UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ended September 30, 20192020

or

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

☐	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

Ethan Allen Interiors Inc.

(Exact name of registrant as specified in its charter)

(203) 743-8000

(Registrant's telephone number, including area code)

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

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.     [X]☒ 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).     [X]☒ 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.

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     [X]☒ No

The number of shares outstanding of the registrant’s common stock, $0.01 par value, as of October 28, 201922, 2020 was 26,589,445.25,053,082.

Founded in 1932, and incorporated in Delaware in 1989, 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 leading interior design company, manufacturer and retailer in the home furnishings marketplace. Today we are a global luxury international home fashion brand that is vertically integrated from design through delivery, which affords our clientelecustomers a value proposition of style, quality and price. We provide complimentary interior design service to our customers and sell a full range of furniture products and decorative accents through a retail network of approximately 300 design centers in the United States and abroad as well as online at ethanallen.com. The design centers represent a mix of independent licensees and Company-owned and operated locations. OurAs of September 30, 2020, our Company operates 144retail design centers, with 138 located in the United States and the remaining six in Canada. The majority of the independently operated design centers are in Asia, with the remaining independently operated design centers located inthroughout the United States, Asia, the Middle East and Europe. We also own and operate nine manufacturing facilities including six manufacturing plants in the United States, plus two manufacturing plants in Mexico and one manufacturing plant in Honduras.

Use of Estimates. 

We prepare our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“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, revenue recognition, inventory obsolescence,goodwill and indefinite-lived intangible asset impairment analyses, useful lives for property, plant and equipment, goodwill and indefinite-lived intangible asset impairment analyses,inventory obsolescence, lease accounting, business insurance retention reserves, tax valuation allowances, the evaluation of uncertain tax positions and other loss reserves.

Principles of Consolidation.ConsolidationEthan Allen conducts

We conduct business globally and hashave strategically aligned itsour business into two2 reportable segments: Wholesale and Retail. These two segments represent strategic business areas of our vertically integrated enterprise that operate separately and provide their own distinctive services. The accompanying consolidated financial statements include the accounts of the Company and its wholly ownedwholly-owned subsidiaries. All intercompany activity and balances 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 months ended September 30, 2019 2020 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 fiscal 20192020 Annual Report on Form 10-K10-K (the “2019“2020 Annual Report on Form 10-K”10-K”).

Reclassifications. Certain reclassifications have been made to the amounts in prior periods in order to conform to the current period’s presentation. These changes were made for disclosure purposes only and did not have any impact on previously reported results.

The Company has evaluated subsequent events through the date that the consolidated financial statements were issued.

New Accounting Standards or Updates Recently Adopted

LeasesCredit Losses of Financial Instruments – In FebruaryJune 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) 2016-02,2016-13, LeasesFinancial Instruments – Credit Losses (Topic 842),326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the initial guidance through ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11, ASU 2020-02 and ASU 2020-03 (collectively, the “ASUs”). The ASUs requires measurement and recognition of expected credit losses for financial assets held based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The guidance applies to financial assets measured at amortized cost basis, such as receivables that result from revenue transactions. Accounts receivable is presented net of allowance for doubtful accounts as a result of the assessment of the collectability of customer accounts, which is recorded based on an update related to accounting for leases. This guidance requires an entity to recognize lease liabilitiesoverall aging analysis and a right-of-use asset for all leases onreview of specifically identified accounts, which considers factors such as historical experience, credit quality, the balance sheet and to disclose key information about the entity's leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with earlier adoption permitted. In July 2018, the FASB approved an amendment to the new guidance that allows companies the option of using the effective dateage of the new standardaccounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. We adopted the ASUs as the initial application (at the beginning of the period inJuly 1, 2020 using a modified retrospective transition method, which it is adopted, rather than at the beginning of the earliest comparative period) and to recognize the effects of applying the new ASU asrequires a cumulative effectcumulative-effect adjustment, if any, to the opening balance sheet orof retained earnings.

