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Note 6 - Leases
12 Months Ended
Jun. 30, 2024
Notes to Financial Statements  
Lessee, Leases [Text Block]

(6)

Leases

 

We recognize leases on our consolidated balance sheets 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:

 

   

June 30,

 
   

2024

   

2023

 

Weighted average remaining lease term (in years)

               

Operating leases

    5.6       5.8  

Financing leases

    2.8       2.1  

Weighted average discount rate

               

Operating leases

    5.8%       5.5%  

Financing leases

    5.6%       3.5%  

 

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

 

     

June 30,

 
 

Consolidated Balance Sheet Location

 

2024

   

2023

 

Assets

                 

Operating leases

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

  $ 114,242     $ 115,861  

Financing leases

Property, plant and equipment, net

    930       550  

Total lease assets

  $ 115,172     $ 116,411  
                 

Liabilities

                 

Current:

                 

Operating leases

Current operating lease liabilities

  $ 27,387     $ 26,045  

Financing leases

Other current liabilities

    336       378  

Noncurrent:

                 

Operating leases

Operating lease liabilities, long-term

    100,897       104,301  

Financing leases

Other long-term liabilities

    658       204  

Total lease liabilities

  $ 129,278     $ 130,928  

 

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

 

   

June 30,

 
   

2024

   

2023

 

Retail

  $ 114,242     $ 115,861  

Wholesale

    930       550  

Total ROU assets

  $ 115,172     $ 116,411  

 

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

 

2024

   

2023

 

Operating lease cost(1)

SG&A expenses

  $ 31,959     $ 30,235  

Financing lease cost

                 

Depreciation of property

SG&A expenses

    453       503  

Interest on lease liabilities

Interest expense and other financing costs

    33       26  

Short-term lease cost(2)

SG&A expenses

    85       1,099  

Variable lease cost(3)

SG&A expenses

    9,710       9,117  

Less: Sublease income

SG&A expenses

    (1,371 )     (1,162 )

Total lease expense

  $ 40,869     $ 39,818  

 

 

(1)

Lease expense for operating leases consists of both fixed and variable components. Expenses 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 consolidated balance sheets 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 (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 at June 30, 2024 (in thousands):

 

Fiscal Year

 

Operating Leases

   

Financing Leases

 

2025

  $ 33,942     $ 381  

2026

    30,527       374  

2027

    23,854       317  

2028

    20,605       -  

2029

    16,064       -  

Thereafter

    26,259       -  

Total undiscounted future minimum lease payments

    151,251       1,072  

Less: imputed interest

    (22,967 )     (78 )

Total present value of lease obligations(1)

  $ 128,284     $ 994  

 

 

(1)

Excludes future commitments under short-term operating lease agreements of less than $0.1 million as of June 30, 2024.

 

At June 30, 2024, we have two operating leases for retail design centers which have not yet commenced and are therefore not part of the tables above nor included in the lease ROU assets and liabilities. These leases will commence when we obtain possession of the underlying leased asset, which is expected to be during fiscal 2025. The two operating leases are both for a period of ten years, respectively, and have aggregate undiscounted future lease payments of $4.9 million. At June 30, 2024, we did not have any financing leases that had not commenced.

 

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

 

   

Fiscal Year Ended
June 30,

 
   

2024

   

2023

 

Cash paid for amounts included in the measurement of lease liabilities

               

Operating cash flows from operating leases

  $ 32,981     $ 31,013  

Operating cash flows from financing leases

  $ 421     $ 525  

Operating lease assets obtained in exchange for new operating lease liabilities

  $ 23,690     $ 40,240  

Financing lease obligations obtained in exchange for new financing lease assets

  $ 780     $ -  

 

We sublease a select number of our leased locations, which generally match those of the leases we have with the lessor. At June 30, 2024, future minimum leases payments due to us under those subleases were as follows (in thousands):

 

   

Sublease

 

Fiscal Year

 

Income

 

2025

  $ 1,637  

2026

    1,504  

2027

    1,194  

2028

    791  

2029

    785  

Thereafter

    1,659  

Total future minimum sublease income

  $ 7,570  

 

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 charges, net of gains and $5.2 million deferred as a liability to be amortized to Restructuring and other charges, net of gains over the term of the related lease. For the year ended June 30, 2024, we amortized $2.6 million of this deferred liability as a gain within Restructuring and other charges, net of gains. As of June 30, 2024, the deferred liability balance was $0.2 million within Other current liabilities.