10-Q 1 eth20240331_10q.htm FORM 10-Q eth20240331_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 1-11692

 

image1.jpg

 

Ethan Allen Interiors Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

06-1275288

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

25 Lake Avenue Ext., Danbury, Connecticut

 

06811-5286

(Address of principal executive offices)

 

(Zip Code)

 

(203) 743-8000

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Common Stock, $0.01 par value

 

ETD

 

New York Stock Exchange

(Title of each class)

 

(Trading symbol)

 

 (Name of each exchange on which registered)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes  ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer  
Non-accelerated filer   Smaller reporting company  
Emerging growth company        

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☒ No

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of April 17, 2024, was 25,411,923.

 

 

 

 

 

ETHAN ALLEN INTERIORS INC.

FORM 10-Q THIRD QUARTER OF FISCAL 2024

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION  
   
Item 1. Financial Statements 2
   
CONSOLIDATED BALANCE SHEETS 2
   
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) 3
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) 4
   
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited) 5
   
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 6
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
   
Item 4. Controls and Procedures 34
   
PART II - OTHER INFORMATION  
   
Item 1. Legal Proceedings 35
   
Item 1A. Risk Factors 35
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
   
Item 3. Defaults Upon Senior Securities 35
   
Item 4. Mine Safety Disclosures 35
   
Item 5. Other Information 35
   
Item 6. Exhibits 36
   
SIGNATURES 36
 

 

1

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except par value)

 

   

March 31, 2024

   

June 30, 2023

 
   

(Unaudited)

         
ASSETS                

Current assets

               

Cash and cash equivalents

  $ 63,862     $ 62,130  

Investments

    82,356       110,577  

Accounts receivable, net

    7,991       11,577  

Inventories, net

    144,474       149,195  

Prepaid expenses and other current assets

    27,627       25,974  

Total current assets

    326,310       359,453  

Property, plant and equipment, net

    219,013       222,167  

Goodwill

    25,388       25,388  

Intangible assets

    19,740       19,740  

Operating lease right-of-use assets

    114,023       115,861  

Deferred income taxes

    929       640  

Other assets

    36,813       2,204  

TOTAL ASSETS

  $ 742,216     $ 745,453  

LIABILITIES

               

Current liabilities

               

Accounts payable and accrued expenses

  $ 24,774     $ 28,565  

Customer deposits

    80,526       77,765  

Accrued compensation and benefits

    19,057       23,534  

Current operating lease liabilities

    27,208       26,045  

Other current liabilities

    4,544       7,188  

Total current liabilities

    156,109       163,097  

Operating lease liabilities, long-term

    100,974       104,301  

Deferred income taxes

    3,032       3,056  

Other long-term liabilities

    4,763       3,993  

TOTAL LIABILITIES

  $ 264,878     $ 274,447  

Commitments and contingencies (see Note 19)

           

SHAREHOLDERS' EQUITY

               

Preferred stock, $0.01 par value; 1,055 shares authorized; none issued

  $ -     $ -  

Common stock, $0.01 par value, 150,000 shares authorized, 49,550 and 49,426 shares issued; 25,412 and 25,356 shares outstanding at March 31, 2024 and June 30, 2023, respectively

    495       494  

Additional paid-in capital

    387,739       386,146  

Treasury stock, at cost: 24,138 and 24,070 shares at March 31, 2024 and June 30, 2023, respectively

    (684,796 )     (682,646 )

Retained earnings

    774,813       769,819  

Accumulated other comprehensive loss

    (860 )     (2,785 )

Total Ethan Allen Interiors Inc. shareholders' equity

    477,391       471,028  

Noncontrolling interests

    (53 )     (22 )

TOTAL SHAREHOLDERS' EQUITY

    477,338       471,006  

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

  $ 742,216     $ 745,453  

 

See accompanying notes to consolidated financial statements.

