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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended MARCH 31, 2003
--------------------------------------------------

or

[ ] TRANSITION REPORT PURSUANT TO SECTIONS 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)

DELAWARE 06-1275288
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer ID No.)
or organization)


ETHAN ALLEN DRIVE, DANBURY, CONNECTICUT 06811
- --------------------------------------------------------------------------------
(Address of principal executive offices)


(203) 743-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)


N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)


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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
[X] Yes [ ] No


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
[ ] Yes [ ] No


APPLICABLE ONLY TO CORPORATE ISSUERS:

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

As of March 31, 2003, there were
37,111,321 shares of Common Stock, par value $.01 outstanding.


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

TABLE OF CONTENTS

ITEM PAGE

PART I - FINANCIAL INFORMATION

1. Financial Statements as of March 31, 2003(unaudited) and June 30,
2002 and for the three and nine months ended March 31, 2003
and 2002 (unaudited)

Consolidated Balance Sheet 2

Consolidated Statements of Operations 3

Consolidated Statements of Cash Flows 4

Consolidated Statements of Shareholders' Equity 5

Notes to Consolidated Financial Statements 6

2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12

3. Quantitative and Qualitative Disclosures About Market Risk 22

4. Controls and Procedures 22


PART II - OTHER INFORMATION

1. Legal Proceedings 23

2. Changes in Securities and Use of Proceeds 23

3. Defaults Upon Senior Securities 23

4. Submission of Matters to a Vote of Security Holders 23

5. Other Information 23

6. Exhibits and Reports on Form 8-K 23


Signatures 24

Certification of Principal Executive Officer and Principal 25
Financial Officer as Required by Section 302 of the
Sarbanes-Oxley Act of 2002




1




PART I - FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)


March 31, June 30,
2003 2002
----------- ---------
(unaudited)


ASSETS
Current assets:
Cash and cash equivalents $ 60,187 $ 75,688
Accounts receivable, less allowance for doubtful
accounts of $1,610 at March 31, 2003 and $2,019
at June 30, 2002 29,430 32,845
Inventories, net (note 4) 196,093 174,147
Prepaid expenses and other current assets 23,190 18,731
Deferred income taxes 24,011 17,345
--------- ---------
Total current assets 332,911 318,756

Property, plant and equipment, net 294,483 293,626
Intangible assets, net (note 6) 78,353 69,708
Other assets 5,238 6,665
--------- ---------

Total assets $ 710,985 $ 688,755
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital
lease obligations $ 187 $ 107
Customer deposits 55,094 42,966
Accounts payable 28,977 38,027
Accrued compensation and benefits 29,067 30,190
Accrued expenses and other current liabilities (note 5) 25,855 17,838
--------- ---------
Total current liabilities 139,180 129,128

Long-term debt 10,134 9,214
Other long-term liabilities 3,042 2,066
Deferred income taxes 40,578 37,158
--------- ---------
Total liabilities 192,934 177,566

Shareholders' equity:
Class A common stock, par value $.01, 150,000,000 shares
authorized; 45,306,031 shares issued at March 31,
2003 and 45,252,880 shares issued at June 30, 2002 453 453
Class B common stock, par value $.01, 600,000 shares
authorized; no shares issued and outstanding at
March 31, 2003 and June 30, 2002 -- --
Preferred stock, par value $.01, 1,055,000 shares
authorized; no shares issued and outstanding at
March 31, 2003 and June 30, 2002 -- --
Additional paid-in capital 278,205 277,694
--------- ---------
278,377 278,147
Less: Treasury stock (at cost), 8,194,710 shares at
March 31, 2003 and 6,794,510 shares at June 30, 2002 (203,234) (161,428)

Retained earnings 442,525 394,470
--
Accumulated other comprehensive income (note 9) 102 --
--------- ---------
Total shareholders' equity 518,051 511,189
--------- ----------

Total liabilities and shareholders' equity $ 710,985 $ 688,755
========= =========

See accompanying notes to consolidated financial statements.


2





ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)


Three Months Ended Nine Months Ended
March 31, December 31,
2003 2002 2003 2002
-------- -------- -------- --------


Net sales $224,574 $227,917 $670,816 $657,499

Cost of sales 112,624 119,481 336,347 351,714
-------- -------- -------- --------

Gross profit 111,950 108,436 334,469 305,785

Operating expenses:
Selling 45,257 41,461 132,022 120,185
General and administrative 34,632 30,973 101,348 89,857
Restructuring and impairment charges 13,223 - 13,223 -
-------- -------- -------- --------
Total operating expenses 93,112 72,434 246,593 210,042
-------- -------- -------- --------

Operating income 18,838 36,002 87,876 95,743

Interest and other miscellaneous income, net 58 1,063 799 2,621

Interest and other related financing costs 130 137 507 462
-------- -------- -------- --------

Income before income taxes 18,766 36,928 88,168 97,902

Income tax expense 7,094 13,959 33,328 37,007
-------- -------- -------- --------

Net income $ 11,672 $ 22,969 $ 54,840 $ 60,895
======== ======== ======== ========


PER SHARE DATA (NOTE 8):
- -----------------------

Basic earnings per common share:

Net income per basic share $ 0.31 $ 0.59 $ 1.45 $ 1.57
======== ======== ======== =======

Basic weighted average common shares 37,560 38,734 37,771 38,879


Diluted earnings per common share:

Net income per diluted share $ 0.30 $ 0.58 $ 1.42 $ 1.52
======== ======== ======== ========

Diluted weighted average common shares 38,546 39,898 38,751 39,983



See accompanying notes to consolidated financial statements.



3






ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)


Nine Months Ended
March 31,
2003 2002
-------- --------


Operating activities:
Net income $ 54,840 $ 60,895
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 15,861 14,271
Compensation expense (benefit) related to
restricted stock award (381) (40)
Provision (benefit) for deferred income taxes (3,246) 440
Restructuring and impairment charge 13,223 -
Other non-cash expense (income) 35 (1,069)
Change in assets and liabilities, net of the
effects of acquired and divested businesses:
Accounts receivable 2,900 (3,213)
Inventories (12,251) 21,675
Prepaid and other current assets (3,322) 532
Other assets (45) (292)
Customer deposits 7,460 2,512
Accounts payable (5,133) (309)
Income taxes payable 779 4,758
Accrued expenses and other current liabilities 2,821 (1,044)
Other long-term liabilities 450 (621)
-------- --------

Net cash provided by operating activities 73,991 98,495
-------- --------

Investing activities:
Proceeds from the disposal of property, plant
and equipment 2,528 4,694
Capital expenditures (23,334) (22,289)
Acquisitions (10,880) (42,386)
Other 207 103
-------- --------

Net cash used in investing activities (31,479) (59,878)
-------- --------

Financing activities:
Borrowings on revolving credit facility -- --
Payments on revolving credit facility -- --
Other payments on long-term debt and capital
leases (3,476) (138)
Net proceeds from issuance of common stock 593 1,383
Dividends paid (6,849) (4,657)
Payments to acquire treasury stock (48,281) (21,057)
-------- --------

Net cash used in financing activities (58,013) (24,469)
-------- --------

Net (decrease) increase in cash and cash equivalents (15,501) 14,148

Cash and cash equivalents - beginning of period 75,688 48,112
-------- --------

Cash and cash equivalents - end of period $ 60,187 $ 62,260
======== ========



See accompanying notes to consolidated financial statements.


