuous loss position for more than one year, and there have been no other-than-temporary impairments recognized.
Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. We did not record any other-than-temporary impairments on assets required to be measured at fair value on a non-recurring basis during fiscal 2023 or 2022.
Assets and Liabilities Measured at Fair Value for Disclosure Purposes Only. We had
(6) |
Leases |
We recognize substantially all leases on our balance sheet as a ROU asset and a lease liability. We have operating leases for many of our design centers that expire at various dates through fiscal 2040. We also lease certain tangible assets, including computer equipment and vehicles, with initial lease terms ranging from
to years.
We determine if a contract contains a lease at inception based on our right to control the use of an identified asset and our right to obtain substantially all of the economic benefits from the use of that identified asset. Certain operating leases have renewal options and rent escalation clauses as well as various purchase options. We assess these options to determine if we are reasonably certain of exercising these options based on all relevant economic and financial factors. Any options that meet these criteria are included in the lease term at lease commencement. Most of our leases do not have an interest rate implicit in the lease. As a result, for purposes of measuring our ROU asset and lease liability, we determine our incremental borrowing rate by computing the rate of interest that we would have to pay to (i) borrow on a collateralized basis (ii) over a similar term (iii) at an amount equal to the total lease payments and (iv) in a similar economic environment. As we do not have any outstanding public debt, we estimated the incremental borrowing rate based on our estimated credit rating and available market information. The incremental borrowing rate is subsequently reassessed upon a modification to the lease agreement. Some of our leases contain variable lease payments based on a consumer price index or percentage of sales, which are excluded from the measurement of the lease liability.
The Company's lease terms and discount rates are as follows:
March 31, |
||||||||||
2023 |
2022 |
|||||||||
Weighted average remaining lease term (in years) | ||||||||||
Operating leases |
||||||||||
Financing leases |
||||||||||
Weighted average discount rate | ||||||||||
Operating leases |
% | % | ||||||||
Financing leases |
% | % |
The following table discloses the location and amount of our operating and financing lease costs within our consolidated statements of comprehensive income (in thousands):
Three months ended March 31, |
Nine months ended March 31, |
||||||||||||||||
Statements of Comprehensive Income Location |
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Operating lease cost(1) |
Selling, general and administrative (“SG&A”) expenses | $ | $ | $ | $ | ||||||||||||
Financing lease cost | |||||||||||||||||
Depreciation of property |
SG&A expenses | ||||||||||||||||
Interest on lease liabilities |
Interest and other financing costs | ||||||||||||||||
Short-term lease cost(2) |
SG&A expenses | ||||||||||||||||
Variable lease cost(3) |
SG&A expenses | ||||||||||||||||
Less: Sublease income |
SG&A expenses | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Total lease expense |
$ | $ | $ | $ |
(1) |
|
(2) |
|
(3) |
|
The table below reconciles the undiscounted future minimum lease payments (displayed by year and in the aggregate) under noncancelable leases with terms of more than one year to the total lease liabilities recognized on the consolidated balance sheets as of March 31, 2023 (in thousands):
Fiscal Year |
Operating Leases |
Financing Leases |
||||||
2023 (remaining three months) |
$ | $ | ||||||
2024 |
||||||||
2025 |
||||||||
2026 |
||||||||
2027 |
||||||||
Thereafter |
||||||||
Total undiscounted future minimum lease payments |
||||||||
Less: imputed interest |
( |
) | ( |
) | ||||
Total present value of lease obligations(1) |
$ | $ |
(1) |
|
As of March 31, 2023, we have one operating lease for a new retail design center, which has not yet commenced. This operating lease is not part of the tables above nor in the lease right-of-use assets and liabilities. This lease will commence when we obtain possession of the underlying leased asset, which occurred in April 2023, our fiscal 2023 fourth quarter. The operating lease is for a period of
Other supplemental information for our leases is as follows (in thousands):
Nine months ended |
||||||||
2023 |
2022 |
|||||||
Cash paid for amounts included in the measurement of lease liabilities | ||||||||
Operating cash flows from operating leases |
$ | $ | ||||||
Operating cash flows from financing leases |
$ | $ | ||||||
Operating lease assets obtained in exchange for operating lease liabilities |
$ | $ |
There were no non-cash financing lease obligations obtained in exchange for new financing lease assets during the nine months ended March 31, 2023 or 2022.