 

2

 

 

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(In thousands, except per share data)

 

   

Three months ended

   

Nine months ended

 
   

March 31,

   

March 31,

 
   

2024

   

2023

   

2024

   

2023

 

Net sales

  $ 146,421     $ 186,316     $ 477,589     $ 604,007  

Cost of sales

    56,597       74,765       186,988       238,820  

Gross profit

    89,824       111,551       290,601       365,187  
                                 

Selling, general and administrative expenses

    75,253       83,233       234,734       262,342  

Restructuring and other charges, net of gains

    (754 )     (470 )     503       (2,662 )

Operating income

    15,325       28,788       55,364       105,507  
                                 

Interest and other income, net

    2,037       1,123       5,541       2,420  

Interest and other financing costs

    64       52       177       157  

Income before income taxes

    17,298       29,859       60,728       107,770  

Income tax expense

    4,345       7,503       15,425       27,368  

Net income

  $ 12,953     $ 22,356     $ 45,303     $ 80,402  
                                 

Per share data

                               

Basic earnings per common share

                               

Net income per basic share

  $ 0.51     $ 0.88     $ 1.78     $ 3.16  

Basic weighted average common shares

    25,531       25,477       25,520       25,470  

Diluted earnings per common share

                               

Net income per diluted share

  $ 0.50     $ 0.87     $ 1.77     $ 3.14  

Diluted weighted average common shares

    25,650       25,599       25,632       25,580  
                                 

Comprehensive income

                               

Net income

  $ 12,953     $ 22,356     $ 45,303     $ 80,402  

Other comprehensive income, net of tax

                               

Foreign currency translation adjustments

    544       1,683       628       2,031  

Other

    (358 )     (159 )     1,266       211  

Other comprehensive income, net of tax

    186       1,524       1,894       2,242  

Comprehensive income

  $ 13,139     $ 23,880     $ 47,197     $ 82,644  

 

See accompanying notes to consolidated financial statements.

 

3

 

 

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

 

   

Nine months ended

 
   

March 31,

 
   

2024

   

2023

 
Cash Flows from Operating Activities                

Net income

  $ 45,303     $ 80,402  

Adjustments to reconcile net income to net cash provided by operating activities

               

Depreciation and amortization

    12,036       11,673  

Share-based compensation expense

    1,085       1,145  

Non-cash operating lease cost

    23,824       22,557  

Deferred income taxes

    (313 )     (2,110 )

Restructuring and other charges, net of gains

    503       (2,662 )

Payments on restructuring and other charges, net of proceeds

    (921 )     (1,020 )

Loss on disposal of property, plant and equipment

    31       43  

Other

    130       513  

Change in operating assets and liabilities:

               

Accounts receivable, net

    3,586       1,202  

Inventories, net

    3,760       24,849  

Prepaid expenses and other current assets

    (3,744 )     3,757  

Customer deposits

    2,761       (28,308 )

Accounts payable and accrued expenses

    (4,385 )     (9,319 )

Accrued compensation and benefits

    (4,484 )     (1,634 )

Operating lease liabilities

    (24,496 )     (23,355 )

Other assets and liabilities

    (722 )     (3,375 )

Net cash provided by operating activities

    53,954       74,358  
                 

Cash Flows from Investing Activities

               

Proceeds from sale of property, plant and equipment

    22       8,105  

Capital expenditures

    (7,536 )     (10,679 )

Purchases of investments

    (79,913 )     (189,951 )

Proceeds from sales of investments

    77,346       106,933  

Net cash used in investing activities

    (10,081 )     (85,592 )
                 

Cash Flows from Financing Activities

               

Payment of cash dividends

    (40,309 )     (37,183 )

Proceeds from employee stock plans

    508       75  

Taxes paid related to net share settlement of equity awards

    (2,149 )     (812 )

Payments on financing leases

    (350 )     (395 )

Other financing costs

    -       28  

Net cash used in financing activities

    (42,300 )     (38,287 )
                 

Effect of exchange rate changes on cash and cash equivalents

    76       27  
                 

Net increase (decrease) in cash, cash equivalents and restricted cash

    1,649       (49,494 )

Cash, cash equivalents and restricted cash at beginning of period

    62,622       110,871  

Cash, cash equivalents and restricted cash at end of period

  $ 64,271     $ 61,377  

 

See accompanying notes to consolidated financial statements.

