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Note 8 - Leases

9 Months Ended

Mar. 31, 2021

(8)

Leases

We have operating leases for many of our design centers that expire at various dates through fiscal 2040. In addition, 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. 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.

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

	March 31,
	2021			2020
Weighted-average remaining lease term (in years)
Operating leases		6.3			6.7
Financing leases		2.9			1.7
Weighted-average discount rate
Operating leases		4.2	%		3.8	%
Financing leases		2.3	%		4.4	%

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. 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 and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. 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 lease expense in the period incurred.

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,
	Statement of Comprehensive Income Location	2021			2020
Operating lease cost⁽¹⁾	Selling, general and administrative (“SG&A”)	$	7,618		$	8,178
Financing lease cost
Depreciation of property	SG&A		247			152
Interest on lease liabilities	Interest and other financing costs		9			8
Short-term lease cost⁽²⁾	SG&A		180			280
Variable lease cost⁽³⁾	SG&A		2,362			2,333
Less: Sublease income	SG&A		(411	)		(486	)
Total lease expense		$	10,005		$	10,465

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

		Nine months ended March 31,
	Statement of Comprehensive Income Location	2021			2020
Operating lease cost⁽¹⁾	SG&A	$	22,571		$	24,369
Financing lease cost
Depreciation of property	SG&A		542			445
Interest on lease liabilities	Interest and other financing costs		16			25
Short-term lease cost⁽²⁾	SG&A		667			1,022
Variable lease cost⁽³⁾	SG&A		6,975			7,169
Less: Sublease income	SG&A		(1,303	)		(1,588	)
Total lease expense		$	29,468		$	31,442

(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 one year or less are not capitalized 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.

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, 2021 (in thousands):

Fiscal Year	Operating Leases			Financing Leases
2021 (remaining three months)	$	8,244		$	138
2022		31,942			529
2023		25,873			490
2024		21,351			320
2025		17,807			8
Thereafter		46,459			-
Total undiscounted future minimum lease payments⁽¹⁾⁽²⁾		151,676			1,485
Less: imputed interest⁽³⁾		(19,672	)		(44	)
Total present value of lease obligations	$	132,004		$	1,441

(1)

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.

(2)

Excludes future commitments under short-term lease agreements of $1.1 million as of March 31, 2021 as leases with an initial term of twelve months or less are not recorded on the balance sheet.

(3)

Calculated using the incremental borrowing rate for each lease at lease commencement.

As of March 31, 2021, we did not have any financing or operating leases that had not commenced.

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

	Nine months ended March 31,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	25,923	$	24,411
Operating cash flows from financing leases	$	455	$	422
Operating lease assets obtained in exchange for operating lease liabilities	$	23,672	$	16,333