Sale-leaseback transaction. On August 1, 2022, we completed a sale-leaseback transaction with an independent third party for the land, building and related fixed assets of a retail design center. The design center was leased back to Ethan Allen via a multi-year operating lease agreement. As part of the transaction, we received net proceeds of $
(7) |
Inventories |
Inventories are summarized as follows (in thousands):
March 31, |
June 30, |
|||||||
2023 |
2022 |
|||||||
Finished goods |
$ | $ | ||||||
Work in process |
||||||||
Raw materials |
||||||||
Inventory reserves |
( |
) | ( |
) | ||||
Inventories, net |
$ | $ |
(8) |
Property, Plant and Equipment |
Property, plant and equipment are summarized as follows (in thousands):
March 31, |
June 30, |
|||||||
2023 |
2022 |
|||||||
Land and improvements |
$ | $ | ||||||
Building and improvements |
||||||||
Machinery and equipment |
||||||||
Property, plant and equipment, gross |
||||||||
Less: accumulated depreciation and amortization |
( |
) | ( |
) | ||||
Property, plant and equipment, net |
$ | $ |
We recorded depreciation expense of $
(9) |
Goodwill and Intangible Assets |
Our goodwill and intangible assets are comprised of goodwill, which represents the excess of cost over the fair value of net assets acquired, and our Ethan Allen trade name and related trademarks. At March 31, 2023 and June 30, 2022, we had $
Both goodwill and indefinite-lived intangible assets are not amortized as they are estimated to have an indefinite life. We test our wholesale goodwill and indefinite-lived intangibles for impairment on an annual basis in the fourth quarter of each fiscal year, and more frequently if events or changes in circumstances indicate that it might be impaired. We performed our annual goodwill impairment test during the fourth quarter of fiscal 2022, consistent with the timing of prior years. We concluded it was more likely than not that the fair value was greater than the respective carrying value and no impairment charge was required.
(10) |
Other Current Liabilities |
The following table summarizes the nature of the amounts within Other current liabilities (in thousands):
March 31, |
June 30, |
|||||||
2023 |
2022 |
|||||||
Income taxes payable |
$ | $ | ||||||
Deferred liability, short-term (1) |
||||||||
Financing lease liabilities, short-term |
||||||||
Other current liabilities |
||||||||
Other current liabilities |
$ | $ |
(1) |
As of March 31, 2023, the deferred liability balance associated with the sale-leaseback transaction completed on August 1, 2022 was $ |
(11) |
Income Taxes |
The Company's process for determining the provision for income taxes involves using an estimated annual effective tax rate which is based on expected annual income and statutory tax rates across the various jurisdictions in which we operate. We recorded a provision for income tax expense of $
We recognize interest and penalties related to income tax matters as a component of income tax expense. As of March 31, 2023, we had $
(12) |
Credit Agreement |
On January 26, 2022, the Company and most of its domestic subsidiaries (the “Loan Parties”) entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A. as administrative agent and syndication agent and Capital One, National Association, as documentation agent. The Credit Agreement amends and restates the Second Amended and Restated Credit Agreement, dated as of December 21, 2018, as amended. The Credit Agreement provides for a $
Availability. The availability of credit at any given time under the Facility will be constrained by the terms and conditions of the Credit Agreement, including the amount of collateral available, a borrowing base formula based upon numerous factors including the value of eligible inventory and eligible accounts receivable, and other restrictions contained in the Facility. All obligations under the Facility are secured by assets of the Loan Parties including inventory, receivables and certain types of intellectual property. Total borrowing base availability under the Facility was $
Borrowings. At the Company’s option, borrowings under the Facility bear interest, based on the average quarterly availability, at an annual rate of either (a) Adjusted Term SOFR Rate (defined as the Term SOFR Rate for such interest period plus
Covenants and Other Ratios. The Facility contains various restrictive and affirmative covenants, including required financial reporting, limitations on the ability to grant liens, make loans or other investments, incur additional debt, issue additional equity, merge or consolidate with or into another person, sell assets, pay dividends or make other distributions or enter into transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of this type and size. Loans under the Facility may become immediately due and payable upon certain events of default (including failure to comply with covenants, change of control or cross-defaults) as set forth in the Facility.
The Facility does not contain any significant financial ratio covenants or coverage ratio covenants other than a fixed charge coverage ratio covenant based on the ratio of (a) EBITDA, plus cash Rentals, minus Unfinanced Capital Expenditures to (b) Fixed Charges, as such terms are defined in the Facility. The fixed charge coverage ratio covenant, set at
Letters of Credit. At both March 31, 2023 and June 30, 2022, there was $
(13) |
Restructuring and Other Impairment Activities |
Restructuring and other impairment charges, net of gains, were as follows (in thousands):
Three months ended |
Nine months ended |
|||||||||||||||
2023 |
2022 |
2023 |
2022 |
|||||||||||||
Gain on sale-leaseback transaction(1) |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
Gain on sale of property, plant and equipment(2) |
( |
) | ( |
) | ||||||||||||
Severance and other charges |
||||||||||||||||
Total Restructuring and other impairment charges, net of gains |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) |
(1) |
In August 2022, we sold and subsequently leased back a retail design center and recognized a net gain of $ |
(2) |
In March 2022, we sold a previously closed property to an independent third party for $ |
Restructuring payments made by the Company during the first nine months of fiscal 2023 were $
(14) |
Earnings Per Share |