 

4

 

 

 

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (Unaudited)

(In thousands)

 

                                           

Accumulated

                         
                   

Additional

                   

Other

           

Non-

         
   

Common Stock

   

Paid-in

   

Treasury Stock

   

Comprehensive

   

Retained

   

Controlling

   

Total

 
   

Shares

   

Par Value

   

Capital

   

Shares

   

Amount

   

Loss

   

Earnings

   

Interests

   

Equity

 

Balance at June 30, 2023

    49,426     $ 494     $ 386,146       24,070     $ (682,646 )   $ (2,785 )   $ 769,819     $ (22 )   $ 471,006  

Net income

    -       -       -       -       -       -       14,939       -       14,939  

Common stock issued on share-based awards

    12       -       313       -       -       -       -       -       313  

Share-based compensation expense

    -       -       357       -       -       -       -       -       357  

Restricted stock vesting

    97       1       -       66       (2,101 )     -       -       -       (2,100 )

Cash dividends declared

    -       -       -       -       -       -       (21,928 )     -       (21,928 )

Other comprehensive income (loss)

    -       -       -       -       -       (25 )     -       (6 )     (31 )

Balance at September 30, 2023

    49,535     $ 495     $ 386,816       24,136     $ (684,747 )   $ (2,810 )   $ 762,830     $ (28 )   $ 462,556  

Net income

    -       -       -       -       -       -       17,411       -       17,411  

Common stock issued on share-based awards

    1       -       9       -       -       -       -       -       9  

Share-based compensation expense

    -       -       364       -       -       -       -       -       364  

Cash dividends declared

    -       -       -       -       -       -       (9,189 )     -       (9,189 )

Other comprehensive income (loss)

    -       -       -       -       -       1,747       -       (8 )     1,739  

Balance at December 31, 2023

    49,536     $ 495     $ 387,189       24,136     $ (684,747 )   $ (1,063 )   $ 771,052     $ (36 )   $ 472,890  

Net income

    -       -       -       -       -       -       12,953       -       12,953  

Common stock issued on share-based awards

    7       -       186       -       -       -       -       -       186  

Share-based compensation expense

    -       -       364       -       -       -       -       -       364  

Cash dividends declared

    -       -       -       -       -       -       (9,192 )     -       (9,192 )

Restricted stock vesting

    7       -       -       2       (49 )     -       -       -       (49 )

Other comprehensive income (loss)

    -       -       -       -       -       203       -       (17 )     186  

Balance at March 31, 2024

    49,550     $ 495     $ 387,739       24,138     $ (684,796 )   $ (860 )   $ 774,813     $ (53 )   $ 477,338  

 

                                           

Accumulated

                         
                   

Additional

                   

Other

           

Non-

         
   

Common Stock

   

Paid-in

   

Treasury Stock

   

Comprehensive

   

Retained

   

Controlling

   

Total

 
   

Shares

   

Par Value

   

Capital

   

Shares

   

Amount

   

Loss

   

Earnings

   

Interests

   

Equity

 

Balance at June 30, 2022

    49,360     $ 494     $ 384,782       24,037     $ (681,834 )   $ (6,462 )   $ 710,369     $ (26 )   $ 407,323  

Net income

    -       -       -       -       -       -       29,880       -       29,880  

Share-based compensation expense

    -       -       268       -       -       -       -       -       268  

Restricted stock vesting

    55       -       1       31       (765 )     -       -       -       (764 )

Cash dividends declared

    -       -       -       -       -       -       (20,879 )     -       (20,879 )

Other comprehensive income (loss)

    -       -       -       -       -       (82 )     -       (7 )     (89 )

Balance at September 30, 2022

    49,415     $ 494     $ 385,051       24,068     $ (682,599 )   $ (6,544 )   $ 719,370     $ (33 )   $ 415,739  

Net income

    -       -       -       -       -       -       28,166       -       28,166  

Common stock issued on share-based awards

    1       -       9       -       -       -       -       -       9  

Share-based compensation expense

    -       -       495       -       -       -       -       -       495  

Cash dividends declared

    -       -       -       -       -       -       (8,152 )     -       (8,152 )

Other comprehensive income (loss)

    -       -       -       -       -       795       -       12       807  

Balance at December 31, 2022

    49,416     $ 494     $ 385,555       24,068     $ (682,599 )   $ (5,749 )   $ 739,384     $ (21 )   $ 437,064  

Net income

    -       -       -       -       -       -       22,356       -       22,356  

Common stock issued on share-based awards

    1       -       66       -       -       -       -       -       66  

Share-based compensation expense

    -       -       382       -       -       -       -       -       382  

Cash dividends declared

    -       -       -       -       -       -       (8,152 )     -       (8,152 )

Restricted stock vesting

    9       -       -       2       (47 )     -       -       -       (47 )

Other comprehensive income (loss)

    -       -       -       -       -       1,513       -       11       1,524  

Balance at March 31, 2023

    49,426     $ 494     $ 386,003       24,070     $ (682,646 )   $ (4,236 )   $ 753,588     $ (10 )   $ 453,193  

 

See accompanying notes to consolidated financial statements.