We adopted ASU 2016-02 as of July 1, 2019 using the modified retrospective method and have did not restated comparative periods. The Company elected the package of practical expedients recognize a cumulative-effect adjustment upon adoption which permits us to (i) not reassess whether any expired or existing contracts are or contain leases, (ii) to not reassess lease classification for any expired or existing leases, and (iii) to not reassess treatment of initial direct costs, if any, for any expired or existing leases. In addition, we elected not to separate lease and non-lease components when determiningas the ROU asset and lease liability for our design center real estate leases and did not elect the hindsight practical expedient, which would have allowed us to use hindsight when determining the remaining lease term as of the adoption date on July 1, 2019. Lastly, we elected the short-term lease exception policy for all leases, permitting us to exclude the recognition requirements of this standard from leases with initial terms of 12 months or less.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

Upon adoption we recognized operating lease assets of $129.7 million and operating lease liabilities of $149.7 million on our consolidated balance sheet. In addition, $20.0 million of deferred rent and various lease incentives, which were recorded as other long-term liabilities as of June 30, 2019 were reclassified as a component of the right-of-use assets upon adoption. The Company also recognized a cumulative adjustment as of July 1, 2019, which decreased opening retained earnings by $1.6 million due to the impairment of certain right-of-use assets. The adoption of the new standardASUs did not have a material impact on the consolidated statements of operations or cash flows. See Note 6 for further details on new disclosures required under ASU 2016-02.

Recent Accounting Standards or Updates Not Yet Effective

Goodwill Impairment Test - In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes the requirement for companies to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This accounting standards update will be effective for us beginning in the first quarter of fiscal 2021 and we do not expect the adoption to have a material impacteffect on our consolidated financial statements.

Implementation Costs in a Cloud Computing Arrangement -– In August 2018, the FASB issued ASU 2018-15,2018-15, Intangibles-Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangements forArrangement That is a Service ContractsContract, an update related to a client’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the requirements for capitalizing implementation costs in a cloud computing service contract with the guidance for capitalizing implementation costs to develop or obtain internal-use software.software (and hosting arrangements that include an internal-use software license). Capitalized implementation costs related to a hosting arrangement that is a service contract will be expensedamortized over the term of the arrangement.hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its intended use. We adopted the new guidance as of July 1, 2020 using a prospective method. We capitalize implementation costs related to hosted arrangements, which typically include multi-year service terms with additional renewal periods generally ranging from one to three years. The related assets are recorded within Prepaid expenses and other current assets (for service terms less than one year) or Other assets (for service terms greater than one year) on our consolidated balance sheets, net of accumulated amortization for assets placed in service. The amortization of assets placed in service is recorded in selling, general and administrative expenses, consistent with the costs of the hosting arrangement, on the consolidated statements of comprehensive income on a straight-line basis over the term of the hosting arrangement, which includes reasonably certain renewal periods. The adoption of the accounting standard update did not have a material impact on our consolidated financial statements.

Reference Rate Reform on Financial Reporting – In March 2020, the FASB issued ASU 2020-04,Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, an update that provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. This accounting standards update is intended to ease the process of migrating away from LIBOR to new reference rates. ASU 2020-04 was adopted in the first quarter of fiscal 2021, but did not have a material impact on our accounting policies or our consolidated financial statements.

Recent Accounting Standards or Updates Not Yet Effective

Simplifying the Accounting for Income Taxes – In December 2019, the FASB issued ASU 2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, an update intended to simplify various aspects related to accounting for income taxes. This guidance removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This accounting standards update will be effective for us beginning in the first quarter of fiscal 2021, with early adoption permitted.2022. We are currently evaluating the impact of this accounting standards update, but do not expect the adoption to have a material impact on our consolidated financial statements.

No other new accounting pronouncements issued or effective as of September 30, 2019 2020 have had or are expected to have ana material impact on our consolidated financial statements.

Our reported revenue (net sales) consist 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.

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 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. 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). We do Sales taxes collected is not adjust net sales for recognized as revenue but is included in Accounts payable and accrued expenses on the effects of financing componentsconsolidated balance sheets as we believe that we will receive payment from the customer within one year of when we transfer control of the related goods.it is ultimately remitted to governmental authorities.

Estimated refunds for sales 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 liabilitiesliabilities on our consolidated balance sheets. At September 30, 2019 2020 and June 30, 2019, 2020, these amounts were immaterial.

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 September 30, 2020, we had prepaid commissions of $14.1 million, which we expect to recognize to selling expense in the next six months.

In many cases we receive deposits from customers before we have transferred control of our product to our customers, resulting in contract liabilities. These contract liabilitiescustomer deposits are reported as a current liability in Customer Depositsdeposits and deferred revenueon our consolidated balance sheets. At June 30, 2019 2020 we had customer deposits of $56.7$62.6 million, of which we recognized $46.5 million as net sales upon delivery to the customer during the three months ended September 30, 2019. 2020. Customer deposits totaled $65.2$89.3 million at September 30, 2019.2020.

