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Note 6 - Leases

6 Months Ended

Dec. 31, 2021

(6)

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. 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 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 incremental borrowing rate is subsequently reassessed upon a modification to the lease agreement. 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.

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

	December 31,
	2021			2020
Weighted average remaining lease term (in years)
Operating leases		6.0			6.6
Financing leases		2.2			1.7
Weighted average discount rate
Operating leases		4.1	%		4.3	%
Financing leases		2.2	%		4.3	%

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 December 31,						Six months ended December 31,
	Statement of Comprehensive Income Location	2021			2020			2021			2020
Operating lease cost_⁽¹⁾	Selling, general and administrative (“SG&A”) expenses	$	7,475		$	7,461		$	14,948		$	14,953
Financing lease cost
Depreciation of property	SG&A expenses		126			144			252			295
Interest on lease liabilities	Interest and other financing costs		6			3			13			8
Short-term lease cost_⁽²⁾	SG&A expenses		309			240			617			480
Variable lease cost_⁽³⁾	SG&A expenses		2,371			2,351			4,684			4,613
Less: Sublease income	SG&A expenses		(386	)		(454	)		(799	)		(892	)
Total lease expense		$	9,901		$	9,745		$	19,715		$	19,457

(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 December 31, 2021 (in thousands):

Fiscal Year	Operating Leases			Financing Leases
2022 (remaining six months)	$	16,629		$	253
2023		27,367			490
2024		22,394			320
2025		18,753			8
2026		15,192			-
Thereafter		34,886			-
Total undiscounted future minimum lease payments		135,221			1,071
Less: imputed interest		(16,686	)		(24	)
Total present value of lease obligations_⁽¹⁾	$	118,535		$	1,047

(1)

Excludes future commitments under short-term operating lease agreements of $0.6 million as of December 31, 2021.

As of December 31, 2021, we have entered into one additional operating lease for a retail design center, which has not yet commenced and is therefore not part of the tables above nor included in the lease right-of-use assets and liabilities. This lease will commence when we obtain possession of the underlying leased asset, which is expected to be within the next three months. The operating lease is for a period of seven years and has an aggregate undiscounted future lease payments of $2.7 million. As of December 31, 2021, we did not have any financing leases that had not commenced.

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

	Six months ended December 31,
	2021		2020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	16,734	$	16,706
Operating cash flows from financing leases	$	264	$	290
Operating lease assets obtained in exchange for operating lease liabilities	$	7,534	$	12,102

There were no non-cash financing lease obligations obtained in exchange for new financing lease assets during the six months ended December 31, 2021 and 2020, respectively.