 

 

5

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

 

 

(1)

Organization and Nature of Business

 

Ethan Allen Interiors Inc., through its wholly owned subsidiary, Ethan Allen Global, Inc., and Ethan Allen Global, Inc.’s subsidiaries (collectively, “we,” “us,” “our,” “Ethan Allen” or the “Company”), is a Delaware corporation and leading interior design destination combining technology with personal service. Our design centers, which operate under a mix of Company-owned and independent licensee locations, offer complimentary interior design service, and sell a full range of home furnishings, including custom furniture and artisan-crafted accents for every room in the home. Vertically integrated from product design through logistics, we manufacture about 75% of our custom-crafted products in our North American manufacturing facilities and have been recognized for product quality and craftsmanship since our founding in 1932.

 

As of March 31, 2024, the Company operated 141 retail design centers with 137 located in the U.S. and four in Canada. Our independently operated design centers are located in the U.S., Asia, the Middle East and Europe. We also own and operate ten manufacturing facilities, including four manufacturing plants, one sawmill, one rough mill and one kiln dry lumberyard in the U.S., two manufacturing plants in Mexico and one manufacturing plant in Honduras.

 

 

(2)

Interim Basis of Presentation

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Our consolidated financial statements also include the accounts of an entity in which we are a majority shareholder with the power to direct the activities that most significantly impact the entity’s performance. Noncontrolling interest amounts in the entity are immaterial and included in the consolidated statements of comprehensive income within Interest and other income, net.

 

All intercompany activity and balances, including any related profit on intercompany sales, have been eliminated from the consolidated financial statements. In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for fair presentation, have been included in the consolidated financial statements. The results of operations for the three and nine months ended March 31, 2024 are not necessarily indicative of results that may be expected for the entire fiscal year. The interim consolidated financial statements were prepared on a basis consistent with those reflected in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 (the “2023 Annual Report on Form 10-K”) but do not include all disclosures required by U.S. generally accepted accounting principles (“GAAP”). We derived the June 30, 2023 consolidated balance sheet from our audited financial statements included in our 2023 Annual Report on Form 10-K.

 

Use of Estimates

 

We prepare our consolidated financial statements in accordance with GAAP, which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of net sales and expenses during the reporting period. Due to the inherent uncertainty involved in making those estimates, actual results could differ from those estimates. Areas in which significant estimates have been made include, but are not limited to, goodwill and indefinite-lived intangible asset impairment analyses, recoverability and useful lives for property, plant and equipment, inventory obsolescence, tax valuation allowances, the evaluation of uncertain tax positions and business insurance reserves.

 

Restricted Cash

 

We present restricted cash as a component of total cash and cash equivalents on our consolidated statements of cash flows and within Other assets on our consolidated balance sheets. At March 31, 2024 and June 30, 2023, we held $0.4 million and $0.5 million, respectively, of restricted cash related to our insurance captive.

 

We have evaluated subsequent events through the date of issuance of the financial statements included in this Quarterly Report on Form 10-Q.

 

 

(3)

Recent Accounting Pronouncements

 

The Company evaluates all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) for consideration of their applicability to our consolidated financial statements.

 

6

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

New Accounting Standards or Updates Adopted in Fiscal 2024

 

Business Combinations. In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) rather than adjust them to fair value at the acquisition date. The adoption of this accounting standard in the first quarter of fiscal 2024 did not have an impact on our consolidated financial statements.

 

Derivatives and Hedging. In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 801): Fair Value Hedging – Portfolio Layer Method, which expands the current single-layer hedging model to allow multiple-layer hedges of a single closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments under the method. The adoption of this accounting standard in the first quarter of fiscal 2024 did not have an impact on our consolidated financial statements.