The following table disaggregates our net sales by product category by segment for the three months ended September 30, 2020 (in thousands):

The following table disaggregates our net sales by product category by segment for the three months ended September 30, 2019 (in(in thousands):

InventoriesWe have categorized our cash equivalents as Level 1 assets as of September 30, 2020 within the fair value hierarchy as there are stated atquoted prices in active markets for identical assets or liabilities. As the lowerinterest rate on our long-term debt is a variable rate, adjusted based on market conditions, it approximates the current market-rate for similar instruments available to companies with comparable credit quality and maturity, and therefore, our long-term debt was categorized as a Level 2 liability in the fair value hierarchy as of cost (on first-in, first-out basis)June 30, 2020. There were no Level 3 assets or net realizable value. Cost is determined based solelyliabilities held by the Company as of September 30, 2020 and June 30, 2020.

With the exception of the $0.6 million retail asset impairment charge, we did not record any additional other-than-temporary impairments on those charges incurred inassets required to be measured at fair value on a non-recurring basis during fiscal 2021.

As of September 30, 2020 we did not have any outstanding debt. The fair value of our long-term debt at June 30, 2020 was $50.0 million, which approximated its carrying amount given the acquisition and productionapplication of a floating interest rate equal to the related inventory.monthly LIBOR rate plus a spread using a debt leverage pricing grid.

Inventories at September 30, 2019 2020 and June 30, 2019 2020 are summarized as follows (in thousands):

DuringOur goodwill and intangible assets are comprised of goodwill, which represents the firstexcess of cost over the fair value of net assets acquired, and our Ethan Allen trade name and related trademarks. As of September 30, 2020, the goodwill balance was $25.4 million, while other indefinite-lived intangible assets totaled $19.7 million, consistent with the balances as of June 30, 2020.

Both goodwill and indefinite-lived intangible assets are not amortized as they are estimated to have an indefinite life. We evaluate goodwill and other indefinite-lived intangible assets for impairment on an annual basis during the fourth quarter of each fiscal 2020, we adopted ASU 2016-02year, and all related amendments. The guidance requires lessees to recognize substantially all leases on their balance sheet as a right-of-use (“ROU”) asset and a lease liability.between annual tests whenever events or circumstances indicate that the carrying value may exceed fair value.

Lease Accounting Policy

The Company hasWe have operating leases for many of itsour design centers that expire at various dates through fiscal 2040. In addition, we also lease certain tangible assets, including computer equipment and vehicles with 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.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIESThe Company's lease terms and discount rates are as follows:

Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components for our design center real estate leases in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, where applicable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

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.

We have elected the short-term lease exemption, whereby leases with initial terms of one year or less are not capitalized and instead expensed on a straight-line basis over the lease term.

Key Estimates and Judgments

Key estimates and judgments in applying ASU 2016-02 include how the Company determines the discount rate to discount the unpaid lease payments to present value and the lease term.

ASC 842 requires companies to use the rate implicit in the lease whenever that rate is readily determinable and if the interest rate is not readily determinable, then a lessee may use its incremental borrowing rate. 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 determined 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. We used the incremental borrowing rates we determined as of July 1, 2019 for operating leases that commenced prior to that date. In the case an interest rate is implicit in a lease we will use that rate as the discount rate for that lease. The lease term for all of our lease arrangements include the noncancelable period of the lease plus, if applicable, any additional periods covered by an option to extend the lease that is reasonably certain to be exercised by the Company. Our leases generally do not include termination options for either party to the lease or restrictive financial or other covenants. 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 financefinancing lease costs within our consolidated statementstatements of comprehensive income (in thousands):

The following table discloses the operating and finance lease assets and liabilities recognized within our consolidated balance sheet as of September 30, 2019 (in thousands):

The ROU assets by segment are as follows as of September 30, 2019 (in thousands):

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

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 condensed consolidated balance sheets as of September 30, 2019 (in2020 (in thousands):

At As of September 30, 2019, 2020, we have entered into one additional operating lease for a design center relocation, which has not yet commenced and is therefore not part of the table above nor included in the lease right-of-use assets and liabilities. The lease will commence when we obtain possession of the underlying leased asset which is expected to be during the second quarter of fiscal 2021. The lease is for a period of ten years and has aggregate undiscounted future rent payments of $3.2 million.

As of September 30, 2020, we did not have any significant operating or financefinancing leases that had not commenced.