4






ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 2003
(Unaudited)
(In thousands, except share data)

Accumulated
Additional Other
Common Paid-in Treasury Comprehensive Retained
Stock Capital Stock Income Earnings Total
------ ---------- -------- ------------- -------- -----



Balance at June 30, 2002 $ 453 $277,694 $(161,428) $ -- $394,470 $511,189

Issuance of 53,151 shares of common
stock upon the exercise of stock
options -- 212 -- -- -- 212

Purchase of 1,400,200 shares of
treasury stock -- -- (41,806) -- -- (41,806)

Tax benefit associated with exercise
of employee stock options -- 299 -- -- -- 299

Dividends declared on common stock -- -- -- -- (6,785) (6,785)

Other comprehensive income (note 9) -- -- -- 102 -- 102
Net income -- -- -- -- 54,840 54,840
--------
Total comprehensive income 54,942
----- -------- ---------- ------ -------- --------

Balance at March 31, 2003 $ 453 $278,205 $(203,234) $ 102 $442,525 $518,051
===== ======== ========== ====== ======== ========


See accompanying notes to consolidated financial statements.


5



ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(1) BASIS OF PRESENTATION

Ethan Allen Interiors Inc. (the "Company") is a Delaware corporation
incorporated on May 25, 1989. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary
Ethan Allen Inc. ("Ethan Allen") and Ethan Allen's subsidiaries. All of
Ethan Allen's capital stock is owned by the Company. The Company has no
other assets or operating results other than those associated with its
investment in Ethan Allen.

(2) INTERIM FINANCIAL PRESENTATION

All intercompany accounts and transactions have been eliminated in the
consolidated financial statements. In the opinion of the Company, all
adjustments, consisting only of normal recurring accruals necessary for
fair presentation, have been included in the financial statements. The
results of operations for the three and nine months ended March 31,
2003 are not necessarily indicative of results for the fiscal year. It
is suggested that the interim consolidated financial statements be read
in conjunction with the consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K
for the year ended June 30, 2002.

Certain reclassifications have been made to prior year financial
information in order to conform to the current year's presentation.
These changes were made for disclosure purposes only and did not have
an impact on previously reported results of operations or shareholders'
equity.

(3) EMPLOYEE STOCK PLANS

The Company's 1992 Stock Option Plan (the "Plan") is accounted in
accordance with the recognition and measurement provisions of
Accounting Principles Board Opinion ("APB") No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES, and related Interpretations, which employs
the intrinsic value method of measuring compensation cost. Accordingly,
no stock-based employee compensation cost is reflected in net income
for options granted under the Plan as the exercise price of all options
is equal to the market value of the underlying common stock on the date
of grant. Other stock-based award programs provided for under the Plan
may result in the recognition of compensation expense (benefit) to the
extent they are deemed to be variable plans (as that term is defined in
APB No. 25). The following table illustrates the effect on net income
and earnings per share as if the fair value recognition provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, had been applied to all
outstanding and unvested awards in each period. The Company employs the
Black-Scholes option-pricing model in estimating the fair value of
stock options granted.



Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
------- ------ ------ ------


Net income as reported $11,672 $22,969 $54,840 $60,895

Add: Stock-based employee compensation
expense (benefit) included in reported
net income, net of related tax effects 11 113 (237) (26)

Deduct: Stock-based employee compensation
expense determined under the fair value-
based method for all awards granted since
July 1, 1995, net of related tax effects (743) (295) (1,936) (875)
------- ------- ------- -------

Pro forma net income $10,940 $22,787 $52,667 $59,994
======= ======= ======= =======



6

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
------- ------ ------ ------


Earnings per share:
Basic - as reported $0.31 $0.59 $1.45 $1.57
===== ===== ===== =====
Basic - pro forma $0.29 $0.59 $1.39 $1.54
===== ===== ===== =====

Diluted - as reported $0.30 $0.58 $1.42 $1.52
===== ===== ===== =====
Diluted - pro forma $0.28 $0.57 $1.36 $1.50
===== ===== ===== =====



(4) INVENTORIES

Inventories at March 31, 2003 and June 30, 2002 are summarized as
follows (in thousands):


March 31, June 30,
2003 2002
--------- --------

Finished goods $143,747 $123,906
Work in process 16,005 15,418
Raw materials 36,341 34,823
-------- --------
$196,093 $174,147
======== ========

Inventories are presented net of a related valuation allowance of $4.3
million and $4.0 million at March 31, 2003 and June 30, 2002,
respectively.


(5) RESTRUCTURING AND IMPAIRMENT CHARGES

During the current quarter, the Company announced a plan which will
involve the closure of three of its smaller manufacturing facilities.
Closure of these facilities is expected to result in the elimination of
approximately 580 employees; 340 employees effective April 21, 2003,
and 240 employees expected to be terminated throughout the last quarter
of fiscal 2003 and the first quarter of fiscal 2004. A pre-tax
restructuring and impairment charge of $13.4 million was recorded for
costs associated with these plant closings, of which $4.5 million
principally relates to employee severance and benefits costs and plant
exit costs, and $8.9 million relates to a fixed asset impairment
charge, primarily for properties and machinery and equipment of the
closed facilities.

In the fourth quarter of fiscal 2002, the Company initiated a plan
which involved the closure of one of its manufacturing facilities as
well as the rough mill operation of a separate facility. Closure of
these facilities resulted in the elimination of approximately 220
employees; 150 employees effective June 29, 2002, and 70 employees
terminated during the first quarter of fiscal 2003. A pre-tax
restructuring and impairment charge of $5.1 million was recorded for
costs associated with these plant closings, of which $2.0 million
principally related to employee severance and benefits costs and plant
exit costs, and $3.1 million related to a fixed asset impairment
charge, primarily for properties and machinery and equipment of the
closed facilities. During the quarter ended March 31, 2003, adjustments
totaling $0.2 million were recorded to reverse certain of these
previously established accruals which are no longer required.

In the fourth quarter of fiscal 2001, the Company announced the closure
of three of its manufacturing facilities and the elimination of
approximately 350 employees effective August 6, 2001. A pre-tax
restructuring and impairment charge of $6.9 million was recorded for
costs associated with the plant closings, of which $3.3 million
principally related to employee severance and benefits costs and plant
exit costs, and $3.6 million related to a fixed asset impairment
charge, primarily for properties and machinery and equipment of the
closed facilities.

7

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


As of March 31, 2003, restructuring reserves totaling $4.6 million were
included in the Consolidated Balance Sheet as an accrued expense within
current liabilities. In addition, total impairment charges of $15.6
million ($8.9 million, $3.1 million and $3.6 million in 2003, 2002 and
2001, respectively) were recorded to reduce certain property, plant and
equipment to their net realizable value.

Activity in the Company's restructuring reserves is summarized as
follows (in thousands):



FISCAL 2003 RESTRUCTURING
-------------------------
Original Cash Non-cash
Charges Payments Utilized Total
-------- -------- -------- -----


Employee severance and other
related payroll and benefit
costs $ 4,339 $ -- $ -- $ 4,339
Plant exit costs and other 150 -- -- 150
Write-down of long-lived assets 8,884 -- (8,884) --
-------- ------- ------- ------
Balance as of March 31, 2003 $ 13,373 $ -- $(8,884) $ 4,489
======== ======= ======= ======

FISCAL 2002 RESTRUCTURING
------------------------- Original Cash Non-cash
Charges Payments Utilized Total
-------- -------- -------- -----
Employee severance and other
related payroll and benefit
costs $ 1,847 $(1,757) $ (90) $ --
Plant exit costs and other 171 (37) (60) 74
Write-down of long-lived assets 3,105 -- (3,105) -
------- ------- ------- -------
Balance as of March 31, 2003 $ 5,123 $(1,794) $(3,255) $ 74
======= ======= ======= =======

FISCAL 2001 RESTRUCTURING
------------------------- Original Cash Non-cash
Charges Payments Utilized Total
-------- -------- -------- -----
Employee severance and other
related payroll and benefit
costs $ 2,974 $(2,916) $ (58) $ --
Plant exit costs and other 332 (260) (34) 38
Write-down of long-lived assets 3,600 -- (3,600) --
------- ------- ------- -------
Balance as of March 31, 2003 $ 6,906 $(3,176) $(3,692) $ 38
======= ======= ======= =======



(6) GOODWILL AND OTHER INTANGIBLE ASSETS

As of March 31, 2003, the Company had goodwill, including product
technology, (net of accumulated amortization) of $58.6 million and
other identifiable intangible assets (net of accumulated amortization)
of $19.7 million. Comparable balances as of June 30, 2002 were $50.0
million and $19.7 million, respectively.