 

Recent Accounting Standards or Updates Not Yet Effective

 

Disclosure Improvements. In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendment in Response to the SECs Disclosure Update and Simplification Initiative. The ASU incorporates several disclosure and presentation requirements currently residing in the SEC Regulations S-X and S-K. The amendments will be applied prospectively and are effective when the SEC removes the related requirements from Regulations S-X or S-K. Any amendments the SEC does not remove by June 30, 2027 will not be effective. As we are currently subject to these SEC requirements, this ASU is not expected to have a material impact on our consolidated financial statements or related disclosures.

 

Segment Reporting. In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires all public entities to provide enhanced disclosures about significant segment expenses. The amendments in this ASU are to be applied retrospectively and are effective for our annual financial statements starting in fiscal 2025 and interim periods starting in fiscal 2026, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our consolidated financial statements or related disclosures.

 

Income Taxes. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid and to improve the effectiveness of income tax disclosures. This ASU will be effective for us for fiscal 2026 and interim periods beginning in the first quarter of fiscal 2027, with early adoption permitted. We are currently evaluating the impact of this accounting standard, but do not expect it to have a material impact on our consolidated financial statements or related disclosures.

 

Climate-Related Disclosures. In March 2024, the SEC adopted final rules that would require registrants to provide certain climate-related information in their registration statements and annual reports. The new rules require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The rules also require disclosure of a registrant’s greenhouse gas emissions and certain climate-related financial metrics in their audited financial statements. In April 2024, the SEC voluntarily stayed the rules pending completion of a judicial review that is currently pending in the U.S. Court of Appeals for the Eighth Circuit. We are currently evaluating the impact of these rules on our consolidated financial statements and related disclosures.

 

No other new accounting pronouncements issued or effective as of March 31, 2024 have had or are expected to have a material impact on our consolidated financial statements.

 

 

(4)

Revenue Recognition

 

Our reported revenue (net sales) consists 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. The majority of our shipping agreements are freight-on-board shipping point and risk of loss transfers to our wholesale customer once the product is out of our control. Accordingly, revenue is recognized for product shipments on third-party carriers at the point in time that our product is loaded onto the third-party container or truck. For sales in our retail segment, control generally transfers upon delivery to the customer. We recognize the promised amount of consideration without adjusting for the effects of a significant financing component if the contract has a duration of one year or less. As our contracts typically are less than one year in length and do not have significant financing components, we have not adjusted consideration.

 

7

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

Shipping and Handling. Our practice has been to sell our products at the same delivered cost to all retailers and customers nationwide, regardless of shipping point. Costs incurred by the Company to deliver finished goods are expensed and recorded in selling, general and administrative (“SG&A”) expenses. 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.

 

Sales Taxes. 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). Sales tax collected is not recognized as revenue but is included in Accounts payable and accrued expenses on the consolidated balance sheets as it is ultimately remitted to governmental authorities.

 

Returns and Allowances. Estimated refunds for returns and allowances are based on our historical return patterns. We record these estimated sales 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 liabilities on our consolidated balance sheets. At March 31, 2024 and June 30, 2023, these amounts were immaterial.

 

Allowance for Doubtful Accounts. Accounts receivable arise from the sale of products on trade credit terms and is presented net of allowance for doubtful accounts. We maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. The allowance for doubtful accounts is based on a review of specifically identified accounts in addition to an overall aging analysis. At March 31, 2024 and June 30, 2023, the allowance for doubtful accounts was immaterial.

 

Commissions. 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, 2024, we had prepaid commissions of $13.2 million, which we expect to recognize to selling expense during the remainder of fiscal 2024 as Selling, general and administrative expenses within our consolidated statements of comprehensive income.

 

Customer Deposits. We collect deposits from customers on a portion of the total purchase price at the time a written order is placed, but 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 on our consolidated balance sheets. As of March 31, 2024, we had customer deposits of $80.5 million. At June 30, 2023 we had customer deposits of $77.8 million, of which we recognized $74.7 million of revenue related to our contract liabilities during the nine months ended March 31, 2024. Revenue recognized during the three months ended March 31, 2024, which was previously included in Customer deposits as of December 31, 2023, was $2.7 million, compared to $6.1 million of revenue recognized during the three months ended March 31, 2023, which was previously included in Customer deposits as of December 31, 2022. We expect that substantially all of the customer deposits as of March 31, 2024 will be recognized as revenue within the next twelve months as the performance obligations are satisfied.

