Annual report pursuant to Section 13 and 15(d)

Note 6 - Leases

v3.23.2
Note 6 - Leases
12 Months Ended
Jun. 30, 2023
Notes to Financial Statements  
Lessee, Leases [Text Block]

(6)

Leases

 

We recognize 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 three to five 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. 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.

 

The Company's lease terms and discount rates are as follows:

 

       

Fiscal Year Ended
June 30,

 
   

Statements of Comprehensive Income Location

 

2023

   

2022

 

Operating lease cost(1)

 

SG&A expenses

  $ 30,235     $ 30,261  

Financing lease cost

                   

Depreciation of property

 

SG&A expenses

    503       489  

Interest on lease liabilities

 

Interest expense and other financing costs

    26       24  

Short-term lease cost(2)

 

SG&A expenses

    1,099       1,222  

Variable lease cost(3)

 

SG&A expenses

    9,117       9,351  

Less: Sublease income

 

SG&A expenses

    (1,162 )     (1,384 )

Total lease expense

  $ 39,818     $ 39,963  

 

The following table discloses the location and amount of our operating and financing lease assets and liabilities within our consolidated balance sheet (in thousands):

 

       

June 30,

 
   

Consolidated Balance Sheet Location

 

2023

   

2022

 

Assets

                   

Operating leases

 

Operating lease right-of-use assets (non-current)

  $ 115,861     $ 100,782  

Financing leases

 

Property, plant and equipment, net

    550       1,060  

Total lease assets

      $ 116,411     $ 101,842  

Liabilities

                   

Current:

                   

Operating leases

 

Current operating lease liabilities

  $ 26,045     $ 25,705  

Financing leases

 

Other current liabilities

    378       535  

Noncurrent:

                   

Operating leases

 

Operating lease liabilities, long-trem

    104,301       89,506  

Financing leases

 

Other long-term liabilities

    204       579  

Total lease liabilities

  $ 130,928     $ 116,325  

 

The ROU assets by segment are as follows (in thousands):

 

   

June 30,

 
   

2023

   

2022

 

Retail

  $ 115,861     $ 100,800  

Wholesale

    550       1,042  

Total ROU assets

  $ 116,411     $ 101,842  

 

The following table discloses the location and amount of our operating and financing lease costs within our consolidated statements of comprehensive income (in thousands):

 

       

Fiscal Year Ended
June 30,

 
   

Statements of Comprehensive Income Location

 

2023

   

2022

 

Operating lease cost(1)

 

SG&A expenses

  $ 30,235     $ 30,261  

Financing lease cost

                   

Depreciation of property

 

SG&A expenses

    503       489  

Interest on lease liabilities

 

Interest expense and other financing costs

    26       24  

Short-term lease cost(2)

 

SG&A expenses

    1,099       1,222  

Variable lease cost(3)

 

SG&A expenses

    9,117       9,351  

Less: Sublease income

 

SG&A expenses

    (1,162 )     (1,384 )

Total lease expense

  $ 39,818     $ 39,963  

 

 

(1)

Lease expense for operating leases consists of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term.

 

 

(2)

Leases with an initial term of 12 months or less are not recorded on the balance sheet and instead expensed on a straight-line basis over the lease term.

 

 

(3)

Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance, real estate taxes, insurance and other services provided by the lessor, and other charges included in the lease. In addition, certain of our equipment lease agreements include variable lease payments, which are based on the usage of the underlying asset. The variable portion of payments are not included in the initial measurement of the asset or lease liability due to uncertainty of the payment amount and are recorded as expense in the period incurred.

 

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 June 30, 2023 (in thousands):

 

Fiscal Year

 

Operating Leases

   

Financing Leases

 

2024

  $ 32,145     $ 392  

2025

    29,607       80  

2026

    25,520       72  

2027

    19,127       66  

2028

    15,947       -  

Thereafter

    30,007       -  

Total undiscounted future minimum lease payments

    152,353       610  

Less: imputed interest

    (22,007 )     (28 )

Total present value of lease obligations(1)

  $ 130,346     $ 582  

 

(1) Excludes future commitments under short-term operating lease agreements of less than $0.1 million as of June 30, 2023.

 

As of June 30, 2023, we did not have any operating or financing leases that have not yet commenced.

 

Other supplemental information for our leases is as follows (in thousands):

 

   

Fiscal Year Ended
June 30,

 
   

2023

   

2022

 

Cash paid for amounts included in the measurement of lease liabilities

               

Operating cash flows from operating leases

  $ 31,013     $ 33,588  

Operating cash flows from financing leases

  $ 525     $ 512  

Operating lease assets obtained in exchange for new operating lease liabilities

  $ 40,240     $ 18,674  

Financing lease obligations obtained in exchange for new financing lease assets

  $ -     $ 315  

 

We sublease a small number of our leased locations. The terms of these leases generally match those of the lease we have with the lessor. As of June 30, 2023, future minimum leases payments due to us under those subleases were as follows (in thousands):

 

   

Sublease

 

Fiscal Year

 

Income

 

2024

  $ 1,616  

2025

    1,641  

2026

    1,509  

2027

    1,171  

2028

    634  

Thereafter

    2,242  

Total future minimum sublease income

  $ 8,813  

 

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 $8.1 million, which resulted in a pre-tax gain of $1.8 million recorded within Restructuring and other impairment charges, net of gains and $5.2 million deferred as a liability to be amortized to Restructuring and other impairment charges, net of gains over the term of the related lease. For the year ended June 30, 2023, we amortized $2.4 million of this deferred liability as a gain within Restructuring and other impairment charges, net of gains. As of June 30, 2023, the deferred liability balance was $2.8 million, with $2.6 million in Other current liabilities and $0.2 million in Other long-term liabilities on our consolidated balance sheet.