Goodwill in the wholesale and retail segments was $27.5 million and
$31.1 million, respectively, at March 31, 2003 and $27.5 million and
$22.5 million, respectively, at June 30, 2002. The wholesale segment,
at both dates, includes additional intangible assets of $19.7 million.
These assets consist of Ethan Allen trade names which, prior to the
Company's adoption of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS, on July 1, 2001, were being amortized over 40 years. In
connection with the adoption of SFAS No. 142, the Company re-assessed
the useful lives of goodwill and other intangible assets and both were
determined to have indefinite useful lives. As such, amortization
ceased on that date. No impairment losses were recorded on these
intangible assets as a result of the adoption of SFAS No. 142.


8

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(7) LITIGATION

The Company has been named as a potentially responsible party ("PRP")
for the cleanup of three active sites currently listed or proposed for
inclusion on the National Priorities List ("NPL") under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 ("CERCLA"). The Company has resolved its liability at one of the
sites by completing remedial action activities. With regard to the
other two sites, the Company does not anticipate incurring significant
cost as it believes that it is not a major contributor based on the
very small volume of waste generated by the Company in relation to
total volume at the sites. However, liability under CERCLA may be joint
and several. Additionally, the Company was previously notified by the
State of New York that it may be a PRP in a separate, unrelated matter.
There have been no further developments in this matter during the
current period. As a result, the extent of any adverse effect on the
Company's financial condition, results of operations, or cash flows
with respect to this matter cannot be reasonably estimated at this
time.


(8) EARNINGS PER SHARE

Basic and diluted earnings per share are calculated using the following
weighted average share data (in thousands):



Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
------ ------ ------ ------


Weighted average common shares
outstanding for basic calculation 37,560 38,734 37,771 38,879

Add: Dilutive effect of stock
options and warrants 986 1,164 980 1,104
------ ------ ------ ------

Weighted average common shares
outstanding, adjusted for diluted
calculation 38,546 39,898 38,751 39,983
====== ====== ====== ======


As of March 31, 2003 and 2002, stock options to purchase 733,900 shares
and 14,200 shares of common stock, respectively, had exercise prices
which exceeded the average market price for the corresponding period.
These options have been excluded from the respective diluted earnings
per share calculation as their impact is anti-dilutive.


(9) COMPREHENSIVE INCOME

Total comprehensive income represents the sum of net income and items
of "other comprehensive income or loss" that are reported directly in
equity. Such items may include foreign currency translation
adjustments, minimum pension liability adjustments, fair value
adjustments on certain derivative instruments, and unrealized gains and
losses on certain investments in debt and equity securities. The
Company has reported its total comprehensive income in the Consolidated
Statement of Shareholders' Equity.

The Company's other comprehensive income, which is attributable solely
to foreign currency translation adjustments, was $0.1 million for the
nine-month period ended March 31, 2003. This amount, as well as the
Company's accumulated other comprehensive income included in equity,
are the result of changes in foreign currency exchange rates related to
the operations of 7 Ethan Allen-owned retail stores located in Canada.
Foreign currency translation adjustments exclude income tax expense
(benefit) given that the earnings of non-U.S. subsidiaries are deemed
to be reinvested for an indefinite period of time.

9

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(10) SEGMENT INFORMATION

The Company's reportable segments are strategic business areas which
operate separately but which both offer the Company's complete line of
home furnishings through their own distinctive services. The Company's
operations are classified into two segments: wholesale and retail.

The wholesale segment is principally involved in the manufacture, sale
and distribution of home furnishings to a network of
independently-owned and Ethan Allen-owned stores. Wholesale
profitability includes the wholesale gross margin, which is earned on
wholesale sales to all retail stores, including Ethan Allen-owned
stores.

The retail segment sells home furnishings through a network of Ethan
Allen-owned stores. Retail profitability includes the retail gross
margin, which represents the difference between retail sales price and
the cost of goods purchased from the wholesale segment.

While the manner in which the Company's home furnishings are marketed
and sold is consistent, the nature of the underlying recorded sales
(i.e. wholesale versus retail) and the specific services that each
operating segment provides (i.e. wholesale manufacture and distribution
versus retail sales) are different. Within the wholesale segment, the
Company maintains revenue information according to the type of
furnishing (i.e. case goods (wood furniture), upholstery and home
accessories). A breakdown of wholesale sales by these product lines for
the three and nine months ended March 31, 2003 and March 31, 2002 is
provided below:


Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
---- ---- ---- ----


Case Goods 53% 58% 53% 57%
Upholstered Products 32 29 32 30
Home Accessories and Other 15 13 15 13
--- --- --- ---
100% 100% 100% 100%
=== === === ===



Similar product information is not available within the retail segment
as it is not practicable.

The Company evaluates performance of the respective segments based upon
revenues and operating income. Inter-segment eliminations result,
primarily, from the wholesale sale of inventory between segments,
including the related profit margin. Inter-segment eliminations also
include items not allocated to reportable segments.

The following table presents segment information for the three and nine
months ended March 31, 2003 and 2002 (in thousands):


Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
-------- -------- -------- --------

NET SALES:
Wholesale segment $173,890 $172,389 $490,098 $485,479
Retail segment 127,328 115,811 387,101 331,566
Elimination of inter-company sales (76,644) (60,283) (206,383) (159,546)
-------- -------- -------- --------
Consolidated Total $224,574 $227,917 $670,816 $657,499
======== ======== ======== ========


10

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
----- ----- ---- ----


OPERATING INCOME:
Wholesale segment $ 20,949 $ 32,295 $ 77,838 $ 80,032
Retail segment 2,223 5,305 13,326 16,034
Elimination (1) (4,334) (1,598) (3,288) (323)
-------- ------- -------- --------
Consolidated Total $ 18,838 $ 36,002 $ 87,876 $ 95,743
======== ======== ======== ========

CAPITAL EXPENDITURES:
Wholesale segment $ 2,095 $ 2,163 $ 9,802 $ 8,910
Retail segment 4,314 2,417 13,532 13,379
Acquisitions (2) 138 31,902 10,880 42,386
-------- -------- -------- --------
Consolidated Total $ 6,547 $ 36,482 $ 34,214 $ 64,675
======== ======== ======== ========


March 31, June 30,
2003 2002
-------- --------
TOTAL ASSETS:
Wholesale segment $442,962 $459,311
Retail segment 304,039 259,770
Inventory profit elimination (3) (36,016) (30,326)
-------- --------
Consolidated Total $710,985 $688,755
======== ========

(1) Adjustment represents the change in the elimination entry for
profit in ending inventory.

(2) There were no acquisitions completed during the three months
ended March 31, 2003. For the three months ended March 31, 2002,
acquisitions include the purchase of 10 retail stores. For the
nine month period ended March 31, 2003, acquisitions include the
purchase of 15 retail stores, while for the nine month period
ended March 31, 2002, acquisitions include the purchase of 20
retail stores.

(3) Inventory profit elimination reflects the embedded wholesale
profit in the Ethan Allen-owned store inventory that has not
been realized. These profits will be realized when inventory is
shipped to the retail customer.