 

8

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

The following table disaggregates our net sales by product category by segment (in thousands):

 

   

Three months ended March 31, 2024

   

Three months ended March 31, 2023

 
   

Wholesale

   

Retail

   

Eliminations(1)

   

Total

   

Wholesale

   

Retail

   

Eliminations(1)

   

Total

 

Upholstery(2)

  $ 44,187     $ 54,407     $ (31,692 )   $ 66,902     $ 56,923     $ 71,269     $ (38,603 )   $ 89,589  

Case goods(3)

    31,542       35,494       (19,803 )     47,233       39,761       41,917       (24,439 )     57,239  

Accents(4)

    15,670       25,548       (14,525 )     26,693       19,456       29,382       (15,760 )     33,078  

Other(5)

    (1,574 )     7,167       -       5,593       (1,945 )     8,355       -       6,410  

Total

  $ 89,825     $ 122,616     $ (66,020 )   $ 146,421     $ 114,195     $ 150,923     $ (78,802 )   $ 186,316  

 

 

   

Nine months ended March 31, 2024

    Nine months ended March 31, 2023  
   

Wholesale

   

Retail

   

Eliminations(1)

   

Total

   

Wholesale

   

Retail

   

Eliminations(1)

   

Total

 

Upholstery(2)

  $ 138,071     $ 186,519     $ (98,853 )   $ 225,737     $ 169,206     $ 245,144     $ (121,089 )   $ 293,261  

Case goods(3)

    91,060       103,308       (55,358 )     139,010       113,734       137,061       (68,855 )     181,940  

Accents(4)

    54,309       83,167       (43,496 )     93,980       57,292       97,737       (47,486 )     107,543  

Other(5)

    (3,558 )     22,420       -       18,862       (5,139 )     26,402       -       21,263  

Total

  $ 279,882     $ 395,414     $ (197,707 )   $ 477,589     $ 335,093     $ 506,344     $ (237,430 )   $ 604,007  

 

 

(1)

The Eliminations column in the tables above represents the elimination of all intercompany wholesale segment sales to the retail segment in each period presented.

 

(2)

Upholstery includes fabric-covered items such as sleepers, recliners and other motion furniture, chairs, ottomans, custom pillows, sofas, loveseats, cut fabrics and leather.

 

(3)

Case goods includes items such as beds, dressers, armoires, tables, chairs, buffets, entertainment units, home office furniture and wooden accents.

 

(4)

Accents includes items such as window treatments and drapery hardware, wall décor, florals, lighting, clocks, mattresses, bedspreads, throws, pillows, decorative accents, area rugs, flooring, wall coverings and home and garden furnishings.

 

(5)

Other includes product delivery sales, Ethan Allen Hotel revenues, sales of third-party furniture protection plans and other miscellaneous product sales less prompt payment discounts, sales allowances and other incentives.

 

 

(5)

Fair Value Measurements

 

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, the use of various valuation methodologies, including market, income and cost approaches is permissible. We consider the principal or most advantageous market in which it would transact and assumptions that market participants would use when pricing the asset or liability.

 

Fair Value Hierarchy. The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.

 

We have categorized our cash equivalents and investments within the fair value hierarchy as follows: 

 

Level 1 – applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. These Level 1 assets include our corporate money market funds that are classified as cash equivalents. We have categorized our cash equivalents as Level 1 assets as there are quoted prices in active markets for identical assets or liabilities.

 

Level 2 – applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. At March 31, 2024 and June 30, 2023, we have categorized our investments as Level 2 assets. 

 

9

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

Level 3 – applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. We held no Level 3 assets or liabilities as of March 31, 2024 or June 30, 2023.

 

Assets and Liabilities Measured at Fair Value on a Recurring Basis. The following tables show, by level within the fair value hierarchy, our assets and liabilities that are measured at fair value on a recurring basis at March 31, 2024 and June 30, 2023. There were no transfers between levels of fair value measurements during the periods presented.