Other supplemental information for the Company'sour leases is as follows (in thousands):

At the beginning of fiscal 2020, the Company adopted ASU 2016-02, and as required, the following disclosure is provided for periods prior to adoption. As of June 30, 2019, future minimum payments under non-cancelable leases were as follows (in thousands):

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 non-recurring in nature and treats these as discrete events. The tax effect of such items is recorded in the quarter in which the related events occur. Due to the volatility of these factors, the Company's consolidated effective income tax rate can change significantly quarter over quarter.

The Company conducts business globally and, as a result, the Company and its subsidiaries files income tax returns in the U.S. and in 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. for fiscal 2016. While the amount of uncertain tax impacts 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 and that various issues relating to uncertain tax impacts will be resolved within the next twelve months as exams are completed or as statutes expire and will impact the effective tax rate.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

We are subject to a U.S. federal statutoryrecorded income tax rateexpense of 21% for$1.9 million and $4.6 million in the fiscal year ending Junethree months ended September 30, 2020. The Company’s2020 and 2019, respectively. Our consolidated effective tax rate was 24.4%16.8% for the three months ended September 30, 2019 2020 compared with 24.9%24.4% in the prior year ago first quarter. The current fiscal year’speriod. Our effective tax rate primarily includesvaries from the 21% federal statutory rate due to state taxes and other nonrecurring events that may not be predictable. The decrease in the effective tax rate during the first quarter of fiscal 2021 compared with the first quarter a provision for incomeyear ago was due to a $0.9 million reduction in our valuation allowance on deferred tax on the taxable year’sassets.

As of September 30, 2020, we had $2.0 million of unrecognized tax benefits, of which $1.9 million would reduce our income tax expense onand the maintenance of a valuation allowance on Canadian deferred tax assets and tax and interest expense on uncertain tax positions. The prior quarter’s effective tax rate, primarily includesif recognized. As of September 30, 2020, we had $0.4 million of unrecognized tax expense onbenefits that are expected to decrease in the taxable year’s net income, tax expense on the cancelation of stock options and tax and interest expense on uncertain tax positions.next 12 months.

Total debt obligations at September 30, 2019 2020 and June 30, 2019 2020 consist of the following (in thousands):

Revolving Credit FacilityAgreement

On December 21, 2018, the Company and most of its domestic subsidiaries (the “Loan Parties”) entered into a Second Amended and Restated Credit Agreement (the “Facility”“Credit Agreement”). The Facility amends with JPMorgan Chase Bank, N.A. as administrative agent and restates the existing Amendedsyndication agent and RestatedCapital One, National Association, as documentation agent. The Credit Agreement dated as of October 21, 2014, as amended. The Facility provides for a $165 million revolving credit line of up to $165 million,facility (the “Facility”), subject to borrowing base availability, and extendswith the maturity date of the Facility to December 21, 2023. We incurred financing costs of $0.6 million, under the Facility, which are being amortized over the remaining life of the Facility using the effective interest method.

At the Company’s option, revolving loans under the Facility bear interest, based on the average availability, at an annual rate of either (a) the London Interbank Offered rate (“LIBOR”) plus 1.5% to 2.0%, or (b) the higher of (i) the prime rate, (ii) the federal funds effective rate plus 0.5%, or (iii) LIBOR plus 1.0% plus in each case 0.5% to 1.0%.

The availability of credit at any given time under the Facility will be constrained by the terms and conditions of the Facility, including the amount of collateral available, a borrowing base formula based upon numerous factors, including the value of eligible inventory and eligible accounts receivable, and other restrictions contained in the Facility. All obligations under the Facility are secured by assets of the Loan Parties, including inventory, receivables and certain types of intellectual property.

Borrowings under the Facility

As of We borrowed $100.0 million under the Facility in March 2020 and repaid $50.0 million in June 2020 and the remaining $50.0 million in September 2020 using available cash on hand. The borrowings had a weighted average interest rate equal to the one-month LIBOR rate plus a spread using a debt leverage pricing grid. For the three months ended September 30, 2019, 2020 we had no borrowingsrecorded interest expense of $0.3 million on our outstanding underdebt. Interest expense was less than $0.1 million for the Facility.three months ended September 30, 2019.

Debt Obligations

As of September 30, 2019, we have no current outstanding long-term debt obligations. Interest expense incurred during the three months ended September 30, 2019 and 2018 were immaterial.