At March 31, 2003, there are 26 Ethan Allen retail stores located
outside the United States, of which 19 are independently-owned.
Approximately 2% of the Company's net sales for the three and nine
month periods ended March 31, 2003 and 2002 were derived from sales to
non-domestic, independently-owned retail stores.


(11) RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board reached a consensus on EITF Issue
No. 00-21, "Accounting for Revenue Arrangements with Multiple
Deliverables". EITF 00-21 provides guidance on when and how to separate
elements of an arrangement that may involve the delivery or performance
of multiple products, services, and rights to use assets into separate
units of accounting. The provisions of this EITF consensus are
effective for arrangements entered into in fiscal periods beginning
after June 15, 2003. The related transition provisions allow for either
prospective application or a cumulative effect adjustment upon
adoption. The Company plans to adopt EITF 00-21 in the quarter
beginning July 1, 2003 and is currently evaluating its impact. At this
time, the Company does not expect that application of the provisions of
this authoritative guidance will have a material effect on the
consolidated financial statements.

11


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The discussions set forth in this form 10-Q should be read in conjunction with
the financial information included herein and the Company's Annual Report on
Form 10-K for the year ended June 30, 2002. Management's discussion and analysis
of financial condition and results of operations and other sections of this
quarterly report contain forward-looking statements relating to future results
of the Company. Such forward-looking statements are identified by use of
forward-looking words such as "anticipates", "believes", "plans", "estimates",
"expects", and "intends" or words or phrases of similar expression. These
forward-looking statements are subject to various assumptions, risk and
uncertainties, including but not limited to, changes in political and economic
conditions, demand for the Company's products, acceptance of new products,
conditions in the various geographical markets where the Company does business,
technology developments affecting the Company's products and to those matters
discussed in the Company's filings with the Securities and Exchange Commission.
Accordingly, actual results could differ materially from those contemplated by
the forward-looking statements.


CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America which require that certain estimates and assumptions be made that affect
the amounts and disclosures reported in the those financial statements and the
related accompanying notes. Actual results could differ from these estimates and
assumptions. Management uses its best judgment in valuing these estimates and
may, as warranted, solicit external advice. Estimates are based on current facts
and circumstances, prior experience and other assumptions believed to be
reasonable. The following critical accounting policies, some of which are
impacted significantly by judgments, assumptions and estimates, affect the
Company's consolidated financial statements.

RETAIL STORE ACQUISITIONS - The Company accounts for the acquisition of
retail stores and related assets in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 141, BUSINESS COMBINATIONS, which requires
application of the purchase method for all business combinations initiated after
June 30, 2001. Accounting for these transactions as purchase business
combinations requires the allocation of purchase price paid to the assets
acquired and liabilities assumed based on their fair values as of the date of
the acquisition. The amount paid in excess of the fair value of net assets
acquired is accounted for as goodwill.

IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL - The Company periodically
evaluates whether events or circumstances have occurred that indicate that
long-lived assets may not be recoverable or that the remaining useful life may
warrant revision. When such events or circumstances are present, the Company
assesses the recoverability of long-lived assets by determining whether the
carrying value will be recovered through the expected undiscounted future cash
flows resulting from the use of the asset. In the event the sum of the expected
undiscounted future cash flows is less than the carrying value of the asset, an
impairment loss equal to the excess of the asset's carrying value over its fair
value is recorded. The long-term nature of these assets requires the estimation
of its cash inflows and outflows several years into the future and only takes
into consideration technological advances known at the time of the impairment
test.

In accordance with SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS,
which was adopted by the Company on July 1, 2001, goodwill and other intangible
assets are to be evaluated for impairment at the reporting unit level on an
annual basis and between annual tests whenever events or circumstances indicate
that the carrying value of a reporting unit may exceed its fair value. The
Company conducts its required annual impairment test during the fourth quarter
of each fiscal year using a discounted cash flow model to estimate the fair
value of a reporting unit. This model requires the use of long-term planning
forecasts and assumptions regarding industry-specific economic conditions that
are outside the control of the Company.


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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


ALLOWANCE FOR DOUBTFUL ACCOUNTS - The Company maintains an allowance
for doubtful accounts for estimated losses resulting from the inability of its
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. Judgments are made with respect to the collectibility of
accounts receivable based on historical experience and current economic trends.
Actual losses could differ from those estimates.

INVENTORIES - Inventories (finished goods, work in process and raw
materials) are stated at the lower of cost, determined on a first-in, first-out
basis, or market. Cost is determined based solely on those charges incurred in
the acquisition and production of the related inventory (i.e. material, labor
and manufacturing overhead costs). The Company estimates an inventory reserve
for excess quantities and obsolete items based on specific identification and
historical write-offs, taking into account future demand and market conditions.
If actual demand or market conditions in the future are less favorable than
those estimated, additional inventory write-downs may be required.

REVENUE RECOGNITION - Revenue is recognized when all of the following
have occurred: persuasive evidence of a sales arrangement exists (e.g. a
wholesale purchase order or retail sales invoice); the sales arrangement
specifies a fixed or determinable sales price; product is shipped or services
are provided to the customer; and collectibility is reasonably assured. This
generally occurs upon the shipment of goods to independent dealers or, in the
case of Ethan Allen-owned retail stores, upon delivery to the customer. Recorded
sales provide for estimated returns and allowances. The Company permits retail
customers to return defective products and incorrect shipments for credit
against other purchases. Terms offered by the Company are standard for the
industry.

BUSINESS INSURANCE RESERVES - The Company has insurance programs in
place to cover workers' compensation and property/casualty claims. The insurance
programs, which are funded through self-insured retention, are subject to
various stop-loss limitations. The Company accrues estimated losses using
actuarial models and assumptions based on historical loss experience. Although
management believes that the insurance reserves are adequate, the reserve
estimates are based on historical experience, which may not be indicative of
current and future losses. In addition, the actuarial calculations used to
estimate insurance reserves are based on numerous assumptions, some of which are
subjective. The Company adjusts insurance reserves, as needed, in the event that
future loss experience differs from historical loss patterns.

OTHER LOSS RESERVES - The Company has a number of other potential loss
exposures incurred in the ordinary course of business such as environmental
claims, product liability, litigation, restructuring charges, and the
recoverability of deferred income tax benefits. Establishing loss reserves for
these matters requires management's estimate and judgment with regard to maximum
risk exposure and ultimate liability or realization. As a result, these
estimates are often developed with the Company's counsel, or other appropriate
advisors, and are based on management's current understanding of the underlying
facts and circumstances. Because of uncertainties related to the ultimate
outcome of these issues or the possibilities of changes in the underlying facts
and circumstances, additional charges related to these issues could be required
in the future.


RESULTS OF OPERATIONS

The Company's revenues are comprised of wholesale sales to dealer-owned
and Ethan Allen-owned retail stores and retail sales of Ethan Allen-owned
stores. See Note 10 to the Company's Consolidated Financial Statements for the
three and nine months ended March 31, 2003 and 2002. The components of
consolidated revenues and operating income are as follows (in millions):


Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
------ ------ ---- ----


REVENUE:
Wholesale segment $173.9 $172.4 $490.1 $485.5
Retail segment 127.3 115.8 387.1 331.6
Elimination of inter-segment sales (76.6) (60.3) (206.4) (159.6)
------ ------ ------ ------
Consolidated Revenue $224.6 $227.9 $670.8 $657.5
====== ====== ====== ======


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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


Three Months Ended Nine Months Ended
March 31, March 31,
2003 2002 2003 2002
------ ------ ---- ----

OPERATING INCOME:
Wholesale segment $ 20.9 $ 32.3 $ 77.8 $ 80.0
Retail segment 2.2 5.3 13.3 16.0
Elimination (4.3) (1.6) (3.2) (0.3)
------ ------ ------ ------
Consolidated Operating Income $ 18.8 $ 36.0 $ 87.9 $ 95.7
====== ====== ====== ======



THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002

Consolidated revenue for the three months ended March 31, 2003 totaled
$224.6 million, representing a decrease of $3.3 million, or 1.5%, from $227.9
million reported for the three months ended March 31, 2002. Results for the
quarter reflect softer business conditions caused by the current economic and
geo-political environment and the effects of poor weather conditions experienced
throughout much of the country during the period. As a result of these factors,
the incoming order rate was adversely impacted. The continued expansion and
strategic re-positioning of the Company's retail segment served to partially
offset the effects of these factors.

