In our opinion, all adjustments, consisting only of normal recurring adjustments necessary for fair presentation, have been includedNew Accounting Standards or Updates Adopted in the consolidated financial statements. The results of operations for the three and six months ended December 31, 2017 are not necessarily indicative of results that may be expected for the entire fiscal year. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended June 30, 2017.

The Company reviews its expected annual effective income tax rates and makes changes on a quarterly basis as necessary based on certain factors such as changes in forecasted annual operating income; changes to actual or forecasted permanent book to tax differences; impacts from future tax audits with state, federal or foreign tax authorities; impacts from tax law changes; or change in judgment as to the realizability of deferred tax assets. The Company identifies items which are not normal and are non-recurring in nature and treats these as discrete events. The tax effect of discrete items is recorded in the quarter in which the discrete events occur. Due to the volatility of these factors, the Company's consolidated effective income tax rate can change significantly on a quarterly basis.Fiscal 2023

The Company conducts business globally and, asevaluates all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) for consideration of their applicability to our consolidated financial statements. We did not adopt any new standards or updates during fiscal 2023 that had a result, the Company or one or more of its subsidiaries files income tax returns in the U.S., various state, and foreign jurisdictions. In the normal course of business, the Company is subject to periodic examination in such domestic and foreign jurisdictions by tax authorities. The Company and certain subsidiaries are currently under audit in the U.S. from 2013 through 2016. While the amount of uncertain tax benefits with respect to the entities and years under audit may change within the next twelve months, it is not anticipated that any of the changes will be significant. It is reasonably possible that some of these audits may be completed during the next twelve months. It is reasonable to expect that various issues relating to uncertain tax benefits will be resolved within the next twelve months as exams are completed or as statutes expire and willmaterial impact the effective tax rate.on our consolidated financial statements.

The Company’s consolidated effective tax rate was 16.0%Recent Accounting Standards or Updates Not Yet Effective

Business Combinations.In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and 23.5% for the threeContract Liabilities from Contracts with Customers, which requires an acquirer to recognize and six months ended December 31, 2017 and 36.9% and 36.7% for the three and six months ended December 31, 2016. The current period’s effective tax rate primarily includes tax expense on the taxable year’s net income, the tax benefit lost on the cancelation of stock options, and also includes tax and interest expense on uncertain tax positions, partially offset by tax benefit from the re-measurement of deferred taxmeasure contract assets and liabilities andacquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) rather than adjust them to fair value at the vestingacquisition date. This accounting standards update will be effective for us beginning in the first quarter of restricted stock units. The prior period’s effective tax rate primarily includes tax expense on the taxable year’s net income, and tax and interest expense on uncertain tax positions.

Effective July 1, 2017 the company adopted ASU 2015-17, Balance Sheet Classification of Deferred Taxes, which requires the Companyfiscal 2024. We do not expect this accounting standards update to present all deferred tax assets and liabilities as noncurrent. The Company has applied the new guidance prospectively and accordingly the prior balance sheets were not retrospectively adjusted. The adoption did not have a material impact on the Company’sour consolidated results of operations, cash flows or financial position.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. This accounting standards update will be effective for us beginning in the first quarter of fiscal 2024. We do not expect this accounting standards update to have a material impact on our consolidated financial statements.

Inflation Reduction Act of 2022. On December 22, 2017 H.R. 1, originally known asAugust 16, 2022, the Tax Cuts and JobsInflation Reduction Act (the “Tax Act”(“IRA”) was enacted. Among the significant changessigned into law. The IRA contains several revisions to the U.S. Internal Revenue Code the Tax Act lowers the U.S. federal corporateeffective in taxable years beginning after December 31, 2022, including a 15% minimum income tax rateon certain large corporations and a 1% excise tax on corporate stock repurchases by publicly traded U.S. corporations. We are currently evaluating the impact of the IRA, but do not expect this law to have a material impact on our consolidated financial statements.

No other new accounting pronouncements issued or effective as of December 31, 2022 have had, or are expected to have, a material impact on our consolidated financial statements.

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.

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 (“Federal Tax Rate”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 35%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 21% effective January 1, 2018. The Company will compute its incomeas sales taxes). Sales tax expensecollected 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 the 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 December 31, 2022 and June 30, 2018 fiscal year using a blended Federal Tax Rate of 28%. The 21% Federal Tax Rate will apply to fiscal years ending June 30, 2019 and each year thereafter.2022, these amounts were immaterial.