 

     

Fair Value Measurements at March 31, 2024

 

Financial Assets

Balance Sheet Location

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Corporate money market funds (1)

Cash and cash equivalents

  $ 27,285     $ -     $ -     $ 27,285  

U.S. Treasury bills (2)

Investments

    -       82,356       -       82,356  

U.S. Treasury notes (2)

Other assets

    -       34,867       -       34,867  

Total

  $ 27,285     $ 117,223     $ -     $ 144,508  

 

     

Fair Value Measurements at June 30, 2023

 

Financial Assets

Balance Sheet Location

 

Level 1

   

Level 2

   

Level 3

   

Total

 

Corporate money market funds (1)

Cash and cash equivalents

  $ 23,923     $ -     $ -     $ 23,923  

U.S. Treasury bills (2)

Investments

    -       110,577       -       110,577  

Total

  $ 23,923     $ 110,577     $ -     $ 134,500  

 

 

(1)

Our corporate money market funds are readily convertible into cash and the net asset value of each fund on the last day of the quarter is used to determine its fair value.

 

 

(2)

We have current and non-current debt securities (U.S. Treasury bills and notes) intended to enhance returns on our cash as well as to fund future obligations. All unrealized gains and losses were included in Accumulated other comprehensive loss within our consolidated balance sheets. There were no material gross unrealized gains or losses on the investments at March 31, 2024 or June 30, 2023.

 

Our debt securities are presented below in accordance with their stated maturities. A portion of these investments are classified as non-current as they have stated maturities of more than one year from the balance sheet date. However, these investments are generally available to meet short-term liquidity needs.

 

   

March 31, 2024

 
   

Amortized cost

   

Gross unrealized gains

   

Gross unrealized losses

   

Fair Value

 

Due within one year

  $ 79,998     $ 2,358     $ -     $ 82,356  

Due within one and two years

    34,907       -       (40 )     34,867  

Total

  $ 114,905     $ 2,358     $ (40 )   $ 117,223  

 

There were no investments that have been in a continuous loss position for more than one year, and there have been no other-than-temporary impairments recognized.

 

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. We did not record any other-than-temporary impairments on assets required to be measured at fair value on a non-recurring basis during fiscal 2024 or 2023.

 

Assets and Liabilities Measured at Fair Value for Disclosure Purposes Only. We had no outstanding bank borrowings as of March 31, 2024 and June 30, 2023. We have historically categorized our outstanding bank borrowings as a Level 2 liability.

 

 

(6)

Leases

 

We recognize substantially all leases on our balance sheet as a right-of-use (“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. 

 

10

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

 

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

 

   

March 31,

 
   

2024

   

2023

 
Weighted average remaining lease term (in years)                

Operating leases

    5.6       6.0  

Financing leases

    3.0       2.2  
Weighted average discount rate                

Operating leases

    5.8 %     5.4 %

Financing leases

    5.5 %     3.3 %

 

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

March 31,

   

Nine months ended

March 31,

 
 

Statements of Comprehensive Income Location

 

2024

   

2023

   

2024

   

2023

 

Operating lease cost(1)

SG&A expenses

  $ 8,006     $ 7,573     $ 23,824     $ 22,557  

Financing lease cost

                                 

Depreciation of property

SG&A expenses

    120       124       368       379  

Interest on lease liabilities

Interest and other financing costs

    11       6       19       21  

Short-term lease cost(2)

SG&A expenses

    2       307       61       887  

Variable lease cost(3)

SG&A expenses

    2,522       2,427       7,313       6,940  

Less: Sublease income

SG&A expenses

    (404 )     (288 )     (980 )     (874 )

Total lease expense

  $ 10,257     $ 10,149     $ 30,605     $ 29,910  

 

 

(1)

Operating lease costs include costs associated with fixed lease payments and index-based variable payments that qualified for lease accounting under ASC 842, Leases and complied with the practical expedients we elected. 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 costs include costs that were not fixed at the lease commencement date and are not dependent on an index or rate. Variable lease payments are generally expensed as incurred, where applicable, and include certain non-lease components, such as maintenance, utilities, 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 following table 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 our consolidated balance sheets as of March 31, 2024 (in thousands):

 

Fiscal Year

 

Operating Leases

   

Financing Leases

 

2024 (remaining three months)

  $ 8,452     $ 84  

2025

    33,326       381  

2026

    29,293       374  

2027