Total wholesale revenue for the third quarter of fiscal year 2003
increased by $1.5 million, or 0.9%, to $173.9 million from $172.4 million in the
third quarter of fiscal year 2002. The wholesale segment experienced only
marginal growth as a result of the continued challenges posed by the state of
the U.S. economy and the ongoing geo-political situation, both of which have
impacted consumer confidence and related spending habits.

Total retail revenue from Ethan Allen-owned stores for the three months
ended March 31, 2003 increased by $11.5 million, or 9.9%, to $127.3 million from
$115.8 million for the three months ended March 31, 2002. The increase in retail
sales by Ethan Allen-owned stores was attributable to an increase in sales
generated by newly-opened or acquired stores of $19.6 million, partially offset
by a decrease in comparable store delivered sales of $4.8 million, or 4.3%, and
a decrease resulting from closed stores, which generated $3.3 million fewer
sales in fiscal year 2003 as compared to fiscal year 2002. The number of Ethan
Allen-owned stores increased to 120 as of March 31, 2003 as compared to 102 as
of March 31, 2002. During that twelve month period, the Company acquired 15
stores from independent dealers, relocated 2 stores, opened 4 new stores, and
closed 1 store.

Comparable stores are those newly-opened stores which have been
operating for at least 15 months. Minimal net sales, derived from the delivery
of customer ordered product, are generated during the first three months of
operations of newly-opened stores. Stores acquired from dealers by Ethan Allen
are included in comparable store sales in their 13th full month of Ethan
Allen-owned operations.

Total booked orders, which include wholesale orders and written
business of Ethan Allen-owned retail stores, decreased 5.5% from the prior year
quarter, reflecting softer business conditions caused by the current economic
and geo-political environment and the effects of poor weather conditions
experienced throughout much of the country during the period, partially offset
by the continued expansion and strategic re-positioning of the Company's retail
segment. Comparing the current quarter to the prior year quarter, wholesale
orders decreased 8.9% while Ethan Allen-owned store orders increased 4.4%.
Comparable store written business decreased 9.2% over that same period.

Gross profit increased during the third quarter to $112.0 million from
$108.4 million in the third quarter of the prior year. The $3.6 million, or
3.2%, increase in gross profit was primarily attributable to (i) a higher
percentage of retail sales to total sales (57% in the current year quarter
compared to 51% in the prior year quarter), and (ii) lower costs associated with
sales returns and allowances and certain raw materials. Gross profit for the
quarter was also positively impacted, to a lesser extent, by higher margins
attributable to the off-shore sourcing of certain recent product


14


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


introductions. Consolidated gross margin increased to 49.8% in the third quarter
of fiscal year 2003 from 47.6% in the prior year third quarter. The gross margin
was positively impacted as a result of the factors identified previously.

The Company recorded a pre-tax restructuring and impairment charge of
$13.4 million during the current quarter related to the consolidation of three
of its smaller manufacturing facilities. Closure of these facilities is expected
to result in the elimination of approximately 580 employees; 340 employees
effective April 21, 2003, and 240 employees expected to be terminated throughout
the fourth quarter of fiscal 2003 and the first quarter of fiscal 2004. The
costs incurred in closing the facilities consist, primarily, of severance and
related payroll and benefit costs, the write-down of long-lived assets such as
real estate and machinery and equipment, and other plant exit costs. In
addition, adjustments totaling $0.2 million were made during the current quarter
to reverse certain other restructuring accruals established in fiscal 2002 which
are no longer required.

Including current period restructuring and impairment charges of $13.2
million, operating expenses increased $20.7 million to $93.1 million, or 41.5%
of net sales, in the current quarter from $72.4 million, or 31.8% of net sales,
in the prior year comparable quarter. This increase is primarily attributable to
the aforementioned restructuring and impairment charges, further expansion of
the retail segment, and the higher percentage of retail sales to total sales in
the current quarter as compared to the prior year quarter. The addition of 18
net new Ethan Allen-owned stores since March 2002 has resulted in higher costs
associated with warehousing and delivery, occupancy, advertising, healthcare,
district management and design consultant salaries. These increases were
partially offset by lower costs within the wholesale segment as a result of a
continued Company-wide focus on cost containment and the level of wholesale
sales volume.

Including current period restructuring and impairment charges of $13.2
million, operating income for the three months ended March 31, 2003 was $18.8
million, or 8.4% of net sales, compared to $36.0 million, or 15.8% of net sales,
for the three months ended March 31, 2002. The decrease of $17.2 million is
primarily attributable to the aforementioned restructuring and impairment
charges and increased operating expenses resulting from the continued expansion
of the retail segment, partially offset by a higher gross margin and lower
operating expenses at the wholesale level, both of which were noted previously.

Including current period restructuring and impairment charges of $13.2
million, total wholesale operating income for the third quarter of fiscal year
2003 was $20.9 million, or 12.0% of net sales, compared to $32.3 million, or
18.7% of net sales, in the third quarter of fiscal year 2002. The decrease of
$11.4 million is primarily attributable to the aforementioned restructuring and
impairment charges, partially offset by a decrease in operating expenses and
lower costs associated with sales returns and allowances and certain raw
materials.

During the current quarter, operating income for the retail segment
decreased $3.1 million to $2.2 million, or 1.7% of net sales, from $5.3 million,
or 4.6% of net sales, in the prior year quarter. The decrease in retail
operating income generated by Ethan Allen-owned stores is primarily attributable
to a 4.3% decline in comparable store delivered sales, reduced sales volume
resulting from closed stores, and higher operating expenses related to the
addition of 18 net new stores since March 2002, partially offset by increased
sales volume associated with new stores.

Interest and other miscellaneous income for the current quarter was
$0.1 million, a decrease of $1.0 million from the prior year quarter. The
decrease is primarily the result of gains totaling $0.7 million recognized in
the prior year quarter related to the sale of certain real estate.

Income tax expense was $7.1 million for the quarter ended March 31,
2003 as compared to $14.0 million for the comparable quarter in the prior year.
The Company's effective tax rate was 37.8% in both periods.


15


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


Including the current period restructuring and impairment charges of
$13.2 million ($8.2 million, net of tax), the Company recorded net income for
the three months ended March 31, 2003 of $11.7 million, as compared to $23.0
million for the three months ended March 31, 2002. Earnings per diluted share
amounted to $0.30 for the current quarter versus $0.58 per diluted share in the
prior year quarter.

NINE MONTHS ENDED MARCH 31, 2003 COMPARED TO NINE MONTHS ENDED MARCH 31, 2002

Consolidated revenue for the nine months ended March 31, 2003 increased
by $13.3 million, or 2.0%, to $670.8 million from $657.5 million for the nine
months ended March 31, 2002. Net sales increased due to the continued expansion
and strategic re-positioning of the Company's retail segment, partially offset
by the effects of a relative softness in consumer spending caused by a sluggish
economy during the past nine months.