Covenants and Other Ratios

The Facility contains various restrictive and affirmative covenants, including required financial reporting, limitations on the ability to grant liens, make loans or other investments, incur additional debt, issue additional equity, merge or consolidate with or into another person, sell assets, pay dividends or make other distributions or enter into transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of this type and size. Loans under the Facility may become immediately due and payable upon certain events of default (including failure to comply with covenants, change of control or cross-defaults) as set forth in the Facility.

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARIES

The Facility does not contain any significant financial ratio covenants or coverage ratio covenants other than a fixed charge coverage ratio covenant based on the ratio of (a) EBITDA, plus cash Rentals, minus Unfinanced Capital Expenditures to (b) Fixed Charges, as such terms are defined in the Facility (the “FCCR Covenant”). The FCCR Covenant only applies in certain limited circumstances, including when the unused availability under the Facility dropsfalls below $18.5 million. The FCCR Covenant ratio is set at 1.0 and measured on a trailing twelve-monthtwelve-month basis.

At September 30, 2019 2020 and June 30, 2019, 2020, there was $5.9$5.0 million and $6.1$5.8 million, respectively, of standby letters of credit outstanding under the Facility. Total borrowing base availability under the Facility was $148.4$104.5 million at September 30, 2019 2020 and $158.9$58.9 million at June 30, 2019. 2020. At both September 30, 2019 2020 and June 30, 2019, 2020, we were in compliance with all the covenants under the Facility.

Optimization of ManufacturingRestructuring, impairment and Logisticsother related costs incurred during the three months ended September 30, 2020 and 2019 were as follows (in thousands):

During

We recorded a non-cash impairment charge of $0.6 million during the fourthfirst quarter of fiscal 2019, we initiated restructuring plans to consolidate our manufacturing and logistics operations as part of an overall strategy to maximize production efficiencies and maintain our competitive advantage. As of June 30, 2019, we permanently ceased operations at our Passaic, New Jersey property and, for the most part, transferred our Old Fort, North Carolina case goods manufacturing operations to our other existing operations. As a result, approximately 325 of our associates in Old Fort and 55 associates in Passaic were terminated.

During the first quarter of fiscal 2020, we continued with this optimization project as we converted the Old Fort facility into a distribution center and expanded our existing Maiden, North Carolina manufacturing campus while finalizing severance and other exit costs associated with our case goods operations. In connection with the foregoing first quarter fiscal 2020 initiatives, we recorded pre-tax restructuring and other exit charges totaling $1.7 million, consisting of $1.1 million in manufacturing variances associated with the closing of the Passaic property and the repurposing of the Old Fort case goods manufacturing operations, $0.4 million in employee severance and other payroll and benefit costs, and $0.2 million of other exit costs. The manufacturing overhead variances of $1.1 million were recorded within Cost of Sales with the remaining $0.6 million recorded within the line item Restructuring and Impairment Charges (Gains) in the consolidated statements of comprehensive income.

As part of our optimization plans, we completed the sale of our Passaic property in September 2019 to an independent third party and received $12.4 million in cash less certain adjustments set forth in the purchase and sale agreement, including $0.9 million in selling and other closing costs. As a result of the sale, the Company recognized a pre-tax gain of $11.5 million in the first quarter of fiscal 2020, which was recorded within the line item Restructuring and Impairment Charges (Gains) in the consolidated statements of comprehensive income.

Inventory Write-downs

During the first quarter of fiscal 2020 we recorded a non-cash charge of $3.1 million2021 related to the write-downimpairment of long-lived assets held at a retail design center location. The asset group used in the impairment analysis, which represented the lowest level for which identifiable cash flows were available and disposallargely independent of certain slow movingthe cash flows of other groups of assets, was the individual retail design center. We estimated future cash flows based on design center-level historical results, current trends, and discontinued inventory items, which was due to actual demandoperating and forecasted market conditions for these inventory items being less favorable than originally estimated. Of the total inventory write-down, $2.7cash flow projections. The impairment charge of $0.6 million related to slow moving finished goods with the remaining $0.4 million consisting of raw materials that were disposed. The non-cash inventory write-down was recorded in the consolidated statement of comprehensive income within the line item CostRestructuring and other impairment charges, net of Sales.gains.

We compute basic earnings per share (“EPS”) by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated similarly, except that the weighted average outstanding shares are adjusted to include the effects of converting all potentially dilutive share-based awards issued under our employee stock plans. The number of potential common shares outstanding are determined in accordance with the treasury stock method to the extent they are dilutive.