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Note 6 - Leases | 12 Months Ended
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Jun. 30, 2021
Notes to Financial Statements |
Lessee, Leases [Text Block] |
(6) | Leases
During the first quarter of fiscal 2020, we adopted ASU 2016-02, Leases (Topic 842), and all related amendments. The guidance requires lessees to recognize substantially all leases on their 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. Key estimates and judgments in applying ASU 2016-02 relate to how the Company determines the discount rate to discount the unpaid lease payments to present value and the lease term. 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 determined 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. We used the incremental borrowing rates we determined as of July 1, 2019 for operating leases that commenced prior to that date. The incremental borrowing rate is subsequently reassessed upon a modification to the lease agreement. In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease. The lease term for all of our lease arrangements include the noncancelable period of the lease plus, if applicable, any additional periods covered by an option to extend the lease that is reasonably certain to be exercised by the Company. Our leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. 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. Lease concessions, in the form of rent deferrals and/or abatements, related to the effects of the COVID-19 pandemic that do not result in a substantial increase in the rights of the landlord or the obligations of the Company are accounted for as if no changes to the lease contract were made. Under this accounting, we have reflected rent deferrals within Accounts payable and accrued expenses in our consolidated balance sheet and recognized expense within our consolidated statement of comprehensive income. Rent abatements have been reflected as variable lease payments. During the fourth quarter of fiscal 2020, we received a total of $2.7 million in retail design center rent deferrals and abatements related to the effects of COVID-19. We did not receive any new material COVID-19 related rent deferrals during fiscal 2021. We have repaid $2.4 million of this previously deferred rent, leaving a liability balance of $0.3 million as of June 30, 2021, which will be repaid in the next six months. Operating and financing lease assets and liabilities recognized within our consolidated balance sheets are as follows (in thousands):
|  |  | June 30, |
| Consolidated Balance Sheet Location |  | 2021 |  |  | 2020 |
Assets |  |  |  |  |  |  |  |  |
Operating leases | Operating lease right-of-use assets (non-current) |  | $ | 108,730 |  |  | $ | 109,342 |
Financing leases | Property, plant and equipment, net |  |  | 1,233 |  |  |  | 590 |
Total lease assets |  | $ | 109,963 |  |  | $ | 109,932 |
Liabilities |  |  |  |  |  |  |  |  |
Current: |  |  |  |  |  |  |  |  |
Operating leases | Current operating lease liabilities |  | $ | 27,395 |  |  | $ | 27,366 |
Financing leases | Other current liabilities |  |  | 523 |  |  |  | 464 |
Noncurrent: |  |  |  |  |  |  |  |  |
Operating leases | Operating lease liabilities, long-term |  |  | 97,911 |  |  |  | 102,111 |
Financing leases | Other long-term liabilities |  |  | 788 |  |  |  | 121 |
Total lease liabilities |  | $ | 126,617 |  |  | $ | 130,062 |
The ROU assets by segment are as follows (in thousands):
|  | 2021 |  |  | 2020 |
Retail |  | $ | 108,765 |  |  | $ | 109,395 |
Wholesale |  |  | 1,198 |  |  |  | 537 |
Total ROU assets |  | $ | 109,963 |  |  | $ | 109,932 |
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, |
| Statement of Comprehensive Income Location |  | 2021 |  |  | 2020 |
Operating lease cost(1) | SG&A |  | $ | 29,944 |  |  | $ | 31,995 |
Financing lease cost: |  |  |  |  |  |  |  |  |
Depreciation of property | SG&A |  |  | 668 |  |  |  | 596 |
Interest on lease liabilities | Interest and other financing costs |  |  | 24 |  |  |  | 30 |
Short-term lease cost(2) | SG&A |  |  | 840 |  |  |  | 1,215 |
Variable lease cost(3) | SG&A |  |  | 9,068 |  |  |  | 9,457 |
Less: Sublease income | SG&A |  |  | (1,716 | ) |  |  | (2,181 | )
Total lease expense |  | $ | 38,828 |  |  | $ | 41,112 |
| (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 initial terms 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.
For the twelve months ended June 30, 2019, operating lease rent expense as reported within SG&A was $32.4 million, net of sublease rental income of $2.1 million. 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 condensed consolidated balance sheets as of June 30, 2021 (in thousands):
Fiscal Year |  | Operating Leases |  |  | Financing Leases |
2022 |  | $ | 31,978 |  |  | $ | 530 |
2023 |  |  | 25,901 |  |  |  | 490 |
2024 |  |  | 21,374 |  |  |  | 320 |
2025 |  |  | 17,830 |  |  |  | 8 |
2026 |  |  | 14,265 |  |  |  | - |
Thereafter |  |  | 32,217 |  |  |  | - |
Total undiscounted future minimum lease payments |  |  | 143,565 |  |  |  | 1,348 |
Less: imputed interest |  |  | (18,259 | ) |  |  | (37 | )
Total present value of lease obligations(1) |  | $ | 125,306 |  |  | $ | 1,311 |
(1) Excludes future commitments under short-term operating lease agreements of $0.3 million as of June 30, 2021. The Company's lease terms and discount rates are as follows:
|  | June 30, |
|  | 2021 |  |  | 2020 |
Weighted-average remaining lease term (in years) |  |  |  |  |  |  |  |
Operating leases |  |  | 6.2 |  |  |  | 6.6 |
Financing leases |  |  | 2.6 |  |  |  | 1.6 |
Weighted-average discount rate |  |  |  |  |  |  |  |
Operating leases |  |  | 4.2 | % |  |  | 4.2 | %
Financing leases |  |  | 2.3 | % |  |  | 4.4 | %
As of June 30, 2021, we have entered into two additional 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 right-of-use assets and liabilities. These leases will commence when we obtain possession of the underlying leased asset, which is expected to be during the first half of fiscal 2022. The two operating leases are for a period of seven and ten years, respectively, and have aggregate undiscounted future rent payments of $4.4 million. As of June 30, 2021, 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, |
|  | 2021 |  |  | 2020 |
Cash paid for amounts included in the measurement of lease liabilities |  |  |  |  |  |  |  |
Operating cash flows from operating leases |  | $ | 33,401 |  |  | $ | 34,765 |
Operating cash flows from financing leases |  | $ | 585 |  |  | $ | 568 |
Operating lease assets obtained in exchange for new operating lease liabilities |  | $ | 23,901 |  |  | $ | 18,218 |
Financing lease obligations obtained in exchange for new financing leases assets(1) |  | $ | 1,311 |  |  | $ | 87 |
| (1) | There were no non-cash financing lease obligations incurred during fiscal 2019.
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, 2021, future minimum leases payments due to us under those subleases were as follows (in thousands):
Fiscal Year |  | Sublease Income |
2022 |  | $ | 1,561 |
2023 |  |  | 1,121 |
2024 |  |  | 719 |
2025 |  |  | 522 |
2026 |  |  | 538 |
Thereafter |  |  | 1,417 |
Total minimum future sublease income |  | $ | 5,878 |

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