Total wholesale revenue for the first nine months of fiscal year 2003
increased by $4.6 million, or 1.0%, to $490.1 million from $485.5 million in the
first nine months of fiscal year 2002. The wholesale segment experienced only
marginal growth as a result of the continued challenges posed by the state of
the U.S. economy and the ongoing geo-political situation, both of which have
impacted consumer confidence and related spending habits.

Total retail revenue from Ethan Allen-owned stores for the nine months
ended March 31, 2003 increased by $55.5 million, or 16.7%, to $387.1 million
from $331.6 million for the nine months ended March 31, 2002. The increase in
retail sales by Ethan Allen-owned stores was attributable to an increase in
sales generated by newly-opened or acquired stores of $78.2 million, partially
offset by a decrease in comparable store delivered sales of $11.9 million, or
3.7%, and a decrease resulting from closed stores, which generated $10.8 million
fewer sales in fiscal year 2003 as compared to fiscal year 2002.

Total booked orders, which include wholesale orders and written
business of Ethan Allen-owned retail stores, increased from the prior year nine
month period by 3.3%, reflecting the continued expansion and strategic
re-positioning of the Company's retail segment, partially offset by the effects
of softer business conditions and a reduction in consumer spending. Comparing
the current nine month period to the prior year nine month period, wholesale
orders decreased 0.9% while Ethan Allen-owned store orders increased 17.2%.
Comparable store written business decreased 3.2% over that same period.

Gross profit increased during the first nine months of the current year
to $334.5 million from $305.8 million in the first nine months of the prior
year. The $28.7 million, or 9.4%, increase in gross profit was primarily
attributable to (i) a higher percentage of retail sales to total sales (58% in
the current nine month period compared to 50% in the prior year nine month
period), (ii) lower costs associated with wholesale sales returns and allowances
and certain raw materials, and (iii) higher margins attributable to the
off-shore sourcing of certain recent product introductions and increased
production efficiencies resulting from the Company's continued focus on quality.
Consolidated gross margin increased to 49.9% for the first nine months of fiscal
year 2003 from 46.5% in the first nine months of the prior fiscal year. The
gross margin was positively impacted as a result of the factors identified
previously.

The Company recorded a pre-tax restructuring and impairment charge of
$13.4 million during the current period related to the consolidation of three of
its smaller manufacturing facilities. Closure of these facilities is expected to
result in the elimination of approximately 580 employees; 340 employees
effective April 21, 2003, and 240 employees expected to be terminated throughout
the fourth quarter of fiscal 2003 and the first quarter of fiscal 2004. The
costs incurred in closing the facilities consist, primarily, of severance and
related payroll and benefit costs, the write-down of long-lived assets such as
real estate and machinery and equipment, and other plant exit costs. In
addition, adjustments totaling $0.2 million were made during the current quarter
to reverse certain other restructuring accruals established in fiscal 2002 which
are no longer required.


16


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


Including current period restructuring and impairment charges of $13.2
million, operating expenses increased $36.6 million to $246.6 million, or 36.8%
of net sales, in the current year nine month period from $210.0 million, or
31.9% of net sales, in the prior year nine month period. This increase is
primarily attributable to the further expansion of the retail segment and the
higher percentage of retail sales to total sales in the current period as
compared to the prior year period, as well as the aforementioned restructuring
and impairment charges. The addition of 18 net new Ethan Allen-owned stores
since March 2002 has resulted in higher costs associated with warehousing and
delivery, occupancy, advertising, healthcare, district management and design
consultant salaries. These increases were partially offset by lower costs within
the wholesale segment as a result of a continued Company-wide focus on cost
containment and the level of wholesale sales volume.

Including current period restructuring and impairment charges of $13.2
million, operating income for the nine months ended March 31, 2003 was $87.9
million, or 13.1% of net sales, compared to $95.7 million, or 14.6% of net
sales, for the nine months ended March 31, 2002. The decrease of $7.8 million is
primarily attributable to the aforementioned restructuring and impairment
charges and increased operating expenses resulting from the continued expansion
of the retail segment, partially offset by a higher gross margin and lower
operating expenses at the wholesale level, as noted previously.

Including current period restructuring and impairment charges of $13.2
million, total wholesale operating income for the first nine months of fiscal
year 2003 was $77.8 million, or 15.9% of net sales, compared to $80.0 million,
or 16.5% of net sales, in the first nine months of fiscal year 2002. The
decrease of $2.2 million is primarily attributable to the aforementioned
restructuring and impairment charges, partially offset by (i) a decrease in
operating expenses, (ii) lower costs associated with sales returns and
allowances and certain raw materials, and (iii) higher margins attributable to
the off-shore sourcing of certain recent product introductions and increased
production efficiencies resulting from the Company's continued focus on quality.

Operating income for the retail segment during the current nine month
period decreased $2.7 million to $13.3 million, or 3.4% of net sales, from $16.0
million, or 4.8% of net sales, in the prior year nine month period. The decrease
in retail operating income generated by Ethan Allen-owned stores is primarily
attributable to a 3.7% decline in comparable store delivered sales, reduced
sales volume resulting from closed stores, and higher operating expenses related
to the addition of 18 net new stores since March 2002, partially offset by
increased sales volume associated with new stores.

Interest and other miscellaneous income for the current year nine month
period was $0.8 million, a decrease of $1.8 million from the prior year nine
month period. The decrease is due, primarily, to (i) the Company's share of
current year losses incurred in connection with the start-up of its United
Kingdom joint venture with MFI Furniture Group Plc., (ii) higher gains
recognized in the prior year in connection with the sale of real estate, and
(iii) a decrease in interest income as a result of a decline in interest rates
during the period.

Income tax expense was $33.3 million for the nine months ended March
31, 2003 as compared to $37.0 million for the comparable nine month period in
the prior year. The Company's effective tax rate was 37.8% in both periods.

Including the current period restructuring and impairment charges of
$13.2 million ($8.2 million, net of tax), the Company recorded net income for
the nine months ended March 31, 2003 of $54.8 million, as compared to $60.9
million for the nine months ended March 31, 2002. Earnings per diluted share
amounted to $1.42 for the current period versus $1.52 per diluted share in the
prior year period.


FINANCIAL CONDITION AND LIQUIDITY

The Company's principal sources of liquidity are cash flow from
operations and borrowing capacity under a revolving credit facility. Net cash
provided by operating


17


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

activities totaled $74.0 million for the nine months ended March 31, 2003,
compared to $98.5 million for the nine months ended March 31, 2002. The
year-over-year decrease of $24.5 million in net cash provided by operating
activities was principally the result of (i) inventory levels which, net of
inventories totaling $9.7 million acquired in the purchase of retail stores,
increased $12.2 million during the current period, representing a $33.9 million
variance from the decrease in inventory noted in the prior year period, (ii) a
decrease in net income ($6.1 million) and (iii) an increase in cash required to
satisfy outstanding accounts payable ($4.8 million). These variances were
partially offset by (i) the restructuring and impairment charges recorded during
the quarter ($13.2 million), (ii) an increase in cash collected on outstanding
accounts receivable ($6.1 million), and (iii) an increase in customer deposits
($4.9 million).

The increase in inventory levels since June 2002 is the result of
several factors, including (i) better stock position in the Townhouse product
line, (ii) build-up associated with both the introduction of the Tuscany product
line in the Spring of 2003 and the Company's decision to close three of its
manufacturing facilities, (iii) an increase in raw materials, particularly logs,
as a result of seasonal factors, (iv) an increase in the number of Company-owned
retail stores, and (v) overall softer business conditions experienced during the
period.