NotesAllowance 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 Consolidated Financial Statements (Unaudited)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 December 31, 2022 and June 30, 2022, 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 December 31, 2022, we had prepaid commissions of $13.4 million, which we expect to recognize to selling expense during the remainder of fiscal 2023 as Selling, general and administrative expenses within our consolidated statements of comprehensive income.

Customer Deposits. In most cases 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 December 31, 2022, we had customer deposits of $83.7 million. At June 30, 2022 we had customer deposits of $121.1 million, of which we recognized $30.9 million and $109.1 million of revenue related to our contract liabilities during the three and six months ended December 31, 2022. We expect that substantially all of the customer deposits received as of December 31, 2022 will be recognized as revenue within the next twelve months as the performance obligations are satisfied.

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.

The 28%Federal Tax Rate will apply to earnings reported for the full 2018 fiscal year. Accordingly, first quarter income previously subject to tax at the 35% Federal Tax Rate will benefit from the 28% Federal Tax Rate. The Company must re-measure itsfollowing table disaggregates our net deferred tax assets and liabilities using the Federal Tax Rate that will apply when these amounts are expected to reverse. The effect of the re-measurement is reflected entirely in the interim period that includes the enactment date and is allocated directly to income tax expense from continuing operations.sales by product category by segment (in thousands):

In December 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No.118, which addresses how a company recognizes provisional amounts when a company does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the effect of the changes in the Tax Act. The measurement period ends when a company has obtained, prepared and analyzed the information necessary to finalize its accounting, but cannot extend beyond one year.

As of December 31, 2017, the Company can determine a reasonable estimate for certain effects of tax reform and is recording that estimate as a provisional amount. The provisional remeasurement of the deferred tax assets and liabilities resulted in a $2.6 million discrete tax benefit which lowered the effective tax rate by 14.6% in the quarter and 8.8% fiscal year to date. The provisional remeasurement amount is anticipated to change as data becomes available allowing more accurate scheduling of the deferred tax assets and liabilities primarily related to depreciable assets, inventory, employee compensation and commissions. Following is a reconciliation of income tax expense (benefit) computed by applying the federal statutory income tax rate to income before taxes to actual tax expense (benefit)

We are still in the process of evaluating the income tax effect of the Tax Act on the executive compensation limitations that will be effective for our fiscal year 2019.

At December 31, 2017 and June 30, 2017, we held $7.1 million and $7.3 million respectively, of restricted cash and investments in lieu of providing letters of credit for the benefit of the provider of our workmen’s compensation insurance and other insurance. These funds can be invested in high quality money market mutual funds, U.S. Treasuries and U.S. Government agency fixed income instruments, and cannot be withdrawn without the prior written consent of the secured party. These assets are carried at cost, which approximates market value and are classified as long-term assets because they are not expected to be used within one year to fund operations. See also Note 11, “Financial Instruments".

We recognize substantially all leases on our 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.

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. 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. 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:

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

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, 2022 (in thousands):

As of December 31, 2022, we have one operating lease for a retail design center, which has not yet commenced. This operating lease is not part of the tables above nor 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 occur during the third quarter of fiscal 2023. The operating lease is for a period of five years and has aggregate undiscounted future lease payments of $0.5 million. As of December 31, 2022, we did not have any financing leases that had not commenced.

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

There were no non-cash financing lease obligations obtained in exchange for new financing lease assets during the six months ended December 31, 2022 or 2021.

Sale-leaseback transaction. On August 1, 2022, we completed a sale-leaseback transaction with an independent third party for the land, building and related fixed assets of a retail design center. The design center was leased back to Ethan Allen via a multi-year operating lease agreement. As part of the transaction, we received net proceeds of $8.1 million, which resulted in a pre-tax gain of $1.8 million recorded within Restructuring and other impairment charges, net of gains and $5.2 million deferred as a liability to be amortized to Restructuring and other impairment charges, net of gains over the term of the related lease. For the six months ended December 31, 2022, we amortized an additional $1.1 million of this deferred liability as a gain within Restructuring and other impairment charges, net of gains. As of December 31, 2022, the deferred liability balance was $4.1 million, with $2.6 million in Other current liabilities and $1.5 million in Other long-term liabilities on our consolidated balance sheet.

Inventories at December 31, 2017 and June 30, 2017 are summarized as follows (in thousands):

Total debt obligations at December 31, 2017 Property, plant and June 30, 2017 consist of the followingequipment are summarized as follows (in thousands):