Leases

12 Months Ended

Jun. 30, 2022

Our operating lease portfolio is primarily comprised of showrooms, which expire at various dates through 2030. We have no financing leases. Certain operating lease agreements include rental payments adjusted periodically for inflationary indexes. Additionally, some leases include options to renew or terminate the leases which can be exercised at our discretion. Lease terms include the noncancellable portion of the underlying leases along with any reasonably certain lease periods associated with available renewal periods. Certain leases have terms that are dependent upon the occurrence of events, activities, or circumstances in lease agreements and incur variable lease expense driven by warehouse square footage utilized, property taxes assessed, and other non-lease component charges. Variable lease expense is presented as operating expense in our Consolidated Statements of Operations in the same line item as expense arising from fixed lease payments for operating leases. For all classes of assets, we do not separate non-lease components of a contract from the lease components to which they relate. We do not recognize a right-of-use asset or lease liability for short-term leases that have a lease term of twelve months or less. Our leases do not contain residual value guarantees or material restrictive covenants. As the rate implicit in our lease contracts cannot be readily determined, we use an estimated incremental borrowing rate based on the information available at the lease commencement date in determining the present value of the lease payments. The estimated incremental borrowing rate represents the estimated rate of interest we would have to pay to borrow an amount equal to the lease payments for a similar period of time on a collateralized basis.

Lease liabilities are recognized at the lease commencement date based upon the present value of the remaining lease payments. Right-of-use assets are based on the lease liability adjusted for prepaid rent, deferred rent, and tenant allowances received. Lease liabilities are amortized based upon the effective interest method, while right-of-use assets are amortized based upon the straight-line expense less interest on the lease liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term, except for impaired leases for which the lease expense is recognized on a declining basis over the remaining lease term.

The components of our lease expenses are as follows:


	Year Ended June 30
(Amounts in Millions)	2022		2021		2020
Operating lease expense	$	5.0	$	4.5	$	3.4

Variable lease expense	4.4		3.5		2.5
Total lease expense	$	9.4	$	8.0	$	5.9

Right-of-use assets for operating leases are tested for impairment in the same manner as long-lived assets used in operations as explained in Note 14 - Fair Value of Notes to Consolidated Financial Statements. During fiscal years 2022, 2021, and 2020 we recorded $1.4 million, $0.8 million, and $3.7 million, respectively, of right-of-use asset and associated leasehold improvement impairments. The fiscal year 2022 impairment was driven by the closure of our Baltimore manufacturing facility, the planned exit of our Tijuana, Mexico manufacturing facility and Chula Vista, California warehouse, and the exit of showrooms in support of our transition to multi-brand showrooms thus eliminating the need for more than one showroom in the same city. The fiscal year 2021 and 2020 impairments were primarily related to ceasing use of several showrooms and showroom sublease assumption modifications due to the degradation of the leasing environment driven by the COVID-19 pandemic. The impairment expenses are included in the Restructuring Expense line item on our Consolidated Statements of Operations.

Supplemental cash flow and other information related to leases are as follows:


	Year Ended June 30
(Amounts in Millions)	2022			2021			2020
Cash flow information:
Operating lease payments impacting lease liability	$	7.3		$	5.9		$	4.8
Non-cash impact of obtaining new right-of-use assets	$	6.3		$	0.1		$	2.6


	As of June 30
	2022			2021
Other information:
Weighted-average remaining term (in years)	4.6			4.3
Weighted-average discount rate	4.4		%	4.6		%

The following table summarizes the future minimum lease payments as of June 30, 2022:


(Amounts in Millions)	Year Ended June 30 (1)
2023	$	6.1
2024	4.3
2025	3.5
2026	2.4
2027	1.7
Thereafter	2.1
Total lease payments	$	20.1
Less interest	1.9
Present value of lease liabilities	$	18.2

(1) Lease payments include options to extend lease terms that are reasonably certain of being exercised. The payments exclude legally binding minimum lease payments for leases signed but not yet commenced. At June 30, 2022, we have additional operating leases that have not yet commenced for which we will record both right-of-use assets and lease liabilities of $5.4 million. Two of the leases are expected to commence in our first quarter of fiscal year 2023 with lease terms of approximately 1 year at $0.2 million and 5 years at $1.3 million. A third lease is expected to commence in our fourth quarter of fiscal year 2023 with a lease term of approximately 12 years at $3.9 million.

In fiscal year 2021, we executed a contract to sell a warehouse which was accounted for as a failed sale leaseback as control did not pass to the buyer. During fiscal year 2022, we received payment and control passed to the buyer, and we recorded a pre-tax gain on sale of the warehouse of $4.5 million.