During the current nine month period, net cash used in investing
activities decreased to $31.5 million from $59.9 million in the prior year nine
month period. Of those amounts, $10.9 million was used to finance acquisitions
during the current year as compared to $42.4 million in the prior year. During
the nine months ended March 31, 2003, capital spending, exclusive of
acquisitions, totaled $23.3 million as compared to $22.3 million for the nine
months ended March 31, 2002. The current level of capital spending is
principally attributable to (i) new store development and renovation and (ii)
technology improvements. Capital expenditures for fiscal year 2003, exclusive of
acquisitions, are anticipated to be approximately $35.0 million. The Company
anticipates that cash from operations will be sufficient to fund such capital
expenditures.

Net cash used in financing activities totaled $58.0 million in the
current nine month period as compared to $24.5 million in the prior year nine
month period, an increase of $33.5 million. The increase in net cash used in
financing activities is primarily the result of an increase in payments related
to the acquisition of treasury stock ($27.2 million), the repayment of debt
($3.3 million), and an increase in dividends paid ($2.2 million). Total debt
outstanding at March 31, 2003 was $10.3 million. At March 31, 2003, there were
no revolving loans outstanding and $19.6 million of trade and standby letters of
credit outstanding under the Company's credit facility. The Company had $105.4
million available under its revolving credit facility at March 31, 2003.

The Company has been authorized by its Board of Directors to repurchase
its common stock, from time to time, either directly or through agents, in the
open market at prices and on terms satisfactory to the Company. The Company also
retires shares of unvested restricted stock and, prior to June 30, 2002,
repurchased shares of common stock from terminated or retiring employee's
accounts in the Ethan Allen Retirement Savings Plan. All of the Company's common
stock repurchases and retirements are recorded as treasury stock and result in a
reduction of shareholders' equity. During the first nine months of fiscal year
2003 and 2002, the Company repurchased the following shares of its common stock:

Nine Months Ended
March 31,
2003 2002
----------- -----------

Common shares repurchased 1,400,200 741,151
Cost to repurchase common shares $41,806,266 $21,056,478
Average price per share $29.86 $28.41

The Company funded its common stock repurchases through available cash
and cash from operations. As of March 31, 2003, the Company had a remaining
Board authorization to purchase 1.3 million shares.


18


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

As of March 31, 2003, the aggregate scheduled maturities of the
Company's long-term debt for each of the next five fiscal years are as follows:
$1.0 million in fiscal 2004, $4.7 million in fiscal 2005, $0.2 million in fiscal
2006, $0.1 million in fiscal 2007, $0.1 million in fiscal 2008, and $4.2 million
thereafter. Management believes that its cash flow from operations, together
with its other available sources of liquidity, will be adequate to make all
required payments of principal and interest on its debt, to permit anticipated
capital expenditures and to fund working capital and other cash requirements
over the next twelve months. As of March 31, 2003, the Company had working
capital of $193.7 million and a current ratio of 2.39 to 1.


OTHER COMMITMENTS, CONTINGENCIES AND CONTRACTUAL OBLIGATIONS

From time to time, in the ordinary course of business, the Company, or
its wholly-owned subsidiaries, may provide guarantees on behalf of selected
affiliated entities or become contractually obligated to perform in accordance
with the terms and conditions of certain business agreements. The nature and
extent of these guarantees and obligations varies based on the underlying
relationship of the benefiting party to the Company and the business purpose for
which the guarantee or obligation is being provided. Details of those
arrangements for which the Company, or any of its wholly-owned subsidiaries, act
as guarantor or obligor are provided below.


DEALER-RELATED GUARANTEES

As part of the Company's expansion strategy for the Ethan Allen retail
store network, selected independent dealers are provided, on rare occasion, with
financial guarantees relating to leases in connection with certain store
locations. As of March 31, 2003, one such guarantee exists. This guarantee,
which has been provided by Ethan Allen Inc. on behalf of an independent dealer,
has a remaining term of eighteen months, which generally represents the
remaining contractual terms of the underlying lease agreement (subject to
certain term limitations). The Company is obligated to act under such guarantee
in the event of default by the respective dealer (lessee). The maximum potential
amount of future payments (undiscounted) that the Company could be required to
make under this guarantee is limited to the amount of the remaining contractual
lease payments (subject to certain term limitations) and, as such, is not an
estimate of future cash flows. As of March 31, 2003, the amount of remaining
contractual lease payments guaranteed by the Company was approximately $0.5
million. The Company maintains specific recourse rights related to this dealer
arrangement that would enable recovery of any amount paid under this guarantee.
Management expects, based on the underlying creditworthiness of the guaranteed
party, this guarantee will expire without requiring funding by the Company.
Accordingly, as of March 31, 2003, the carrying amount of the liability related
to such guarantee is zero.

In addition, Ethan Allen Inc. has obligated itself, on behalf of one of
its independent dealers, with respect to a $1.3 million credit facility (the
"Credit Facility"). This obligation requires the Company, in the event of the
dealer's default under the Credit Facility, to repurchase the dealer's
inventory, applying such purchase price to the dealer's outstanding indebtedness
under the Credit Facility. The Company's obligation remains in effect for as
long as the Credit Facility is in existence. The maximum potential amount of
future payments (undiscounted) that the Company could be required to make under
this obligation is limited to the amount outstanding under the Credit Facility
at the time of default (subject to pre-determined lending limits based on the
value of the underlying inventory) and, as such, is not an estimate of future
cash flows. No specific recourse or collateral provisions exist that would
enable recovery of any portion of amounts paid under this obligation, except to
the extent that the Company maintains the right to take title to the repurchased
inventory. Management anticipates that the repurchased inventory could
subsequently be sold through the Company's retail store network. As of March 31,
2003, the amount outstanding under the Credit Facility totaled approximately
$0.9 million, of which $0.5 million was in the form of a revolving credit line.
Management expects, based on the underlying creditworthiness of the respective
dealer, this obligation will expire without requiring funding by the Company.
Accordingly, as of March 31, 2003, the carrying amount of the liability related
to such obligation is zero.


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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


INDEMNIFICATION AGREEMENT

In connection with the Company's joint venture arrangement with United
Kingdom-based MFI Industries Plc., Ethan Allen Inc. has entered into a tax
cross-indemnification agreement with the joint venture partner. The
indemnification agreement stipulates that both parties agree to pay fifty
percent of the amount of any tax liability arising as a result of (i) an adverse
tax judgment or (ii) the imposition of additional taxes against either partner,
and attributable to the operations of the joint venture. The indemnification
agreement is effective until such time that the joint venture is terminated. At
the present time, management anticipates that the joint venture will continue to
operate for the foreseeable future.

The maximum potential amount of future payments (undiscounted) that the
Company could be required to make under this indemnification agreement is
indeterminable as no such tax liability currently exists. Further, the nature,
extent and magnitude of any such tax liability arising in the future as a result
of an adverse tax judgment or change in applicable tax law cannot be estimated
with any reasonable certainty. It should be further noted that no recourse or
collateral provisions exist that would enable recovery of any portion of amounts
paid under this indemnification agreement. Management expects, based on its
current understanding of the applicable tax laws and the existing legal
structure of the joint venture, subject to future changes in applicable laws and
regulations, this cross-indemnity agreement will expire without requiring
funding by the Company. Accordingly, as of March 31, 2003, the carrying amount
of the liability related to this indemnification agreement is zero.


