Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Revenue Recognition

v3.20.1
Note 4 - Revenue Recognition
 9 Months Ended
Mar. 31, 2020
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]
(
4
)
Revenue Recognition
 
Our reported revenue (net sales) consist 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. For sales in our retail segment, control generally transfers upon delivery to the customer. 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. 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). We do
not
adjust net sales for the effects of financing components as we believe that we will receive payment from the customer within
one
year of when we transfer control of the related goods.
 
Estimated refunds for sales returns and allowances are based on our historical return patterns. We record these estimated 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 liabilitie
s
on our consolidated balance sheets. At
March 31, 2020
and
June 30, 2019,
these amounts were immaterial.
 
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, 2020,
we had prepaid commissions of
$7.1
million, which we expect to recognize to selling expense in the next
six
months. Prepaid commissions totaled
$8.0
million at
June 30, 2019.
 
In many cases we receive deposits from customers 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
and
d
eferred
r
evenue
on our consolidated balance sheets. At
June 30, 2019
we had customer deposits of
$56.7
million, of which we recognized
$1.1
million and
$54.7
million, respectively, as net sales upon delivery to the customer during the
three
and
nine
months ended
March 31, 2020.
Customer deposits totaled
$50.2
million at
March 31, 2020.
 
During
October 2019
we introduced the Ethan Allen Member Program, which for a
$100
annual fee, offers special members-only pricing, free shipping and white glove in-home delivery, and in our United States design centers, access to preferred financing plans. New membership fees are recorded as deferred revenue when collected from customers and recognized as revenue on a straight-line basis over the membership period of
one
year. These non-refundable fees are initially reported as a current liability in
Customer
d
eposits and
d
eferred
r
evenue
on our consolidated balance sheet while recognized revenue is reported within
Net
s
ales
on our consolidated statement of comprehensive income. Revenue recognized from annual membership fees is reported as a part of other revenue in the disaggregated revenue tables below.
 
The following table disaggregates net sales by product category by segment for the
three
months ended
March 31, 2020 (
in thousands):
 
   
Wholesale
    
Retail
    
Total
  
Upholstery
(1)
   $
47,214
     $
54,791
     $
102,005
  
Case goods
(2)
    
30,096
      
31,822
      
61,918
  
Accents
(3)
    
16,942
      
25,849
      
42,791
  
Other
(4)
    
(1,113
 )    
3,236
      
2,123
  
Total before intercompany eliminations
   $
93,139
     $
115,698
      
208,837
  
Intercompany eliminations
(5)
    
 
      
 
      
(59,063
 )
Consolidated net sales
    
 
      
 
     $
149,774
  
 
The following table disaggregates net sales by product category by segment for the
nine
months ended
March 31, 2020 (
in thousands):
 
   
Wholesale
    
Retail
    
Total
  
Upholstery
(1)
   $
141,563
     $
181,723
     $
323,286
  
Case goods
(2)
    
95,922
      
110,465
      
206,387
  
Accents
(3)
    
51,109
      
86,078
      
137,187
  
Other
(4)
    
(2,237
 )    
13,799
      
11,562
  
Total before intercompany eliminations
   $
286,357
     $
392,065
      
678,422
  
Intercompany eliminations
(5)
    
 
      
 
      
(180,153
 )
Consolidated net sales
    
 
      
 
     $
498,269
  
 
 
(
1
)
Upholstery furniture includes fabric-covered items such as sleepers, recliners and other motion furniture, chairs, ottomans, custom pillows, sofas, loveseats, cut fabrics and leather.
 
 
(
2
)
Case goods furniture includes items such as beds, dressers, armoires, tables, chairs, buffets, entertainment units, home office furniture, and wooden accents.
 
 
(
3
)
Accents includes items such as window treatments and drapery hardware, wall décor, florals, lighting, clocks, mattresses, bedspreads, throws, pillows, decorative accents, area rugs, wall coverings and home and garden furnishings.
 
 
(
4
)
Other includes membership revenue, product delivery sales, the Ethan Allen Hotel room rentals and banquets, sales of
third
-party furniture protection plans and other miscellaneous product sales less prompt payment discounts, sales allowances and other incentives.
 
 
(
5
)
Represents the elimination of all intercompany wholesale segment sales to the retail segment during the period presented.