RESIDUAL VALUE GUARANTEES

In connection with its distribution activities, the Company has entered
into operating lease agreements for certain trucks and trailers within its
fleet. For a portion of these vehicles, the Company has guaranteed the related
residual values upon completion of the contractual lease terms. The remaining
terms of such guarantees range from one to two years, and generally represent
the remaining contractual terms of the underlying lease agreements. The Company
is obligated to act under such guarantees in the event that the fair value of
the vehicles at the end of the lease term is less than the guaranteed residual
value. The maximum potential amount of future payments (undiscounted) that the
Company could be required to make under these guarantees is limited to the
guaranteed residual value for each respective vehicle subject to such guarantee
and, as such, is not an estimate of future cash flows. As of March 31, 2003, the
Company's maximum potential exposure related to residual value guarantees was
approximately $0.5 million. While no specific recourse or collateral provisions
exist that would enable recovery of any portion of amounts paid under these
guarantees, all payments made by the Company related to such guarantees are
computed net of the proceeds received by the lessor upon sale of the underlying
assets. Management expects, based on historical experience and the present
condition of its fleet, these guarantees will expire without requiring funding
by the Company. Accordingly, as of March 31, 2003, the carrying amount of the
liability related to such guarantees is zero.


PRODUCT WARRANTIES

The Company's products, including its case goods, upholstery and home
accents, generally carry explicit product warranties that extend from three to
five years and are provided based on terms that are generally accepted in the
industry. All of the Company's independent dealers are required to enter into,
and perform in accordance with the terms and conditions of, a warranty service
agreement. The Company records provisions for estimated warranty and other
related costs at time of sale based on historical warranty loss experience and
makes periodic adjustments to those provisions to reflect actual experience. On
rare occasion, certain warranty and other related claims involve matters of
dispute that ultimately are resolved by negotiation, arbitration or litigation.
In certain cases, a material warranty issue may arise which is beyond the scope
of the Company's historical experience. The Company provides for such warranty
issues as they become known and estimable. It is reasonably possible that, from
time to time, additional


20


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY

warranty and other related claims could arise from disputes or other matters
beyond the scope of the Company's historical experience. As of March 31, 2003,
the Company's product warranty liability totaled $0.8 million and, for the nine
month period then ended, no settlements (in cash or in-kind) had been made.



21


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

As of March 31, 2003, the Company was essentially debt-free. Cash and
short-term investments totaled $60.2 million and there were no revolving loans
outstanding under the Company's credit facility. The current portion of the
Company's outstanding long-term debt and capital lease obligations totaled $0.2
million as of March 31, 2003, while the long-term portion totaled $10.1 million.

The Company is exposed to interest rate risk primarily through its
borrowing activities. The Company's policy has been to utilize United States
dollar denominated borrowings to fund its working capital and investment needs.
Short term debt, if required, is used to meet working capital requirements and
long-term debt is generally used to finance long-term investments. There is
inherent roll-over risk for borrowings as they mature and are renewed at current
market rates. The extent of this risk is not quantifiable or predictable because
of the variability of future interest rates and the Company's future financing
requirements.

The Company has one long-term debt instrument outstanding with a
variable interest rate. This debt instrument has a principal balance of $4.6
million, which matures in 2004. Based on the principal balance outstanding, a
one percentage point increase in the variable interest rate would not have had a
significant impact on the Company's interest expense.

Currently, the Company does not enter into financial instrument
transactions for trading or other speculative purposes or to manage foreign
currency exchange, commodity price or interest rate exposure.


ITEM 4. CONTROLS AND PROCEDURES

Ethan Allen management, including the Chairman of the Board and Chief
Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), conducted an
evaluation of the effectiveness of disclosure controls and procedures (as such
term is defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) as of a date within 90 days prior to the
filing of this quarterly report (the "Evaluation Date"). Based on such
evaluation, the CEO and CFO have concluded that, as of the Evaluation Date, the
Company's disclosure controls and procedures are effective in ensuring that
material information relating to the Company (including its consolidated
subsidiaries), which is required to be included in the Company's periodic
filings under the Exchange Act, has been made known to them in a timely fashion.

There have been no significant changes in internal controls, or in
factors that could significantly affect internal controls, nor were any
corrective actions required with regard to significant deficiencies and material
weaknesses, subsequent to the Evaluation Date.



22


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


PART II - OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

There has been no change to matters discussed in Part I, Item 3 - Legal
Proceedings in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on September 30, 2002.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


ITEM 5. OTHER INFORMATION

None.


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

The Company has revised the Exhibit Listing as previously submitted in
connection with the filing of its Annual Report on Form 10-K for the
year ended June 30, 2002, to indicate, with respect to each previously
filed item, the specific prior filing where the related exhibit is
located.

Exhibit 10 (l)-1; First Amendment to Employment Agreement, dated August
1, 2002, between Mr. Kathwari and Ethan Allen Interiors, Inc.

(b) Reports on Form 8-K

On February 12, 2003, the Company filed with the Securities and
Exchange Commission its quarterly report on Form 10-Q for the three
month period ended December 31, 2002. Accompanying such report was a
certification, filed on Form 8-K, of the Company's Principal Executive
Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section
1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
and attached thereto as Exhibit 99.1.

During the three month period ended March 31, 2003, the Company filed
Current Reports on Form 8-K dated February 21, 2003 and March 28, 2003,
covering information reported under ITEM 9. REGULATION FD DISCLOSURE.
The Company also filed a Current Report on Form 8-K dated April 22,
2003, covering information reported under ITEM 9. REGULATION FD
DISCLOSURE but furnished pursuant to ITEM 12. RESULTS OF OPERATIONS AND
FINANCIAL CONDITION in accordance with SEC Release No. 33-8216.


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ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.




ETHAN ALLEN INTERIORS INC.
--------------------------
(Registrant)



DATE: May 13, 2003 BY: /S/ M. FAROOQ KATHWARI
---------------------------------
M. Farooq Kathwari
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)



DATE: May 13, 2003 BY: /S/ EDWARD D. TEPLITZ
---------------------------------
Edward D. Teplitz
Vice President and Chief Financial
Officer
(Principal Financial Officer)



24

ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AS REQUIRED BY SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002


I, M. Farooq Kathwari, do hereby certify that:

(1) I have reviewed the March 31, 2003 quarterly report on Form 10-Q filed
by Ethan Allen Interiors Inc. (the "Company");

(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;

(4) I and the other certifying officers are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:

(i) Designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;

(ii) Evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

(iii) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

(5) I and the other certifying officers have disclosed, based on our most
recent evaluation, to the Company's auditors and the Audit Committee of
the Board of Directors (or persons fulfilling the equivalent function):

(i) All significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and

(ii) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and

(6) I and the other certifying officers have indicated in this quarterly
report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.




/S/ M. FAROOQ KATHWARI Chairman, President and Chief
- ------------------------------------------------- Executive Officer
(M. Farooq Kathwari)


25


ETHAN ALLEN INTERIORS INC. AND SUBSIDIARY


CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER AS REQUIRED BY SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002


I, Edward D. Teplitz, do hereby certify that:

(1) I have reviewed the March 31, 2003 quarterly report on Form 10-Q filed
by Ethan Allen Interiors Inc. (the "Company");

(2) Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

(3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Company as of, and for, the periods presented in this
quarterly report;

(4) I and the other certifying officers are responsible for establishing
and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:

(i) Designed such disclosure controls and procedures to ensure
that material information relating to the Company, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;

(ii) Evaluated the effectiveness of the Company's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

(iii) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

(5) I and the other certifying officers have disclosed, based on our most
recent evaluation, to the Company's auditors and the Audit Committee of
the Board of Directors (or persons fulfilling the equivalent function):

(i) All significant deficiencies in the design or operation of
internal controls which could adversely affect the Company's
ability to record, process, summarize and report financial
data and have identified for the Company's auditors any
material weaknesses in internal controls; and

(ii) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal controls; and

(6) I and the other certifying officers have indicated in this quarterly
report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.


/S/ EDWARD D. TEPLITZ Chief Financial Officer
- --------------------------------------------------
(Edward D. Teplitz)


26